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Johannesburg - Moody's Investors Service has downgraded by one notch to Baa2 (stable) from Baa1 (on review for downgrade) the long-term deposit and senior debt ratings of the five largest South African banks, it announced on Tuesday.
The banks involved are Standard Bank of SA [JSE:SBK], Absa [JSE:BGA], FirstRand [JSE:FSR], Nedbank [JSE:NED] and Investec [JSE:INL] and concludes the rating review initiated for these banks on August 19 2014.
According to Moody's the rating actions were driven primarily by the weakening of the SA government's credit profile, combined with the banks' sizable holdings of sovereign debt securities, which links their creditworthiness to that of the national government.
"To a lesser extent the raging actions were driven by the challenges these banks face in view of weaker economic growth in SA, particularly in the context of consumer affordability pressures and still-high consumer indebtedness that will likely lead to increased credit risks and higher loan impairments for the banks," said Moody's in a statement.
"The stable outlook assigned to all banks' deposit ratings mainly reflects the stable outlook on the sovereign rating, and the rating agency's views that the banks' lower Baa2 ratings appropriately capture the pressures from economic headwinds, particularly in light of the banks' earnings and capital buffers."
The top five banks' sovereign exposure averages around 135% of their capital bases.
Moody's said the banks' ratings could be downgraded if operating conditions worsen more than currently anticipated, leading to significantly higher loan loss provisions that prompt deterioration in the banks' earnings and capital metrics that exceed the rating agency's expectations.
"Although not anticipated, as indicated by the stable outlook on the sovereign rating, any further deterioration in the creditworthiness of South Africa would also exert downward pressure on the banks' ratings, in view of their sizable holdings in sovereign debt securities," said Moody's.
Capitec Bank
Moody's confirmed on Tuesday Capitec Bank's [JSE:CPI] Ba2 long-term deposit ratings, with a stable outlook.
The agency says the ratings adequately balance Capitec's strong loss-absorption capacity and comprehensive underwriting and provisioning policies against the current risks in the operating environment in SA's unsecured lending market.
Moody's has at the same time confirmed Capitec's standalone bank financial strength rating with a stable outlook.
Development institutions
Moody's has also downgraded to Baa2 from Baa1 the foreign currency long-term issuer ratings of the Development Bank of Southern Africa (DBSA) and the Industrial Development Corporation of SA (IDC).
The agency assigned a stable outlook to the IDC's issuer rating and maintained a negative outlook on the DBSA's issuer rating.
This action was prompted by the weakening capacity of the SA government to provide support to the DBSA and IDC in case of need, according to Moody's, as well as the policy signal by the SA government of the need for financial independence by the state-owned entities, implying a moderation of the government's willingness to support these two financial institutions.
