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In the next couple of days, investor attention will turn to a scheduled review of South Africa&#8217;s sovereign credit by Moody&#8217;s on Friday. The ratings agency already has the country&#8217;s debt in &#8220;junk&#8221; status, and the question is whether it will cut that rating even further. With a negative outlook, there is the potential for a further downgrade. Annabel Bishop, Chief Economist at Investec joins CNBC Africa for more.

SA has done enough to prevent a further sovereign downgrade

SA has done enough to prevent a further sovereign downgrade, economist says

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Fitch Ratings says the requirement for Nigerian banks to have a loan-to-deposit ratio of at least 60 per cent at the end of September is credit-negative for Nigeria&#8217;s banking sector. Muyiwa Oni, Regional Head; Equity Research at Standard Bank Group joins CNBC Africa for more.

CBN’s loan to deposit ratio requirement credit negative for Nigerian banks – Fitch

<a href="http://cnbc.africa/wp-content/uploads/2017/11/SP-downgrade.pdf">Standard &amp; Poor’s has downgraded South Africa&#8217;s</a> local currency debt to junk and lowered its rating on debt denominated in foreign currency to BB from BB+ while changing its outlook on both the nation&#8217;s foreign and local currency ratings to stable.
<a href="https://www.moodys.com/research/Moodys-places-South-Africas-Baa3-ratings-on-review-for-downgrade--PR_375816">Moody&#8217;s</a> has placed South Africa&#8217;s local currency debt on review for downgrade citing &#8220;a series of recent developments which suggest that South Africa&#8217;s economic and fiscal challenges are more pronounced than Moody&#8217;s had previously assumed. Growth prospects are weaker and material budgetary revenue shortfalls have emerged alongside increased spending pressures. Altogether, these promise a faster and larger rise in government debt-to-GDP than previously expected&#8221;.
Moody&#8217;s says the review will allow it to &#8220;assess the South African authorities&#8217; willingness and ability to respond to these rising pressures through growth-supportive fiscal adjustments that raise revenues and contain expenditures; structural economic reforms that ease domestic bottlenecks to growth; and improvements to SOE governance that contain contingent liabilities. The review period may not conclude until the size and the composition of the 2018 budget is known next February. This will also allow Moody&#8217;s to assess the policy implications of political developments during the review period and the likelihood of pressures on South Africa&#8217;s key policymaking institutions persisting&#8221;.
<a href="http://cnbc.africa/news/southern-africa/2017/11/23/fitch-ratings-affirms-south-africas-ratings-keeps-outlook-stable/">Fitch on Thursday</a> kept South Africa at sub-investment grade for its local currency credit rating.
Moody&#8217;s decision saved South Africa from being <a href="http://cnbc.africa/trending/sa-downgrade/2017/11/24/sa-downgrade-2/">booted out of the Citigroup World Government Bond Index</a>  which could have seen foreign outflows from South Africa of between <a href="http://cnbc.africa/videos/2017/11/23/sarbs-mminele-what-a-downgrade-would-mean-for-sa/">10-14bn dollars</a>.
The rand fell to 14.14 to the dollar at 11:30pm. It was trading at 13.87 just prior to S&amp;P&#8217;s announcement.
S&amp;P attributed the downgrade to the following:
<ul>
<li>Weak GDP growth leading to further deterioration of South Africa&#8217;s public finances beyond its previous expectations.</li>
<li>Expectation that government will attempt to introduce offsetting measures in an effort to improve budgetary outcomes, but these may not be strong enough to stabilise public finances, and may weaken economic growth further in the near term.</li>
</ul>
<table width="695">
<tbody>
<tr>
<td width="201">Description</td>
<td width="77">S&amp;P</td>
<td width="77">Fitch</td>
<td width="77">Moody’s (S&amp;P equivalent)</td>
</tr>
<tr>
<td width="201">Foreign currency international scale rating</td>
<td width="77">BB</td>
<td width="77">BB+</td>
<td width="77">BBB-</td>
</tr>
<tr>
<td width="201">Outlook</td>
<td width="77">Stable</td>
<td width="77">Stable</td>
<td width="77">Review for downgrade</td>
</tr>
<tr>
<td width="201">Ranking</td>
<td width="77">Sub-investment</td>
<td width="77">Sub-investment</td>
<td width="77">Investment</td>
</tr>
<tr>
<td width="201">Local currency international scale rating</td>
<td width="77">BB+</td>
<td width="77">BB+</td>
<td width="77">BBB-</td>
</tr>
<tr>
<td width="201">Outlook</td>
<td width="77">Stable</td>
<td width="77">Stable</td>
<td width="77">Review for downgrade</td>
</tr>
<tr>
<td width="201">Ranking</td>
<td width="77">Sub-investment</td>
<td width="77">Sub-investment</td>
<td width="77">Investment</td>
</tr>
<tr>
<td width="201">Date of last rating action</td>
<td width="77">24th November 2017</td>
<td width="77">23th November 2017</td>
<td width="77">24th November 2017</td>
</tr>
</tbody>
</table>
In response to the rating agencies&#8217; decisions the CEO Initiative said: &#8220;South Africa’s already fragile economic growth prospects and high levels of unemployment have been dealt another significant blow following Standard &amp; Poor’s downgrade of the country’s government debt denominated in local currency to sub-investment grade, and debt denominated in foreign currency to BB from BB+.
&#8220;Two of the three major ratings agencies now have South Africa’s foreign and local currency government debt classified as so-called ‘junk’ with only Moody’s retaining their local currency rating at the lowest level of investment grade, and placing the country’s credit on review for a downgrade. This makes it more expensive for our government to borrow money, and it increases the amount of the government budget that will be spent on interest. Importantly: it reduces the money available for housing, education, healthcare and social grants.
&#8220;While this downgrade does not cause South Africa’s government debt to be excluded from the World Government Bond Index, it will likely lead to capital outflows at a time when our country needs it most. It is especially concerning as the local currency downgrade affects approximately 90% of the government’s debt, of which an estimated 40% is currently held by foreigners who have invested in our country.
&#8220;This downgrade is a response to the mismanagement of government finances as evidenced in the sharply rising trajectory of the levels of government debt and fiscal deficits highlighted in the October Medium-Term Budget Policy Statement (MTBPS).
&#8220;Unfortunately, this action – combined with the downgrades already suffered earlier this year and a low-growth economic environment – will put more strain on already low levels of business and consumer confidence, and mean that the welfare of millions of ordinary South Africans is yet again significantly disadvantaged&#8221;.

