Banks continue to tank after S&P downgrade

Banking shares continued to tank on Thursday morning after rating agency Standard and Poor’s (S&P) confirmed that it has downgraded South Africa’s four major banks’ credit rating to sub-investment grade.

This was not unexpected, as the ratings of banks are linked to the country’s sovereign rating, which S&P downgraded on Monday.

All the major banks shed between 2% and 3% shortly after the opening of the market, continuing the stark selloff that started after news broke that President Jacob Zuma recalled finance minister Pravin Gordhan from an international investor roadshow.

The share prices continued to tank after the president fired Gordhan and his deputy, Mcebisi Jonas, a few days later.

Neelash Hansjee, a banking analyst at Old Mutual Equities, confirmed that the banks’ downgrade wasn’t unexpected after the downgrade on South Africa’s foreign credit rating by S&P and that the current price pressure on banking shares are not too excessive.

 “Although the current price reaction is significant, it is not as severe as the price reaction that followed the firing of Nhlanhla Nene in December 2015. Banking shares then shed between 20% and 30%.”

He added that banks will now face higher debt finance costs, as well as pressure on their earnings if the economy slows down. Banks have been preparing for this as a downgrade had been a key risk through 2016.

Over the past two weeks, the banking index has shed 14.7%.  The four banks have also lost a collective R87 billion in market cap over this period.

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