Downgrade for Investec

Moody's lowered the bank financial strength ratings assigned to five South African banks, including Investec Bank Limited, by one notch to reflect the impact of deteriorating operating and macro conditions on the banks' credit risk profiles.

Investec's bank financial strength rating was lowered to 'C-'  from 'C' but the rating outlook on its senior and subordinated foreign currency was changed to stable from negative, to reflect an assessed high probability of systemic support.

Although South Africa's economy has been quite resilient to the global crisis, weakening macroeconomic conditions, including an estimated GDP contraction in 2009 of 2 per cent, is exerting additional pressure on the banking sector's financial fundamentals and, specifically, on the banks' asset quality and profitability indicators.

Moody's rating action also captures the challenges faced by South African banks in their efforts to diversify and lengthen their funding profile. The leading South African banks have limited dependence on market and foreign currency funding. However, significant retail savings disintermediation has led to some structural funding issues, such as a dependence on wholesale/professional deposits.

Although risks are mitigated by exchange controls which ensure that rand liquidity is 'trapped' in the local banking system, efforts by the banks to diversify and lengthen their funding profile have been challenged by the impact of the global liquidity crisis.
Investec (Australia) has A$850 million of bonds on issue in the domestic market, A$600 million of which are guaranteed by the Australian government.