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After downgrading Capitec, Moody's does the same to four of South Africa's biggest banks

by , 20 August 2014

Yesterday, Moody's Investor Services announced that it downgraded four of the country's biggest banks: Standard Bank, Absa, Nedbank and FirstRand.

Moody's has concerns over the Reserve Bank's ability to protect creditors following what happened with African Bank a few weeks ago.

Let's take a closer look at what's going on…


Moody’s cut the credit ratings of Standard Bank, Absa, Nedbank and FirstRand

 
Moody’s “downgraded the credit rating of four top South African banks,” reports Fin24. This comes just weeks after the Reserve Bank had to rescue unsecured lender African Bank.
 
The move by Moody’s sees the four affected banks’ ratings reduced “by one notch to Baa1,” adds Fin24. The news is likely to cause investors to “raise more questions about the health of the vital sector”.
 
As well as downgrading the banks, Moody’s has also “put them on review for further cuts,” says BDLive. The rating affected is the “long-term local currency deposit”.
 

The ratings cuts follow the Reserve Bank’s bailout of African Bank

 
Just over two weeks ago, the Reserve Bank put African Bank “under curatorship,” says MoneyWeb. This followed the lender revealing on 6 August that “it needed R8.5 billion of capital”.
 
This sent shares of African Bank plunging, wiping over 90% off the company’s value in three days.
 
The bailout by South Africa’s central bank “included a 10% impairment of African Bank’s senior and wholesale debt,” adds MoneyWeb. Moody’s believes this could suggest that the central bank “won’t fully protect creditors in the case of a bank failure”.
 
Yesterday’s announcement by Moody’s follows its decision at the end of last week to cut Capitec’s credit rating. This sent shares down on Monday as investors reacted to the news.
 
Moody’s released the news after the stock market closed, so time will tell how investors react to the news when the market opens.
 
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After downgrading Capitec, Moody's does the same to four of South Africa's biggest banks
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