Banking industry is ‘still healthy’ despite Moody’s downgrades – Absa

2014-08-20 11:06

Moody’s has downgraded the credit ratings of South Africa’s four biggest banks and kept them on review for a further cut following the collapse of African Bank Investments Limited.

The local-currency deposit ratings of Standard Bank, FirstRand, Nedbank Group and Absa Bank, a unit of Barclays, were cut one level to Baa1 – the third- lowest investment grade – from A3, Moody’s said yesterday.

Standard Bank’s issuer rating was lowered to Baa2 from Baa1 while all ratings, including Investec, 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 R8.5 billion of capital. The rescue included a 10% 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.

Moody’s said that the central bank’s response, while helping contain the risk of contagion, “indicates the regulator’s willingness to impose losses on creditors”.

“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.” it said.

Absa, FirstRand and Nedbank’s senior unsecured debt was also cut one level to Baa1.

Standard Bank has declined by 3.1% since African Bank was placed under curatorship and FirstRand dropped by 0.3%.

Standard Bank said that the country’s banking industry remains strong and that there is no indication other lenders have been affected negatively by the failure of African Bank.

Absa said the ratings downgrade wasn’t specific to the company and that the country’s banking industry remained healthy.

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