MOODY’S LOWERS OUTLOOK FOR SOUTH AFRICAN BANKS TO NEGATIVE

Moody's cited deteriorating operating conditions it expected in the next 12-18 months.

Reuters

JOHANNESBURG - Ratings agency, Moody's, on Friday lowered its outlook for the South African banking system to negative from stable, citing deteriorating operating conditions it expected in the next 12 to 18 months.

“The outlook expresses Moody's expectation of how bank creditworthiness will evolve in this system over the next 12 to 18 months,” the annual banking system outlook said.

“The challenging economic outlook will strain borrowers’ repayment capacity, fuelling increased asset risks.”

Yesterday, ratings agency Fitch warned South Africa’s underperformance of GDP growth posed a risk to the country's rating.

The agency, which rates the debt of Africa's most industrialised country at BBB-, one notch above speculative grade, is expected to publish a review of the country’s debt rating on 3 June.                    
Fitch said there were several risks to the rating South Africa will receive next week.

One of them mentioned related to "quick fixes" in fiscal policy in the run up to elections, which Fitch said will discourage investment.

Finance Minister Pravin Gordhan met with Fitch and Standard & Poor’s last week, saying it’s unclear at this stage whether the country’s debt will be downgraded.

Gordhan and his team have been working hard to encourage investors, in an effort to avoid the dreaded junk credit rating.

Fitch Managing Director Ed Parker told Reuters, “Authorities may feel, if they have a poor showing, that there is a need for fixes like the introduction of a high minimum wage that would appear to help the poor but may also discourage investment".

Additional reporting by Gia Nicolaides