(3 minutes read)
· Citing deteriorating operating environment following the
outbreak of COVID-19, Fitch ratings has downgraded the credit ratings
of South Africa’s five largest banks to a notch below to BB
· South Africa is already in a recession mode due to a variety
of reasons including mismanagement and corruption.
Citing a deteriorating operating environment following the outbreak of
COVID-19, Fitch ratings have downgraded the credit ratings of South
Africa’s five largest banks to a notch below BB. It is two steps below
investment grade and one notch lower than that of South Africa
(sovereign rating). The Rating agency said that the South African
operating environment is particularly exposed to the pandemic because
of decline in client activities, lower interest rates, which in turn
affect the margins and rising credit losses.
Absa Group Ltd. in a statement issued said that it had anticipated the
risk of a sovereign-ratings downgrade and built up substantial buffers
to withstand the stress s. However, the bank officials, exuding
optimism said that it has significant financial resources to remain
resilient. The other banks affected in the downgrade are Standard Bank
Group Ltd., Nedbank Group Ltd., Investec Ltd., and the local unit of
FirstRand Ltd. South Africa is already in a recession mode due to a
variety of reasons including mismanagement and corruption. Experts
feel that the downgraded banks are well-run institutions with high
levels of capital and they have resilience to bounce back in the
medium term, if not in the short-term.
Upon hearing the downgrade, the five-member FTSE/JSE Africa Banks
Index fell 3.2% in Johannesburg. The losses incurred this year was
44%, while Investec, another index dropped to a lesser extent to
less than 1%.
