CAPE TOWN - Standard bank, First Rand Bank, Absa, Nedbank and Investec have been placed under a review for downgrade of the Baa3 long-term local and foreign currency deposit ratings, the Moody’s Investors Service announced on Wednesday.
The ratings agency further placed on review for downgrade the Ba1 long-term local and foreign currency issuer ratings of Standard Bank Group Limited and Barclays Africa Group Limited.
According to the Moody's, today's rating review action is driven primarily by:
1. the potential weakening of the South African government's credit profile, as captured by Moody's recent decision to place South Africa's Baa3 government bond ratings on review for downgrade, which affects the banks through their sizable holdings of sovereign debt securities, inevitably linking their creditworthiness to that of the national government.
2. The challenges the banks face in the operating environment in view of weak economic growth in South Africa, which poses the risk of further undermining consumer and investor confidence, increasing asset price volatility and funding costs.
"As part of the review process, the rating agency will take into consideration the likely impact on banks' asset quality, securities holdings valuations, and funding costs in light of the potential downgrade of the sovereign rating to non-investment grade," Moody's statement read.
Any further deterioration in the creditworthiness of South Africa or weaker macro profile would likely result in downgrades of the banks' ratings.
- BUSINESS REPORT ONLINE