Moody calls junk status: Land Bank first SOE slapped with poor rating

Moody calls junk status: Land Bank first SOE slapped with poor rating

- The Land Bank has been downgraded to junk status by rating agency, Moody's

- The agency has also revised its outlook to negative in a recent statement

- The Land Bank has now become the first state-owned enterprise to be rated below investment grade

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While Transnet and Eskom have managed to remain above investment grade, the Land Bank has not been so lucky.

In a statement, rating agency Moody's announced that it has downgraded the SOE to junk status, revising its outlook to negative:

“The ratings downgrade reflects Moody’s assessment that ongoing fiscal challenges suggest that the South African government will be more selective in dispersing financial support to state-owned enterprises, including to Land Bank."

The Citizen reports that the bank's long-term issuer rating slumped fro Baa3 to Ba1, the first state-owned enterprise to be slapped with a below-investment grade rating by Moody's.

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Briefly.co.za gathered that this came as no surprise, with Moody's issuing a warning ahead of the downgrade late last year.

The ratings agency had explained that the Land Bank's profile was riskier than the average in the global banking sector.

One of the reasons for the downgrade was an increase in non-performing loans. This is where clients have either defaulted or are at high risk of failing to make timely payments.

The Land Bank's non-performing loans increased from 3.6% to 17.9% during the past financial year.

The bank has fingered the drought, an economic burden for South African farmers, as the reason for the slump.

Moody's also commented on the uncertainty over the bank's leadership vacuum as a concern:

“While the rating agency acknowledges initiatives taken by Land Bank to strengthen governance in light of generally heightened attention to South African state-owned enterprises, the prolonged period of uncertainty in relation to appointing a permanent CEO who will ensure sustained oversight of the bank’s operations and strategic direction is a cause for concern. For Land Bank, corporate governance remains a key credit consideration."

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Source: Briefly.co.za

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