JOHANNESBURG, April 6 South Africa's banking
sector fell by nearly three percent on Thursday after
S&P cut the credit ratings of several major financial
institutions following a sovereign downgrade.
S&P cut South Africa's credit level to junk status on
Monday, citing growing concerns of political and policy
instability following President Jacob Zuma's midnight cabinet
reshuffle a week ago.
A weak rand following the downgrade compounded the impact on
banking shares on Thursday, with Capitec Bank 4.83
percent lower at 720.18 rand, FirstRand down 2.92
percent at 43.95 rand, Standard Bank falling 2.81
percent to 134.85 rand and Nedbank dropping 2.82
percent to 222.42 rand at 1020 GMT.
S&P Global Ratings said on Wednesday it had cut to 'BB+/B'
from 'BBB-/A-3', its long- and short-term counterparty credit
ratings on FirstRand Bank Ltd., Nedbank Ltd., and Investec Bank
Ltd. It also lowered its long-term counterparty credit rating on
FirstRand Ltd. to 'BB-' from 'BB+'.
It also lowered its long- and short-term national scale
ratings on Barclays Africa Group Ltd and FirstRand Ltd to
'zaBB+/zaB' from 'zaA/zaA-2' and its long-term national scale
ratings on Barclays Africa Group's subsidiary, Absa Bank Ltd, to
'zaA' from 'zaAA-'.
"We lowered our ratings on the financial institutions
because we do not rate South African banks above the foreign
currency sovereign credit ratings. This is because of the likely
direct and indirect influence of sovereign distress on domestic
banks' operations, including their ability to service foreign
currency obligations," S&P said in a statement.
The ratings group said that despite "slow economic growth
and political turbulence, South African banks have been
But it warned that if the rand falls further and sparks
rises in inflation and interest rates then this could increase
credit losses among the country's top banks and damage their
profitability and their return on equity this year.
Although the rand was 0.45 percent firmer at
13.7475 rand to the dollar, it was still near to Tuesday's
almost three month low of 13.9400 rand to the dollar.
"What usually happens is that hedge funds have mandates when
things get downgraded to junk ... to de-leverage or sell out
because they are not allowed to hold risky debt on their books,"
BP Bernstein trader Vasili Tirasis said.
Barclays Africa and Nedbank both said they
were well placed to withstand the downgrade.
"Barclays Africa is well-capitalised with a strong liquidity
position and a balance sheet of over 1 trillion rand," the
regional unit of Britain's Barclays Plc said.
"We must remember that Nedbank is operating in a South
African banking system that is sound and well-capitalised,"
Nedbank's Chief Executive Mike Brown said in a statement.
(Reporting by Tanisha Heiberg; editing by Alexander Smith)