Banks in Africa’s biggest economy, South Africa, have so far been sheltered from the United States financial crisis but economists say they could still suffer the fallout if the turmoil continues.
Economists from South Africa’s four major banks have confidently downplayed the impact of the financial havoc in the world’s largest economy, which has been felt here mainly as a dip in share prices.
South African banks say they have minimal exposure to the subprime or higher risk home-loan securities at the root of the US crisis that has led to the collapse of a growing list of US and European banks and financial groups.
The failure of the US Congress to approve a $700-billion plan to bail out tottering Wall Street banks rattled European leaders struggling to protect their own institutions from the global storm.
But South African institutions are still holding strong and are only likely to be affected by the crisis once it starts hitting the broader global economy, said Standard Bank group economist Goolam Ballim.
“Banks are now focused on managing liquidity and exchange controls. Local banks are not dependant on short-term funding like those [in] developed economies,” said Ballim.
He said local banks were generally well-capitalised, well-regulated and profitable which lessened the chances of them experiencing the same weaknesses their international peers.
He said the relative weakness of the rand against the dollar also helped local firms continue to attract overseas investment despite fears of a global economic downturn.
“One of the factors that has protected us is the favourable rand-dollar exchange rate,” said Ballim.
Chief executive of Nedbank, the country’s forth-largest bank, said South African banks were also protected because generally they lend to each other, rather than depending on overseas lenders for financing.
“Foreign banks are no longer lending to each other, so some are struggling overseas. But in South Africa, all the major banks have exposure to each other rather than foreign banks, so we haven’t had a problem with interbank funding,” CEO Tom Boardman told the Financial Mail.
Nedbank group economist Dennis Dykes said the impact of the global financial crisis has been relatively contained, although the negative sentiment was weighing down the market.
“So far we have not experienced any major shakes [but] the level of uncertainty in the market is weighing heavy,” said Dykes.
“Uncertainty has led to investors pulling out of the emerging markets and channeling into other securities closer to home,” he added.
Johan Rossouw, chief economist at Cape Town-based Vector Securities and Derivatives, said risks on local banks remain to the downside. “So far we have shown good standing compared to financial institutions from other growing economies and well as the established ones,” said Rossouw.
“If the crisis persists for longer I doubt if we will be lucky to remain unscathed,” Rossouw noted.
South African shares were pummeled by news that American lawmakers had rejected the plan to bail out the US banking system on Monday, when Wall Street chalked up massive losses of nearly 7%. On Monday, the Johannesburg Securities Exchange (JSE) saw R200-billion ($24-billion) wiped off share values, with natural resources firms such as gold miners being the hardest hit. The market slumped another 2% on Tuesday. – AFP