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SA bank shares slump on downgrade

South African bank shares fell 2 percent on Wednesday after a credit ratings downgrade.

South African bank shares fell 2 percent on Wednesday after a credit ratings downgrade. Picture: Facebook.

JOHANNESBURG - Shares in the country's big four banks are trading lower this afternoon, following their downgrade by rating's agency Moody's.

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

The downgrade came less than a week after Capitec was downgraded by two notches.

Moody's says it's concerned about a lower likelihood of support from the Reserve Bank to protect creditors after African Bank was placed under curatorship.

However, Momentum Wealth's Wayne McCurrie says he doesn't believe the downgrade is the main reason for the fall in stocks.

"The banking shares were cheap at the beginning of the year. The reason the shares are falling isn't the downgrade but is because they are expensive, but the downgrade might be the trigger that caused the fall."

"Maybe this [ratings move] is a little bit premature, they probably could have waited another six or so months to see what happened," Richard Segal, emerging markets strategist at Jefferies in London said.

"If you look at most of the other key banks, they are much more bullet proof. They have far more diversified businesses, they are funded mostly by deposits rather than wholesale funding, they have international business and I sincerely doubt that the Reserve bank would recommend a bail-in [for these banks]."

The rand weakened 0.4 percent against the dollar, its losses picking up after data showed consumer inflation slowing to 6.3 percent year-on-year in July, below market expectations and casting doubt on the likelihood of a rate cut next month.

Investors are increasingly nervous about the lengthening list of problems in South Africa, including weak growth, inflation, high household debt, in addition to the bank bailout and chronic labour unrest.

The cost of ensuring the country's debt remained unchanged from a day earlier, however, with five-year credit default swaps at 177 basis points, according to financial data provider Markit.