Moody\u2019s has downgraded the credit rating of South Africa\u2019s top five banks, the ratings agency said on Monday evening.<\/p>\n
The company downgraded to Baa3 (negative outlook) from Baa2 (Rating Under Review outlook), the long-term local- and foreign-currency deposit ratings of Standard Bank, FirstRand, Absa, Nedbank and Investec.<\/p>\n
Moody\u2019s also downgraded the ratings of 10 South African regional and local governments and three government-related entities including City Power and Sanral, and changed the outlooks to negative.<\/p>\n
The rating agency announced on Friday that it had moved South Africa\u2019s long-term foreign and local currency debt ratings to \u2018Baa3\u2019 from \u2018Baa2\u2019 and maintained the negative outlook. The decision still puts the country at investment grade.<\/p>\n
Moody\u2019s said the downgrade was driven by the weakening of the country\u2019s institutional strength, reduced growth prospects reflecting policy uncertainty and slower progress with structural reforms. The rating agency also cited the continued erosion of fiscal strength due to rising public debt and contingent liabilities.<\/p>\n
The agency said the negative outlook reflects continued downside risks for growth and fiscal consolidation associated with the political outlook. It said over the medium-term, economic and fiscal strength will remain sensitive to investor confidence.<\/p>\n
Moody’s said in a statement on Monday that the primary driver for its rating downgrades is the challenging operating environment in South Africa, “characterized by a pronounced economic slowdown, and weakening institutional strength”.<\/p>\n
“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.”<\/p>\n
The rating agency said it 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.<\/p>\n
“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,” it said.<\/p>\n
“The decision to downgrade by one notch the long term global scale ratings of 10 regional and local governments and three government-related issuers reflects their close operational and financial linkages with the national government, illustrating the centralised nature of the local public sector in South Africa,” Moody’s said.<\/p>\n