Johannesburg: Moody's Investors Service downgraded the local-currency ratings of South Africa's four biggest lenders and kept them on review for a further cut following the collapse of African Bank Investments.
The local-currency deposit ratings of Standard Bank, FirstRand, Nedbank and Absa Bank, a unit of Barclays, were cut one level to Baa1, the third-lowest investment grade, from A3, Moody's said yesterday in a statement. Standard Bank's issuer rating was lowered to Baa2 from Baa1 while all ratings, including Investec's, were put on review for downgrade.
The South African Reserve Bank placed African Bank, an unsecured lender, into administration on August 10 after it reported a record loss and said it needed at least 8.5 billion rand ($800 million) of capital. The rescue included a 10 percent impairment of African Bank's senior and wholesale debt, a move that Moody's said suggested South African authorities won't fully protect creditors in the case of a bank failure.
The central bank's response, while helping contain the risk of contagion, "indicates the regulator's willingness to impose losses on creditors," Moody's said. "This needs to be reflected in Moody's ratings, as debt ratings speak to both the likelihood of a default on contractually promised payments and the expected financial loss suffered in the event of default."
The South African Reserve Bank, in a statement on its website, said it disagreed with Moody's decision, reiterating comments it made after the ratings company downgraded Capitec Bank late last week. Moody's concern that the bank won't provide systemic support after the African Bank rescue "stands in sharp contrast to the support actually provided by the SARB," the Pretoria-based regulator said.
The lenders source most of their funding locally and the downgrade probably won't have a "material impact on their cost of funding and on their operations," Jean Pierre Verster, an analyst at 36ONE Asset Management, said from Johannesburg Wednesday.
"It might have a short-term negative impact on sentiment" with the shares coming under some pressure, he said.