SADC banks survive crisis

WANETSHA MOSINYI
Staff Writer | Tuesday September 15, 2009 00:00

 

Speaking at the maiden Annual Southern Africa Banking Conference yesterday, the Managing Director of the Banking Association of South Africa Cas Coovadia said financial institutions should take stock and look at the opportunities that will arise after the global recession.

'There is no doubt that the world of finance has changed for good,' Coovadia told delegates representing financial institutions from the region at the two-day conference at the GICC.

'One may say SADC banks weathered the storm, but there are lessons to be learned because the next crisis might be severe to us more than this one.'

He advised financial institutions to look at the positives and build sustainable business platforms.

Coovadia said despite regional banks surviving first round effects of the financial crisis because of their limited exposure to complex instruments and sound regulatory climate, they felt second round effects that the global recession is.

He said the second round impact on regional banks, which was not as severe as it was on Western institutions like Lehman Brothers and insurer AIG, resulted in liquidity drying up, limited inter-bank activity and increased defaults.

'There is no doubt our banks have cut down on credit,' he said. 

However, Coovadia warned that regional central banks and governments should be careful not to increase regulations unnecessarily in an attempt to solve the crisis.
'There is potential for knee-jerk responses to regulation instead of looking at appropriate regulation,' he said.  

Coovadia said responses to the crisis have to be on broader economic platforms like flexible exchange controls, appropriate use of monetary policy to stimulate growth, continuation of expansionary policy to stimulate growth and quality government budgeting and spending.

Unlike last September, this time around, the financial conditions have improved and the pace of GDP contraction is slowing down.  A slew of unprecedented measures, including mammoth stimulus packages and interest rate cuts, seem to have helped in bringing economies on a stabilisation path.

Botswana, like other commodity-dependent economies in the region, had to borrow from multilateral institutions to cover this year's gaping P13.4 billion deficit in an economy famous for perennial budget surpluses.

When officially opening the conference, the Assistant Minister of Finance and Development Planning, Keletso Rakhudu, said it was pleasing that local banks are well poised to avoid collapsing because they remain sound and have solvent balance sheets.
'We will continue to afford them an enabling environment and regulatory support so that we do not walk the same road as most Western economies,' Rakhudu said. 

Like similar others since last September, the conference has convened policymakers and pundits to take stock but instead they mostly revisited the world economy that fell to ground zero a year ago.

Speakers dwelled on how bad lending in the US housing market led to a credit crunch and plummeting commodity prices. But the way forward remains unclear.