VENTURES AFRICA – Rating agency, Moody’s, on Wednesday changed the South African banking system outlook to negative from stable.
This could trigger a widespread backlash in South Africa as many in that country have often been told that their banks were stable after they managed to withstand the rigours of the 2007/8 recession.
Many South Africans, including prominent ones, think these statements from rating agencies are “completely unacceptable”.
Soon after the global financial crisis of 2007 and 2008, these agencies were accused of failing to detect the biggest economic meltdown since the 1929 depression.
Leaders have objected that the rating agencies are an “oligopoly” which issues self-fulfilling prophecies of doom, greatly aggravating the crisis.
There is also an undercurrent critical remark that they are also only based in the United States (US), the world’s biggest economy. They have been described as one of the poorest inventions the world’s financial system has ever seen. Many people have also called for the introduction of verification to check if there is abusive behaviour by the agencies.
In addition, the agencies have been accused of not merely passing on information but expressing subjective judgements, speeding up trends that already existed. On Wednesday, Moody’s said the drivers of the outlook in South Africa were weak macroeconomic conditions that would elevate credit risks and pressure banks’ asset quality and profitability metrics.
There were also sizable holdings of government securities that would continue to link the banks’ credit profiles to South Africa’s creditworthiness (Baa1 negative), Moody’s said. “The operating environment in South Africa will remain challenging for banks,” Moody’s said in a press release.
The agency believes South Africa’s real GDP will grow at about 2.5 percent in 2012 and 3 percent in 2013 below the rates needed to fully-utilise manufacturing capacity, tackle high unemployment and substantially improve living standards.
“As a result of the weakened domestic environment, the rating agency expects credit growth and new corporate business opportunities for banks to remain subdued over the 12-18 month outlook period. This, in turn, will exert additional pressure on the banks’ asset quality and bottom line,” it said in a statement