South Africa’s 5 Largest Banks Downgraded by Rating Agency Moody

The top 5 South African banks, Standard Bank, FirstRand, Absa, Nedbank and Investec together with 3 development finance institutions, 10 regional and local governments, were all downgraded by Moody’s on Monday.

While local and foreign currencies were downgraded on Friday from Baa2 to Baa3. Moody’s said this was due to a maintained negative outlook, with the South African government’s credit profile and institutional strength weakening and a pronounced economic slowdown.

Trading on the JSE on Monday at 20:40 saw the rand stronger against the dollar up 0.92 percent, the downgrades having had little effect. Before the news of the downgrades and following the news the banks saw mixed trading with Barclays Africa gaining 1.71 percent, Nedbank shed 1.95 percent, Standard Bank gained 0.77 percent together with FirstRand who gained 0.7 percent, Investec slid 0.68 percent.

As of March 2017, the South African Reserve Bank reported that the overall sovereign exposure by the top 5 banks which included loans to state related entities was at an average of over 150 percent of their capital bases.

A GDP growth of only 0.8 percent in 2017 is forecast by the rating agency and 1.5 percent in 2018, well below the target growth of the SA government.

David Maynier the finance spokesperson for the Democratic Alliance opposition party said that the downgrades of the 5 largest banks by Moody’s is the result of President Jacob Zuma’s cabinet reshuffle. The negative effect is spreading throughout the economy like a disease.

How are the markets going to react in the future to the South African economy and will the South African Reserve Bank cut interest rates with the hopes of fueling the economy?

 

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