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Moody's cuts ratings of four more top banks

Johannesburg - Moody's on Tuesday downgraded the credit rating of four top South African banks, after the government was forced to bailout troubled lender African Bank Limited [JSE:ABL] (African Bank).

In a statement, the ratings agency said it had downgraded Standard Bank, Absa, FNB and Nedbank by one notch to Baa1, in a move sure to raise more questions about the health of the vital sector.

Last week, the ratings agency downgraded Capitec by two notches, and placed it on review for a further downgrade, because of a lower likelihood of support from the SA Reserve Bank (Sarb) following the African Bank fiasco.

Moody's said the terms of African Bank's roughly R17bn bailout showed investors in other larger banks were less likely to be bailed out if they hit trouble.

There was now a "lower likelihood of systemic support from South African authorities to fully protect creditors in the event of need," it said in a statement.

The lender was crippled when too many South Africans were unable to pay back loans it had made to them without demanding collateral.

The response among investors has been muted, with many seeing African Bank's failure as a one off.

While many South African banks had made similar "non-secured" loans, most notably Capitec, they also have other profitable lines of business that should help cover losses and have many more depositors.

But Moody's decision will raise doubts about even the biggest banks, which are deeply enmeshed in the global financial system.

The agency also warned that further downgrades could be on the way, citing "weaker economic growth" and high inflation in South Africa, which is could pressure highly indebted consumers.

That is "likely to lead to higher credit costs for the banks," it warned.

The financial sector accounts for as much as a quarter of the economy and is by far the most developed on the continent, playing a key role in financing projects across Africa.

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