Aziz Hartley and Reuters
THE SA Reserve Bank says it disagrees with the assessment by Moody’s that has led the ratings agency to downgrade the four major commercial banks by one notch.
Moody’s cut the long-term local currency deposit ratings for Standard Bank, FirstRand, Nedbank and Absa yesterday, and said more downgrades could be expected.
It said its view was that there was less likelihood of support from South African authorities to protect creditors in the event of need.
Last night, reserve bank spokesman Hlengani Mathebula said: “While the reserve bank respects the independent opinion of rating agencies, we do not agree with the rationale given in taking this step, nor do we agree with the assessment it is based on.”
Also, Moody’s had confirmed the resilience of the South African banking system, he said.
The downgrade yesterday came in the wake of the central bank’s bailout of unsecured lender African Bank and its criticism of Moody’s two-notch downgrade of small lender Capitec.
Capitec’s downgrade was apparently prompted by the African Bank bailout.
The ratings agency had said it was adjusting its view following the multibillion-rand bail-out of African Bank.
The reserve bank said at the time that it disputed the downgrade of Capitec because the lender had a different model from African Bank’s.
Moody’s said yesterday while the reserve bank’s actions mitigated the risk of contagion across the banking sector, these actions also indicated that it was willing to impose losses on creditors.
“The one-notch downgrade... reflects Moody’s view of the lower likelihood of systemic support from South African authorities to fully protect creditors in the event of need,” the ratings agency said.
Mathebula said: “Once again, Moody’s refers to a lower likelihood of sovereign systemic support based on decisions taken recently in relation to (African Bank).
“This concern stands in sharp contrast to the support actually provided by the reserve bank.”
Despite the downgrade, Moody’s had confirmed the resilience of the South African banking system, Mathebula said.
“In their own view… (Moody’s has said it) notes the broad resilience demonstrated by South African banks in the past, including the management of adverse economic environments.”
Moody’s had also said it recognised “the solidity of key system financial metrics” and that the South African banking sector remained healthy and robust.
Analyst Razia Khan, head of Africa Research at Standard Chartered, said the wave of downgrades may be an overreaction.
“One bank with a highly flawed business model went into curatorship, and now we see a possible overreaction, with a downgrade for every other major bank.
“The South African banking system remains – on the whole – one of the best-regulated globally.”
Moody’s also downgraded long-term national scale deposit ratings for the four lenders and placed foreign currency ratings for the four and for smaller lender Investec on review.
Economist Mike Schussler said the downgrades were a signal from Moody’s to the authorities to exercise caution when they addressed “systemic risks” in the sector.
“They are making it clear that if there is a problem they will step in to protect not the shareholder, but the bondholders,” Schussler said.
Asked if ordinary people should be concerned, he said: “There is no need to panic whatsoever.
“For the man in the street, his money is safe.”
Nedbank is to release a statement today.
Standard Bank said: “The rating actions are linked to Moody’s assessment of the banking industry as a whole and is not a reflection of any fundamental changes in Standard Bank SA’s financial strength, earnings resilience or credit quality.”