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Bank downgrades reflect policy confusion, weak SA leadership - BASA

Jun 13 2017 21:05
Carin Smith

Cape Town - The credit rating downgrades of the five largest South African banks late on Monday further emphasise the ongoing policy confusion and weak leadership in our country, according to Cas Coovadia, managing director of the Banking Association of SA (BASA).

He said on Tuesday that, although the banks' downgrades were expected following SA’s recent sovereign rating downgrade, they will lower the country’s creditworthiness and make financing harder and more expensive to source. This will have knock-on effects for all South Africans, especially the poor, in his view.

On Monday, Moody’s downgraded the credit ratings of SA’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.

READ: Gigaba assures banks of policy stability - BASA

For Coovadia, the reasons Moody’s gave for the downgrade - “pronounced economic slowdown and weakening institutional strength” - confirm that policy uncertainty, Cabinet upheavals and an ongoing lack of strong and ethical leadership from government have undermined SA's ability to get its economy back onto an inclusive and sustained growth path.

He added though that despite this, SA’s banking system remains fundamentally solid and respected in the world.

"We are well capitalised and a recent World Economic Forum Global Competitiveness Index found the SA banking system the second most sound in the world," Coovadia said in a statement.

He emphasised that South African banking remains committed to getting the country onto a sustained path of inclusive growth that will help reduce poverty, create jobs and reduce inequality.

"A clearly articulated, unambiguous government growth strategy will have the wholehearted support of the banking sector. We stand ready to partner with civil society, labour and government in turning the economy around," he said.

In April, Fitch Ratings downgraded Absa (and Barclays Africa), Nedbank, FirstRand, Standard Bank, Investec, Eskom, Transnet and MTN to BB+ or junk status, while Standard & Poor’s (S&P) continued its downgrade of South African firms with four more downgrades.

This followed both rating agencies' decisions to downgrade SA's long-term foreign-currency issuer default ratings (IDRs) to BB+ from BBB-. BB+ and below is deemed non-investment grade, or junk status. All ratings have been moved to stable.

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