Moody's downgrades South African banks

Moody's Investors Service said it downgraded Standard Bank Group’s local-currency and foreign-currency issuer rating to Baa2 from Baa1, FirstRand Bank Ltd.’s foreign-currency senior debt to Baa1 from A3 and Nedbank Ltd.’s national-scale senior debt rating to Aa3.za from Aa2.za. The banks’ ratings and the ratings of Investec Bank Ltd. were placed on review for downgrade.

The agency said the downgrade reflects its view of the lower likelihood of systemic support from South African authorities to fully protect creditors in the event of need.

This updated opinion was prompted, most recently, by the actions taken by the South African Reserve Bank in response to the abrupt loss of creditor confidence in African Bank Ltd. The agency said the policy response addressed related liquidity and capital issues, thereby mitigating contagion risks with the further objective of minimizing potential losses. However, the inclusion of a bail-in of senior bondholders and wholesale depositors indicates the regulator's willingness to impose losses on creditors, Moody’s said.

The review for downgrade reflects the agency's concerns regarding weaker economic growth, particularly in the context of consumer affordability pressures and still high consumer debt that are likely to lead to higher credit costs for the banks.

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