Moody’s keeps its negative outlook on SA’s banking system
Moody’s says ‘volatile and unpredictable’ politics in SA will lead to reduced business and consumer confidence, and sluggish economic growth
Ratings agency Moody’s announced on Monday that it would be retaining its negative outlook on the South African banking system.
Moody’s said it expected the sector to remain under pressure for the next 12-18 months, due mainly to "weak operating conditions".
It said as a result of the "volatile and unpredictable" political climate in SA, reduced business and consumer confidence would lead to sluggish economic growth.
The ratings agency now forecasts SA’s economy to grow just 0.5% in 2017 and 1.8% in 2018. It pointed out this was well below the government’s National Development Plan’s growth target of 5.4%.
Finance Minister Malusi Gigaba said in a speech earlier on Monday that it was likely the Treasury’s current forecast of 1.3% growth this year was optimistic, and may well be revised lower when he delivered his medium-term budget policy statement in late October.
SA’s unemployment rate remained unchanged at 27.7% in the June quarter from the March quarter, dashing hopes of a slight improvement. The numbers paint a gloomy picture of the country’s prospects over the near term, with the expanded unemployment rate at 36.4%. This figure includes discouraged job seekers and has remained stubbornly high for several years now.
Youth unemployment, which encompasses those aged 15-24 years, now stands at 32.2%. This number excludes those in some sort of training or education.
Moody’s did say, however, that although credit quality would deteriorate, "capital will remain resilient".
"As the ultimate line of defence against asset-quality deterioration, South African banks report solid capital metrics, well above regulatory minima and our central scenario is that capital buffers will [be] … protected by profits," it said.
Moody’s rated seven South African banks, accounting for about 91% of banking sector assets, as at December 2016.