JOHANNESBURG--South African banks have weathered the financial crisis in Europe better than most but they remain vulnerable to their operating environment, Fitch Ratings said in a special report Wednesday. Of concern is South Africa's slower gross domestic product growth and its inability to meet the ruling African National Congress's job creation target, said Denzil De Bie, a director at Fitch's Financial Institutions team. Unemployment in South Africa is at 24.9%. In addition, the country is quite dependent on its trading partners. The European Union is South Africa's largest trading partner so further turmoil there could dent the country's growth and ripple through to its banking sector. "South African banks' earnings have been resilient through the crisis and asset quality indicators improved during 2011," Fitch said. "The negative outlook on most banks' IDRs [issuer default ratings] reflects their vulnerability to an uncertain operating environment." South Africa's Nedbank Group Ltd. (NED.JO) issued a similar cautionary statement Wednesday at the release of its half-year results. "If clients have less confidence in the economy, that could slow down some growth," said Chief Operating Officer Graham Dempster. Nedbank said business confidence has weakened in recent weeks. In February, Moody's Investors Service downgraded the senior debt and deposit ratings of five South African banks by a notch, citing growing fiscal challenges that could constrain the government's ability to bail them out in the event of a crisis. Moody's said its action on Standard Bank of South Africa, Absa Bank Ltd. (ABSP.JO), FirstRand Bank Ltd. (FSR.JO), Nedbank and Investec Ltd. (INL.JO) didn't reflect a change in the individual institutions' financial strength. South African banks are still dealing with mortgage impairments, though, Fitch said Wednesday, although it believes the worst has passed. Absa Group Ltd. (ASA.JO), the South African bank majority owned by U.K.'s Barclays PLC (BCS), last week reported a drop in first-half earnings due to losses from its mortgage business, and warned that revenue growth will be subdued during the rest of the year. Write to Devon Maylie at devon.maylie@dowjones.com Subscribe to WSJ: http://online.wsj.com?mod=djnwires
