JOHANNESBURG, June 13 (ANA) – Moody’s Investor Services pointed to a weakening government credit profile leading to its reduced capacity to provide support to banks in case of need when it downgraded the five largest South African banks on Monday night with a negative outlook.
Moody’s downgraded the long-term local and foreign-currency deposit ratings of the five largest South African banks one notch above investment grade to Baa3 with a negative outlook from Baa2.
The downgraded banks are Standard Bank, FirstRand Bank, Absa, Nedbank, and Investec.
The ratings agency said the primary driver for rating downgrades was the challenging operating environment in South Africa, characterised by a pronounced economic slowdown, and weakening institutional strength.
Moody’s downgraded South Africa’s sovereign credit rating last week and assigned a negative outlook.
The rating agency said it expected 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.
The South African economy last week entered a recession for the first time since 2009, after growth contracted by 0.7 percent in the first quarter of the year.
Moody’s said these challenging economic conditions, combined with potentially weaker investor confidence, volatility in asset prices, and higher funding costs would likely pressure banks’ earnings and asset quality metrics going forward, and challenge their resilient financial performance so far.
In addition, the banks’ high sovereign exposure, mainly in the form of government debt securities held as part of their liquid assets requirement, linked their credit profile to that of the government.
The rating agency aligned its government support assumptions for all five commercial banks, resulting in no rating uplift from their corresponding baseline credit assessments and positioning their deposit ratings at par with the government’s Baa3 bond rating.
The negative outlook assigned to all the banks’ ratings was primarily linked to the negative outlook on the sovereign rating, which is itself partly driven by the weak economic environment. The weakening credit quality of sovereign bonds weighed on the banks’ own creditworthiness, given their large holdings of government securities.
According to Moody’s, the decision to affirm the banks’ national scale ratings (NSRs) follows the recalibration of South Africa’s NSR mappings, triggered by the downgrade of South Africa’s government bond rating.
– African News Agency (ANA)
