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S&P lowers outlook on SA banks

Nov 27 2019 19:49

The outlook of S&P on South African banks - including what it described as the "critical" Development Bank of South Africa - is now negative, after the ratings agency revised its outlook on South Africa's sovereign credit rating, it said on Tuesday.

Last Friday S&P announced that its outlook for SA was revised to negative due to what the ratings agency regards as a worsening fiscal and debt trajectory. This is due to increased pressure caused by low GDP growth and high fiscal deficits.

The ratings agency's policy is not to rate financial institutions in SA above the foreign currency sovereign ratings, due to the direct and indirect impacts sovereign distress would have on banks' operations, it said. 

Development Bank of SA 'critical'

S&P revised its outlook on the DBSA - which is owned by the SA government - from stable to negative, in line with its view on South Africa.

The ratings agency has now affirmed its 'BB/B' long- and short-term foreign currency issuer credit ratings and 'BB+/B' long- and short-term local currency issuer credit ratings on DBSA.

This was to equalise its ratings on DBSA with those on South Africa, whose foreign currency it rates as BB/Negative/B and local currency BB+/Negative/B.

"This reflects our opinion that there is an almost-certain likelihood that the South African government would provide timely and sufficient extraordinary support to DBSA in the event of financial distress," S&P said in a statement.

"Consistent with our criteria for government-related entities, we maintain our view of DBSA's critical role as one of the South African government's primary vehicles for promoting infrastructure development in the country's public and private sectors."

Over the 12-month outlook horizon, S&P expects DBSA will likely maintain its critical role and integral link with the South African government.

Other major banks

In the same way, the ratings agency has now revised its outlook from stable to negative on FirstRand Bank, FirstRand, Nedbank, Investec Bank, Capitec Bank and African Bank.

It affirmed its 'BB/B' long- and short-term global scale issuer credit ratings on FirstRand Bank, Nedbank, Investec Bank and Capitec and its 'B+/B' issuer credit ratings on FirstRand and African Bank. At the same time, it lowered to 'zaAA' from 'zaAA+' its South African long-term national scale ratings on FirstRand Bank, Nedbank, Absa Bank, Investec Bank and BNP Paribas Personal Finance South Africa, and affirmed the short-term national scale ratings at 'zaA-1+'.

It also lowered its long- and short-term national scale ratings on FirstRand to 'zaA-/zaA-2' from 'zaA/zaA-1'. In addition, it affirmed its 'zaAA/zaA-1+' national scale ratings on Capitec Bank and its 'zaA-/zaA-2' national scale ratings on African Bank. 

As a result of this review, it lowered its national scale ratings on the debt issued by these entities.

Compiled by Carin Smith.

s&p  |  dbsa  |  banks  |  ratings  |  financial services
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