S&P downgrades SA’s local debt to junk, Moody’s places it on review for downgrade

Written by Dr Conrad Beyers, Barclays Africa Chair in Actuarial Science at the University of Pretoria
Credit rating downgrades for South Africa that were widely expected for &#8220;Black Friday&#8221; (24 November) appear less likely after the resignation of Pres. Robert Mugabe of Zimbabwe.
Credit rating agencies cite political related risks as the major element in their ratings decisions for South Africa. For this reason, significant positive sentiment that accompanies the political transition in Zimbabwe, which may positively affect the entire SADC region, is likely to convince rating agencies to follow a &#8220;wait-and-see&#8221; approach before deciding to downgrade South African debt further.
It is still possible that we are downgraded on Friday. In the light of the recent game-changing events in Zimbabwe rating agencies may be reluctant to commit to drastic decisions in the short term. Past experience shows that it is not typical for rating agencies to err on the pessimistic side.
Rating agencies are very careful to retain their credibility. Rating agencies however carry a risk of being &#8220;proven wrong&#8221; over the coming months if South Africa is severely downgraded in the midst of positive sentiment and the accompanying (even slight) potential for positive developments in December at the South African ruling party&#8217;s elective conference.
Over the longer term, the likelihood of credit rating downgrades could still be high, depending on economic and social developments.
Note: The University of Pretoria hosts the Barclays Africa Chair in Actuarial Science – the views expressed by the holder of the Chair do not aim to represent any stance or viewpoint of Barclays Africa.

Has the resignation of Zimbabwe’s President Mugabe put SA’s downgrade on hold?

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S &#038; P on Friday, affirmed Nigeria&#8217;s rating at B/B with a stable outlook and said that improvements in the country&#8217;s oil sector will support higher economic growth.

S&P affirms Nigeria’s rating at B/B; outlook stable

Olivia Kumwenda-Mtambo | JOHANNESBURG
South Africa&#8217;s recession took economists by surprise, but for clothing shop owner Hans Setlhabi the gloomy numbers confirmed what he already knew &#8211; chronic unemployment and lofty inflation have shattered consumer confidence.
&#8220;I wasn&#8217;t surprised to hear about the recession. I saw that the economy was going down last year,&#8221; said 38-year old Setlhabi, staring at shelves piled high with clothes offered at discount prices.
&#8220;People don&#8217;t have money and for those who come in, they buy cheaper items and not the expensive ones.&#8221;
South Africa sank into recession for the first time in eight years in the first quarter, hit by weakness in consumer sectors such as wholesale, retail and accommodation.
The economic turmoil is piling pressure on President Jacob Zuma, who faces calls to step down from within the ruling African National Congress (ANC) as a string of corruption scandals, party infighting and sky-high unemployment erode public support ahead of elections in 2019.
The persistence of poverty and joblessness 23 years after the end of apartheid is also stoking anger, with unrest dubbed &#8220;service delivery protests&#8221; &#8212; taking place frequently.
Unemployment is at a 14-year high of 27.7 percent.
The government&#8217;s response to the gradually building economic crisis is due to be laid out later this week when Finance Minister Malusi Gigaba briefs the media how he will address the economic challenges.
Economists had expected the economy to expand, helped by a recovery in mining and agriculture, but surprise contractions in the rest of the economy led it to shrink.
Rising unemployment, high interest rates and a drop in purchasing power after a drought last year have all driven consumer prices up and hammered consumer confidence.
&#8220;I used to go into a shop and fill a trolley with groceries to last my family a month but that&#8217;s not happening anymore,&#8221; said 68-year old Mabule Modiba, a retired salesman who recently started driving a taxi to make ends meet.
&#8220;I thought I was done working, but now I also have to look after my grandchildren because my kids don&#8217;t have jobs.&#8221;
South Africa&#8217;s inflation rose to 7 percent early 2016, breaching the central bank&#8217;s target of 3-6 percent, but has now eased to 5.3 percent as food price rises slow.
The Treasury has said the recession introduced &#8220;significant downward bias&#8221; to this year&#8217;s growth estimate of 1.3 percent, up from 0.3 percent in 2016. It means growth is more likely to fall than rise.
It also said that any policies introduced to combat the recession would be made within the current budget framework, in which South Africa aims to cut its budget deficit to 3.3 percent of national output in the next three years from the current 3.8 percent.
ZUMA&#8217;S PROMISE
To stem falling voter support for the ANC, Zuma has vowed to redistribute economic wealth to the poor, but this will be almost impossible with an economy contracting.
The ANC lost major cities in its worst ever local election results last year and opposition parties are becoming increasingly confident of ousting the party of Nelson Mandela at a parliamentary vote in 2019.
&#8220;What (the recession) does do is show what is at stake,&#8221; Nomura analyst Peter Attard Montalto said.
&#8220;If there can’t be reform, we are on this path where the ANC will lose power because they cannot create jobs.&#8221;
Unbridled lending fuelled a consumer frenzy that helped the South African economy grow by an average 5 percent a year in the five years before the 2009 recession.
But stricter lending rules since 2015, which require borrowers to produce bank statements and proof of income before retailers can grant them in-store credit accounts, have excluded some from buying on credit.
Results from clothing and furniture retailers such as Mr Price, Truworths and The Foschini Group show they have lost a combined total of 1 billion rand ($78 million) in sales since new rules were implemented.
Active credit accounts fell to 54 million in the first three months of the year, from a high of nearly 58 million in 2015.
&#8220;Consumers had to become conservative and try to live within their means, given the high risk that the economic environment could deteriorate further,&#8221; said Elize Kruger, an economist at NKC African Economics.
There is no relief in sight for traders like Setlhabi after a central bank official said cutting interest rates was not the answer to dragging South Africa out of recession. 
&#8220;I don&#8217;t see myself surviving if the economy doesn&#8217;t pick up,&#8221; Setlhabi said.
&#8220;If nothing changes in the next two to three years, then I will have to sell the shop.&#8221;
($1 = 12.8976 rand)
(Additional reporting by TJ Strydom and Olwethu Boso; Editing by Joe Brock/Jeremy Gaunt)
&nbsp;

