S&P Global Ratings has downgraded South Africa’s long-term foreign currency sovereign credit rating to BB+ from BBB- and its long-term local currency rating to BBB- from BBB.
Given the negative market reaction to the executive changes in Cabinet last week, this action was not entirely unexpected, although the timing has been swift.
This announcement is disappointing given the meaningful strides that South Africa has made. Over the past 18 months there has been much closer collaboration between government, business, labour and other organs of civil society to return our economy to a faster and more inclusive growth path and to promote a growth-friendly environment.
Sub-investment grade status has serious implications for all South Africans, especially the poor. It will affect people’s ability to save and invest. Policy rules may preclude hedge funds, pension funds and asset managers from investing in non-investment grade countries. The resulting economic shock may impact bond and equity markets, and consumers’ disposable incomes could also be eroded by higher inflation, interest rates and taxes. Lower disposable income means consumers have less to save and invest.
Various work streams have been set up to breathe new life into our economy to stimulate faster growth and create new jobs, and these are starting to yield positive results.
In addition, we have stable institutions that are robust in ensuring political and societal accountability.
South Africa still requires much structural reform and investment to buoy economic growth. We need growth that yields a shared prosperity, eliminates inequalities, addresses unemployment and promotes social cohesion.
Social justice and transformation are critical so that South Africa truly becomes a country that belongs to all who live in it.
In line with the rule that South African entities cannot be rated higher than their sovereign, we expect that the rating agency will shortly take the same action on the South African banks.
It is important to note that South African banks remain financially sound and are well positioned to withstand the downgrade. We have one of the most robust banking systems in the world and were ranked second in the 2016-2017 World Economic Forum’s Global Competitiveness Index in terms of financial soundness.
We are committed to the shared future that we intend to create for our clients, our stakeholders and our people. The Group is well capitalised, has a strong liquidity position and has a sound balance sheet. As at 31 December 2016, we had total contingent liquidity amounting to R336 billion and a common equity tier 1 ratio of 13.9%; above both the minimum regulatory requirement and our internal target of 11% – 12.5% for 2017.
As Africa’s largest bank by assets, we see South Africa and Africa as its home and we are committed to driving her growth.