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Johannesburg – The outlook for South African banks remains negative in line with the outlook on the long-term sovereign rating, according to ratings agency Standard & Poor.
Bank ratings could come under pressure in the event of more labour unrest‚ which could unsettle business confidence and raise political tensions‚ limiting economic growth.
“Our negative outlook on South Africa reflects our opinion that the medium-term political‚ economic‚ and fiscal ramifications of South Africa's social tensions could deteriorate beyond our current expectations," the ratings agency said.
Ratings on all the large South African banks are capped at the level of the sovereign foreign currency rating.
“We do not rate banks in South Africa above the sovereign foreign currency rating because of the direct and indirect influence on bank financials of domestic economic performance and the credit worthiness of the government. Consequently‚ we do not expect to raise ratings in 2013.
“Furthermore‚ a sovereign downgrade would result in a similar rating action on the rated banks‚” said S&P’s Johannesburg-based primary credit analyst Matthew Pine.
Pine said the difficulty of addressing economic and social imbalances could be exacerbated by increasing external pressure in the context of sluggish global growth or investor risk aversion.
"The ratings on a bank could also be lowered if its credit risk deteriorated more than expected‚ either because real estate prices had fallen further‚ because the unsecured sector was growing significantly but asset quality had not improved‚ or because capitalization had deteriorated,” he said.
The rating agency forecasts GDP growth of 2.7% for 2013. However‚ it said further labour unrest‚ particularly from mining sector wage negotiations‚ could unsettle business confidence and raise political tensions‚ which could restrain economic growth during 2013.
Private consumption is also predicted to be less resilient in 2013‚ despite relatively low interest rates.
"We expect increasing household indebtedness‚ reduced availability of credit‚ and inflation to weigh on household expenditure. In our view‚ government spending is likely to be key to economic growth in 2013‚ at least until the investment climate improves.
“We expect the general government deficit to fall slightly to 4.6% of GDP in the fiscal year ending March 31‚ 2014. General government debt is forecast to be 44% of GDP at the end of 2013‚” said Pine.
“We expect real estate prices to experience slow growth in nominal terms but remain flat or negative in real terms. We see little further upside in the next 12 months as we expect no significant easing in mortgage underwriting standards from the major banks and consumers are expected to feel the pinch from already high debt levels and inflation."
This could result in a fall in real estate prices, Pine cautioned. However‚ he added that the agency expected interest rates to remain low in 2013‚ which would help householders to services their mortgages and prices remain stable.
“We expect modest loan growth of between 8%-10% in 2013‚ chiefly fueled by growth in unsecured lending.
"Toward the end of the first half of the year‚ unsecured loan growth should slow as banks tighten controls in response to increasing consumer indebtedness and demand for longer terms and higher amounts," Pine said.
He also welcomed the national credit regulator's reluctance to granting credit applications.
“Retail mortgages are expected to remain flat on the whole but we may see some growth toward year end. Corporate loan growth is expected to slow slightly from 2012‚ reflecting the lack of confidence in the business sector and sheer amount of cash on the corporate balance sheet‚” Pine stated.
Bank ratings could come under pressure in the event of more labour unrest‚ which could unsettle business confidence and raise political tensions‚ limiting economic growth.
“Our negative outlook on South Africa reflects our opinion that the medium-term political‚ economic‚ and fiscal ramifications of South Africa's social tensions could deteriorate beyond our current expectations," the ratings agency said.
Ratings on all the large South African banks are capped at the level of the sovereign foreign currency rating.
“We do not rate banks in South Africa above the sovereign foreign currency rating because of the direct and indirect influence on bank financials of domestic economic performance and the credit worthiness of the government. Consequently‚ we do not expect to raise ratings in 2013.
“Furthermore‚ a sovereign downgrade would result in a similar rating action on the rated banks‚” said S&P’s Johannesburg-based primary credit analyst Matthew Pine.
Pine said the difficulty of addressing economic and social imbalances could be exacerbated by increasing external pressure in the context of sluggish global growth or investor risk aversion.
"The ratings on a bank could also be lowered if its credit risk deteriorated more than expected‚ either because real estate prices had fallen further‚ because the unsecured sector was growing significantly but asset quality had not improved‚ or because capitalization had deteriorated,” he said.
The rating agency forecasts GDP growth of 2.7% for 2013. However‚ it said further labour unrest‚ particularly from mining sector wage negotiations‚ could unsettle business confidence and raise political tensions‚ which could restrain economic growth during 2013.
Private consumption is also predicted to be less resilient in 2013‚ despite relatively low interest rates.
"We expect increasing household indebtedness‚ reduced availability of credit‚ and inflation to weigh on household expenditure. In our view‚ government spending is likely to be key to economic growth in 2013‚ at least until the investment climate improves.
“We expect the general government deficit to fall slightly to 4.6% of GDP in the fiscal year ending March 31‚ 2014. General government debt is forecast to be 44% of GDP at the end of 2013‚” said Pine.
“We expect real estate prices to experience slow growth in nominal terms but remain flat or negative in real terms. We see little further upside in the next 12 months as we expect no significant easing in mortgage underwriting standards from the major banks and consumers are expected to feel the pinch from already high debt levels and inflation."
This could result in a fall in real estate prices, Pine cautioned. However‚ he added that the agency expected interest rates to remain low in 2013‚ which would help householders to services their mortgages and prices remain stable.
“We expect modest loan growth of between 8%-10% in 2013‚ chiefly fueled by growth in unsecured lending.
"Toward the end of the first half of the year‚ unsecured loan growth should slow as banks tighten controls in response to increasing consumer indebtedness and demand for longer terms and higher amounts," Pine said.
He also welcomed the national credit regulator's reluctance to granting credit applications.
“Retail mortgages are expected to remain flat on the whole but we may see some growth toward year end. Corporate loan growth is expected to slow slightly from 2012‚ reflecting the lack of confidence in the business sector and sheer amount of cash on the corporate balance sheet‚” Pine stated.