For South Africans, economic pain hit long before recession

Olivia Kumwenda-Mtambo | JOHANNESBURG
South Africa&#8217;s rand steadied against the dollar early on Friday as the market awaited a credit rating decision from Moody&#8217;s expected late in the day.
At 0649 GMT, the rand traded at 12.9425 per dollar, from its overnight close of 12.9200 on Thursday.
South Africa sank into recession in the first quarter and investors worry this will prompt further rating downgrades.
Moody&#8217;s &#8212; whose Baa2 rating is two notches above &#8220;junk&#8221; &#8212; placed South Africa on review for a downgrade in April after a controversial cabinet reshuffle saw respected finance minister Pravin Gordhan was sacked.
<blockquote>&#8220;Moody’s will almost certainly downgrade South Africa late this afternoon. The big question is whether they also keep the outlook as negative: we do not think so but it is a close call,&#8221; Rand Merchant Bank currency strategist John Cairns wrote in a note.</blockquote>
S&amp;P Global Ratings cut South Africa&#8217;s foreign currency debt to speculative grade, while Fitch downgraded the country to &#8220;junk&#8221; for both foreign and local currency debt after the cabinet shake-up.
Market focus also on Britain where Prime Minister Theresa May&#8217;s Conservative Party lost its parliamentary majority in a general election.
Stocks were set to open slightly higher at 0700 GMT, with the JSE securities exchange&#8217;s Top-40 futures index up 0.23 percent.
In fixed income, the yield for the benchmark government bond due in 2026 added 2 basis points to 8.52 percent.
(Reporting by Olivia Kumwenda-Mtambo; Editing by Joe Brock)

