(The following statement was released by the rating agency)
Aug 29 – Standard Poor’s Ratings Services has reviewed the banking sector of the Republic
of South Africa (foreign currency BBB+/Negative/A-2; local currency A/Negative/A-1; South
African national scale zaAAA/zaA-1) under our updated Banking Industry Country
Risk Assessment (BICRA) methodology. We place South Africa in BICRA group ‘4’,
along with countries such as Mexico, Israel, Brazil, Qatar, Czech Republic,
Malaysia, and Slovakia. For the full report, see “Banking Industry Country
Risk Assessment: South Africa” published on RatingsDirect on the Global Credit
Portal.
The BICRA comprises two main areas of analysis–economic risk and industry
risk–where South Africa ranks ‘5’ and ‘3’, respectively.
Our economic risk score of ‘5’ reflects our opinion that South Africa has
“high risk” in “economic resilience,” and “intermediate risk” in “economic
imbalances” and “credit risk in the economy,” as our criteria define those
terms.
South Africa is a middle income level country, with GDP per capita of about
$8,000, but wide income disparities, and high unemployment, and suffers from
skill and infrastructure bottlenecks. It has a diverse economy and moderate
indebtedness. Government debt is expected to increase slowly as the government
continues its counter fiscal response to the current economic downturn.
Furthermore, the country’s large development needs and social challenges may
have long-term ramifications for policy and budgetary performance.
We believe that South Africa is still in a “correction” phase. This opinion
balances the cautious return to credit growth (8% in 2012 and 2013) for banks
and our expectations for modest economic growth (2.5% forecasted in 2012,
increasing in 2013) in the next two years. We also forecast stable to slow
real estate price growth, which, alongside continued household deleveraging
and the slow economic recovery, should result in a slow improvement in banking
sector credit losses given the large contribution of housing loans to total
nonperforming loans. Nevertheless, South Africa is not immune from global
events, despite its very low external debt, and economic growth and banking
sector recovery could derail.
Bank customers have intrinsically low debt capacity due to low average wealth
levels and intermediate financial leverage. We consider the lending and
underwriting standards of banks, as well as payment culture and governance, to
be supportive of credit operations in the country.
Our industry risk score of ‘3’ reflects our opinion that the country faces
“low risk” in its “institutional framework” and “competitive dynamics,” and
“intermediate risk” in “systemwide funding,” as our criteria define those
terms.
We assess the country’s banking regulation and supervision as “adequate,” and
its regulatory track record as “strong.” Banks tend to have restrained risk
appetite, which is one of the benefits of a sector that has many
characteristics of an oligopoly. This keeps the threat of new entrants low and
balances a sizable nonbank financial services sector.
Continued…
