Stephen Gunnion
10 October 2008
Johannesburg — LENDING between local banks has continued normally despite a freeze in interbank lending markets in Europe and the US.
Despite several bail-outs, rescue packages for distressed banks and a co-ordinated cut in interest rates on Wednesday, the London interbank offer rate (Libor) for three-month loans has continued to rise, adding 23 basis points to 4,75% yesterday, its highest level this year.
The Libor-OIS spread, a measure of cash scarcity, widened to a record 350 basis points. Libor is a gauge of bank funding costs.
Analysts said banks were not lending to one another because they were worried that any borrower could become the next victim of the financial crisis, leaving them with losses as the credit freeze deepened.
The three-month Euribor, the euro interbank offered rate, was unchanged yesterday at a record high of 5,39%, according to the European Banking Federation. However, in SA the Johannesburg interbank lending rate (Jibar), which is the benchmark for short-term market interest rates, has not been dragged into the turmoil.
"Local money market rates have remained stable," said Simon Ridley, Standard Bank's group financial director.
"The interbank lending market is generally functioning normally and has not been affected by developments in the US and UK."
Ridley said the three-month Jibar rate had increased from 12,05% to 12,20% between September 30 and October 3, due to seasonal effects relating to year-end maturities.
"The 15 basis point increase was not related to the international interbank market disruptions," he said.
The three-month Jibar rate had subsequently declined to 12,16% yesterday , he said.
Nedbank spokesman Don Bowden said South African banks had escaped the liquidity crunch in the European and US interbank markets, where banks were scared to deal with each other. "It has been very much a normal environment from an interbank perspective," Bowden said. "Banks have been dealing with each other with no effect on liquidity."
A research note from JPMorgan last week said the weakest link for local banks was their dependence on institutional and corporate funding.
"The market 'shortage' position has remained largely stable, fluctuating between R7bn and R13bn over the past year," said analyst Mervin Naidoo.
"We believe this provides an indication of functioning South African interbank markets."
Naidoo said the local funding environment remained relatively insulated from global events.
"South African interbank rates have remained relatively stable despite global turmoil and we have not seen a blow-out in the same fashion as Euribor and Libor," Naidoo said.
Nedbank's Bowden said that because of the global crisis, the cost of long-term debt such as bonds had increased, which meant banks had to pay more when they issued bonds.
Bowden said banks were focused on growing and keeping deposits rather than growing loans as customers had cut back on borrowing because of high interest rates.
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