Moody’s downgrades top South African banks, insurers, councils

Credit ratings agency Moody’s on Tuesday said it had downgraded a slew of top South African banks, insurers and local authorities prompted by fears over the country’s worsening financial position.
It slashed the creditworthiness of the five largest banks — FirstRand, Standard, Nedbank, Investec and Absa — to just one notch above junk status, all with a negative outlook.
“The primary driver for today’s rating downgrades is the challenging operating environment in South Africa, characterized by a pronounced economic slowdown, and weakening institutional strength,” Moody’s said in a statement.
Insurers Old Mutual, MMI Group, Guardrisk and Standard Insurance were all downgraded one notch to either Baa2 or Baa3 — the lowest investment-grade level.
“Recent political developments suggest a weakening of the country’s institutional strength which casts doubt over the strength and sustainability of the recovery in growth,” said the statement.
Moody’s was likely referring to President Jacob Zuma’s shock purge of critical ministers in March, including respected finance minister Pravin Gordhan.
The move prompted Fitch and Standard and Poor’s, the other two main global ratings agencies, to downgrade South Africa’s sovereign debt to junk status.
It also led to outrage amongst the opposition and part of Zuma’s own ruling African National Congress (ANC), with tens of thousands taking to the streets to demand the president’s resignation.
Moody’s currently has South African government debt rated at Baa3 — one notch above junk status — with a negative outlook.
On Tuesday Moody’s also announced that it had downgraded the creditworthiness of 10 South African regional governments and local authorities by one notch — including the cities of Pretoria, Johannesburg and Cape Town.
“While (the cities) have comparatively rich economic bases, sound financials and good governance practices, Moody’s expects that reduced growth prospects in the medium-term will put pressure on their overall financial performances,” it said.
Moody’s announcements will pile pressure on Finance Minister Malusi Gigaba who is facing criticism after the economy entered recession — its first since 2009 — with an unexpected 0.7 percent contraction in the first quarter.
He has also been dogged bv corruption accusations in the media in recent days.
South Africa has had sluggish growth for years, with record unemployment of more than 27 percent.