Moody’s Investors Service cut the outlook for South Africa’s banking system to negative from stable on concern that slowing economic growth will put pressure on the quality of lenders’ assets.
Moody’s estimates that the nation’s gross domestic product will expand 2.5 percent this year and 3 percent in 2013, less than what is needed to “tackle high unemployment and substantially improve living standards,” the company said in a statement today.
“As a result of the weakened domestic environment, the rating agency expects credit growth and new corporate business opportunities for banks to remain subdued over the 12- to 18- month outlook period,” Moody’s said. “Sizable holdings of government securities that will continue to link the banks’ credit profiles to South Africa’s creditworthiness” also contributed to the reduction, it said.
Africa’s biggest economy struggles with an unemployment rate of 25.5 percent and economic growth that slowed to 1.2 percent in the third quarter from the previous three months, the lowest since the 2009 recession. The central bank and government expects growth to be 2.5 percent this year.
Moody’s Investors Service reduced its assessment of South African debt one level to Baa1, the third-lowest investment grade, on Sept. 27, the first downgrade since elections that ended white rule.
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