Which South African bank will collapse first?

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StrongTurd

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Almost exactly the same market conditions that caused the huge credit crisis in the USA were active in SA since around the year 2000 namely cheap, easy credit, relatively cheap transportation costs, a huge housing boom and cheap food.

Then in mid-2007 we had the introduction of FICA which knocked the wind out of the housing market. On top of that our small economy is very vulnerable to what happens on Wall Street. Our economy has nosedived just like most other economies in the world and is now probably already in a depression which is likely to get much worse as things unfold.

Now, considering that we are unlikely to have a US-style bailout then what is the probable impact of the credit crunch going to be on our banking sector? Our big 4 banks are extremely exposed to housing credit and it is no secret that people are starting to default on bond payments just like in the USA. I wonder which bank will end up in the excrement first. ABSA carries the lion's share of SA's bonds but at least they are now part of a much larger international empire which might ease the blow. FNB looks really vulnerable to me.

Whatever happens in terms of the $700 billion bailout, I think it is extremely unlikely that we'll get out of this unscathed. Also, seeing that we've only got 4 big banks then a scramble by people to get their money out of any 1 of these banks might cause a domino effect on the others. Boom! There goes many people's life savings and possibly the entire SA economy.
 
I doubt any of the big 4 banks will fail. FICA stopped a lot of the new credit (US Sub-Prime equiv). The big 4 also make a lot more money then overseas. One of the smaller banks such as African Bank may have a problem but they already have provisions for a high level of bad debts.

IMO, it's more likely to effect people and some companies then the banks. They will probably be the ones going under.
 
Would the NCA not have negated a South African Credit crisis?

My understanding of the US crisis is that their banks dont have a lot of money to lend out, and not that they are not willing. Where alternativley our Banks would love to run rampant and lend money to everyone they deem can afford it, but the NCA forces them to think twice about it.

Or is that the wrong take on the situation?
 
This question is ridiculous. None of our big four will collapse, go read a little on how the south african economy works, and how our reserve bank controls lending between banks and they percentage that banks are forced to keep liquid to prevent this.
 
sox63 said:
Would the NCA not have negated a South African Credit crisis?

My understanding of the US crisis is that their banks dont have a lot of money to lend out, and not that they are not willing. Where alternativley our Banks would love to run rampant and lend money to everyone they deem can afford it, but the NCA forces them to think twice about it.

Or is that the wrong take on the situation?
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In the USA, the banks gave sub prime mortgages, meaning that they lent money to the sub prime market, namely people who were a high credit risk. These people are credit risk for a reason, ie over financed already.

This is precisely what the NCA seeks to put an end to. The banks in the US have money to lend but there is no market anymore because of the fact that people have no money to finance loans. Everyone is already over leveraged!

In south africa, I there wasn't whole sale exposure to the sub prime market. Generally speaking, if you have a poor credit record, the banks generally won't touch you! In the states, they did, they just priced for risk, ie charged a higher interest rate. This makes those loans look tasty because higher profit margin!

The situation in South Africa is different in that the bank's lent money to people who were credit worthy at the time, its just that now that the interest rate went up, SOME of those people cant afford to finance their debt anymore! There however others that still manage. This situation is different to where you lend a whole LOT of money to PEOPLE who already have bad credit records.. the incidence of default is MUCH higher!

PLUS bank charges in this country are some of the highest in the world.. the banks make a pretty packet from that! Retrenchments may happen soon, but there shouldnt be any folding!!
 
phiber said:
This question is ridiculous. None of our big four will collapse, go read a little on how the south african economy works, and how our reserve bank controls lending between banks and they percentage that banks are forced to keep liquid to prevent this.
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The Turd humbly apologises for asking such a ridiculous question. He is, after all, just a turd and not a chartered accountant or investment banker or something.

He still has a brain, though, and he works closely with the housing industry where he has seen that this entire industry has basically collapsed, especially the residential market. He is glad to hear that this will have no effect on SA's banks.
 
phiber said:
This question is ridiculous. None of our big four will collapse, go read a little on how the south african economy works, and how our reserve bank controls lending between banks and they percentage that banks are forced to keep liquid to prevent this.
Click to expand...

Spot on. We have good reserve requirements, fairly stringent mortgage lending regulations, and the SA economy is not in recession, never mind a depression. What's more, due to exchange controls, we've been fairly well insulated from the stock market issues in the US.
 
Natas said:
In the USA, the banks gave sub prime mortgages, meaning that they lent money to the sub prime market, namely people who were a high credit risk. These people are credit risk for a reason, ie over financed already.

This is precisely what the NCA seeks to put an end to. The banks in the US have money to lend but there is no market anymore because of the fact that people have no money to finance loans. Everyone is already over leveraged!

In south africa, I there wasn't whole sale exposure to the sub prime market. Generally speaking, if you have a poor credit record, the banks generally won't touch you! In the states, they did, they just priced for risk, ie charged a higher interest rate. This makes those loans look tasty because higher profit margin!

The situation in South Africa is different in that the bank's lent money to people who were credit worthy at the time, its just that now that the interest rate went up, SOME of those people cant afford to finance their debt anymore! There however others that still manage. This situation is different to where you lend a whole LOT of money to PEOPLE who already have bad credit records.. the incidence of default is MUCH higher!

