Thursday 28th August 2014
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South Africa’s central bank has disagreed with a ratings decision by Moody’s to downgrade Capitec Bank Limited (Capitec) by two notches, and place it on review for a further downgrade. The central bank says it respects the independent opinion of rating agencies but that it does not “agree with the rationale given in taking this step”. Two reasons are given for the rating action: a lower likelihood of sovereign systemic support based on decisions recently taken in relation to African Bank Limited (African Bank), and heightened concerns regarding the risk inherent in Capitec’s consumer lending focus. “With regard to the first point, it is important to reiterate that the approach taken by the SARB to any resolution to address systemic risk will always be based on the circumstances and merits of the particular prevailing situation. Decisions will also be informed, as was the case with African Bank, by principles contained in the Key Attributes for Effective Resolution Regimes proposed by the Financial Stability Board (FSB), which have the objective that a bank should be able to fail without affecting the system,” notes the central bank in an official statement. “This is in keeping with evolving international best practice. In the case of African Bank bond holders and wholesale depositors are taking a 10% haircut, which is generally regarded as being very positive given that the trades following the announcement of African Bank's results were taking place at around 40% of par. Therefore in fact substantial support was provided, not reduced. Moreover, all retail depositors were kept whole and are able to access their accounts fully,” it adds - According to the Hong Kong Monetary Authority (HKMA) credit card receivables increased by 2.1% in the second quarter to HKD112, after a reduction of 6.7% in the previous quarter. The total number of credit card accounts edged up by 0.7% to around 16.8m.The rollover amount, which reflects the amount of borrowing by customers using their credit cards, increased by 2.9% during the quarter to HKD19.2bn. The rollover ratio also rose marginally from 17.0% to 17.1% in the same period. The charge-off amount increased to HKD569mduring the quarter from HKD528m in the previous quarter. Correspondingly, the quarterly charge-off ratio rose to 0.51% from 0.46% in the previous quarter. The amount of rescheduled receivables transferred outside the surveyed institutions’ credit card portfolios reduced to HKD94m from HK$109m in the previous quarter. The delinquent amount increased to HKD249m at end-June from HKD239m at end-March. However, the delinquency ratio remained the same at 0.22% because of an increase in total card receivables. The combined delinquent and rescheduled ratio (after taking into account the transfer of rescheduled receivables mentioned above) edged up to 0.29% from 0.28% during the same period - Harkand has been awarded a contract to support Apache with inspection, repair and maintenance work (IRM) as well as light construction (LC) across their assets in the North Sea, following completion of a competitive tender exercise. The award includes the provision of vessels, ROV and diving services for a three-year period, plus two one-year options. The firm will also support offshore marine construction contractor EMAS AMC who have been awarded a separate contract for pipe lay and heavy construction as part of the same tender process. Harkand Europe managing director, David Kerr, said: “This contract is an important step in strengthening our close working relationship and growing our North Sea business with Apache.

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The European Review

By Patrick Artus, chief economist at Natixis

The adjustment in France has not even begun

Wednesday, 30 May 2012 Written by 
The adjustment in France has not even begun The French have the impression that their economy has worsened significantly and that austerity policies are weakening employment and living standards yet this inevitable adjustment is still to come Indeed, when examining the situation of public finances, competitiveness, foreign trade, the sophistication of products and businesses, it is clear that the process of adjustment and improvement has hardly begun in France, whereas it has progressed a lot on some criteria in Spain, Italy and Portugal, and of course long ago in Germany. http://www.ftseglobalmarkets.com/

The French have the impression that their economy has worsened significantly and that austerity policies are weakening employment and living standards yet this inevitable adjustment is still to come Indeed, when examining the situation of public finances, competitiveness, foreign trade, the sophistication of products and businesses, it is clear that the process of adjustment and improvement has hardly begun in France, whereas it has progressed a lot on some criteria in Spain, Italy and Portugal, and of course long ago in Germany.