South Africa’s rand steadies, focus on Moody’s rating decision

Fitch Ratings-Hong Kong-01 June 2017: Fitch Ratings has affirmed South Africa&#8217;s Long-Term Foreign- and Local-Currency Issuer Default Ratings (IDRs) at &#8216;BB+&#8217; with a Stable Outlook. The issue ratings on South Africa&#8217;s senior unsecured foreign- and local-currency bonds and on the sukuk trust certificates issued by RSA Sukuk No. 1 Trust have also been affirmed at &#8216;BB+&#8217;. The Short-Term Foreign- and Local-Currency IDRs and the rating on the short-term local-currency securities have been affirmed at &#8216;B&#8217;. The Country Ceiling has been affirmed at &#8216;BBB-&#8216;.
KEY RATING DRIVERS 
South Africa&#8217;s ratings are weighed down by low trend GDP growth, sizeable contingent liabilities and deteriorating governance. Positively, they are supported by deep local capital markets, a favourable government debt structure and a track record of fairly prudent fiscal and monetary policy.
A cabinet reshuffle at the end of March, which triggered an earlier downgrade of South Africa&#8217;s ratings, is likely to undermine governance of state-owned enterprises (SOEs), weaken fiscal consolidation and reduce private sector investment as a result of weaker business confidence. While efforts to improve the SOE governance framework will continue, implementation decisions, for example on appointments of senior SOE management, will hamper these efforts and could lead to weaker financial positions of SOEs and higher contingent liabilities for the government.
As the new Finance Minister has emphasised, the government&#8217;s commitment to existing fiscal targets still stands. As a result, it is unlikely that the government will raise its expenditure ceilings which have served as a key anchor for fiscal policy. The government is also likely to implement some tightening if, as is expected, revenue underperforms but the adjustment will be insufficient to keep deficit targets on track.
Senior ANC and government leaders have emphasised that the government&#8217;s recent rhetoric of &#8220;radical socioeconomic transformation&#8221; signals no fundamental change and that the government remains focused on the long-standing goal of inclusive growth. Documents released ahead of the ANC policy conference in June also indicate policy continuity, including on the sensitive issue of land expropriation. Severe tensions within the ANC also limit the ability to make radical policy changes but they also undermine policy predictability as it is unclear which factions will prevail on individual policy issues.
In-fighting within the ANC will remain particularly strong ahead of the electoral conference in December 2017, when the ANC will select a new party president. The new party leader will likely become the country&#8217;s president after national elections in 2019 or earlier. Even after the electoral conference, policy will still be influenced by competing factions in the ANC and the government will juggle multiple complex policy objectives, in particular improving business confidence and addressing the high degree of inequality.
South African GDP growth remains a key rating weakness, with a five-year average of just 1.6% compared with a &#8216;BB&#8217; category median of 3.5%. Growth fell to just 0.3% in 2016 and is expected to rise only moderately to just 1% in 2017 and 1.8% in 2018, as political uncertainty will continue to weigh on private investment. The recovery reflects lower inflation combined with stable wage growth, which will boost real consumer income. In addition, a record harvest in 2017 will boost growth after a severe drought had weighed on GDP growth in 2016.
The government&#8217;s February budget projected the consolidated national government deficit to narrow to 3.1% of GDP in FY17/18 (year end March) and 2.8% in FY18/19 from 3.4% in FY16/17. However, this relied on optimistic GDP growth forecasts of 1.3% for 2017 and 2% for 2018 and benign assumptions for tax multipliers. Particularly the gains from tax measures of 0.6% of GDP are uncertain. We expect the government to announce some expenditure cuts in its medium-term budget policy statement in October, but this will not fully offset the tax shortfall. As a result, we foresee a consolidated national government deficit of 3.3% in FY17/18 and 3.1% FY18/19.
South Africa&#8217;s general government debt, at 52.6% of GDP (including local government debt) in March 2017, is above the &#8216;BB&#8217; and &#8216;BBB&#8217; category medians of 51% and 41%, respectively. We expect debt to continue rising over the next two years, to 55.1% of GDP in FYE19. However, the low share of foreign currency debt in total debt, at 11.5% compared with a &#8216;BB&#8217; median of 51%, and the long average maturity of its bonds of 14.7 years reduce the risk of financing difficulties.
The government has guarantees for SOEs, independent power producer contracts and public-private partnerships of ZAR445 billion (10.1% of GDP). In addition, at FYE16 SOEs&#8217; debt without an explicit government guarantee totalled ZAR463 billion (10.5% of GDP). Given the weak state of SOE finances, the problems in SOE governance and the importance of SOEs for the country&#8217;s economy and politics, the risk that some of this debt will land on the sovereign balance sheet is substantial.
The risks are illustrated by the problems of South African Airways, which the Ministry of Finance deems technically insolvent, although its liabilities are small. Eskom, as the biggest recipient of government guarantees, received significant capital injections from the government in 2015 but is not expected to require further support in the near term. South Africa&#8217;s plan to build 9.6GW of nuclear electricity capacity, to be implemented by Eskom, could raise government exposures significantly. However, a court decision in April has significantly delayed progress towards signing procurement contracts, as the government will need to relaunch consultations.
South Africa&#8217;s current-account deficit has narrowed to 3.2% of GDP in 2016 from a peak of 5.9% in 2013 and is likely to remain around 3% in 2017 and 2018. Weak growth of domestic demand, particularly import-intensive private investment, has led to import compression. A weak rand has also improved the competitiveness of domestic goods and services. Recent strengthening of prices for some of South Africa&#8217;s key export commodities will also support export receipts and the strong harvest will reduce the need for food imports. Reserves are low relative to financing requirements and the high commodity share in exports adds to volatility in export receipts, but the fully flexible exchange rate will act as a buffer for external financing shocks.
Most indicators of economic development are in line with &#8216;BB&#8217; category medians. GDP per capita at market prices is estimated at USD5,246 for 2016, compared with a median of USD5,058. The World Bank&#8217;s governance indicator, at the 59th percentile, is well above the &#8216;BB&#8217; median but this may not adequately reflect governance issues that were highlighted in the recent state of capture report by the public prosecutor and governance may deteriorate as a result of the government reshuffle. The rating is supported by a sound banking sector, which has a Fitch Bank Systemic Risk Indicator of &#8216;bbb&#8217;.
SOVEREIGN RATING MODEL (SRM) and QUALITATIVE OVERLAY (QO) 
Fitch&#8217;s proprietary SRM assigns South Africa a score equivalent to a rating of &#8216;BBB&#8217; on the Long-Term Foreign-Currency IDR scale.
Fitch&#8217;s sovereign rating committee adjusted the output from the SRM to arrive at the final Long-Term Foreign-Currency IDR by applying its QO, relative to rated peers, as follows:
Macroeconomic Performance, Policies and Prospect: -1 notch, to reflect South Africa&#8217;s weak growth prospects relative to the &#8216;BB&#8217; and &#8216;BBB&#8217; category medians, with important repercussions for public finances.
Structural Features: -1 notch, to reflect the expected deterioration in governance standards, particularly related to SOEs.
Fitch&#8217;s SRM is the agency&#8217;s proprietary multiple regression rating model that employs 18 variables based on three year-centred averages, including one year of forecasts, to produce a score equivalent to a Long-Term Foreign-Currency IDR. Fitch&#8217;s QO is a forward-looking qualitative framework designed to allow for adjustment to the SRM output to assign the final rating, reflecting factors within our criteria that are not fully quantifiable and/or not fully reflected in the SRM.
RATING SENSITIVITIES 
The following risk factors could, individually or collectively, result in negative rating action:
&#8211; A marked increase in the government debt/GDP ratio or in contingent liabilities;
&#8211; A further deterioration in South Africa&#8217;s trend GDP growth, for example, due to sustained uncertainty about economic policy;
&#8211; Rising net external debt to levels that raise the potential for serious financing strains.
The following risk factors could, individually or collectively, result in positive rating action:
&#8211; A substantial strengthening in trend GDP growth;
&#8211; An improvement in governance that is supportive of public finances and the business climate;
&#8211; A marked narrowing in the budget deficit and a reduction in the government debt/GDP ratio.
KEY ASSUMPTIONS 
Fitch expects global economic trends and commodity prices to develop as outlined in Fitch&#8217;s Global Economic Outlook.

