SA Financial institutions downgraded: How could this affect you?

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.”