In a surprising turn of events, the ratings agency Fitch boosted its rating of five big South African banks – only a month after cutting South Africa even deeper into junk territory.
Fitch now rates the country’s government bonds three levels below investment grade, warning last month that the local economy “is expected to remain below 2019 levels even in 2022”. Fitch was the first rating agency to downgrade South Africa’s rand-denominated government bonds to junk, in 2017.
Fitch downgraded local banks to “BB” at the start of the lockdown in March, and lowered their ratings even further when it cut South Africa deeper into junk last month.
Bank have seen a perfect storm of a large spike in bad debts as lockdowns and retrenchments hit customers’ ability to repay, along with decades-low interest rates, which hurt their profit margins. The banks have been reporting large bad-debt impairments over recent months, and have withheld dividends.
But Fitch says the banks still have significant headroom to withstand current pressures on the operating environment.