Outlook for SA’s banks remains clear as mud
S&P Global Ratings’ obligatory downgrade of SA’s banks after the sovereign downgrade earlier in the week presents new challenges to the sector. Already down 10% last week, the banking index lost a further 5% this week, with more downgrades looming from rating agencies Fitch and Moody’s.
Analysts emphasise that the banks have healthy balance sheets and capital ratios that will withstand further downgrades, but more political interference was likely, presenting corporate governance problems and pressure on managers.
Certain banks have been singled out for a negative outlook, with S&P warning that political and institutional instability had worsened. But it also admitted that SA’s banks have performed resiliently amid slow economic growth and political turbulence.
The outlook for the sector remains cloudy and largely dependent on currency and bond market movements. Bond yields and the rand have held up relatively well, and Finance Minister Malusi Gigaba has said he will pursue stable policies.
However, as with the talk that someone was shorting the rand, the question now is who would benefit from a weakened banking sector? There are plenty of wild views flying around, ranging from the Guptas to the Russians. Talk doesn’t mean much, except for deepening the intrigue in an already politicised lending environment.
Foreign investors see more risks, making it harder for banks to deliver shareholder value against a background of muted earnings growth and an enviable return on equity.
Another lurking threat is likely interest rate increases, should the economy deteriorate. That almost certainly will lead to a spike in bad debt in a lowincome environment. Already, the steepest decline among banks’ share prices is that of low-income lender Capitec.
Perhaps, though, not all is lost. SA’s banks have overcome many challenges in the past and their experience will come in handy on the road ahead.
Namibian investment company Trustco — which is listed on the JSE — seems to be battling to retain a financial director and, for an ambitious company, it cannot be thrilled at having lost two FDs in just four months.
This week, Trustco, which operates mainly in financial services and property, announced the resignation of Marizanne van Niekerk as FD. She held the job for less than four months after replacing Ryan McDougal, whose tenure lasted just more than four years.
Van Niekerk, an internal appointment, was replaced by Floors Abrahams, yet another internal appointment.
Frequent changes in the FD role tends to spook investors at the best of times, but it might be especially worrying at Trustco, which is embroiled in a controversial R3.6bn acquisition of diamond-mining operations. The assets are owned by CEO Quinton van Rooyen, who is effectively swopping these startups into the company in exchange for a staggered scrip settlement, based on profit.
Now, some media reports say former FD McDougal’s resignation stemmed from tension about the diamond deal. This was subsequently denied.
Nevertheless, one may have expected recent executive change to rattle investor sentiment on Trustco, but amazingly not. Its share price is still holding steady at 400c, not far from a record high of 417c.