Lenders remain exposed – S&PComment on this story
South Africa’s biggest banks remained on a negative outlook and their credit ratings would be cut if a deterioration in the country’s economy led to a sovereign downgrade, Standard & Poor’s (S&P) said yesterday.
“We don’t rate banks in South Africa above the sovereign foreign currency rating because of the direct and indirect influence that domestic economic performance has on banks’ financial performance,” S&P said, citing lacklustre economic growth, labour tensions and a high current account deficit.
S&P said it did not expect to raise bank ratings this year.
“South African banks’ continuing expansion into other African markets could also expose them to economies with higher credit risks,” S&P said. “However, in the absence of financial system-wide shocks, we expect the banks will maintain stable earnings, asset quality, and capitalisation.”
South Africa’s current account deficit reached 6.8 percent of gross domestic product in the three months to September, the biggest gap in more than five years, while growth slowed to 0.7 percent in the quarter. – Bloomberg