RATINGS agency Moody’s Investors Service has broken ranks with financial players hailing last week’s hike in interest rates, saying the move was "credit negative" for banks.
The Reserve Bank raised the repurchase rate 50 basis points to 6.75%, taking the prime rate banks charge customers to 10.25%.
Bankers and economists welcomed the hike, saying it was necessary to arrest inflation and the rand’s slide.
On Monday, however, Moody’s said the hike affected the ability of borrowers to afford their debt and repay it adversely, making it a negative for banks. The agency expected the asset quality of banks to deteriorate as a result, and the tepid growth would worsen matters. The positive trend in nonperforming loans that have decreased from 5.8% in 2010 to 3.2% of all bank loans last year was likely to be reversed.
Nondas Nicolaides, vice-president at Moody’s said although it expected nonperforming loans to rise to between 3.5% and 4% this year, banks’ core earnings and capital buffers would provide support.
Shifting lending from individuals to corporates would help mitigate the deterioration in asset quality, given the latter’s better liquidity, he said.
The big four banking groups — FirstRand, Nedbank, Standard Bank and Barclays Africa — had R1.2-trillion in loans and advances to the corporate sector by October.
FirstRand spokesman Sam Moss said it had already started cutting back lending in "certain high-risk customer segments" in anticipation of rising interest rates.
"We are also prudently provided and our collection processes are appropriately sized," she said. "Appetite has remained very consistent in the corporate space. The group’s advances mix is likely to remain 50% retail, 50% corporate."
Standard Bank’s Steven Barker said: "Consumers are advised to take a proactive stance with their credit providers as soon as they start experiencing financial pressure. Delays in readjusting their budgets to changing circumstances are likely to lead to greater negative outcomes."