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 Moody’s downgrade African Bank’s rating

Moody’s Investors Service has downgraded their rating of African Bank Limited’s  (ABIL) deposit and senior unsecured debt by one notch.

Based in Joburg, African Bank had total assets of R59.1 billion at the end of 2012. What Moody’s is now saying is that compared to other similar debt issuers African Bank has dropped a peg. Despite the lowered rating however, they say that African Bank has a ” stable outlook”.

Their baseline credit assessment for African Bank was also lowered as well as the (aforementioned) national-scale issuer ratings or NSR .

WHAT’s a NSR?

Moody’s National Scale Ratings (NSRs) are intended as relative measures of creditworthiness among debt issuers (like the various SA Banks) within a country (For example South Africa) which helps market participants to better understand relative risks in investing and doing business with a creditor.

Why?

Moody’s have changed their rating based on the risks associated with the challenging operating conditions in SA’s unsecured lending market, which they say will likely impact on African Bank’s financial performance; and  the bank’s concentrated wholesale funding profile. They say that there are  risks associated with the operating conditions in South Africa’s unsecured lending market especially in view of the subdued domestic economic growth and labour unrest in certain sectors which were mentioned in the recent budget speech. These are factors which effect all such creditors but they feel African Bank is more susceptible because of their relatively ‘unseasoned loan portfolio’ which faces the risk of rising levels of non-performing loans and lower recoveries. Basically they think less people are going to be paying back their African Bank loans in the next few months. A second worry is where African Bank gets it’s money from. Despite a gradual diversification in the bank’s funding sources over the last few years, African Bank continues to be mostly reliant on ‘wholesale and market funding’ Moody’s say that such a funding profile is ‘confidence-sensitive‘ and ‘susceptible to market disruptions‘.

To find out more head over to:  www.moodys.com