The collapse of microlender African Bank Investments has led to a “significant” 17.2% drop in confidence in South Africa’s financial sector in the third quarter of 2014, the Merchantec Capital CEO Confidence Index has revealed.

Confidence in the financial sector dropped from a score of 55.1 points in the second quarter of the year, to 45.6 points in the third, which finance adviser Merchantec said reflected expectations of tougher industry conditions going forward.

“Although the South African Reserve Bank maintains that the country’s banking sector is healthy and robust, ratings agency Moody's downgraded the credit ratings of the four major banks.

“[In addition], 63% of CEOs believe that ‘South Africa Inc’ is on its way to becoming economically unsustainable, citing government inefficiencies, corruption, red tape, skill shortages and unions as the main reasons for the country’s economic stagnation,” the index stated.

Confidence in the consumer services sector also recorded a decrease over the quarter, falling 10.8%, from 55.4 points in the second quarter, to 49.4 points in the three months under review.

The index further reported a decrease in confidence in the industrials and technology sectors of 4.9% and 2.3% respectively.

“These decreases were partially offset by an 18.6% increase in overall confidence in the basic materials sector to 53.88 points and a 6.7% increase in the consumer goods sector to 52.3 points,” Merchantec noted.

Meanwhile, CEOs across all sectors indicated lower confidence levels in current economic conditions in South Africa, with the index dipping from 41.6 points in the second quarter, to 38.3 in the third quarter.

“CEOs’ confidence in their ability to secure debt or equity capital for their companies also decreased from 50.1 points to 48.01, representing a 4.2% drop, while the confidence of CEOs in their own company prospects and industry growth expectations also recorded a decrease of 3.6% and 0.8% respectively,” read the report.

The financial sector recorded the largest decrease in confidence, dropping by a significant 17.2% from 55.1 to 45.6 points, driven by a 20.6% decrease in confidence in company growth expectations, a 17.6% decrease in confidence in economic conditions and a 16.9% decrease in confidence in the planned level of investment in company business activities.

CEOs in consumer services recorded the second largest decrease in confidence, dropping 10.8% from a positive score of 55.4 to below the neutral score line to 49.4 points in the quarter under review.

The decrease in sentiment was primarily driven by an 18.9% decrease in confidence in economic conditions, a 15.3% decrease in confidence in company growth expectations and an 11.7% decrease in confidence in the ability to secure debt or equity capital.

The basic materials sectors recorded the greatest increase in confidence for the third quarter, rising by a significant 18.6% from 45.4 to 53.9 points.

This rise in sentiment was primarily driven by a 51.6% increase in confidence in the planned level of investment in company business activities, as well as a 17.1% increase in confidence in industry growth expectations and a 13.6% increase in confidence in company growth expectations.