Banking sector still well capitalised, despite downgrades - analyst

Posted by BankInfo on Tue, Apr 25 2017 02:49 pm

Cape Town – Most of the local and foreign investors seem to have lowered their expectations for a sovereign credit ratings downgrade as is evident in the rand strength and South Africa’s 10-year bond yields close to 8.2%, said Nkareng Mpobane, fund manager at Ashburton Investments in a company note. 

Foreign investors have been buying South African banking stocks on the back of the cheapest valuations relative to emerging-market peers since 2011, despite South Africa’s sovereign credit rating being downgraded to junk by S&P Global Ratings and Fitch following President Jacob Zuma’s Cabinet reshuffle on March 31, which saw the removal of finance minister Pravin Gordhan and his deputy, Mcebisi Jonas. 

“Moody’s however has not yet downgraded South Africa and has placed the country on a 90-day review. The ratings agency has South Africa ranked two notches above junk status at Baa2, with a negative outlook.

In the wake of the Cabinet reshuffle and the subsequent downgrades by S&P and Fitch the rand initially lost close to 10% of its value touching the R14/$ level. It has since recovered significantly in the aftermath of the recent turbulence and traded at R13.00/$ at 06:30 on Tuesday.

READ: Banks lose R61bn on Gordhan ouster, downgrade

In the immediate aftermath of the Cabinet reshuffle and ratings downgrade, the six-member bank index declined by over 10%, resulting in a loss of R61bn. 

Mpobane, noted that there are short-term, medium-term and long-term risks in the banking sector that investors need to be cognisant of though. 

Short-term risks 

There could be a readjustment of share prices of banks in the short term. “Higher bond yields mean that when one is calculating the shares a higher discount factor would be used, resulting in a lower valuation.” 

Both FirstRand and Standard Bank, he said, are trading at multiples below their three year mean. Prior to the latest pressures, Mpobane said, these shares were deemed to be fairly valued. “Recent price weakness however suggest that they are now attractively priced.” 

READ: Stay invested despite downgrades, say analysts 

Ashburton doesn’t foresee that any of the banks would need to cut dividends on a two-year outlook, except Barclays Group Africa where its management has indicated there would be a higher dividend cover ratio. 

The recent price pressure means that dividend yields in the banking sector now range between 5.5% to 7.5%. 

Medium-term risks

On the medium term, the banking sector’s profitability may be affected. “With the latest downgrades we are likely to factor in continued deterioration of the rand, higher inflation and flat interest rates with risks to the upside,” Mpobane said. 

In such an environment Ashburton expects diminished economic growth as business confidence wanes, which in turn poses employment risks. 

READ: Downgrades, politics could trip up recent economic gains 

As far as banks are concerned, Mpobane said he would closely monitor the top-line growth drivers of net interest income and non-interest revenues. 

“Impairments would also likely worsen as South Africa moves deeper into sub-investment grade, depending on the inflation rate and the South African Reserve Bank’s response to that.” 

Ashburton however expects the banking sector to remain “relatively resilient” from an earnings perspective in the 2017 financial year as higher banking fees would be passed on to consumers. 

Long-term risks

Mpobane noted that South Africa’s banks are well capitalised. 

The sector averages approximately 13% on the Common Equity Tier 1 (CET1) scorecard, while the minimum regulatory requirement is 10.375% for a particular financial year. 

(The Tier 1 common capital ratio shows how well a bank can withstand financial stress and remain solvent.) 

Mpobane said the banking sector’s risk-weighted assets will be re-priced following the recent downgrades of South Africa’s banks (on the back of the sovereign credit ratings downgrade). 

READ: Can you still bank on SA's banks? 

Although banks’ funding is an important aspect of the longer term assessments of the sector, banks have consistently been building up sources of stable funding and liquidity with minimal adverse impacts to their margins. 

“We would expect the sector would be able to pass on the higher costs of funding to the consumer, within reason,” Mpobane said.


news:news24.com/25-apr-2017

Sovereign wealth fund, taka bond plans scrapped: Muhith

Posted by BankInfo on Tue, Apr 25 2017 11:53 am

The government may not go ahead with its plans to set up a $10 billion sovereign wealth fund in the end -- in what can be termed a sharp change of mind after years of talking up the idea.

In February this year, the cabinet gave the go-ahead for the setting up of the fund with money from the record foreign currency reserves, which would be used for government investment in long-term projects in the power, energy and infrastructure projects.

