Banking Association cites poor economic growth for Moody’s negative outlook
The Banking Association of SA says the decision by Moody’s ratings agency to maintain its negative outlook for the banking industry was because of poor growth in the economic environment.
Cas Coovadia‚ MD of the association‚ said: "The decision is based on our banks’ exposure to the country’s broader economic environment‚ where growth has been sluggish." Moody’s downgraded SA one notch to a "negative outlook" in June this year‚ while two other ratings agencies downgraded the country to junk status.
Coovadia said despite Moody’s decision to maintain its negative outlook‚ SA’s banks remained safe‚ well-capitalised and among the most sound in the world.
"Moody’s took cognisance of our challenging operating environment‚ characterised by weak consumer and investor confidence and rising unemployment‚" Coovadia said in a statement on Tuesday. "This will have some effect on business opportunities and loan demand‚ and perhaps impact the quality of some loans."
Coovadia said Moody’s noted in its statement that impaired loans were at a historically low level of only 2.9% of total loans. "In addition‚ our member banks keep healthy capital buffers‚ which allow for loan growth and protection of creditors. Our financially sound corporate clients also benefit our asset-risk position‚ as Moody’s further notes."
"Banks’ prospects are tied to those of the economy. The weak economy in which South African banks operate is a function of the weak leadership of the current government and the climate of policy uncertainty that reigns in almost every sector‚" Coovadia said. "As a country‚ we face tough economic head winds‚ which require tough leadership. In the absence of this leadership and any tangible efforts to grow the economy‚ those most affected will always be the poorest of the poor."