Fitch Affirms South Africa at junk; Outlook Stable

Mfuneko Toyana | JOHANNESBURG
Fitch is very concerned that South Africa&#8217;s economic and political situation is not improving, the country&#8217;s second largest federation of trade unions said on Tuesday after it held talks with the ratings agency.
In April, Fitch cut South Africa&#8217;s debt to subinvestment, citing the recent cabinet reshuffle, when President Zuma fired his third finance minister in two years and which it feared would weaken standards of governance and public finances.
Firing Pravin Gordhan while he was abroad on an investor roadshow and the subsequent sovereign downgrade rattled local markets and investors worldwide.
The Federation of Unions of South Africa&#8217;s (FEDUSA) General Secretary Dennis George told Reuters that Fitch said it was also worried about the lack of progress in reforming state firms.
<blockquote>&#8220;They wanted to know how we see the future and what we see happening at the (ruling African National Congress) ANC elective conference in December,&#8221; said George, who was meant to be part of the contingent accompanying Gordhan overseas on the roadshow.</blockquote>
The ruling ANC elects its next leader, who will contest national polls in 2019. The cabinet purge that saw Gordhan removed is seen by analysts as part of a wider power-struggle between factions in the party jostling for top positions and control of state-owned entities (SOE).
&#8220;Fitch are very concerned about what is happening in the country and the fact that things are not getting better, they&#8217;re getting worse,&#8217; George said.
&#8220;They also agreed with us that we can&#8217;t keep bailing out the state-owned companies,&#8221; he said.
Government guarantees to state firms are set to increase to nearly 500 billion rand ($38 billion) in 2017, about a quarter of the total debt, according to the treasury, which says the firms represent a significant risk to already stretched finances.
When Fitch downgraded the rating, it said the reshuffle was likely to &#8220;undermine progress in SOE governance&#8221;, raising the risk that the firms&#8217; debt could migrate onto the government&#8217;s balance sheet.
Fitch was not immediately available for comment.
(Editing by Louise Ireland)
&nbsp;

Fitch “very concerned” situation in South Africa not improving: union

Moody&#8217;s Investors Service is maintaining its stable outlook on the Nigerian banking system, reflecting the rating agency&#8217;s view that acute foreign-currency shortages will gradually ease, though loan risks will remain high.
The outlook expresses Moody&#8217;s expectation of how bank creditworthiness will evolve in Nigeria over the next 12-18 months.
Moody&#8217;s report, entitled &#8220;Banking System Outlook: Nigeria,&#8221; is available on <a href="http://www.moodys.com">www.moodys.com</a>. Moody&#8217;s subscribers can access this report via the link provided at the end of this press release.
&#8220;With oil prices and economic activity gradually recovering in Nigeria, we expect banks&#8217; dollar liquidity pressures to gradually ease over our 
outlook period,&#8221; says Akin Majekodunmi, Vice President and Senior Analyst at Moody&#8217;s. &#8220;However, we expect asset quality to worsen slightly over the outlook period, as historically low oil prices, currency depreciation and economic contraction experienced in 2016 continue to generate new nonperforming loans in 2017.&#8221;
The rating agency expects Nigeria to see real GDP growth of 2.5% in 2017 and 4% in 2018, after a 1.5% contraction last year, as noted in March 2017. The revival will be supported by government measures to expand non-oil sectors and its commitment to fund large infrastructure projects, as well as by a partial rebound of global oil prices from lows last year.
Risks to asset quality are likely to remain high, with nonperforming loans (NPLs) likely to rise to between 14-16% from 14% at end-2016. They should, however, reach a peak as write-offs, loan restructurings, and the strengthening economy take effect.
Nigerian banks should have sufficient capital to absorb expected losses, though Moody&#8217;s expects system-wide tangible common equity (TCE) to only decline slightly to 14.1% of adjusted risk-weighted assets by year-end 2018 from 14.7% at the end of 2016. The slight shift is primarily due to increased loan-loss provisions and the effect of further expected naira depreciation on the balance of risk-weighted assets denominated in foreign currency.
Moody&#8217;s also sees the banks&#8217; loan-loss provisioning weakening their net profitability. The rating agency expects return on assets to decline to around 1% in 2017 from 1.3% at the end of 2016 on account of high provisioning costs at around 3% of gross loans. System-wide pre-provision income will likely remain robust, however, at around 4% of average total assets, supported by high yields on government securities and profits on open foreign currency positions.
Lastly, Moody&#8217;s considers there to be a high probability of the Nigerian government supporting banks in case of need, given the significant 
consequences of a bank collapse to both the payments system and the wider economy.
Subscribers can access the report at: 
<a href="http://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1069058">http://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1069058</a>

Moody’s maintains stable outlook on Nigerian banking system as dollar  shortages set to ease

S&amp;P Global Ratings reiterated its concerns on Tuesday about weak economic growth, political tensions and policy reform in South Africa, which faces the prospect of downgrades to its sovereign credit ratings which would raise the cost of borrowing.
The political temperature has been rising in Africa&#8217;s most industrialised economy ahead of the ruling African National Congress (ANC) party&#8217;s key policy and leadership conferences this year, to chart the country&#8217;s economic and political course. A successor to President Jacob Zuma as head of the party is due to be elected at the ANC&#8217;s conference in December.
&#8220;If we see a lot increasing political tensions, infighting in state institutions which could derail the government’s plans in boosting economic growth then that can impact on our forecasts on growth,&#8221; Gardner Rusike, S&amp;P associate director told a conference.
S&amp;P has cited &#8220;political turmoil and tension&#8221; before and the issue clearly remains high on the investment radar screen.
Growth has also been a persistent concern. South Africa&#8217;s economy grew by 0.3 percent in 2016 versus 1.3 percent in 2015, well short of the government&#8217;s target of 5 percent.
(Reporting by Olivia Kumwenda-Mtambo; Writing by Ed Stoddard; Editing by James Macharia)
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S&P reiterates growth, policy & politics as concern to South Africa rating

South Africa&#8217;s Standard Bank Group Ltd reported a 4 percent rise in full-year profit on Thursday as the threat of a sovereign ratings downgrade weighed on its home market.
Standard Bank posted headline earnings per share (EPS) of 1,389 cents for the period to end-December, compared with 1,359 cents the previous year. Headline EPS is the main profit measure in South Africa and excludes certain one-off items.
&#8220;In South Africa, the threat of a sovereign downgrade by rating agencies to sub-investment grade persisted throughout the year. This in turn negatively impacted the already weak business and consumer confidence and further delayed much needed domestic investment and job creation opportunities,&#8221; Standard Bank said in a statement.
 
