Credit ratings have been lowered on seven banks in South Africa following the downgrading of the country’s rating to junk status.
Earlier this week Standard & Poor (S&P) lowered South Africa’s sovereign credit rating to BBB– after a cabinet reshuffle that resulted in the dismissal of long-serving finance minister Pravin Gordhan, and eight other cabinet members.
The ratings agency said the changes that president Jacob Zuma had made to the cabinet “put at risk fiscal and growth incomes”. The downgrade reflected the agency’s view that divisions in the ruling ANC party “have put policy continuity at risk”, it said.
“This has increased the likelihood that economic growth and fiscal outcomes could suffer.”
In a statement released on Friday, Zuma expressed his gratitude to the outgoing ministers for their service and said he had made the changes to the national executive to improve efficiency and effectiveness.
“I have directed the new ministers to work tirelessly with their colleagues to bring about radical socioeconomic transformation to ensure that the promise of a better life for the poor and working class becomes a reality,” the president said.
Malusi Gigaba, formerly minister of home affairs, takes over from Gordhan. Gordhan told the Financial Times he believed that President Zuma’s “poor political choices and judgments” could hamper the “green shoots” of the country’s economic recovery.
He also said that there had been a campaign “to malign me personally, but more importantly the treasury, and to pass around disinformation of all sorts”.
FirstRand Bank, FirstRand, Nedbank, Investec Bank, Absa Bank, Barclays Africa Group and BNP Paribas Personal Finance South Africa were all named by S&P as having their ratings lowered, citing negative outlooks.
S&P said: “We lowered our ratings because we do not rate South African banks above the foreign currency sovereign credit ratings. This is because of the likely direct and indirect influence of sovereign distress on domestic banks’ operations.”
While the ratings agency acknowledged that South African banks had been “performing resiliently” in a period of slow economic growth and political turbulence, it said that decreasing investor confidence could spark a rise in inflation and interest rates.
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