Cape Town – Moody’s has downgraded the credit ratings of South Africa’s top five banks, three development finance institutions, certain City Power and Sanral credit ratings, and 10 regional and local governments.
The downgrades follow “the weakening of the South African government's credit profile”, it said in a statement on Monday after the markets closed.
On Friday, rating agency Moody’s downgraded both South Africa's local and foreign currency rating to Baa3 from Baa2 and maintained a negative outlook.
The five banks - Standard Bank, FirstRand, Absa, Nedbank and Investec - have now all been downgraded to the same level as the country with the same negative outlook.
Reacting to the latest downgrades, Democratic Alliance finance spokesperson David Maynier told Fin24 that "the negative effects of President Jacob Zuma's 'midnight cabinet reshuffle' are spreading like a disease throughout the economy and have now resulted in the downgrade of the five largest banks in SA".
The rand was not affected by the downgrades and was trading 0.92% stronger against the dollar at 20:40 on Monday. The banks had mixed runs by the close of business and before the Moody's announcement. Barclays Africa (Absa) was up 1.71%, Nedbank was down 1.95%, Standard Bank was up 0.77%, FirstRand (FNB) was up 0.7% and Investec was down 0.68%.
Regarding the development finance institutions, Moody's downgraded the long-term foreign-currency issuer ratings of the Development Bank of Southern Africa (DBSA), the Industrial Development Corporation of South Africa (IDC) and the long term local- and foreign-currency issuer ratings of the Land and Agricultural Development Bank of South Africa (Land Bank) to Baa3 from Baa2.
Land Bank's local- and foreign-currency and DBSA's foreign-currency short-term issuer ratings were also downgraded to Prime-3 from Prime-2. The outlook on all long-term global scale ratings is negative. At the same time, the rating agency affirmed the Aa1.za/P-1.za national-scale issuer ratings (NSRs) assigned to DBSA and Land Bank.
Regarding the downgrading of the banks, Moody’s said the primary driver is the challenging operating environment in South Africa, characterised 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 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,” it said.
“The rating agency expects GDP growth of only 0.8% in 2017 and 1.5% in 2018, from 0.3% 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.
“In addition, the banks' high sovereign exposure, mainly in the form of government debt securities held as part of their liquid assets requirement, links their credit profile to that of the government. The top five banks' overall sovereign exposure, including loans to state-related entities, averages more than 150% of their capital bases, according to South African Reserve Bank's regulatory returns as of March 2017.”
List of 13 South African sub-sovereigns that were affected (including Sanral and City Power):
Downgrades:
Issuer: City Power Johannesburg
LT Issuer Rating, Downgraded to Baa3 from Baa2
Issuer: East Rand Water Care Company
LT Issuer Rating, Downgraded to Ba1 from Baa3
Issuer: The South African National Roads Ag Ltd
ST Issuer Rating, Downgraded to NP from P-3
LT Issuer Rating, Downgraded to Ba1 from Baa3
Issuer: District Municipality of Amathole
LT Issuer Rating, Downgraded to Ba2 from Ba1
Issuer: Municipality of Breede Valley
LT Issuer Rating, Downgraded to Ba2 from Ba1
Issuer: City of Cape Town
LT Issuer Rating, Downgraded to Baa3 from Baa2
ST Issuer Rating, Downgraded to P-3 from P-2
Senior unsecured MTN, Downgraded to (P)Baa3 from (P)Baa2
Senior Unsecured Regular Bond/Debenture, Downgraded to Baa3 from Baa2
Issuer: Metropolitan Municipality of Ekurhuleni
LT Issuer Rating, Downgraded to Baa3 from Baa2
ST Issuer Rating, Downgraded to P-3 from P-2
Senior Unsecured MTN, Downgraded to (P)Baa3 from (P)Baa2
