Moody’s Investors Service announced yesterday in a report that it has revised its outlook for the South African banking system from stable to negative. It believes that the creditworthiness of these institutions will take strain over the next year to 18 months.
Moody's said in its report:
"The change in outlook is mainly due to the deteriorating operating conditions, which will challenge banks' asset quality and profitability. In addition, the depreciation of the rand will continue to drive up the cost of imported consumer goods and industrial inputs, and drought conditions reduce agricultural output, all of which will weaken demand for bank loans. Our negative outlook for the banking system is consistent with the current negative outlook on the government rating and on the large banks' ratings."
The service added that lending opportunities will be limited by the country's "challenging environment", and forecasts GDP growth of half a percent for South Africa this year. It named slow economic growth, rising interest rates and accelerating inflation as factors impacting consumer spending, while commodities exports for South Africa remain weak and investment drops off.
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