South African Bank Ratings Threatened by Sovereign Cut, S&P Says

South Africa’s biggest banks were kept on a negative outlook and their credit ratings would be cut if a deterioration in the country’s economy led to a sovereign downgrade, Standard & Poor’s said.

“We don’t rate banks in South Africa above the sovereign foreign currency rating because of the direct and indirect influence that domestic economic performance has on banks’ financial performance,” S&P said in an e-mailed statement today, citing lackluster economic growth, labor tensions and a high current-account deficit. The company said it doesn’t expect to raise bank ratings this year.

South Africa’s current-account deficit reached 6.8 percent of gross domestic product in the three months through September, the biggest gap in more than five years, according to central bank data, while growth slowed to 0.7 percent in the quarter. At least 70,000 workers at the country’s three biggest platinum mines are on strike and South Africa’s rand has lost 6.6 percent against the dollar this year, the worst performance among 16 major currencies tracked by Bloomberg.

“South African banks’ continuing expansion into other African markets could also expose them to economies with higher credit risks,” S&P said. “However, in the absence of financial system-wide shocks, we expect the banks will maintain stable earnings, asset quality, and capitalization.”

The six-member FTSE/JSE Africa Banks Index fell 1.7 percent as of 12:21 p.m. in Johannesburg, led by Barclays Africa Group Ltd. (BGA) and RMB Holdings Ltd. The index has dropped 6.7 percent in January, the worst monthly performance in almost five years, with FirstRand Ltd. (FSR) declining 9.8 percent.

To contact the reporter on this story: Renee Bonorchis in Johannesburg at rbonorchis@bloomberg.net

To contact the editor responsible for this story: Dale Crofts at dcrofts@bloomberg.net

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