Threat of SA Ratings Downgrade
South Africa is facing the threat of a credit ratings downgrade, in which case banks will be confronted with higher levels of bad debt, while consumers will be subjected to a rise in costs, according to the head of First National Bank (FNB), Jacques Celliers.
Standard & Poor’s (S&P), Moody’s, and Fitch Ratings are the ‘Three Big Rating Agencies’ who assign credit ratings to a debtor’s (country’s) capacity to pay off debt, based on how timely its interest payments are and the probability of it defaulting.
If our country gets a ratings downgrade, banks can anticipate increased funding costs and consumer interest rates as inflation accelerates. Consequently, a downgrade could prove catastrophic for the financial wellbeing of middle and low income consumers, who are already under heavy strain, due to load shedding, rising electricity and fuel prices, and higher taxes.
How Can SA Consumers Help Prevent a Downgrade?
The only way a downgrade can be avoided is for every South African to do their part by settling their own debts and aligning their personal financial goals with those of the nation.
In June 2014, S & P’s cut our country’s credit rating down to the lowest investment-grade level. Unsurprisingly, Fitch Ratings has SA on a negative outlook, due to power cuts.
Even so, interest rates are anticipated to go up slowly, provided there are no unexpected shocks to our economy. Employees are most exposed when it comes to economic risk, as they are working harder and earning less. What our country really needs is more people boosting the economy by starting and growing their own businesses.
FNB Does Their Part to Remedy Slow Growth
Self-inflicted wounds, such as labour conflicts, energy supply deficits and poor public sector governance are to blame for South Africa’s slowing growth. These wounds can be remedied via pro-activity, on the part of both banks and consumers.
The International Monetary Fund estimated SA’s growth rate at a gloomy 2% this year and 2.1% next year. With the opening of a Guernsey, India branch next week, FNB is doing their part to remedy slow growth by expanding into India and Africa.