Bank downgrade ‘no cause for alarm’
But Capitec move shows need to strengthen financial sector, Jonas says
THERE is “no cause for alarm” regarding international rating agency Moody’s downgrade of Capitec Bank’s deposit ratings and nationalscale issuer ratings‚ Deputy Finance Minister Mcebisi Jonas said yesterday.
Speaking at a Land Bank results presentation‚ Jonas said the down- grade was‚ however‚ an indication that despite a “very strong” regulatory regime in South Africa’s financial sector‚ more could be done to strengthen it.
“If you read closely into the downgrade‚ it does not speak of doom and gloom‚ all . . . we should learn from it is that a lot more work needs to be done to improve the sustainability and viability of the financial sector.”
Moody’s reduced Capitec’s baseline credit assessment (BCA) to ba2 from D+/ba1‚ meaning obligations were judged to have speculative elements and were subject to substantial credit risk. All ratings were placed on review for further downgrade.
The two-notch downgrade of the deposit ratings reflected two things‚ Moody’s said. First‚ its view of the lower likelihood of systemic support from South African authorities to protect creditors‚ following the Reserve Bank’s recent decision to include a bail-in of senior unsecured bondholders and wholesale depositors as part of the restructuring plan of African Bank Investments Limited (Abil).
Secondly‚ the lowering of the bank’s financial strength rating to reflect the agency’s heightened concern regarding the risk inherent in Capitec’s consumer lending focus‚ due to weaker economic growth‚ reduced consumer affordability and high consumer indebtedness that were leading to higher credit costs for the bank.
Capitec Holdings has questioned the rationale behind Moody’s decision to downgrade its rating‚ arguing that the decision was a reaction to the situation pertaining to Abil‚ which was not applicable to Capitec.
The unsecured lender said the ratings agency did not take into account assurances that the bank’s performance was according to plan and that the agency declined an opportunity to review additional information. – BDlive