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Cape Town - The downgrade of the country's four biggest banks will likely see consumers paying more for loans, according to Andy Hsieh, Professor at UWC's School of Business and Finance.
"In my opinion the impact of the downgrade, most importantly will raise the borrowing costs for consumers, and at the same time it will also raise the financing costs for the companies operating in these markets," he said in an interview in studio with News24 Live.
Hsieh said consumers can also expect more stringent credit checks when seeking loans.
Moody's downgraded the local currency deposit ratings by one-notch for Standard Bank, FirstRand, Nedbank and Absa Bank after the ratings agency downgraded Capitec Bank Limited [JSE:CPI] (Capitec) by two notches, and placed it on review for a further downgrade.
This followed news of the SA Reserve Bank (Sarb) bailing out troubled lender African Bank Limited [JSE:ABL] (African Bank) after announcing it needed to raise R8.5bn following a full-year loss, mostly because of bad loans.
Hsieh said Moody's downgraded the top banks for two main reasons.
He said the first reason is because the Reserve Bank imposed a portion of the loss on the creditors of African Bank.
"So in terms of the future recovery rate, of similar defaults actually happening, there is negative implications on the ability of the creditors to recover their losses.
"The second reason is more fundamental and it is more important, which is our sluggish economic growth in South Africa, with the prolonged strikes and labour unrest in the industry," said Hsieh.
While the Sarb maintains the South African banking sector remains healthy and robust, Hsieh is of the view that it is facing pressure.
"We also know that there is an interest rate hike and during this very difficult operating environment, we can see that the banks are actually under a lot of pressure to perform."
More: Fin24 tracks the ins and outs of Abil's market plunge through this rich timeline.
- Fin24
