1 March 2012
South Africa’s banks are sound and well capitalised, weathered the global financial crisis well, and have no exposure to the eurozone debt crisis, the Reserve Bank said in response to Moody’s downgrading of the country’s five major banks.
On Wednesday, Moody’s Investors Service downgraded by one notch the senior debt and deposit ratings of the Standard Bank of South Africa, Absa Bank Limited, FirstRand Bank Limited, Nedbank Limited, and Investec Bank Ltd.
Moody’s also downgraded by one notch the subordinated debt instruments of the same banks mentioned, in addition to African Bank Limited’s EMTN subordinated debt programme ratings.
Not driven by individual bank weaknesses
According to Moody’s, the rating action was not driven by any deterioration in the standalone financial strength or financial performance of the banks themselves.
Rather, it was motivated by what the agency saw as growing fiscal challenges that could constrain the South African government’s ability to bail the banks out in the event of a crisis.
According to to Moody’s, South Africa’s financial authorities would have difficult policy choices to make if many of the country’s banks were to call for state financial support at the same time.
Banks ‘unlikely to need state help’
The South African Reserve Bank said in response that it remained of the view that South Africa’s banks “are sound, well capitalised, profitable and providing investors with acceptable returns.
“The five banks weathered the global financial crisis well, have no exposures to the Sovereign debt crisis of certain troubled European countries, and remain largely focused on the rand-based South African economy,” the central bank said in a statement.
“Thus the likelihood of systemic support required by these banks in the immediate future is considered to be low.”
Source: BuaNews, with additional reporting by SAinfo