Senior Unsecured Regular Bond/Debenture, Downgraded to Baa3 from Baa2
Issuer: City of Johannesburg
LT Issuer Rating, Downgraded to Baa3 from Baa2
ST Issuer Rating, Downgraded to P-3 from P-2
Senior Unsecured MTN, Downgraded to (P)Baa3 from (P)Baa2
Senior Unsecured Regular Bond/Debenture, Downgraded to Baa3 from Baa2
Issuer: Metropolitan Municipality Mangaung
LT Issuer Rating, Downgraded to Ba2 from Ba1
Issuer: Municipality of Mbombela
LT Issuer Rating, Downgraded to Ba2 from Ba1
Issuer: Metropolitan Municipality Nelson Mandela
LT Issuer Rating, Downgraded to Baa3 from Baa2
Issuer: Municipality of Rustenburg
LT Issuer Rating, Downgraded to Ba2 from Ba1
Issuer: City of Tshwane
LT Issuer Rating, Downgraded to Ba2 from Ba1
Affirmations:
Issuer: City Power Johannesburg
LT Issuer Rating, Affirmed Aa1za
Issuer: East Rand Water Care Company
LT Issuer Rating, Affirmed Aa3za
Issuer: The South African National Roads Ag Ltd
LT Issuer Rating, Affirmed Aa3za
ST Issuer Rating, Affirmed P-1za
Issuer: District Municipality of Amathole
LT Issuer Rating, Affirmed A2za
Issuer: Municipality of Bergrivier
LT Issuer Rating, Affirmed Ba3
Issuer: Municipality of Breede Valley
LT Issuer Rating, Affirmed A2za
ST Issuer Rating, Affirmed P-1za
Issuer: City of Cape Town
ST Issuer Rating, Affirmed P-1za
LT Issuer Rating, Affirmed Aaaza
Senior unsecured MTN, Affirmed Aaaza
Senior Unsecured Regular Bond/Debenture, Affirmed Aaaza
Issuer: Metropolitan Municipality of Ekurhuleni
ST Issuer Rating, Affirmed P-1za
LT Issuer Rating, Affirmed Aaaza
Senior Unsecured MTN, Affirmed Aaaza
Senior Unsecured Regular Bond/Debenture, Affirmed Aaaza
Issuer: City of Johannesburg
ST Issuer Rating Affirmed P-1za
LT Issuer Rating, Affirmed Aa1za
Senior Unsecured MTN, Affirmed Aa1za
Senior Unsecured Regular Bond/Debenture, Affirmed Aa1za
Issuer: Metropolitan Municipality Mangaung
LT Issuer Rating, Affirmed A1za
ST Issuer Rating, Affirmed P-1za
Issuer: Municipality of Mbombela
LT Issuer Rating, Affirmed A2za
Issuer: Metropolitan Municipality Nelson Mandela
LT Issuer Rating, Affirmed Aa1za
Issuer: Municipality of Rustenburg
LT Issuer Rating, Affirmed A1za
Issuer: City of Tshwane
LT Issuer Rating, Affirmed A1za
ST Issuer Rating, Affirmed P-1za
Upgrades:
Issuer: Municipality of Bergrivier
LT Issuer Rating, Upgraded to Baa1za from Baa2za
ST Issuer Rating, Upgraded to P-2za from P-3za
Outlook Actions:
Issuer: City Power Johannesburg
Outlook, Changed To Negative From Rating Under Review
Issuer: East Rand Water Care Company
Outlook, Changed To Negative From Rating Under Review
Issuer: The South African National Roads Ag Ltd
Outlook, Changed To Negative From Rating Under Review
Issuer: District Municipality of Amathole
Outlook, Changed To Negative From Rating Under Review
Issuer: Municipality of Bergrivier
Outlook, Changed To Negative From Stable
Issuer: Municipality of Breede Valley
Outlook, Changed To Negative From Rating Under Review
Issuer: City of Cape Town
Outlook, Changed To Negative From Rating Under Review
Issuer: Metropolitan Municipality of Ekurhuleni
Outlook, Changed To Negative From Rating Under Review
Issuer: City of Johannesburg
Outlook, Changed To Negative From Rating Under Review
Issuer: Metropolitan Municipality Mangaung
Outlook, Changed To Negative From Rating Under Review
Issuer: Municipality of Mbombela
Outlook, Changed To Negative From Rating Under Review
Issuer: Metropolitan Municipality Nelson Mandela
Outlook, Changed To Negative From Rating Under Review
Issuer: Municipality of Rustenburg
Outlook, Changed To Negative From Rating Under Review
Issuer: City of Tshwane
Outlook, Changed To Negative From Rating Under Review
Ratings not affected:
Issuer: City of Tshwane
ST Issuer Rating, NP
Issuer: Metropolitan Municipality Mangaung
ST Issuer Rating, NP
Issuer: Municipality of Breede Valley
ST Issuer Rating, NP
Issuer: Municipality of Bergrivier
ST Issuer Rating, NP
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