South Africa’s banks, already battling slowing profit growth amid sluggish economic expansion, now face declining returns and rising bad debts after S&P Global Ratings cut the sovereign’s credit rating to junk.
“This is bad for banks’ net return on assets and return on equity, not just via lower performance on existing assets, but also via a higher incidence of non-performing loans,” Adrian Saville, chief strategist at Citadel Wealth Management, said in emailed comments on Tuesday.
“The real issue is the impact on economic growth, industrial performance and employment. There is an unambiguous negative relationship between economic growth and bank assets.”
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