Coronavirus: Fitch downgrades Stanbic, Absa, 3 others

The credit ratings of South Africa’s five largest banks have been downgraded into junk territory by Fitch.

The banks are Absa, Standard Bank, Nedbank, Investec and FirstRand.

Absa, Stanbic and FirstRand all operate subsidiaries in Ghana.

Fitch cited a deteriorating operating environment in South Africa following the outbreak of the novel coronavirus as the main reason.

The ratings were reduced by one notch to BB, two steps below investment grade and one notch lower than that of South Africa, Fitch said in a statement late Tuesday, 31 March 2020.

Moody’s Investors Service also lowered its assessment of the lenders one notch to bring them into line with the sovereign, which was downgraded last week.

But the situation in Ghana might be different because banks are robust and liquid, coming on the back of a year’s increase in stated capital to GHS400 million (about US$85).

At the same time, Ghana's economy has remained stronger, growing consistently above 5% Gross Domestic Product in the last three years.

“The South African operating environment is particularly exposed to the pandemic because of its highly dense and vulnerable communities,” Fitch said.

The lenders face multiple challenges including “a decline in client activity, lower interest rates, which will put pressure on margins, and rising credit losses.”

Absa had anticipated the risk of a sovereign-ratings downgrade and built up “substantial buffers to withstand significant stress scenarios,” the Johannesburg-based company said in an email.

“We remain confident that we have significant financial resources to remain resilient through the current crisis”, it added.