Moody’s Investors Service (Moody’s) on Monday downgraded the long-term local- and foreign-currency deposit ratings of South Africa’s five largest banks from Baa2 to Baa3 with a negative outlook.
The five banks are the Standard Bank of South Africa Limited, FirstRand Bank Limited, Absa Bank Limited, Nedbank Limited, and Investec Bank Ltd.
The rating agency also downgraded Standard Bank Group Limited’s long-term local- and foreign-currency issuer ratings to Ba1 from Baa3, and affirmed all banks’ national scale ratings.
“The primary driver for today’s rating downgrades is the challenging operating environment in South Africa, characterized by a pronounced economic slowdown, and weakening institutional strength that has led Moody’s to lower South Africa’s Macro Profile score to ‘Moderate-‘ from ‘Moderate’,” the agency said in a statement.
The lower Macro Profile exerts pressure on the individual factors on banks’ scorecards, and implies that the country’s banks need stronger loss-absorption and liquidity buffers to withstand the headwinds and in order to remain at the same rating levels.
The rating agency expects South Africa’s GDP growth of only 0.8 percent in 2017 and 1.5 percent in 2018, from 0.3 percent in 2016, levels significantly below the government’s target growth.
These challenging economic conditions, combined with potentially weaker investor confidence, volatility in asset prices, and higher funding costs will likely pressure banks’ earnings and asset quality metrics going forward, and challenge their resilient financial performance so far, Moody’s said.
This rating action concludes the review initiated on April 4, 2017, and follows the weakening of the South African government’s credit profile, as captured by Moody’s similar rating action on the sovereign rating of the country.
Last Friday, Moody’s downgraded South Africa’s credit rating to one level above junk status with a negative outlook, citing concerns about policy uncertainty, slower progress with structural reforms, and the continued erosion of fiscal strength due to rising public debt and contingent liabilities.
Moody’s is the only major ratings agency to keep South Africa’s investment grade status.
In April, both Standard & Poor’s and Fitch downgraded South Africa’s credit rating to junk status. Enditem