Companies / 5 February 2018, 06:55am / Sandile Mchunu
JOHANNESBURG - S&P Global ratings published its South African banking outlook for 2018 by providing an overview of how local banks are performing in less than certain times.
The outlook said that in the first few weeks into 2018, South Africa’s banking sector had shown stability, although the domestic economy continued to struggle with low economic growth.
The ratings agency confirmed that the outlook on all rated South African banks was stable for the first time since 2013.
This was as a result of their robust financial performance, and the banks had found a balance between weak economic growth and low investor and household confidence in South Africa.
The outlook by S&P Global ratings released on Friday comes after a week in which Capitec Bank was accused by Viceroy Research of operating as a loan shark and that it was involved in reckless lending practices which included “refinancing delinquencies”.
The report by the ratings agency is a major boost for the banking sector.
S&P Global ratings, however, noted that the country still faced weak economic growth, ongoing political uncertainty and problems with state-owned enterprises.
The challenges continued to affect business, retail and investor confidence in South Africa. It said they would have an impact on the banking sector and delay a strong recovery in the markets.
“However, South African banks are likely to withstand these challenges thanks to their strong credit standings compared with that of the sovereign. South African banks have been extending credit slowly and with increasing conservatism, while simultaneously building capital and loan loss provisions, thanks to the sector’s long-standing robust profitability,” it noted.
S&P Global said even the funding and liquidity fundamentals appeared more solid for the domestic banks than they did five years ago, with early compliance with the Basel III ratios seemingly no longer an issue. “Furthermore, and more importantly in our opinion, South African banks are less exposed to external factors than their emerging market peers,” it said.
Although the ratings agency has noted the positive signs in the banking sector, it is still worried about the country’s gross domestic product. “We continue to expect weak economic growth for South Africa, although we project an improvement in real GDP growth to a still modest 1percent in 2018 from 0.7percent in 2017."
The ratings agency said the country’s services-dominated economy barely grew last year, excluding agriculture and mining. Since 2015, South Africa has not been creating jobs on a net basis. With the population increasing at an annual pace of around 1.6percent a year, South Africa’s rate of unemployment had increased to an estimated 28percent as of the second quarter of 2017 from 25percent three years ago, it said.
S&P said that because of this, domestic households still posed the greatest source of risk for the banks “because of their relatively high leverage and low wealth levels compared with other emerging markets”.
But there was renewed confidence in the political front after Cyril Ramaphosa was elected as president of the ANC.