RATINGS agency Moody’s has downgraded South Africa’s five biggest banks as well as its two rated development finance institutions, in the wake of the recent downgrade of the country’s foreign currency deposit ceiling to Baa1 from A3.

The foreign currency deposit rating of the five banks — Standard Bank, Absa, FirstRand Bank, Nedbank and Investec Bank Ltd — is now at Baa1, from A3 before, in line with the sovereign rating.

The Development Bank of Southern Africa (DBSA) and the Industrial Development Corporation of South Africa (IDC) were also both downgraded to Baa1 from A3.

Moody’s said of the downgrades in Thursday’s announcement: "Today’s rating actions were prompted by the weakening of the South African government’s credit profile, as captured by Moody’s downgrade of South Africa’s government bond rating to Baa1 (negative) from A3 on September 27 2012."

It also noted "the high sovereign exposure of the five largest South African banks".

"All five aforementioned banks, in addition to African Bank Limited, carry negative outlooks on their local currency deposit and debt ratings, in line with the sovereign rating outlook," the agency said.

Moody’s said any indication of a weakening of the South African authorities’ willingness to support any of the five banks or any significant deterioration in their capacity to extend financial support, could negatively affect the banks’ deposit and debt ratings.

"A possible deterioration in the banks’ financial performance could also trigger a rating downgrade of both their standalone and deposit ratings," the agency said.

In the case of both the banks and the development finance institutions, Moody’s said there was little likelihood of any upwards rating momentum over the next 12 months.

The agency did not believe systemic support would increase during that time, and the "challenging economic environment" meant their standalone credit assessments were unlikely to strengthen sufficiently to warrant upgrades.

In rating the development finance institutions, Moody’s assumes a "very high" likelihood of government support, given their development mandates and their strategic importance for policy implementation; their support of institutional and industrial capacity development; and their full government ownership with no intention to privatise.

The IDC’s and DBSA’s ratings downgrade means they are now rated three notches above their baseline credit assessments, down from four notches before the sovereign downgrade.