Johannesburg | Monday
A crises in the SA banking industry was narrowly averted over the weekend when six of the country’s smaller banks managed to persuade international rating agency Fitch Ratings to overturn negative watch ratings.
Fitch on Friday downgraded Saambou and threatened to downgrade six other small banks from their A2 rating, following Saambou’s request for a curator to be appointed to manage its affairs.
However, Fitch on Sunday night retracted its threatened negative watch rating, but stuck to its downgrading of the ill-fated Saambou.
”As a result of the potential risk we have taken them off the negative rating watch and affirmed their ratings,” said Fitch Ratings managing director Andrew Philpott on Sunday evening.
The six other banks affected by the negative watch ratings were African Bank Limited, African Merchant Bank, Brait Merchant Bank, Corpcapital Bank, PSG Investment Bank Holdings Limited, PSG Investment Bank Limited.
”Fitch’s analysis of the banks’ standalone liquidity positions and policies indicates that these remain sound, and consistent with what the agency would expect from banks at this rating level.
”Banks’ management have also confirmed that none have direct credit exposure to Saambou. Consequently the agency believes that these banks are currently in a position to meet contractual obligations,” a Fitch statement said.
On Sunday, economists launched a scathing attack on Fitch for their threatened downgrading of the banks that were not affected by the Saambou crisis.
Tradek economist Mike Schussler called the move ”over the top” and agreed with PSG Investment Bank chief executive Andre le Grange that the move was ”extremely irresponsible”.
When the news broke on Sunday that Fitch had retracted on their threatened downgrading, Schussler said it was obvious that the agency had not done their homework and had shown a knee-jerk reaction to the curatorship of Saambou.
”They (Fitch) contradicted themselves and could have contributed to the liquidity problem which could have caused a bank crisis in South Africa,” he said.
”They did not do their homework and took a ridiculous step. They are supposed to be a reputable international research and rating company”.
Earlier Schussler said the rating adjustment was unfair to the other banks.
”They would have made the smaller banks suffer unnecessarily.”
It was obvious, he said, that they had acted in panic without considering the effect of their actions on the South African economy.
”This could have caused the rand to plummet further and could have had a very negative impact on the South African economy as a whole.
”If they had done the same in America, they would have been accused of terrorism.”
Econometrix economist Azar Jammine broadly agreed with Schussler on the retraction of the threatened downgrading of the six banks.
”It is a slap in the face of a reputable rating agency to have to go back on what they said within 48 hours. It shows that they had acted totally irresponsibly.”
Jammine said the downgrading could have been extremely harmful to South African banks and the economy.
”It makes one wonder if there hadn’t been a hidden agenda.”
He said the retraction should be in time to prevent a possible disaster on Monday.
”Not much trade took place over the weekend.”
He said the main concern was that investors would question the liquidity of other A2-rated banks. This could possibly spread to larger banks, which could have led to a general banking crisis.
Saambou, that was placed under curatorship on Saturday, would remain closed to the public for the time being while the situation was being assessed, the curator, John Louw said on Sunday.
Louw, of KPMG Chartered Accountants (SA) said in a statement released late on Sunday afternoon that ”recent market condition impacting on Saambou and an abnormal outflow of funds…have resulted in Saambou experiencing difficulties in maintaining its required levels of liquidity.”
Louw said it did not mean, however, that Saambou was insolvent.
The immediate effects of the curatorship would be that the branches would be closed for a while, but afterwards Saambou would be able to conduct ”normal banking business”, except for the following: interest will cease to accrue on all interest bearing liabilities, including deposits, from the date of curatorship; deposits including interest accrued to the date of curatorship, have been frozen; any money deposited after 1pm on Saturday, February, 9 will be freely available; all bonds in the process of registration, where guarantees have been issued, will be honoured; all other cash disbursements will be restricted and placed under direct control of the curator; no new business can be written until the curator has issued further instructions.
Louw said mechanisms would be put in place in the coming week to allow clients access to a portion of their money. The details would be announced soon.
Saambou was badly hurt on Thursday and Friday when depositors withdrew about R1-billion from the bank after a massive drop in the value of the bank’s shares on the JSE Securities Exchange.
Although the bank is in curatorship, most staff will probably be kept on to help the curator administer its assets and liabilities. – Sapa