Guiding consumers since 2009

SA Financial institutions downgraded: How could this affect you?

By Jessica Anne Wood

Ratings agency Standard and Poor’s (S&P) has downgraded the credit rating of financial institutions within South Africa. On Monday, S&P downgraded the country’s foreign currency rating to sub-investment or junk status.

This could impact consumers in a number of ways. Arthur Wasara, marketing assistant at debt counselling firm DebtBusters, said: “The downgrade to junk status could result in a number of consequences for South Africans, especially those who find themselves in significant personal debt. The weakening of the Rand is likely to result in a hike in petrol prices. The rise in petrol prices is likely to result in a rise in food prices. People will have to adjust their budgets and cut down on luxuries. Those who are already struggling with debt repayments may need to look for appropriate debt management solutions.

“The downgrade could also result in an increase of interest rates. S&P stated that they predicted a hike in interest rates regardless of whether South Africa was downgraded or not, stating that “ongoing tensions and the potential for further event risk could weigh on investor confidence and exchange rates.” If interest rates increase and it becomes more expensive to borrow money, it means that it will be more difficult and expensive to pay back debt, and will inevitably put more pressure on the consumer. Those who are already struggling financially will be left in an even worse off financial position.”

The institutions downgraded

In a statement announcing the downgrade to the financial institutions, S&P said: “We do not rate financial institutions in South Africa above the foreign currency sovereign ratings, due to the direct and indirect impact that a sovereign distress would have on banks' operations.”

The seven financial institutions downgraded are:

  • FirstRand Bank Ltd.
  • FirstRand Ltd.
  • Nedbank Ltd.
  • Investec Bank Ltd.
  • Absa Bank Ltd.
  • Barclays Africa Group Ltd.
  • BNP Paribas Personal Finance South Africa Ltd. (BNPPPF)

Explaining the downgrades, S&P said: “We lowered, to 'BB+/B' from 'BBB-/A-3', our long- and short-term counterparty credit ratings on FirstRand Bank Ltd., Nedbank Ltd., and Investec Bank Ltd. In addition, we lowered our long-term counterparty credit rating on FirstRand Ltd. to 'BB-' from 'BB+', while affirming the 'B' short-term counterparty credit rating. The outlooks are negative.

“At the same time, we lowered our long-term South Africa national scale ratings on FirstRand Bank, Nedbank, Investec Bank, and BNP Paribas Personal Finance South Africa Ltd. (BNPPPF) to 'zaA' from 'zaAA-'. We affirmed our 'zaA-1' short-term national scale ratings on the four entities.”

Recent Articles

Featured What’s the deal with underwriting?

When you apply for a long-term insurance policy, a financial adviser will ask some personal questions about your lifestyle, family history, health, and even ask you to take some medical tests. This process is called underwriting, but is it really necessary?

 

How are you taxed on your retrenchment package?

Unemployment is one of the biggest problems in South Africa. The emergence of the Covid-19 pandemic has exacerbated the situation with a lot of companies retrenching their employees.  When retrenched, you’ll receive a retrenchment package, but do you know how much tax you’re liable for?

Car repossessed – don’t be taken for a ride

When the country is facing an economic downturn, chances are your finances will feel the pinch. This can lead you to make bad financial decisions such as skipping your vehicle payments. But every decision has consequences and if you don’t pay your instalment, the bank will repossess your car. But what can you do when this happens?

 

Why you should consider gap cover

Your medical aid should protect you from incurring large medical bills when you’re sick. But what if your plan doesn’t cover the full cost of your medical expenses? We got in touch with insurance experts to find out whether gap cover is worth having.

Deals

Office furniture at discounted prices at BDK

Price: Available on request
When: Daily
Where: Johannesburg

Da Vincis Happy Hour Special

Price: Available on request
When: Daily
Where: Cape Town

Use your Absa card and get 30% cashback at Dis-chem

Price: Available on request
When: Daily
Where: Nationwide


Latest Guide

Guide to debt rehabilitation solutions