By Ashleigh Brown, journalist, Justmoney
The aftershock of African Bank Limited’s (Abil) collapse has sent shock waves through the banking sectors, resulting in Moody’s Financial Services downgrading four of South Africa’s big banks.
Nedbank, Standard Bank, FirstRand, and Absa were downgraded on Tuesday, 19 August following the downgrade of Capitec on Sunday, 17 August.
Moody’s had said that the Reserve Bank had not fully protected Abil’s creditors, thus raising questions about the amount of future support the other banks could receive if they needed it.
“This updated opinion was prompted, most recently, by the actions taken by the South African Reserve Bank (SARB) in response to the abrupt loss of creditor confidence in African Bank Limited (Abil),” stated Moody’s in a press release.
Unwarranted downgrades
SARB, as well as some of the banks, believe that the South African banking sector is still healthy – despite the collapse of Abil.
“Nedbank supports the SARB’s view that South Africa’s banking sector remains healthy and robust, and there have been no indications that other SA banks have been affected negatively by the specific issues around African Bank,” said Mike Brown, chief executive of Nedbank.
Brown went on to say that Moody’s highlights the resilience South African banks have had in the past towards tough economic times.
“In terms of the scope of the review Moody’s notes the broad resilience demonstrated by South African banks in the past, including the management of adverse economic environments, and solidity of key system financial metrics, including healthy buffers that will facilitate the weathering of strong headwinds, “said Brown.
Standard Bank had the same sentiments as Nedbank towards the strength of the banking sector: “The rating actions announced today are linked to Moody’s assessment of the South African banking industry as a whole and is not a reflection of any fundamental changes in SBSA's financial strength, earnings, resilience or credit quality.”
Furthermore, Brown mentioned that the rating by Moody’s was not aimed at Nedbank specifically, but rather as a result of the sector as a whole.
“The group wishes to highlight that this ratings action references Moody’s assessment of the industry as a whole and is not specific to Nedbank. These actions are in line with international rating agency actions taken on a number of banks in recent years,” said Brown.
However, Capitec did not take the news well. The bank was downgraded by two notches by Moody’s, and feels that this downgrade is unwarranted.
The finance director for Capitec, Andre du Plessis, told Fin24 that due to Capitec’s similar business model, such as unsecured lending, Moody’s believed that the two banks could be compared equally, thus resulting in the downgrade.
Absa and Abil
Absa Bank said on Friday, 15 August, that it has removed all African Bank Investments Limited (Abil) investments from its Absa Money Market Fund.
"This will provide certainty and confidence to investors in the Absa Money Market Fund as the fund will only have exposure to the five large banks and the government," Absa said in a statement.
Furthermore, the bank highlighted that: "Through this clarity we will also ensure that all Absa Money Market Fund investors are treated in a consistent manner going forward."
The plummet
Earlier this month, Abil’s shares plummeted by 80%. This was after the bank’s quarterly update was released on Wednesday 6 August and its CEO, Leon Kirkinis, resigned.
Trade in Abil shares was then suspended by the JSE after the announcement by SARB that Abil would be placed under curatorship after the bank’s share price went into freefall, leaving the value of the company at $53 million (R559 million) which equates to a 97% drop for the year.
However, Ian Wason, CEO of DebtBusters, urged clients to still pay their debts.