‘Moody’s cut won’t hit ordinary consumer’

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Moodys REUTERS Moodys.

Cape Town - Economists have assured South Africans that yesterday’s downgrade in the big four banks’ ratings will not affect them directly.

Moody’s Investor Service, the US-based rating agency, yesterday cut the local currency deposit ratings for Standard Bank, FirstRand, Nedbank and Absa by one notch, from A3-Baa1.

It is believed the downgrade followed the bail-out of African Bank, leading Moody’s to cite a lower likelihood of support from the central bank to protect creditors.

Christo Luus, chief economist from EcoQuant, told the Cape Argus today: “I don’t think it will affect the normal people in the street.

“The demise of African Bank has of course led to losses on some of the money market funds at some of the banks, and then also the pension funds. But it should be contained to that.

“I don’t think it’s a big concern for the normal person who has a savings deposit – or any account with the banks, for that matter. The impact could mainly be felt by the investors who holds stocks of banks’ shares.

“In the previous couple of days banks’ shares have already been more volatile than most of the market.

“This is only about how investors see the big South African banks – and they’re still very well managed, and the Reserve Bank has very strict mechanisms to manage any situation that may arise.

“Until now there’s been no fear of the system being at risk.”

Fellow economist Mike Schussler said: “There is no need to panic whatsoever – for the man in the street, his money is safe.”

The Reserve Bank said it disagreed with the ratings agency, and pointed out that Moody’s had confirmed the resilience of the South African banking system, widely regarded as one of the best-regulated in the world.

Shares of South African banks fell today.

The banking index was down 1.2 percent shortly after trade began.

The rand fell to its weakest in a week.

Early this morning, the unit hit R10.6795 to the dollar, down over 0.3 percent on its previous close and at its weakest since August 12.

“Mostly a Moody reaction rather than being a… reflection on what’s going on,” said John Cairns, currency strategist at Rand Merchant Bank. - The Cape Argus

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