Thursday 21st 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.

Rules could curb collateral movement, ICMA warns

Thursday, 03 April 2014
Rules could curb collateral movement, ICMA warns Regulators need to consider the impact of financial regulation on the movement of collateral according to a new study by ICMA’s European Repo Council. http://www.ftseglobalmarkets.com/

Regulators need to consider the impact of financial regulation on the movement of collateral according to a new study by ICMA’s European Repo Council.

The trade body has highlighted potential systemic risks of inhibiting collateral fluidity and the negative impact this could have on the stability and efficiency of capital markets.

A number of regulatory and market driven initiatives are in place to meet the challenges that currently constrain the efficient movement of collateral, including Target2-Securities, EU Central Securities Depository Regulation (CSDR) and tri-party settlement interoperability between ICSDs/CSDs.

However, according to ICMA’s study entitled 'Collateral is the new cash: the systemic risks of inhibiting collateral fluidity’, regulations such as the Basel III Leverage Ratio and the proposed EU Financial Transaction Tax (FTT) could prohibit the effective functioning of collateral markets.

For the markets, these regulations could mean less liquid secondary markets for securities, greater asset price volatility. Hedging, and the pricing and management of risk, could become more difficult. There may also be greater execution risks for investors.

Meanwhile the economy could suffer from reduced investment in capital and businesses, higher borrowing costs for governments, increased costs for corporate capital raisers and place more onus on central banks to support markets.

“If banks find it economically inefficient, or are restricted by regulation from supporting the critical functions of sourcing, pricing, managing, and mobilising collateral, and the infrastructure is not in place for the efficient mobilisation of collateral, then the basic intermediation roles of banks and financial markets - that of maturity, risk, and credit transformation - would be undermined,” says the study.

The proposed EU 11 Financial Transaction Tax (FTT), were it to be applied to securities finance trades, would severely impair the effective functioning of collateral markets. Another ICMA study suggests that the size of the European repo market could be reduced by as much as 66%, with the market effectively closed for transactions under six months’ maturity.

In addition, new Basel III capital adequacy requirements are making the balance sheets of banks more expensive. As a result, banks are having to rethink their business models and priorities. Low-margin, capital-intensive businesses, such as repo, are becoming less attractive.

“Sound regulation is essential for the efficient and stable functioning of the global funding and capital markets that support our economies,” says the IMCA’s report. “So is collateral. In this respect, regulation should not only avoid inhibiting collateral fluidity, but, where possible, it should aim to enhance it.

Godfried De Vidts, chair of ICMA’s European Repo Council, adds: “As we build the framework of new financial regulation for safer markets we should steer clear of embedding systemic risks which could contribute to future financial crises.”

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