[Debate] (Fwd) Are SA banks really as safe as is typically bragged?

[Patrick Bond]

  Study warns of R900bn liquidity gap at SA banks

*/Business Day/*

Implementation of Basel 3 liquidity rules in their existing form could 
shrink economic output
SURE KAMHUNGA
Published: 2012/05/15 07:04:03 AM

South Africa's banks are warning of a funding shortfall of more than 
R900bn if they are forced to adopt the Basel 3 liquidity rules in their 
existing form, which would cut South Africa's output by 1,1%, a 
confidential report commissioned by the banking industry warns.

The new banking rules devised in response to the 2009 financial crisis 
by the Basel Committee on Banking Supervision require banks to hold 
higher capital buffers to withstand unexpected financial shocks or losses.

Banks also must hold sufficient liquid assets to cover all net cash 
outflows under a stress scenario for 30 days in terms of the liquidity 
coverage ratio, and to fund assets maturing after a year with stable 
funding sources in terms of the net stable funding ratio. The changes 
come into effect next year.

The report, titled Macro-economic Consequences of the Implementation of 
Basel 3, prepared by the Bureau for Economic Research on behalf of the 
Banking Association of South Africa, says a hypothetical, immediate 
implementation of the rules in their current form could result in a 75 
basis point increase in lending rates and slash economic output by 1,1%.

Implementing the rules over five years could result in a loss of 0,1% 
-0,7% of baseline gross domestic product. The report says there would be 
cost implications even if Basel rules are phased in as planned, and 
these had to be carefully considered for their effect on access to credit.

Nedbank CEO Mike Brown said recently South Africa's banks would struggle 
to meet the proposed liquidity ratios because of the current mismatch of 
their funding cycle, which relies heavily on volatile and short-term 
funding --- as opposed to stable sources such as retail savings --- to 
finance long-term business such as mortgages.

The report quotes figures from the Banking Association of South Africa 
that the current shortfalls in the banking sector to meet the 
requirements on the liquidity and stable funding ratios would be R240bn 
and R680bn respectively.

Consultancy PwC separately estimated a net stable funding ratio 
shortfall of R633bn.

"I have been through the document (and) it (is) reasonable to make those 
assumptions," Andries du Toit, group treasurer at FirstRand , said on 
Monday.

Covering such a shortfall from domestic and offshore markets would be 
costly, and banks would be forced to pass the cost --- estimated to be 
as high as 30% --- to borrowers, denting appetite for credit and 
affecting growth.

The banking regulator, René van Wyk, has national discretion in applying 
the Basel 3 rules, details of which are expected to be released by the 
end of the year.

But the Banking Association of South Africa says the scope for national 
discretion on the liquidity framework is very limited.

"In aggregate the South African banking sector does not currently comply 
with the requirements of the liquidity ratios," the report reads. "The 
balance sheets of South African banks, both the asset and liability 
side, will require a significant structural adjustment in order to meet 
the Basel 3 liquidity requirements."

Longer implementation periods would lead to smaller output losses "in 
the internationally comparable exogenous scenarios".

"The degree to which banks, the economy and capital markets are able to 
adjust to the proposed regulatory environment without having to restrict 
the availability of credit is a critical assumption in this process," 
the report reads.

"In summary, compliance with the Basel 3 proposals will have cost 
implications for the South African economy in addition to the 
anticipated benefits in terms of enhanced financial stability."

kamhungas at bdfm.co.za

***


  SA's banks 'could survive' euro defaults

FirstRand chairman Laurie Dippenaar says blow to confidence amid 
economic challenges is greatest risk
SURE KAMHUNGA
Published: 2012/05/08 06:44:57 AM

South Africa's financial services sector can withstand the systemic 
effect of a default in Europe even though the consequences would "not be 
pleasant", FirstRand chairman Laurie Dippenaar said on Monday.

In an interview Mr Dippenaar said local banks were under pressure to 
diversify and expand revenue and improve return on equity to make up for 
tepid demand for credit as Africa's largest economy struggled to build 
on last year's modest 3% growth rate.

In the first quarter of this year, the big four banks reported 
double-digit earnings growth for the half and full-year to December. But 
experts at Bain & Company, a global consultancy group, last week cast 
doubt on the sustainability of this performance owing to regulatory, 
competitive and economic challenges.

Mr Dippenaar said the banking sector had managed to steer clear of 
troubled economies in Europe where a sovereign debt crisis had resulted 
in the bail-out of Greece, Ireland and Portugal.

There are also fears of a Europe-wide recession, particularly after the 
UK and Spain sank into a technical recession --- two successive quarters 
of negative economic growth.

Mr Dippenaar said South Africa's banks had minimal exposure to the 
troubled euro-zone economies, and any default by countries such as 
Greece would have limited effect on them other than perhaps affecting 
customer confidence and consequently profit growth.

Standard Bank 's deputy CEO, Sim Tshabalala, previously said in an 
interview that he estimated the exposure of the local banking system to 
Portugal, Ireland, Greece and Spain was negligible at about 0,4% of 
total liabilities.

"The single biggest impact of a default in the euro zone will be ... on 
the market and confidence and our profitability rather than on our 
solvency," Mr Dippenaar said from his Sandton offices.

"Most South African banks have carefully selected which European banks 
to keep their money with. But it is going to be unpleasant ... there 
will be a severe jolt to confidence of consumers and corporates," he said.

He said the global financial sector was still feeling the effect of the 
last credit crisis, and the collapse of Lehman Brothers in September 
2008. Mr Dippenaar said a tight regulatory framework, coupled with 
strong capital buffers, had softened the blow of the crisis on local 
banking.

He said South Africa's low gross domestic product growth rate was a 
concern to the banking sector as it was linked to demand for credit --- 
analysts say this has yet to recover to the pre-crisis levels.

"If there is more confidence in the economy, our performance also 
grows," he said.

"As it is, the greatest downside to our growth will be a slowdown in 
India and China. The economy in the US is showing a stuttering 
improvement ... it seems they are taking two steps forward and one step 
back. The Europe crisis is still with us," Mr Dippenaar said.

kamhungas at bdfm.co.za

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