Cape Town – Ratings agency Moody’s has kept the ratings of SA’s big five banks at investment grade.
According to a report issued on Tuesday evening, Moody’s kept the ratings of Standard Bank, Investec, FirstRand, Absa and Nedbank at Baa3. Moody’s also confirmed Mercantile Bank’s national scale rating of Baa1.za/P-2.za was confirmed.
Moody’s indicated that the rating was primarily driven by the confirmation of the sovereign rating at Baa3, with a stable outlook.
Among the other reasons given include the “more stable and predictable political and economic environment” following recent elections. This has minimised the potential downward pressure on banks’ credit profiles, Moody’s stated.
Another factor was the prospects of an “improved economic growth performance and operating environment” given the recent change in government which could boost investor and consumer confidence and ease banks’ asset price volatility and funding costs, the report read.
“The recovery in the country's institutions will, if sustained, gradually support a corresponding recovery in its economy, along with a stabilisation of fiscal strength,” Moody’s stated.
Finally, Moody’s confirmed the rating for the banks given their “proven track record” to sustain “resilient financial performance” in the 2016/17 despite the challenging economic conditions.
“The stable outlook on all banks' long-term ratings, reflects the rating agency's expectation that the more favourable economic conditions in 2018/19 will somewhat improve banks' financial performance, and diminish any downward pressure on banks' credit profile.
“In addition, banks' stable outlook is in line with the sovereign rating outlook, which indicates reduced vulnerabilities to any of the banks' sovereign-related exposures,” the report read.
Moody’s warned a deterioration in SA’s creditworthiness and macroeconomic profile would result in downgrades in the banks’ ratings. “In addition, the banks' ratings could be downgraded if operating conditions worsen, leading to a deterioration in their financial performance.”
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