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local currency debt

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gbarnard0
Occasional Contributor

Let's assume SA gets downgraded further in Dec and this time the local currency debt also gets downgraded. What implications will this have for money market investments? As I understand it, the banks can never have a higher rating than the sovereign. Is there a higher likelihood that banks will go bust a la African Bank which obviously have big implications when it comes to money market accounts. I know other funds as well, but I am specifically interested in MM.

1 REPLY 1
SimonPB
Valued Contributor

nah, our big banks are perfectly safe. They are very well capitalised and ahead of Basil 3 requirements that only kick in during 2019. African Bank got reckless, especially with regards new loans and provisions for those loans. The biggies (and I include Capitec) have been slowly turning off the taps on new loans and we can see it in their bad debt ratios that are still very low. That said bad debts will be creeping higher but we're still a long way from the levels we saw in 2007 in large part because of new legislation.

 

That all said it will hurt earnings and while the big 4 are cheap I own none of them preferring Capitec.