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Downgrades hit South Africa.

Summary: Moody's has taken ratings actions across the board in South Africa

From the big five banks to insurance groups, ratings have been lowered following South Africa's sovereign rating downgrade to 'Baa3'.

The primary driver for the ratings downgrade is the challenging operating environment that South Africa represents, which is also partially reflected in its sovereign rating. Economic slowdown, ongoing political issues and weakening institutional strength have all contributed to the downgrades.

The five largest South African banks, Standard Bank, FirstRand Bank, Absa Bank, Nedbank and Investec all had their long term local and foreign-currency deposit ratings lowered to 'Baa3' with a negative outlook from 'Baa2'. Standard Bank has also had its long term local and foreign currency issuer ratings lowered to Ba1 from Baa3.

Banks are susceptible to the challenging economic environment in South Africa, with lowering investor confidence, volatile asset prices and higher funding costs likely to put pressure on bottom lines. Furthermore, high exposure to government debt securities by banks in South Africa adds further risk, added the agency, a risk which has had an increased impact on ratings following the sovereign downgrade.

Development Bank of Southern Africa (DBSA), the Industrial Development Corporation of South Africa (IDC) had their long term foreign currency issuer ratings downgraded, whilst the long term local and foreign currency issuer ratings of the Land and Agricultural Development Bank of South Africa (Land Bank) were downgraded, to Baa3 from Baa2. Moody's noted that this downgrade reflected the weakened capacity of the South African Government to support these institutions should they need it. This directly affects the rating of the three institutions as they are government owned. However, some rating positivity can be seen in the Government's historic willingness to inject fresh capital should these institutions need it.

In addition, Moody's also downgraded the global Insurance Financial Strength (IFS) and related debt ratings of South African insurance groups and related entities, with a negative outlook. Moody's considers the key fundamentals of these groups to be directly related to the economic and market conditions of South Africa. The agency believes that South Africa's challenging political environment suggests a weakening of the country's institutional strength, which throws doubt over its ability to resolve its ongoing economic woes.

South African insurers downgraded included:

Old Mutual Life Assurance Company (South Africa) Ltd: IFS rating downgraded to Baa2 from Baa1, with negative outlook. MMI Group Limited: IFS rating downgraded to Baa2 from Baa1, with negative outlook. National scale IFS rating affirmed at Aaa.za. The Guardrisk group of entities (Guardrisk Insurance Company Limited and related entities): IFS ratings downgraded to Baa3 from Baa2, with negative outlook. National scale IFS ratings affirmed at Aaa.za. Standard Insurance: IFS rating downgraded to Baa3 from Baa2, with negative outlook. National scale IFS rating affirmed at Aa1.za.

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Publication:Banker Africa
Date:Jun 30, 2017
Words:478
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