Research published by PricewaterhouseCoopers suggests banks are in real danger as macroeconomic conditions worldwide remain poor and indebtedness stays high
STAFF REPORTER
Published: 2012/02/01 06:33:40 PM
Fallout from the euro-zone continues as European leaders gather in Brussels this week to try to resolve Greek and Italian debt, as well as German and French banks’ exposure to shaky loans to their European partners.
However, macroeconomic issues remained at the forefront of bankers’ concerns in the most recent industry survey sponsored by PricewaterhouseCoopers.
"Macroeconomic risk is a major concern, with questions around the euro zone and where that’s going to end," said Tom Winterboer, financial services leader at PwC, in an interview on Summit TV on Tuesday.
With fragile economies in Europe reeling on the brink of recession according to some commentators, there would be implications for banks in terms of credit risk, where potential sovereign defaults could have a massive impact.
"In terms of South Africa we’ve looked at what happened in 2008 with the global financial crisis – where we were less affected, having come through that well – but certainly it would be a concern if things in Europe went the wrong way," said Mr Winterboer.
In South Africa, credit risk is being driven by consumers who are still overextended and faced with the need to deleverage and pay down debt.
The country’s access to capital is ranked fourth on a list of 50 countries, with liquidity at number three, which indicates local banks are in good condition going into this year.
However, the PwC survey highlighted an anomaly where governments believed banks should be safer – a motivation for regulation such as Basel 3, which requires banks to hold more capital – but on the other hand also said they needed economic growth, said Mr Winterboer.
"The more capital the banks need, the less they can lend – maybe Basel 3 is just at the wrong time," he said.
Mr Winterboer said Tobin taxes, which burden financial transactions with extra charges, were less of a concern for South Africa than for European financial institutions. With a new proposal in France to charge for transactions on Sundays, banks are watching this space with growing apprehension.
"It’s early days — we’ve seen the announcement from France, and Europe could follow suit — but I wouldn’t think we would go that far in South Africa," said Mr Winterboer.
The dwindling popularity of the banking profession globally means banks need to rebuild trust.
In Asia, pressure is also being applied to Chinese banks with increased capital requirements and in an economy where growth is slowing.
"China is export driven," said Mr Winterboer, "and with export orders reducing, a concern in China is lower spending by consumers in the West."
He could not tell, however, from the results of the PwC survey what the implications of such global uncertainty would be for South African banks.
"One needs to track developments – but like 2008, one would hope it’s not going to be that severe," he said.
He said that as long as South Africans continued to enjoy relatively low interest rates, it is hoped that news from domestic banks would be good.
