The South African Reserve Bank’s Prudential Authority (PA) has confirmed its intention to derecognise Moody’s Investors Service South Africa as an eligible external credit assessment institution (ECAI), with a 24-month transition period running to April 2028.
Source: Supplied. Jatin Kasan, Forvis Mazars audit partner – financial services.
While the regulatory mechanics are now well understood, attention is shifting to how this is unfolding across South Africa’s financial sector in practice.
From engagement with banks, insurers and asset managers, the impact is not being viewed as a crisis, but rather as a meaningful inflection point reshaping credit-risk approaches, governance frameworks and the use of external ratings.
A regulatory change, not a market shock: It is important to separate perception from substance. The derecognition relates to Moody’s local operating entity and does not affect South Africa’s sovereign rating or global Moody’s opinions relied on by offshore investors. Nor does it reflect a deterioration in South Africa’s financial system or supervisory credibility.
The PA’s response - providing a clear transition window rather than an abrupt cut‑off - has reinforced confidence in the strength and predictability of South Africa’s prudential framework. Across our client base, we are seeing structured response planning rather than market anxiety.
What banks are doing now: For banks, the issue is primarily technical and regulatory. Institutions using the standardised approach to credit risk are assessing how existing exposure mappings to Moody’s Ratings‑SA will migrate to other recognised ECAIs within the transition period. This has triggered reviews of rating‑agency concentration risk, refinements to internal credit-risk governance, and early co-ordination between risk, finance and Internal Capital Adequacy Assessment Process, (ICAAP) teams.
Most larger banks had already diversified external ratings usage following Basel III finalisation and output floor reforms. As a result, for many institutions this is a recalibration exercise rather than a fundamental redesign of capital models. Board discussions are increasingly focused not on near‑term capital impact, but on whether the transition period is being used to improve the quality and defensibility of credit-risk decisions.
Investment governance shift
Implications for insurers and asset managers: For insurers, particularly those with credit‑intensive balance sheets, attention has turned to the interaction between ratings usage, solvency capital models and investment governance. External ratings remain important, but we are seeing a stronger emphasis on internal credit assessment, model documentation and challenge processes - especially for private credit and less liquid assets.
Asset managers are encountering the issue primarily through mandates, due diligence and client disclosures. Institutional investors are probing how rating reliance is managed, how rating changes are governed and how exposure to single providers is mitigated. In practice, this is accelerating a shift towards multi‑agency frameworks supported by deeper internal credit research.
The Africa angle: Divergence, not uniformity: For pan‑African banking and insurance groups, the implications are broader. South Africa remains one of the continent’s most developed prudential environments, with explicit Basel alignment and supervisory clarity on ECAI usage. In many other African jurisdictions, credit ratings are applied more flexibly or inconsistently.
As a result, we are seeing group risk and credit teams treating South Africa’s Moody’s transition as a test case for Africa‑wide consistency. Questions are emerging around whether internal credit-assessment frameworks can be strengthened and standardised across jurisdictions, reducing mechanical reliance on external ratings while still meeting local regulatory expectations.
This reflects a wider continental trend: regulators and market participants are becoming more cautious about ratings dependence and more focused on building local judgement and governance capacity.
Strategic Board focus
What this means strategically: The most significant impact of Moody’s derecognition may be cultural rather than regulatory. It is forcing institutions to interrogate whether external ratings are being used as shortcuts or as informed inputs within robust credit frameworks.
Used well, the transition period provides an opportunity to strengthen governance, documentation and accountability around credit decisions - developments that will remain relevant long after April 2028.
What Boards should be asking now: Boards should use this moment to step beyond technical compliance and focus on risk stewardship. Key questions include whether the institution is overly dependent on any single external rating agency; whether management is using the transition period to strengthen internal credit assessment rather than merely substitute providers; whether cross‑border operations apply consistent credit discipline across African markets; and whether credit decisions are defensible to regulators, investors and policyholders without default reliance on external ratings.
The risk for South Africa’s financial institutions does not lie in the derecognition of Moody’s Ratings‑SA. It lies in failing to use this transition deliberately.
Institutions that treat this as a narrow regulatory exercise may comply, but those that use it to enhance credit governance and internal capability will emerge more flexible, more credible and better positioned for an increasingly complex financial landscape.
