As its been rightly predicted, the effect of South Africa’s downgrade to junk status is beginning to pounce heavily on the nation’s economy as rating agency, S&P downgrades seven SA banks.
Confirming the downgrades, the rating agency S&P said it was necessary for the local banks to be downgraded because it cannot rank the banks above the foreign currency sovereign credit ratings.
The seven local SA banks which include FNB, Nedbank, Investec, Absa and BNP Paribas SA are now feeling the knock-on effect of the economic back lash.
S&P had earlier warned that the country’s downgrade will affect domestic banks’ operations, including their ability to service foreign currency obligations.
The agency went on to say that amid slow economic growth and political turbulence, SA banks have been resilient.
These words from the agency echoes those of the deputy governor of the Reserve Bank Daniel Mminele who said the downgrade of the country’s credit rating to junk status by S&P would be a “serious setback” to the nation.
Mminele said the reserve bank was ready to act if the political events caused the favourable rates outlook to reverse.
“It is a serious setback for the country. We will now need to redouble our efforts in providing assurance and communicating continued commitment to sound macroeconomic policies,” he said.
Feeling the impact of S&P’s ratings, economists worry that if at least two agencies will downgrade the nation’s foreign currency will see South Africa drop out of some widely used global bond indexes that rely on investment grades only and force international funds who track these or who are prohibited from holding sub-investment grade securities to sell.
Moody’s placed South Africa on review for downgrade while ratings firm Fitch warned that President Jacob Zuma’s shake-up intensified political risk and signaled policy changes that could undermine its credit score.
Salman Ahmed, chief global strategist at Lombard Odier said in his review, that the SA economic challenges has just started. The likelihood of the country facing more demotion is more imminent for hard currency debt, where Fitch’s standing rating is just one notch above junk.
A bigger impact on the country’s access to funds could come if two of the three agencies also denominate the rand-denominated government debt as sub-investment grade.
Meanwhile, the women league of the ANC has lashed out at rating agency S&P for deciding to downgrade the nation despite all the challenges the country face at a time.
The ANCWl asks South Africans not to further allow corrupt S&P into the country saying the agency is against the growth and progress of the country.
In its statement on Tuesday following S&P’s announcement, the ANCWL said it wasn’t surprised by the announcement, rather, it was disappointed at the hastiness in the decision to downgrade SA to junk status.
“The corrupt S&P that was fined around R26-billion over the top grades it gave to subprime-mortgage bonds has been earnestly waiting to deliver a junk status to SA if the president reshuffles the Cabinet,” said the league, charging SOuth Africans not to allow themselves to be held at ransom by ratings agencies that are serving a certain political agenda.