Shares in South Africa's banks fall after Moody's downgrade

Standard Bank

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Shares in South Africa's largest banks fell on Wednesday, following downgrades from the ratings agency Moody's.

Standard Bank, FNB, Nedbank and ABSA, which is owned by Barclays, were all downgraded on Tuesday and Moody's warned of more possible ratings cuts.

The move comes a week after South Africa's central bank bailed out the smaller lender African Bank.

The South African Reserve Bank insisted the country's banking sector remained "healthy and robust."

Analysts said the downgrade was in response to what Moody's views as the risks of unsecured lending, or loans not based on collateral.

Chris Hart of Investment Solutions said: "The downgrade is in response to the deteriorating credit quality that we are seeing in unsecured lending space, the collapse of the African Bank is indicative of that."

Moody's reduced its ratings on the four big banks by one notch to Baa1.

Disagreement

Last week the South African Reserve Bank (SARB) announced a rescue plan for African Bank, a smaller lender that specialised in unsecured loans. The SARB bought up around $700m of bad loans from African Bank, but some investors still lost out.

On Monday, another lender, Capitec, saw its shares plunge after seeing its rating downgraded.

The central bank rejected Moody's decision on the big four banks.

"While the SARB respects the independent opinion of rating agencies, we do not agree with the rationale given in taking this step, nor do we agree with the assessment it is based on," it said in a statement.

The South African government has been encouraging banks to lend to low-earning people who lack collateral, in an effort to boost business start-ups and property ownership.

Nonetheless, analyst Chris Hart said that despite the relatively high level of unsecured lending, South Africa's banking system was sound.

"There are no fundamental problems with South African banks in terms of overall management, and overall asset and liquidity."

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