(Recasts with downgrade comment by CEO)
JOHANNESBURG, Sept 8 The chief executive of
South African's biggest lender by market value FirstRand Ltd
said the chances of a sovereign downgrade for Africa's
most industrialised country this year had risen due to a
stagnant economy and political uncertainty.
Johan Burger said on Thursday after reporting the bank's
annual results that a downgrade would negatively impact lending
and lead to banks tightening credit extension. The central bank
has forecast growth at zero percent this year.
FirstRand reported a 5 percent rise in full-year headline
earnings per share (EPS), slower than the previous year which it
blamed largely on a sluggish economy, sending its shares down
nearly 3 percent in early trade.
"The probability has actually increased for a downgrade," he
told Reuters. "That would have a negative impact on lending."
Burger said a downgrade could hurt clients' ability to
afford credit as the currency weakens and interest rates rise.
"Low growth combined with weaker balance sheets of some
state-owned enterprises (SOEs) has added fiscal risk which is
likely to result in a sovereign downgrade by the end of 2016,"
FirstRand said in a statement.
Moody's rates South Africa two notches above junk, while
both S&P and Fitch left ratings at BBB- in June, one notch above
junk, however both agencies warned about the weakness of growth
and heightened political risks.
A police investigation into Finance Minister Pravin Gordhan
over a surveillance unit set up years ago at the tax agency when
he headed the department has rocked local markets and led to
concerns that ratings agencies could downgrade the country in
their reviews expected by December.
State-owned enterprises, such as national carrier South
African Airlines and power utility Eskom have struggled
financially and relied heavily on government guarantees.
FirstRand, which owns First National Bank and vehicle
finance unit Wesbank, said headline EPS rose to 399.3 cents in
the year to June 30 from 381.4 cents a year earlier.
Earnings were lifted by a 13 percent increase in net
interest income and a 7 percent rise in non-interest revenue.
Headline EPS is the main profit measure in South Africa; it
strips out certain one-off items.
Shares in FirstRand fell 2.4 percent to 46 rand by 0837 GMT,
compared to a 0.4 percent decline in the benchmark Top-40 index
(Reporting by TJ Strydom; Editing by James Macharia)