Partnerships crucial to guide SA through storm
Formby’s comments came a day after ratings agency Moody’s extended its rolling downgrades of South African ratings, slashing the country’s top five banks’ sovereign credit to junk in line with the country’s deteriorating fiscal profile.
Moody’s joined Fitch and downgraded lenders Standard Bank, First- Rand, Absa, Nedbank and Investec to non-investment grade, charging that they risk further downward revisions if the country’s economic situation worsened.
Fitch has said the 21-day lockdown that started on March 27 would deliver a further large negative shock to the banks’ operating environment, which was already affected by the country’s weak economic outlook.
RMB is the corporate and investment banking arm of the FirstRand Group.
Formby said although the response of South Africa’s banks has been constructive so far, it was clear that a co- ordinated and much broader response was necessary.
“The challenge to the economy will only be overcome if the government, regulators, the broader financial services industry and business work together in partnership. There are very encouraging signs that this is already happening. We need to get to the other side of this crisis with businesses that are strong enough to help the economy grow again.
“The South Africa Reserve Bank’s intervention in the bond markets last week, for example, helped to improve liquidity and brought some stability to markets. Cutting the repo rate by 1 percent was also very welcome.”
He said it was the responsibility of all financial market participants to keep the debt and equity markets functioning, particularly as the country’s reputation was on the line.
“How well we respond now will play a big part in attracting investments in the future when this phase has passed.”
Formby said the crisis would affect different industries in different ways, and the full impact of the shock to the economy would be fully revealed over time.
“The hospitality industry, for example, is experiencing financial distress right now as hotels and restaurants are closed. We will travel again in the future, so we need to help this industry get back on its feet post the pandemic. The impact of the lockdown will transmit to other sectors, like property, over a slightly longer period as the pressure on their tenants impacts rental payments. Each sector will need a carefully tailored approach.”
He called on all businesses to pay staff and suppliers if they could, to ensure that the economy did not freeze up and to allow businesses, particularly smaller businesses with more limited resources, to sustain normal operations as much as possible.
RMB said it had prioritised early invoice settlements for suppliers. Across the FirstRand Group, more than R1 billion had been processed in the past few days.
Earlier this week, FirstRand announced it had established Spire, the South African Pandemic Intervention and Relief Effort, which aimed to assist the government and its partners in mitigating the impact of Covid-19.
FirstRand has allocated an anchor investment of R100 million to Spire.
Formby said RMB was engaging with its corporate clients to assess their needs.
“We aim to help them keep the wheels of the economy turning despite the constraints. It’s vital for all South Africans that our corporate sector remains open for business even if it’s not business as usual.”
Formby said RMB was following a “horses for courses” approach in customising help for its clients.
RMB said it would offer extra funding and short-term covenant waivers, and evaluate businesses’ capital structures to help enable them to withstand the longer-term effects of Covid-19.
“It’s crucial to help companies look critically at their operations and cash flows now and some months ahead, rather than just encouraging them to borrow more which might create more pressure in the future,” Formby said.