(Reporting by TJ Strydom; Editing by Subhranshu Sahu)﻿

South Africa's Standard Bank posts 4 pct rise in FY profit

By now everyone has had some time to digest the Budget Speech, and specifically how the R28 billion increase in the tax burden that largely falls on individuals will impact us. The new top marginal tax bracket of 45% only applies to 103 000 taxpayers, who will on average pay R3 500 per month more in income tax. There are 7.4 million registered individual taxpayers in South Africa, but  6.5 million fall below the threshold income and don’t pay income tax.
The immediate market reaction to the Budget was fairly positive, but South African markets are so closely connected to global markets that it is often difficult to disentangle domestic from foreign drivers. Ultimately, one wouldn’t expect a big market reaction because the October mini-Budget already gave clear direction; last week was just a case of giving us the details.
Commitment to narrow the deficit
The 2017 Budget retains a commitment to narrowing the budget deficit to an internationally acceptable level of 2.6% of GDP over the medium term and stabilising the government debt to GDP ratio. Fortunately, unlike the previous four years, the global climate is more favourable this year. Global economic activity is speeding up, especially in Europe where economic growth has reached its fastest rate in six years and positive business and consumer sentiment suggests that it will be maintained.
Similarly, Japan is enjoying decent growth (by its standards). US economic growth is strong enough for the Federal Reserve to consider an interest rate increase soon. Commodity prices have firmed up substantially over the past year, and investor sentiment towards emerging markets has improved, reversing the sustained capital outflows of the previous five years. When Minister Gordhan delivered the Budget Speech last year – soon after he was parachuted into the position – the rand was at R15.26 against the US dollar. Last week, it closed at R12.94.
South Africa benefits from all these trends, and the local economic outlook has therefore improved. In the short term, fiscal consolidation is a drag on economic growth, but should not derail this recovery. Whereas the economy barely grew in real terms last year, Treasury expects growth to rise to 2.2% over the next three years. These numbers represent an improvement off a low base, however, and will not dent the unemployment rate.
Perhaps the biggest criticism of the Budget was the lack of reform announcements and measures to stimulate growth. But it is important to remember that the Minister of Finance and the National Treasury control Government’s finances and not economic policy and implementation.
Hurdles for a ratings reprieve
Consider the ratings outlook, for instance. In a recent panel discussion, S&amp;P Global’s local representative reiterated that South Africa’s ratings hinge on three issues. Firstly, expectations for improvement in economic growth and fiscal performance. Secondly, signs of weakening institutions would put downward pressure on ratings since it could lead to a deteriorating investment climate. Thirdly, risks posed to Government’s finances by the State Owned Enterprises (SOEs).
Of the above, the Minister only has direct control over the fiscal performance, and even there not as much as he would like. To begin with, the overall thrust of fiscal policy is a Cabinet decision, not Treasury’s alone. But the actual outcome of fiscal policy is dependent on the performance of the economy. The problem over the past four years has precisely been that the weak economy has put tax revenue under pressure. Complicating matters somewhat is that the economy responds to fiscal policy too. For instance, sharp tax hikes could choke off the nascent recovery. On the other hand, tax incentives can encourage growth and job creation in targeted sectors, as the World Bank recently pointed out.
South Africa’s institutional strength was stress-tested last year. When flimsy charges were brought against Pravin Gordhan, the combination of media freedom, a vibrant civil society and independent courts prevailed. And our central bank was willing to hike rates to maintain its inflation-fighting credentials even though there was an election around the corner. The election itself and the subsequent peaceful transfer of power in key metros also demonstrated the strength of our institutions. Few, however, doubt that 2017 will see further strains as we gear up for the ruling party’s elective conference at year-end. Major policy shifts before the conference are unlikely.
In terms of the SOEs, there is some control by Treasury, since Treasury signs the guarantees that make up Government’s contingent liabilities of around 10% of GDP. But the overall structure, objectives and governance of the SOEs rests with Cabinet, not with Treasury. The financial underperformance of the large SOEs &#8211; the return on equity of the 16 largest SOEs in the 2015/16 fiscal year was only 0.8%, well below any reasonable estimate of the cost of capital &#8211; is not only a drag on the fiscus, it can also hamper economic growth.
It is also important not to lose sight of South Africa’s ratings strengths. These include world-class financial markets and a well-capitalised banking sector. Government is therefore not dependent on borrowing in fickle foreign markets, exposing it to currency swings (foreign debt is only 10% of the R2 trillion total).
As long as economic growth improves in the short term, and provided there is no institutional deterioration, South Africa can hold on to its investment grade rating. This would be a positive surprise, given that global market pricing places us in the same camp as other “junk” economies like Russia and Brazil.
Structural reform needed
Faster economic growth over the longer term is not only important for job creation, it is also necessary for fiscal sustainability as it will lead to growing tax revenues for Government, which can be spent on welfare, education and health without resorting to additional borrowing. Structural reforms to lift the long-term growth rate include lowering barriers of entry to increase competition between firms, providing young people with easier access to the job market, ensuring fewer strikes, improving transport infrastructure, attracting skilled immigrants until such time as our own people are better equipped, effective land reform and greater regulatory certainty, especially in capital-intensive industries like mining.
The first chapter of the Budget Review highlights that 2016 was the first year private fixed investment contracted since global recession, a sign of rock-bottom confidence. It then lists a number of items on Government’s to-do list that could lift investment (including finalising mining regulation, expanding the independent power programme, and concluding analogue to digital migration) where responsibility rests with other departments within Government. Unsaid, of course, is the lack of certainty around the position of the Finance Minister, which has drained business and investor confidence over the past 14 months.
 
