Picture: REUTERS
Picture: REUTERS

THE outlook for South Africa’s banking sector has been downgraded from stable to negative by rating agency Moody’s, citing weak macroeconomic conditions as one of the factors expected to affect the performance of banks.

Moody’s said on Wednesday that tepid economic growth would elevate credit risks and put pressure on the asset quality of the banks.

The revised outlook comes as banks are under pressure to rein in growth in unsecured lending amid signs that consumers are sinking deeper into debt.

However, South African banks still have some of the strongest capital levels in the world and are set to comply with revised tougher Basel 3 capital and liquidity rules that are being phased in from January 2013.

Moody’s has expressed concern about the banks’ holding of sizeable government securities that would continue to link their credit profiles to South Africa’s creditworthiness, which the agency has downgraded to negative.

The banks’ continued reliance on short-term wholesale deposits was another concern — one that the banks have, however, acknowledged — owing to the absence of long-term and stable funding to fund secured business such as mortgage loans.

Moody’s said this reliance could pose structural funding challenges as Basel 3 rules were implemented.