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South Africa: Jittery Markets Worry Domestic Banks - Study
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Business Day (Johannesburg)
6 May 2008
Posted to the web 6 May 2008
Regis Nyamakanga
Johannesburg
SOUTH African banks are nervous about credit and market-related risks, and the effect of a volatile currency on their business, according to the latest survey of potential risks global banks are worried about.
The Banking Banana Skins report for this year, to be published today, said banks in SA were also worried about access to foreign markets for funding as anxiety levels in the global financial markets have shot up to a 10-year high.
The banks were also concerned about the "rising criminality, specially fraud", the Centre for the Study of Financial Innovation said in remarks accompanying the survey, which PricewaterhouseCoopers sponsored.
The centre conducted the survey between February and March and received 376 responses from 38 countries. Four respondents from SA participated. SA's top 10 risks, in order, were credit spread, credit risks, derivatives, currencies, equities, fraud, liquidity, macroeconomic trends, interest rates and environmental risk.
Philip Wessels, chief risk officer at Nedbank, is quoted in the survey as saying the main risk in SA "is not the changed cycle per se but the fact that the favourable conditions have lasted for a long period, resulting in many managers not having seen or managed a negative cycle".
On fraud, a risk executive with a domestic bank said that "the cost of implementing new technology to counter fraud in electronic payments, and thus present safe payments infrastructure, will has become substantial".
The centre said South African respondents showed strong concern about the risks of market turbulence. But they were less concerned than other regions, particularly Europe, about the possibility of recession.
"They were also more optimistic on their banks' ability to weather the storm (of a recession). One strong concern was currency risk because of the potentially volatile rand and the need to access foreign markets for funding. Rising criminality, especially fraud, was another big issue for them," it said.
The annual poll is dominated by concerns over present turmoil, notably the liquidity shortage and the crunch in the credit and derivative markets. The fear that these strains will lead to a global recession is high.
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"Two of the top three risks -- liquidity and credit spreads -- have never previously appeared in the rankings, an indication of how dramatically the risk scene has changed," the report said.
Among the fast-rising risks are the threat of global recession, prompted by a downturn in the US, and a collapse in overpriced equity markets.
Concerns about the macroeconomic outlook were also raised by all major markets that took part in the poll.
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