Banking stocks on the JSE yesterday slightly felt the contagion after financial markets around the world lost about $465 billion (R8.5 trillion) over two days amid volatility associated with the closure of several banks in the US.
However, industry experts have allayed fears that the South African banking industry could be impacted by the collapse of Silicon Valley Bank (SVB) and Signature Bank, preferred banks for tech venture capitalists and crypto buyers in the US.
The JSE banks index fell 0.7% to 9 651 points yesterday as the All Share Index also slid for the sixth day in a row, dipping by 0.7% to 75 009 points, in line with global peers.
The combined market capitalisation of the MSCI World Financials Index and MSCI EM Financials Index has dropped about $465bn in three days, Bloomberg reported.
Investors have been assessing the US Federal Reserve’s (Fed) next moves following another slowdown in US inflation and the ongoing turmoil in the financial sector.
FirstRand shares led the losses in the financials, closing1.3% to R64.31 per share lower, followed by Capitec, which was 1.2% down to R1 632 per share, while Nedbank eased 0.8% to R219.17 per share and Standard Bank slid 0.29% to R169.99.
However, Absa bucked the trend and went up 1% to R176.96 per share.
TreasuryONE currency strategist Andre Cilliers said South African banks were likely to survive the ongoing global sell-off as they had high liquidity levels.
“South African banks are very well capitalised and also have very high liquidity levels. This is monitored by the South African Reserve Bank,” Cilliers said.
“Although the share prices can be under some pressure, we are nowhere near the US Bank fall out and should not really impact SA banks on a longer-term basis.”
Schroders investment director for value equities Andrew Williams agreed and said a lot of the issues were quite specific to SVB as a very narrow, US technology-focused lender.
Williams said in the wake of materially higher interest rates and a much tougher venture capital funding environment over the past 12 months, deposits started to move back out of the bank at the same time as the value of all those purchased securities was coming down.
“However, more generally, these events are a reminder that banks are businesses that critically depend on the confidence of depositors and investors,:” Williams said.
“There are much larger capital buffers than in the past and liquidity regulation in Europe has been designed to limit the risks from deposit outflows and / or other funding shortages.”
The Banking Association of South Africa (Basa) yesterday declined to respond to a possible impact on South African banks, saying these were operational matters for individual banks that the association had no sight of.
Instead, Basa said the SA Reserve Bank (SARB) may be the best institution to reach out to in terms of the financial stability of the markets at the moment, but the SARB also did not reply to queries.
However, since African Bank’s collapse in 2014, curatorship and journey to recovery, the SARB has taken a cautious stance which has seen entities such as VBS Mutual Bank, Ubank and Constantia Insurance Company been placed in curatorship when they face solvency issues.
Curatorship means that the SARB can appoint an independent administrator who takes over the day-to-day operations of the bank from the current management.
The recent failures of SVB and Signature have highlighted the risk of a more substantive and disorderly further tightening in financial conditions which could in turn have adverse spillovers to the real economy.
Since the collapse of SVB and Signature, US bank stocks have plunged 18%, while European bank equity declined more than 13%.
The collapse of these banks has been attributed to poor management at the individual bank level and limited hedging of either loan or security risk, among others.
It has also highlighted the implications of monetary policy tightening and liquidity withdrawal as the Fed has been ramping up its interest rates hikes.
10X Investments chief investment officer Anton Eser said yesterday that up until last week the 2023 market consensus view had been built on a soft-landing for the global economy and an orderly adjustment to a world of higher interest rates with business and financial models recalibrated to a new paradigm.
“What’s more likely is what SVB and Signature Bank are telling us. Excess liquidity fuels risk-taking and credit creation. What goes up must come down,” Eser said.
“So, an extreme reversal in liquidity ultimately leads to the next leg in this bear market – a credit default cycle and a contraction in the global economy.”
The Fed has moved quickly to limit the contagion from SVB through both guaranteeing depositors and announcing a term funding programme to ensure that banks and other related institutions can meet their obligations to depositors and manage their liquidity requirements.
Anchor Investment head of fund management David Gibb recommended retaining their investments in the sector and, where appropriate, considering taking advantage of these depressed share prices.
“We do not believe this banking crisis – arguably a mini-crisis – will spread to the well-run giants. If anything, depositors are likely to shift their funds to the larger banks – a flight to safety,” Gibb said.
“Confidence will remain frayed until this period passes. However, the US Fed has responded promptly to guarantee customers’ deposits at SVB – beyond the typical $250 000 level. It is plausible that this will be extended to other banks that run into difficulty.”
BUSINESS REPORT