JOHANNESBURG--South African banks have weathered the financial
crisis in Europe better than most but they remain vulnerable to
their operating environment, Fitch Ratings said in a special report
Wednesday.
Of concern is South Africa's slower gross domestic product
growth and its inability to meet the ruling African National
Congress's job creation target, said Denzil De Bie, a director at
Fitch's Financial Institutions team. Unemployment in South Africa
is at 24.9%.
In addition, the country is quite dependent on its trading
partners. The European Union is South Africa's largest trading
partner so further turmoil there could dent the country's growth
and ripple through to its banking sector.
"South African banks' earnings have been resilient through the
crisis and asset quality indicators improved during 2011," Fitch
said. "The negative outlook on most banks' IDRs [issuer default
ratings] reflects their vulnerability to an uncertain operating
environment."
South Africa's Nedbank Group Ltd. (NED.JO) issued a similar
cautionary statement Wednesday at the release of its half-year
results.
"If clients have less confidence in the economy, that could slow
down some growth," said Chief Operating Officer Graham Dempster.
Nedbank said business confidence has weakened in recent weeks.
In February, Moody's Investors Service downgraded the senior
debt and deposit ratings of five South African banks by a notch,
citing growing fiscal challenges that could constrain the
government's ability to bail them out in the event of a crisis.
Moody's said its action on Standard Bank of South Africa, Absa
Bank Ltd. (ABSP.JO), FirstRand Bank Ltd. (FSR.JO), Nedbank and
Investec Ltd. (INL.JO) didn't reflect a change in the individual
institutions' financial strength.
South African banks are still dealing with mortgage impairments,
though, Fitch said Wednesday, although it believes the worst has
passed.
Absa Group Ltd. (ASA.JO), the South African bank majority owned
by U.K.'s Barclays PLC (BCS), last week reported a drop in
first-half earnings due to losses from its mortgage business, and
warned that revenue growth will be subdued during the rest of the
year.
Write to Devon Maylie at devon.maylie@dowjones.com
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