The South African Reserve Bank (SARB) has noted the decision by ratings agency Standard & Poor’s (S&P) to lower the ratings of seven of South Africa’s commercial banks to sub-investment grade.
The downgrading of banks is directly related to last week’s decision by S&P to cut South Africa’s foreign currency denominated debt to sub-investment grade. The sovereign rating acts as a ceiling and the rating of banks cannot be above that of a sovereign.
The SARB would like to reiterate that South African banks are adequately capitalised to deal with the effects of a cut to a sub-investment grade. South African banks were last year subjected to a common scenario stress test, including a macroeconomic scenario that entailed excessive financial market volatility and risk aversion. The results of the stress test showed South African banks to be adequately capitalised to withstand significantly adverse scenarios. The resilience of the banks stems from the high capital buffers that prevail in the South African banking system.
Overall, the South African financial system remains healthy, robust and resilient despite some headwinds caused by elevated levels of domestic economic, financial and political events, as well as global financial market volatility.