The impression in France of a significant deterioration of the economy and living standards

The French are extremely pessimistic about the economy and living standards, as showed by a recent international optimism poll conducted by BVA – Gallup international. Yet, the French unemployment rate is lower than Spain and Portugal, and households' real income and spending are still increasing while they are falling in Spain, Italy and Portugal. The French fear a reduction in of social welfare, even though the welfare system has actually become more generous at a time when it has declined in Germany.

State of progress in France’s adjustment

In terms of the adjustment process, let us look at French public finances, competitiveness and foreign trade, and the financial position of French businesses and their product sophistication.

1. Public finances

In 2012, only Spain will still have a fiscal deficit higher than that of France. Meanwhile, the debt ratio will continue to increase in France at a time when it is falling in Germany and has stabilised in Italy.

2. Competitiveness, foreign trade

France and Italy have a higher unit wage cost than Germany, which explains the continuing losses of export market shares for these two countries; whereas Spanish and Portuguese exports, where producer costs are low, are now growing rapidly.

Indeed, France has a large trade balance deficit in manufactured goods yet Spain and Portugal now have an even trade balance. Meanwhile, Italy and Germany have trade balance surpluses. As long as international capital mobility remains low in the euro zone, due to the “renationalisation” of investors' portfolios caused by the crisis; countries will be subject to an external balance constraint. Indeed, France is the only country that has not yet reduced its current-account deficit.

An improvement in foreign trade can be achieved either through an improvement in cost-competitiveness, hence a fall in wage costs, or through a contraction of domestic demand, which reduces imports. At present, the unit wage cost is increasing faster in France than in Germany and all the other struggling euro-zone countries causing domestic demand to continue to increase instead of fall as in Spain, Italy and Portugal.

3. Financial position of businesses and product sophistication

In contrast to other euro-zone countries, the financial position of French businesses continues to deteriorate. It is clear that the deterioration of corporate profitability is due to the low level of product sophistication in French industrial output, which means that French businesses find it harder to pass on rises in production costs to consumers, contrary to what can be seen in Germany, Spain and even Portugal. This is extended by France’s slow productivity gains (efficiency in producing products), which are recovering in Spain and Portugal.

All in all, practically everything remains to be done in France:

France still needs to reduce its fiscal deficit, improve competitiveness/ foreign trade, and restore profitability (productivity) and product sophistication.

Meanwhile, these adjustments have been completed in Germany and are progressing well in the other euro-zone countries. Italy and Portugal now have small fiscal deficits; Spain and Portugal have seen improvement in cost-competitiveness; external deficits have been reduced in Italy, Spain and Portugal while both corporate profitability and productivity have also improved; and Spanish and Portuguese products have become more sophisticated as shown from their ability to pass on higher production costs to consumers.

This all points to a risk of more restrictive fiscal policies in France, a fall in wages, and efforts to restore productivity by businesses (as in Spain and Portugal), which will inevitably be costly in terms of employment.

Patrick Artus

A graduate of Ecole Polytechnique, of Ecole Nationale de la Statistique et de l'Adminstration Economique and of Institut d'Etudes Politiques de Paris, Patrick Artus is today the Chief Economist at Natixis. He began his career in 1975 where his work included economic forecasting and modelisation. He then worked at the Economics Department of the OECD (1980), before becoming Head of Research at the ENSAE. Thereafter, Patrick taught seminars on research at Paris Dauphine (1982) and was Professor at a number of Universities (including Dauphine, ENSAE, Centre des Hautes Etudes de l'Armement, Ecole Nationale des Ponts et Chaussées and HEC Lausanne).

Patrick is now Professor of Economics at University Paris I Panthéon-Sorbonne. He combines these responsibilities with his research work at Natixis. Patrick was awarded "Best Economist of the year 1996" by the "Nouvel Economiste", and today is a member of the council of economic advisors to the French Prime Minister. He is also a board member at Total and Ipsos.

Website: cib.natixis.com/research/economic.aspx

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