Chart 1: Rand-dollar exchange rate
 <img loading="lazy" decoding="async" src="/media/19341300/old_mutual_chart_1_27_feb_2017_598x294.jpg" width="598" height="294" alt="Old Mutual Chart 1 27 Feb 2017"/>﻿
Source: Datastream
 
Chart 2: Projected consolidated budget deficits
<img loading="lazy" decoding="async" src="/media/19341307/old_mutual_chart_2_27_feb_2017.png" width="568" height="265" alt="Old Mutual Chart 2 27 Feb 2017"/>﻿
 
Source: National Treasury﻿

S.A: Beyond the 2017 Budget

Ratings agency Standard &amp; Poor&#8217;s said on Tuesday rising political tensions in South Africa amid infighting in the ruling African National Congress could derail government efforts to improve policy implementation and that Pretoria had little room to boost spending.
&#8220;South Africa&#8217;s fiscal space, or the flexibility its government has to increase its spending to boost the economy, is now limited,&#8221; S&amp;P said in response to questions raised by investors on South Africa during a webcast.
S&amp;P downgraded South Africa&#8217;s local debt by one notch to BBB in December but kept the country&#8217;s sovereign credit rating unchanged at BBB-, one level above &#8220;junk&#8221; status.﻿

S&P says concerned by South Africa's political tensions

Carlyle Group has agreed to become the largest shareholder in Johannesburg-based Global Credit Ratings (GCR), the U.S. buyout fund said on Tuesday, looking to broaden the pan-African ratings agency&#8217;s services.
Terms of the deal, which was first reported by the Financial Times, were not disclosed.
Carlyle is set to buy around half of the equity in GCR from its management founders and German development finance business DEG, which will remain invested in the company, Carlyle said.
GCR serves 400 customers across 20 countries and is the only ratings agency to have a strong presence in multiple geographies across Africa.
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&#8220;The business plays a critical role in deepening African capital markets and we look forward to working with management to continue to develop and broaden the company’s service offerings,&#8221; Steve Burn-Murdoch, a Vice President on the Carlyle Sub-Saharan Africa team, said in a statement.
Carlyle raised $698 million for its Africa buyout fund in 2014, exceeding its $500 million target.
In November, Carlyle, which has $169 billion of assets under management, agreed to buy a majority share of CMC Networks, a pan-African telecommunications business.
In September, it agreed to buy a majority share of Amrod, a supplier of promotional products and clothing in South Africa and neighbouring countries.
Carlyle is already invested in the sector, having partnered with private equity fund Warburg Pincus and a consortium of Canadian-based individual investors to acquire the world&#8217;s fourth largest global credit ratings agency DBRS in 2015.
Founded more than two decades ago as the African arm of the New York Stock Exchange-listed Duff &amp; Phelps, GCR expanded through acquisitions, alliances, and organic growth, and says it assigns more credit ratings in Africa than S&amp;P, Moody’s and Fitch combined.﻿

Carlyle to become largest shareholder in S.Africa's Global Credit Ratings

South Africa&#8217;s rand firmed in early trade on Monday as the dollar slipped and rating agencies Fitch and Moody&#8217;s affirmed sovereign investment-grade credit ratings.
﻿

