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Cape Town - The government “is of the view” that a further downgrade to the banking sector is “highly unlikely”, said Finance Minister Nhlanhla Nene.
Nene was replying to a question in parliament from DA MP MJ Figg, who referred to the possibility that the credit rating of South African banks would be further downgraded.
Figg suggested this would make it more difficult for South Africa to fund its increasing deficit.
He also asked if there were any contingency plans in place if this were to happen.
Nene said despite Moody’s downgrade of the major South African banks, the two other largest ratings agencies - Fitch and S&P had emphatically stated their positive assessment of the financial sector in South Africa. In addition, a recent IMF evaluation of the financial sector found that, in aggregate, the banking sector “is well capitalised and profitable”.
The Moody's downgrade, said Nene, reflected government’s decision to impose losses on creditors, rather than provide a full bailout for African Bank. As a result of this decision, Moody’s argued that stressed banks were unlikely to receive government support in future.
“Government’s decision to limit its exposure to the financial sector should strengthen our sovereign rating, thereby reducing the costs of funding the deficit,” he said.
In August Moody’s downgraded the credit rating of four of South Africa’s top banks - after the government announced the bailout of African Bank.
It downgraded Standard Bank, Absa, FNB and Nedbank by one notch to Baa1. Earlier in August Moody’s downgraded Capitec by two notches and placed it on review for a further downgrade.
In early August, African Bank was bailed out to the tune of some R17bn by the SA Reserve Bank (Sarb) and a consortium of Absa Bank, Capitec bank, FirstRand Bank, Investec Bank, Nedbank, Standard Bank and the Public Investment Corporation.
The banks provided R10bn described by outgoing Sarb governor Gill Marcus as “capital raising”. The Sarb contributed R7bn to the impairments of R17bn.
- Fin24
