Standard & Poor's in New York. Picture: REUTERS
Standard & Poor's in New York. Picture: REUTERS

RATINGS agency Standard & Poor’s (S&P) is not considering downgrading SA’s big four banks and supports the manner in which the Reserve Bank has managed the collapse of African Bank.

S&P said the rescue plan the Reserve Bank had devised was in line with global best practice and principles on how to resolve problems with banks in crisis.

In a surprise move this week, ratings agency Moody’s downgraded SA’s major banks — FirstRand, Standard Bank, Absa Bank (now owned by UK’s Barclays Bank) and Nedbank — and placed them on review for further cuts. Investec was placed on review for a ratings cut.

Moody’s said the Reserve Bank’s failure to fully protect African Bank’s creditors raised concerns about the extent of future support for other banks, should they need it. As part of the rescue package, the Reserve Bank imposed a 10% haircut on African Bank’s bondholders and wholesale funders, cutting the value of debt they held by this amount.

Asked if S&P would follow Moody’s lead and downgrade SA’s major banks, associate director Matthew Pirnie said: "No, we are not. S&P have not in recent history added government support into the ratings measurement.

"The banks are really good in relation to the economy they operate in. The creditworthiness of the banking sector is relatively higher in comparison with the sovereign."

African Bank, now under curatorship, had a small market share and was a low-complexity bank, Mr Pirnie said. Therefore, the troubled lender posed a small risk to the broader financial sector.

Mr Pirnie said the argument that the Reserve Bank did not fully support creditors was not unfounded. But this did not mean that it was now a "riskier day to invest in a (South African) bank".

The central bank’s reaction in the event of a fallout from the major banks would be different to the action taken in respect of African Bank. "Our opinion is that if one of the top four banks were to fail, the resolution would be different from the African Bank one," Mr Pirnie said.

"Firstly, the big banks are much bigger and more complex. They have retail, corporate and investment banking and have a large amount of deposits ."

The Reserve Bank would likely have to offer much higher financial support to shore up depositor confidence should a big bank suffer a similar crisis.

Mr Pirnie said the haircut at African Bank was in line with post-2008 financial crisis discussions at the Group of 20 and International Monetary Fund on how to resolve bank crises. Discussions at a global level required authorities to minimise losses to the economy, the interruption to the financial system and taxpayer expense.

"The resolution the Reserve Bank has done at African Bank is in line with the principles of resolution internationally, including a haircut of subordinated and senior debt," Mr Pirnie said.

A senior government official said the state had never committed to protecting bondholders 100%. This was because that was not in line with global practices that sought to reduce the pressure on the taxpayer.

In addition, the government had to deal with moral hazard where investors might make risky decisions because they knew they would not have to bear the costs should an investment flop.

Citadel senior investment strategist George Herman said he feared that the rating agencies were introducing " risk into the system". One of the criticisms was that the rating agencies were often behind the curve.

The African Bank debacle highlighted the shortcomings of the rating agencies. " The bank went into its death spiral with an A-rating," Mr Herman said.

"Rating agencies now want to... disprove this. The problem is that by these actions they cause systemic uncertainty in an economy that is already staggering under severe growth impediments ."