“We are thinking whether we will do it ultimately,” Finance Minister AMA Muhith told The Daily Star in an interview in Washington DC on Sunday on the sidelines of the World Bank-International Monetary Fund Spring Meetings. 

The government may also discard its plan to issue a $1 billion offshore taka-linked bond set to be launched with assistance from the International Finance Corporation, the private sector lending arm of the World Bank Group. The proceeds from the bond issuance were supposed to be invested in private infrastructure and public private partnership projects.

“We are now thinking that it will not be a sovereign bond. It will be different kind of bond. We will do it, but we will not call it a bond. Let's see,” Muhith said after a meeting with IFC Chief Executive Philippe Le Houérou. The government has the blessings of the IFC to issue the bond on its own and it has also offered to provide advisory service on the matter.

“The IFC is very good on the subject. Of course, we can receive the service. We may take it as we have not tried it in Bangladesh before.”

Now, the government will seek ways to raise funds through state-run non-banking institution Bangladesh Infrastructure Finance Fund, which has been quite active in recent years, according to Muhith.

“We have given it several hundred crores of taka and it has almost exhausted the money.”

Probably, the government will give BIFFL some more money by raising funds, the finance minister said.

Operating since 2011, BIFFL has the mandate to invest in large infrastructure projects, including power and energy, ports, connectivity, tourism and economic zones.

Muhith also talked about the IFC's investment plan in Bangladesh, saying the WB arm's activities in the country have been “quite good” in the last eight years.

The IFC creates a link between a foreign investor and parties in Bangladesh and brings foreign investors to the country.

In Bangladesh, the IFC mainly works in power and to some extent in the transport sector. It is keen on expanding to logistics, financial services and agriculture.

“The IFC also thinks that it should get into transport in a big way,” Muhith said, while advising the WB arm to target at least $1 billion worth of investment for the sector.

“Mr Philippe has accepted it, saying maybe it will not be possible in a single year but the IFC can pick up projects once they roll out to take the investment to $1 billion within one or two years.”

news:daily  star/25-apr-2017

Md Motaleb Hossain, Deputy Managing Director of Standard Bank Ltd. and Syed Hammadul Karim, Chief Marketing Officer of MetLife Bangladesh exchanging agreement signing documents in the city recently. Md Jafar Sadeque Chowdhury, Chief Distribution Officer o

Posted by BankInfo on Tue, Apr 25 2017 11:40 am

Md Motaleb Hossain, Deputy Managing Director of Standard Bank Ltd. and Syed Hammadul Karim, Chief Marketing Officer of MetLife Bangladesh exchanging agreement signing documents in the city recently. Md Jafar Sadeque Chowdhury, Chief Distribution Officer o

news:new notion/ 25-apr-2017

Mohammad Borhanuddin, DMD of Bank Asia Ltd, poses with the participants of a training program me on "Prevention of Money Laundering & Combating Financing on Terrorism" at the banks Institute for Training & Development in the city recently. Md Zia Arfin, E

Posted by BankInfo on Tue, Apr 25 2017 10:26 am

Mohammad Borhanuddin, DMD of Bank Asia Ltd, poses with the participants of a training program me on \"Prevention of Money Laundering & Combating Financing on Terrorism\" at the banks Institute for Training & Development in the city recently. Md Zia Arfin,

news:new nation/25-apr-2017

UCB inks deal with Lycamoney Financial Services

Posted by BankInfo on Tue, Apr 25 2017 10:05 am

United Commercial Bank Limited (UCB) signed an agreement with Lycamoney Financial Services Limited (LMFS) on Monday at the corporate office of the bank.

This is an agreement for business alliance to offer convenient services for the customers including migrant workers in Europe, UK and USA, said a press release.

A E Abdul Muhaimen, Additional Managing Director of UCB and Veera Muthusamy, Director of LMFS signed the agreement on behalf of respective organizations.

Shawkat Aziz Russell, Chairman of Executive Committee, UCB and Muhammed Ali, Managing Director of UCB graced the event with their presence.

Among others M Shahidul Islam, Additional Managing Director of UCB,  Mirza Mahmud Rafiqur Rahman, Additional Managing Director of UCB, Md Tariqul Azam, Additional Managing Director of UCB, Md. Sohrab Mustafa, Deputy Managing Director of UCB, Arif Quadri, Deputy Managing Director of UCB and Joynal Abdin, Legal counsel of LMFS along with other officials were present at the event.

Lycamoney Financial Services Limited is a FCA regulated company based in UK.

United Commercial Bank Limited is the largest private commercial bank in the country.news:daily sun/24-apr-2017

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