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Moody's places South African banks' ratings on review for downgrade

Moody's on April 4 placed on review for downgrade the Baa2 long-term local- and foreign-currency bank deposit ratings of the five largest South African banks — Standard Bank Group Ltd. unit Standard Bank of South Africa Ltd., FirstRand Ltd. unit FirstRand Bank Ltd., Barclays Plc unit Absa Bank Ltd., Old Mutual Plc unit Nedbank Ltd. and Investec Ltd. unit Investec Bank Ltd.

The outlooks were changed to rating under review from negative.

The action follows the placement of South Africa's Baa2 long-term issuer and senior unsecured sovereign bond ratings on review for downgrade, which was prompted by the "abrupt change in leadership" of key government institutions in the country.

The review is primarily driven by the potential deterioration of the government's credit profile. Moody's said the five banks' high sovereign exposure — mainly through government debt securities that are held by the firms as part of their liquid assets requirement — ties their credit profile to the South African government.

The review will mainly focus on how the sovereign rating impacts the banks' credit profiles, and will also take into account the threats to the lenders' financial performance stemming from the country's still subdued economic growth.

Also on review for downgrade are the P-2 short-term local- and foreign-currency bank deposit ratings of the five banks. The "baa2" baseline and adjusted baseline credit assessments of Standard Bank of South Africa, FirstRand Bank, Nedbank and Investec Bank were also placed on review for downgrade, while Absa Bank's "baa3" baseline and adjusted baseline credit assessment was unaffected by the actions.

The Baa1(cr)/P-2(cr) long- and short-term counterparty risk assessments of FirstRand Bank, Investec Bank, Nedbank and Standard Bank of South Africa, as well as the Baa2(cr)/P-2(cr) long- and short-term counterparty risk assessments of Absa Bank were also placed on review for downgrade, along with Standard Bank Group's Baa3 issuer rating.

Moody's also placed on review for downgrade the Baa2 long-term foreign-currency issuer ratings of Development Bank of Southern Africa and Industrial Development Corp. of South Africa Ltd., along with the Baa2 long-term local- and foreign-currency issuer ratings of Land & Agricultural Development Bank of South Africa, citing the increasing risk that the South African government's capacity to support these government-related issuers if needed is weakening.

The P-2 short-term foreign-currency issuer rating of Development Bank of Southern Africa and the P-2 short-term local- and foreign-currency issuer rating of Land & Agricultural Development Bank of South Africa were also placed on review for downgrade.

The outlooks on the three banks were also changed to rating under review from negative.