PLUS bank charges in this country are some of the highest in the world.. the banks make a pretty packet from that! Retrenchments may happen soon, but there shouldnt be any folding!!
Click to expand...

Sure, that makes sense. However we also had a housing bubble with average house prices growing by something ridiculous like 30% per year for a few years in a row. This bubble has now burst leaving large numbers of people in a position where they actually have negative equity in their property. There are bound to be huge ramifications.
 
Hi. I disagree with Claymore and others. It may not have anything to do with reserve requirements. There is a strong rumour on the financial markets that Old Mutual are facing the global financial crunch. They, like other insurers are quickly falling short of cash. They have an option: to sell off Nedbank and raise a a quick R 20 - 30 billion. Nedbank valued at R 40 - 50 billion. The registrar wasn't too happy the last time when ABSA and Barclays came together and they are unlikely to be happy with banks merging in SA. But if OM is under pressure, they have no option but to avert a financial crisis by letting one of the other three take over Nedbank. At the moment Standard Bank is rumoured to be the buyer. They've just had a cash injection from China and have about R 10 - 12 million in cash handy. This is a contrast to the 1999 takeover bid by Nedbank. Let's wait and see ... any bets???
 
StrongTurd said:
Sure, that makes sense. However we also had a housing bubble with average house prices growing by something ridiculous like 30% per year for a few years in a row. This bubble has now burst leaving large numbers of people in a position where they actually have negative equity in their property. There are bound to be huge ramifications.
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Agreed! Some people say that the rapid growth in house prices was a long overdue correction because property in South Africa was cheap compared to other places. That may have been true, but the correction was IMO also fueled by people who thought that they could buy a house for whatever price and sell it as a profit even a day later. and this WAS true, because the person who bought it from them thought they could do the same thing!

Now house prices are slowing, because demand is slowing. Demand is slowing because nobody has money! Interest rates high, NCA, etc, etc. As long as people bought within their means, the negative equity situation is their problem, not the bank's! It becomes the Bank's problem when they default and the Bank can only achieve a forced sale price at 70% or less of the outstanding amount of the loan! In a situation like this is when you will see a problem here similar to the one happening in the states. For the consumer, as long as they can afford the repayments on their bond, the negative equity situation is a problem in the short to medium term, depending on when they bought. The wont see the growth that they want to see in their investment, but the property market will turn around, and they will recoup the loss in the long run!
 
JayN said:
They've just had a cash injection from China and have about R 10 - 12 million in cash handy.
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I hope you mean BILLION?

Good post, by the way. I cannot see how SA can get through this credit crunch without some very serious side effects.
 
phiber said:
This question is ridiculous. None of our big four will collapse, go read a little on how the south african economy works, and how our reserve bank controls lending between banks and they percentage that banks are forced to keep liquid to prevent this.
Click to expand...

I agree. There have been collapses - eg: Saambou, Regal Treasury amongst others, but those collapses caused the tightening up of credit here. Most of the very-high-rate loans are in the hands of the microlending "banks" - ABIL and Capitec - who are very skilled at risk managing that market. Our big banks ensure monster amounts of collateral for loans ( including your granny! ) - they are incredibly risk-averse.
 
JayN said:
But if OM is under pressure, they have no option but to avert a financial crisis by letting one of the other three take over Nedbank. At the moment Standard Bank is rumoured to be the buyer. They've just had a cash injection from China and have about R 10 - 12 million in cash handy. This is a contrast to the 1999 takeover bid by Nedbank. Let's wait and see ... any bets???
Click to expand...

None of the big 4 would have enough money to buy another SA bank. Nedbank is profitable so it is not at risk. As was indicated in this thread, there is a high probability of lay offs but that would be the worst of it. I can see a couple of the smaller banks getting into trouble, though. There is also a potential for more Asian Banks taking stakes in the SA banks.
 
sox63 said:
Would the NCA not have negated a South African Credit crisis?
Click to expand...

No, it would have softened it but not negated it. There was still a high level of risky lending before it came into effect. One of the retail chains recently mentioned that the pre NCA lending was having an effect on the ability of their clients to pay them.
 
rwenzori said:
Most of the very-high-rate loans are in the hands of the microlending "banks" - ABIL and Capitec - who are very skilled at risk managing that market.
Click to expand...

I can still see a couple of them getting into trouble as the credit crunch and interest rates really sink their teeth in.
 
Abe said:
None of the big 4 would have enough money to buy another SA bank. Nedbank is profitable so it is not at risk. As was indicated in this thread, there is a high probability of lay offs but that would be the worst of it. I can see a couple of the smaller banks getting into trouble, though. There is also a potential for more Asian Banks taking stakes in the SA banks.
Click to expand...

You'll be surprised. Forget about the banks, it's other Financial institutions with exposure. Take Old Mutual for example. They seem to have a few problems of their own or they are a screaming buy on the stock market. If they let go of their 51% stake in Nedbank, Standard Bank has the resources to buy them. They had a big capital injection form foreign investors.

The compitition commissiion will probably not allow it if you refer back to 1999 when Nedbank went for Std Bank.
 
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