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Reserve Bank hits back at Moody’s

The South African Reserve Bank said the country’s banking sector remains healthy and robust.

Moody's cut by a notch the long term local currency deposit ratings for Standard Bank of South Africa, FirstRand, Nedbank and Absa Bank. Picture: Facebook.

JOHANNESBURG - The South African Reserve Bank said it did not agree with the reasons given by ratings agency Moody's to downgrade the country's four biggest banks.

"The South African banking sector remains healthy and robust," the Reserve Bank said in a statement disputing Moody's action.

Moody's downgraded four South African banks on Tuesday and put them on review for further cuts, saying there was a lower likelihood of support from the central bank to protect creditors after African Bank's debt crisis.

Moody's cut by a notch the long term local currency deposit ratings for Standard Bank of South Africa, FirstRand, Nedbank and Absa Bank, the local operation for Barclays Group Africa.

The news was released after the stock market close.

The ratings agency said it was adjusting its view following the $1.6 billion bailout of African Bank by the South African Reserve Bank (SARB).

Moody's said while SARB's actions mitigated the risk of contagion across the banking sector, the regulator had indicated by its actions that it was willing to impose losses on creditors.

"The one notch downgrade ... reflects Moody's view of the lower likelihood of systemic support from South African authorities to fully protect creditors in the event of need," the ratings agency said in a statement.

The ratings change comes days after a downgrade of smaller lender Capitec, which had been prompted by the bailout for unsecured lender African Bank.

SARB said at the time that it disputed the downgrade of Capitec because the lender had a different model to African Bank. The regulator did not immediately respond to requests for comment on the latest downgrade.

Some analysts believe the latest wave of downgrades may be an over-reaction.

"One bank with a highly flawed business model went into curatorship, and now we see a possible overreaction, with a downgrade to every other major bank in South Africa," said Razia Khan, Head of Africa Research at Standard Chartered.

"The South African banking system remains (on the whole) one of the best-regulated globally," Khan added.

Moody's also downgraded long term national scale deposit ratings for the four lenders and placed foreign-currency ratings for the four and smaller lender Investec on review.

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