Publications
Partners
Johannesburg - Ratings agency Moody’s said on Thursday it would put South Africa’s top five banks under review for a possible downgrade, citing the growing difficulty governments face in supporting their banks.
The review - which will target Standard Bank Group [JSE:SBK], FirstRand [JSE:FSR], Absa Group [JSE:ASA], Nedbank Group [JSE:NED] and Investec [JSE:INL] - also reflects the recent negative outlook on South Africa’s bond rating, Moody’s said.
The credit rater on Wednesday downgraded the outlook for South Africa’s A3 bond rating to “negative” from “stable”, given constrained public finances and signs that government’s financial flexibility may be weakening.
“Moody’s review will assess the authorities’ capacity and willingness to deal with a possible systemic banking crisis... current levels of assumed systemic support may be too high in the evolving environment of constrained public finances,” Moody’s said in a statement.
A downgrade could lead to higher borrowing costs for banks in Africa’s top economy at a time when they need to increase their liquidity buffers and long-term funding to meet stiffer global bank regulations.
South Africa’s banks avoided the global credit crisis thanks to strict regulation that kept them from investing in assets tied to the US subprime housing market.
However, they were later caught out as a 2009 recession sparked a surge in bad debts, particularly in mortgages and vehicle financing.
South Africa’s bank index was flat at 08:53 GMT on Thursday.
The review - which will target Standard Bank Group [JSE:SBK], FirstRand [JSE:FSR], Absa Group [JSE:ASA], Nedbank Group [JSE:NED] and Investec [JSE:INL] - also reflects the recent negative outlook on South Africa’s bond rating, Moody’s said.
The credit rater on Wednesday downgraded the outlook for South Africa’s A3 bond rating to “negative” from “stable”, given constrained public finances and signs that government’s financial flexibility may be weakening.
“Moody’s review will assess the authorities’ capacity and willingness to deal with a possible systemic banking crisis... current levels of assumed systemic support may be too high in the evolving environment of constrained public finances,” Moody’s said in a statement.
A downgrade could lead to higher borrowing costs for banks in Africa’s top economy at a time when they need to increase their liquidity buffers and long-term funding to meet stiffer global bank regulations.
South Africa’s banks avoided the global credit crisis thanks to strict regulation that kept them from investing in assets tied to the US subprime housing market.
However, they were later caught out as a 2009 recession sparked a surge in bad debts, particularly in mortgages and vehicle financing.
South Africa’s bank index was flat at 08:53 GMT on Thursday.
