File photo: Mike Hutchings

Johannesburg – Absa says it’s disappointed that S&P has to downgrade South African banks in line with the sovereign rating.

This comes after S&P on Monday dropped SA to junk status, citing the recent Cabinet shuffle, which saw Finance Minister Pravin Gordhan ejected in favour of Malusi Gigaba, who was seconded from Home Affairs.

In a statement on Thursday, Absa said its national scale rating of Absa Bank has been reduced to ‘zaA’ from its previous rating of ‘zaAA’.

Absa says, due to the intermediary role banks play in any economy it is the norm for their credit rating to be very closely linked to that of the country, and their decision to reduce the Absa Bank rating was therefore expected in light of recent events

“S&P does not rate South African banks above the foreign currency rating of the sovereign. Therefore, the downgrade of the sovereign has a direct impact to banks that are systemic to the economy.”

Subsequent to S&P’s move, Moody’s said it was putting South Africa under review for a downgrade.

“These are very disappointing developments because, until last week, the country was building momentum towards better economic growth by the end of this year.”

Read also: Rand slides on S&P credit rating cut

South Africa’s economy grew at 0.3 percent last year and is expected to creep in just ahead of 1 percent this year.

Absa notes, during the past 14 months, Barclays Africa has actively participated in various initiatives in support of government’s efforts to effect much-needed structural reforms, in order to stimulate inclusive economic growth.

“We remain committed to doing so, but an abrupt interruption to this programme is unhelpful and places at risk the livelihoods of many South Africans.”

In addition, it says, Barclays Africa is well-capitalised with a strong liquidity position and a balance sheet of over R1 trillion.

“It takes enormous effort over many years to regain an investment grade sovereign rating. It is therefore very important that all stakeholders continue to work together to rediscover consensus on how to achieve inclusive growth.”

BUSINESS REPORT ONLINE