BOND YIELDS
Banks' R119m downgrade agony
Higher yields will push banks’ bond repayments higher, but their ability to pay has not been jeopardised
Investec, Standard Bank and Nedbank will have to pay back R119.8m more than they expected in December, when US$500m (R6.9bn) they owe in foreign-denominated debt matures. This was one of the first tangible knock-on effects of the twin downgrades by ratings agencies Standard & Poor’s (S&P) and Fitch last week. S&P slashed SA’s sovereign foreign currency ratings to junk, while keeping the local currency rating at investment grade. Fitch cut both to junk. The downgrade suggests both ratings agencies believe government is less likely to repay its debt. The yield on Investec’s bonds increased last week, while the rand weakened 12% against the dollar in the wake of the downgrades. However, "the recent downgrades won’t have any impact on the banks’ ability to repay, as the SA banks are extremely well capitalised and very liquid," says PSG Wealth portfolio manager Adrian Cloete. "There will be an increase in funding costs, which will be passed on to clients over time, but there will be a sl...
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