SA banks safe for money market investments

September 2008

South African banks remain safe for money market investments despite the turmoil in international financial circles.

That’s the view of Stephen Rogers, joint MD of Taquanta Asset Managers and head of its Cash Asset Management operation who says the bankruptcy of Lehman Brothers, the take-over of Merrill Lynch by Bank of America, and the US Federal Reserve having to bail out AIG only days after it took control of mortgage lenders Freddie Mac and Fannie Mae has sent shivers through the local investment community.

He points out that South Africa’s banking sector is relatively safer than its counterparts globally because of the tough banking regulatory environment locally, the implementation of Basel II, the size of the local market and the fact that local banks are more like to raise offshore funding as opposed to placing funds offshore.

“The infancy of the local credit derivative market also helps as has our foreign exchange controls which have limited offshore exposures,” he says.

“However, much like the Tsunami was felt in some way or other by people in South Africa, the current global – and more specifically the US – financial crisis will impact South African banks.  How much is impossible to quantify right now but early indications are that the effect on local banks is not material.

”If anything, it will most probably be felt through indirect exposures via their client base,” he adds.

Rogers believes that this situation is unlikely to change much despite the fact that as the dominoes fall, an institution with exposure to Lehman Brothers might result in indirect exposure for a South African bank. Local banks, however, don’t appear to have much or any direct exposure to Lehman’s.

“It is also encouraging to note that the local Interbank market is still robust. In fact, the SA Reserve Bank is one of a handful of central banks that has not had to provide distress liquidity to its domestic financial system in recent times. In addition, the strength of our market was underscored this week by African Bank Investments Limited (ABIL) placement of R1,25-billion into the local investment market.

“Taquanta is therefore confident that our banks remain safe for money market investments,” he concludes.

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