South Africa's rand firms after Fitch & Moody's ratings

Fitch Ratings has revised the Outlooks on South Africa&#8217;s Outlook to Negative from Stable, while affirming the Long-Term Foreign and Local Currency Issuer Default Ratings (IDRs) at &#8216;BBB-&#8216;.
The issue ratings on South Africa&#8217;s senior unsecured long-term foreign- and local-currency bonds have also been affirmed at &#8216;BBB-&#8216;. The Country Ceiling has been affirmed at &#8216;BBB&#8217;. The Short-Term Foreign and Local Currency IDRs and the issue ratings on senior unsecured short-term local currency securities have been affirmed at &#8216;F3&#8217;. The rating on the RSA Sukuk No. 1 Trust has also been affirmed at &#8216;BBB-&#8216;, in line with South Africa&#8217;s Long-Term Foreign Currency IDR.
KEY RATING DRIVERS
The revision of the Outlooks on South Africa&#8217;s Long-Term IDRs to Negative reflects the following key rating drivers:
Political risks to standards of governance and policy-making have increased and will remain high at least until the electoral conference of the African National Congress (ANC) in December 2017, negatively affecting macroeconomic performance. The conference will elect a new ANC leader, who will be the ANC&#8217;s presidential candidate in national elections in 2019.
The in-fighting within the ANC and the government is likely to continue over the next year. In Fitch&#8217;s view, this will distract policymakers and lead to mixed messages that will continue to undermine the investment climate, thereby constraining GDP growth. A report by the public protector made allegations of influence peddling and improper procurement practices involving close allies of the president, although it will be subject to a judicial review and a commission of enquiry. The report underlines the risks to state-owned enterprise (SOE) governance and has led to the resignation of the CEO of the state-owned electricity company Eskom.
The South African economy may have started recovering from a series of shocks, but business confidence remains depressed and investment has continued to contract. We expect only modest GDP growth of 1.3% in 2017 and 2.1% in 2018, although this is an improvement from 0.5% in 2016. The economy had been hit in 2015 and 2016 by electricity shortages, the worst drought in decades, a sharp fall in international prices for some of South Africa&#8217;s main mining commodities and rising policy uncertainty.
As a result of low GDP growth and weaker-than-expected tax revenues, the government in its Medium-Term Budget Policy Statement (MTBPS) raised the budget deficit forecast for the fiscal year ending March 2017 (FY16/17) to 3.4% of GDP from 3.2% in the February budget, with a gradual narrowing to 3.1% in FY17/18, 2.7% in FY18/19 and 2.5% in FY19/20. The deterioration would have been worse without the government&#8217;s decision, announced in the MTBPS, to raise additional revenue of ZAR13bn and lower the expenditure ceiling in FY17/18. Together with measures included in the February budget, fiscal tightening in FY17/18 relative to previous plans will amount to 1% of GDP. The government has not announced which taxes are to be raised, but the fiscal targets now look only mildly optimistic. Fitch expects the deficit to shrink to 2.8% in FY18/19 from 3.2% in FY17/18.
Total general government debt (including local government debt not covered by the MTBPS debt numbers) will rise to 55% at end-March 2019 from 51.5% at end-March 2016. The debt structure remains highly favourable, with 90.7% of debt denominated in local currency and an average maturity of government debt securities of 14.6 years at end-September 2016.
Additional spending on student bursaries as a result of student protests was absorbed by using the contingency reserve, some one-off financing and a re-prioritisation of other expenditures, but the protests showed that social pressures could lead to further spending needs. Growth of the working age population of around 2% and high and rising unemployment, at 27.1% in the third quarter, also contribute to spending pressures. However, the fact that expenditure ceilings introduced in 2012 have never been breached suggests such pressures have so far been well managed.
Debt of SOEs remains an important contingent liability to the sovereign. Debt of the nine major SOEs amounted to ZAR743bn (18.2% of GDP) at end-March 2016, of which ZAR280bn was subject to government guarantees. In addition, the government provides guarantees on electricity prices to independent power producers complementing Eskom&#8217;s electricity generation.
ANC factional battles may undermine government efforts to improve the governance of SOEs, which could affect the plan to stream-line the SOE portfolio. The plan to build nuclear power stations has run into substantial opposition because of concerns about governance. As a result, the government announced in November that the first plant will not be commissioned until 2037, alleviating concerns over any medium-term fiscal impact.
The &#8216;BBB-&#8216; Long-Term IDRs also reflect the following drivers:
The net international investment position turned positive in 2015, at 13% of GDP, for the first time since at least 1990, although this was largely due to the depreciation of the rand. The current account deficit also remained on a narrowing trend in 1H16, partly reflecting import compression as well as a lagged effect of earlier depreciation on competitiveness so that the current account deficit is likely to shrink to 3.9% of GDP, from 4.3% in 2015. However, imports will strengthen again as the economy recovers gradually and gains in competitiveness could be eroded by continued high wage growth, leading to a renewed widening in the current-account deficit in 2017 and 2018.
Despite weak macroeconomic conditions, the banking sector remains a rating strength. The total capital adequacy ratio of the system increased to 15.5% in September from 14.2% at end- 2015. However, total domestic credit growth slowed to 7.5% in August, the lowest since 2014 and only moderately above inflation. Non-performing loans stood at 3.2% of total assets, barely above the trough of the current cycle of 3.1%, although a gradual rise is expected, reflecting the rising average age of assets and the impact of continued economic weakness on asset quality. Inflation has risen back above the upper limit of the inflation target range of 3%-6% of the South African Reserve Bank (SARB) but is likely to ease, to an average of 5.6% in 2018, so that SARB is unlikely to further raise its interest rates beyond the current level of 7%.
Indicators of economic development are weaker than &#8216;BBB&#8217; category medians. GDP per capita at market prices is estimated at USD5,140 for 2016, compared with a median of USD9,188. The World Bank&#8217;s governance indicator is broadly in line with the median but this might not fully reflect the recent political tensions.
SOVEREIGN RATING MODEL (SRM) and QUALITATIVE OVERLAY (QO)
Fitch&#8217;s proprietary SRM assigns South Africa a score equivalent to a rating of &#8216;BBB-&#8216; on the Long-Term Foreign Currency IDR scale.
In accordance with its rating criteria, Fitch&#8217;s sovereign rating committee decided not to adopt the score indicated by the SRM as the starting point for its analysis because the SRM output has migrated to &#8216;BBB-&#8216; from &#8216;BBB&#8217;, but in our view this is potentially a temporary deterioration that may not be sustained.
Consequently, Fitch&#8217;s sovereign rating committee kept the starting point for the qualitative overlay adjustment at &#8216;BBB&#8217; and adjusted the output from the SRM to arrive at the final Long-Term Foreign Currency IDR by applying its QO, relative to rated peers, as follows:
&#8211; Macroeconomic Performance, Policies and Prospect: -1 notch, to reflect South Africa&#8217;s weak growth prospects relative to the &#8216;BBB&#8217; category median, with important repercussions for public finances.
Fitch&#8217;s SRM is the agency&#8217;s proprietary multiple regression rating model that employs 18 variables based on three-year centred averages, including one year of forecasts, to produce a score equivalent to a Long-Term Foreign Currency IDR. Fitch&#8217;s QO is a forward-looking qualitative framework designed to allow for adjustment to the SRM output to assign the final rating, reflecting factors within our criteria that are not fully quantifiable or not fully reflected in the SRM.
RATING SENSITIVITIES
The following risk factors could, individually or collectively, result in a downgrade:
&#8211; Continued political instability that adversely affects standards of governance, the economy or public finances.
&#8211; A failure to stabilise the government debt/GDP ratio or an increase in contingent liabilities.
&#8211; Failure of GDP growth to recover sustainably, for example, due to sustained uncertainty about economic policy.
&#8211; Rising net external debt to levels that raise the potential for serious financing strains.
The Outlook is Negative. Consequently, Fitch does not currently anticipate developments with a high likelihood of leading to an upgrade. However, future developments that may, individually or collectively, lead to a positive rating action include:
&#8211; A track record of improved growth performance.
&#8211; A marked narrowing in the budget deficit and a reduction in the government debt/GDP ratio.
&#8211; A narrowing in the current account deficit and improvement in the country&#8217;s net external debt/GDP ratio.
KEY ASSUMPTIONS
Fitch expects global economic trends and commodity prices to develop as outlined in Fitch&#8217;s September Global Economic Outlook. ﻿

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