Moody downgrades five top S. African banks

The Moody's Investors service, a credit rating agency downgraded on Tuesday credit ratings for five largest banks in South Africa.

The agency cited South African government's weakening credit profile as the reason for the downgrade.

In a statement released Tuesday, Moody said "to a lesser extent the rating actions were driven by the challenges these banks face in view of the weaker economic growth in SA, particularly in the context of consumer affordability pressures and still-high consumer indebtedness that will likely lead to increased credit risks and higher loan impairments for the banks."

The affected banks are Investec, FirstRand, Nedbank, ABSA and the Standard Bank of South Africa. The banks were downgraded by one notch to Baa2. The sovereign exposure of the five banks totaled close to 135 percent of their capital bases.

"Although not anticipated, as indicated by the stable outlook on the sovereign rating, any further deterioration in the creditworthiness of South Africa would also exert downward pressure on the banks' ratings," said Moody's statement.

The state owned development institutions, namely the Development Bank of Southern Africa and Industrial Development Corporation, were also downgraded due to the government's weakening ability to provide them with financial support.

"The rating agency expects GDP growth of 1.4 percent in 2014 from 1.9 percent in 2013, levels significantly below the historic average of 4.9 percent during 2004-08," Moody added.

Analysts believe the economic challenges faced by South Africa and the increasing interest rates as well as high household indebtedness, is behind the downgrading. These conditions always force consumers to borrow and this leads to elevated credit risks.