Banking sound despite Abil’s failure

Published Apr 24, 2015

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Banele

Ginindza

TEMPORARY market disruptions during the second half of 2014, mainly caused by the curatorship of African Bank Investments Limited (Abil), do not appear to have caused lasting negative effects on funding costs for local banks.

This was because the large banks effectively managed liquidity in the face of these market disruptions, the SA Reserve Bank noted in the Financial Stability Review March 2015, which was released yesterday.

However, the Reserve Bank said funding costs did increase as banks competed for longer-term finance against a backdrop of low savings rates.

“The liquidity structure of domestic banks is also significantly exposed to wholesale funding, making it susceptible to expectations of higher domestic and international interest rates,” the bank noted.

Regulation

It said from a macroprudential regulation perspective, there was currently no need to consider a countercyclical capital buffer (CCB) add-on for the banks given that the credit-to-gross domestic product gap remained well below its lower threshold.

According to the phase-in arrangements for the minimum requirements of the Basel III framework, the CCB will be phased in for local banks by 2016.

In another development, the central bank noted that the sector remained sound with banks holding adequate levels of capital well above the minimum regulatory requirement, despite a slight decrease in these levels due to the net effect of the losses incurred by some banks, which was offset by a rise in capital issuances and an appropriation of profits by some large banks.

On the jobs front, the Reserve Bank said unemployment remained high even though there was a slight decrease in the unemployment rate from 25.4 percent in the third quarter to 24.3 percent in the last quarter of 2014.

The number of unemployed people fell by 242 000 during the fourth quarter compared with the third quarter. However, on an annual basis, unemployment still increased by 143 000.

Youth unemployment remained close to the 50 percent mark, 48.8 percent in the final quarter of 2014, but still displayed an improvement from 51.3 percent in the third quarter.

The global economic recovery remained hesitant and uneven last year, still largely dependent on accommodative monetary policy in advanced economies.

While lower oil prices could support global economic growth prospects, positive effects could at the same time be overshadowed by higher market volatility, stagnation of economic growth in the euro area and Japan, and some global geopolitical events.

Against this backdrop, the International Monetary Fund in January downgraded its global growth forecasts for both 2015 and 2016.

But a threat to yields has been identified in the possible effect of monetary policy normalisation in advanced economies, including the US, on emerging market economies in general and on South Africa in particular, as a prominent exogenous risk to financial stability.

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