Johannesburg - The major local banks were in the eye of the storm yesterday with all the key stocks in the sector tumbling as investors took fright at the drop in gross domestic product (GDP) figures.
The JSE Banks index declined by 2.29 percent.
Nedbank was the top major faller in the among significant banking counters losing 3.41 percent to R232.48, Standard Bank lost 3.25 percent to R143.88, Barclays Africa declined by 3.02 percent to R169.30, FirstRand dropped by 1.26 percent to R52.66 and Capitec fell by 0.31 percent to R478.01.
GDP figures released by Statistics South Africa on Tuesday showed a 1.3 percent contraction in the second quarter.
Ease pressure
This figure would ease any pressure the SA Reserve Bank faces to hike interest rates due to the weakening in the rand, which will boost inflation.
Economist.co.za owner Mike Schussler said banking stocks were vulnerable because they derived the bulk of their earnings from within South Africa’s economy, leaving them flat-footed at a time of declining growth.
“When the economy does not perform all that well, banks will face problems with people not being able to service their debts well and with job losses due to a low growth economy,” Schussler said.
He said the impact was likely to be minimised by the cautious stance banks have taken after the 2008 economic meltdown and that the bulk of their exposure would be from small amounts loaned in unsecured lending.
“Banks have been very conservative since the 2008 slowdown. Mortgage borrowing has not increased by all that much,” Schussler said.
Econometrix managing director Rob Jeffrey agreed that trying conditions would persist for the consumer and would increase the strain for banks counting on the repayment of loans.
“With lower economic growth and potential job cuts, along with lower wage and salary increases, the trying conditions will increase, consumers will not increase their borrowing,” Jeffrey said.
But Jeffrey was a bit more optimistic about the credit downgrades being further down the line than feared.
Negative situation
“Ratings agencies assess a lot of factors: the ability of the economy to grow, standards of living, levels of borrowing, levels of unemployment and so on. One anticipates that this is a negative situation from the viewpoint of rating agencies, but a downgrade is not that imminent. South Africa would probably be put on a negative watch for now,” he said.
Schussler said the spectre of a downgrade was quite distant for now.
“Hopefully, even if we do get a downgrade, it would not be from Standard & Poor’s because that would put us below investment grade,” he said.
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