Banking stocks rebound
JOHANNESBURG - Banking stocks rebounded on Friday after the SA Reserve Bank announced measures to inject liquidity in the market to provide cheaper access to funding to stamp out the rout over the global outbreak of the coronavirus (Covid-19).
The JSE’s banking index rose as much as 8.2 percent on the provision of the local banks with cheaper access to funding as the financial markets have come under increased pressure with the spread of the pandemic.
The banks index has fallen as much as 13 percent since the Covid-19 risk sell-off wreaked havoc in the global and domestic markets.
The 10 years government bond yield has breached the 10 percent mark to reach a maximum yield of 11.73 percent on Friday, changing by 147.5 basis points during last week and 258.5 basis points during last month.
SARB said it was reorganising the way it injects liquidity into the financial system with a lowered rate at which it provides liquidity to the commercial banks.
The bank said it had observed liquidity strains in various funding markets.
It said the effectiveness of its open market operations was dependent on a well-functioning interbank market.
The central bank encouraged interbank lending and lending across funding markets to facilitate the flow of money market liquidity within the banking system.
“Therefore, the Standing Facilities (SF) borrowing rate – the rate at which the SARB absorbs liquidity – will be adjusted to the repo rate less 200 basis points, from the current repo rate less 100 basis points,” it said
“The SARB deems this change necessary in order to encourage the flow of money market liquidity.”
SARB said the SF lending rate – the rate at which the SARB provides liquidity to the commercial banks – would be adjusted lower to the repo rate, from the prevailing rate of the repo rate plus 100 basis points.
It said this would support banks to facilitate their flow of money market liquidity without being penalised.
The bank said the changes to the liquidity management strategy did not give any signals with regard to the future monetary policy stance, and would be assessed on a continual basis.
On Thursday, Capitec blamed international traders motivated by the continued weakening of the rand for the massive drop in its shares.
The bank said the traders offloaded its stock on speculation that it would be severely impacted by the coronavirus on the market it was focused on and business fundamentals.
Capitec said only 1.1 million of its 12.6m customers had credit.
Mergence Investment Managers equity analyst Nolwandle Mthombeni said the SARB liquidity intervention would stabilise the market.
“Central bank measures help liquidity and profitability at banks; whether they translate into better performance for the lenders, however, depends on how consumers respond to the relief provided,” said Mthombeni.