Modelling systemic risk in the South African banking sector using CoVaR

2019 ◽  
Vol 33 (5) ◽  
pp. 624-641 ◽  
Author(s):  
Mathias Manguzvane ◽  
John Weirstrass Muteba Mwamba
Keyword(s):  
South African ◽  
Systemic Risk ◽  
Banking Sector ◽  
The South

scholarly journals Measuring the systemic risk in the South African banking sector

2017 ◽  
Vol 20 (1) ◽  
Author(s):  
Gregory M. Foggitt ◽  
Andre Heymans ◽  
Gary W. Van Vuuren ◽  
Anmar Pretorius
Keyword(s):  
Financial Crisis ◽  
South African ◽  
Systemic Risk ◽  
Banking Sector ◽  
Risk Index ◽  
Financial Sector ◽  
Ethical Behaviour ◽  
The South ◽  
Case Scenario ◽  
Worst Case

Background: In the aftermath of the sub-prime crisis, systemic risk has become a greater priority for regulators, with the National Treasury (2011) stating that regulators should proactively monitor changes in systemic risk.Aim: The aim is to quantify systemic risk as the capital shortfall an institution is likely to experience, conditional to the entire financial sector being undercapitalised.Setting: We measure the systemic risk index (SRISK) of the South African (SA) banking sector between 2001 and 2013.Methods: Systemic risk is measured with the SRISK.Results: Although the results indicated only moderate systemic risk in the SA financial sector over this period, there were significant spikes in the levels of systemic risk during periods of financial turmoil in other countries. Especially the stock market crash in 2002 and the subprime crisis in 2008. Based on our results, the largest contributor to systemic risk during quiet periods was Investec, the bank in our sample which had the lowest market capitalisation. However, during periods of financial turmoil, the contributions of other larger banks increased markedly.Conclusion: The implication of these spikes is that systemic risk levels may also be highly dependent on external economic factors, in addition to internal banking characteristics. The results indicate that the economic fundamentals of SA itself seem to have little effect on the amount of systemic risk present in the financial sector. A more significant relationship seems to exist with the stability of the financial sectors in foreign countries. The implication therefore is that complying with individual banking regulations, such as Basel, and corporate governance regulations promoting ethical behaviour, such as King III, may not be adequate. It is therefore proposed that banks should always have sufficient capital reserves in order to mitigate the effects of a financial crisis in a foreign country. The use of worst-case scenario analyses (such as those in this study) could aid in determining exactly how much capital banks could need in order to be considered sufficiently capitalised during a financial crisis, and therefore safe from systemic risk.

scholarly journals A framework for simulating systemic risk and its application to the South African banking sector

2018 ◽  
Vol 18 (1) ◽  
pp. 99
Author(s):  
N.M. Walters ◽  
F.J.C. Beyers ◽  
A.J. Van Zyl ◽  
R.J. Van den Heever
Keyword(s):  
South African ◽  
Systemic Risk ◽  
Banking Sector ◽  
The South

scholarly journals Selection criteria in the South African retail banking sector

2012 ◽  
Vol 6 (41) ◽  
pp. 10558-10567 ◽  
Author(s):  
Coetzee Johan ◽  
van Zyl Helena ◽  
Tait Madeacute le
Keyword(s):  
South African ◽  
Selection Criteria ◽  
Banking Sector ◽  
Retail Banking ◽  
The South

scholarly journals Effect of Agency Costs on Executive Compensation in South African Commercial Banks

2017 ◽  
Vol 9 (4) ◽  
pp. 25
Author(s):  
Odunayo Magret Olarewaju ◽  
Stephen Oseko Migiro ◽  
Mabutho Sibanda
Keyword(s):  
Executive Compensation ◽  
South African ◽  
Commercial Banks ◽  
Banking Sector ◽  
Agency Cost ◽  
Least Square ◽  
Direct Effects ◽  
The South ◽  
Optimal Contracting ◽  
Managerial Power

This study examines the roles of agency cost (monitoring and bonding cost) on compensation of managers with a view from the managerial-power approach to agency cost. We modelled managers’ compensation and agency cost of banks to emphasise the potential influence of agency cost on managers’ compensation. A Panel Generalised Least Square model was estimated on four largely-controlled commercial banks in South Africa over the period 2010-2015. The result shows that shareholders’ fund, management share option, monitoring and bonding cost were strongly significant in explaining the managers’ compensation in the banks. Therefore, in the South African banking sector, compensation of managers should be based on their managerial power and not only on the principle of optimal-contracting. It is recommended, among others, that monitoring and bonding costs in the South African banks should be re-emphasised and strictly committed to. This should be so because there are direct effects of these costs on managers’ compensation which might be the reason for the persistent agency problem in the banks.

scholarly journals A modelling process of short-term interest rate risk management for the South African commercial banking sector

2011 ◽  
Vol 9 (1) ◽  
pp. 628-637
Author(s):  
Jiaqi Sun ◽  
J.H. Van Rooyen
Keyword(s):  
Interest Rate ◽  
South African ◽  
Inflation Targeting ◽  
Banking Sector ◽  
Empirical Finding ◽  
Interest Rate Risk ◽  
Commercial Banking ◽  
The South ◽  
Short Term ◽  
Rate Risk

This study focuses on banking book interest rate risk (IRR) management, more specifically short-term IRR management (SIRR). This type of risk is partly induced by the inflation targeting policy of the South African Reserve Bank (SARB). As a result, inflation leads to an uncertain interest rate cycle and a period of uncertain interest rate levels as it relates to lending and borrowing activities in the South African commercial banking sector. This study highlights what causes short-term interest rate risk and how the banks may forecast and manage the SIRR with reference to the inflation targeting policy. The banking industry manages a high volume of fund transactions and portfolios of investments. The banks are intricately involved in the financial markets and are therefore exposed to a large number of risk factors. A sound banking system is an important prerequisite for a country’s future economic development. One key empirical finding of this research is that 50 per cent of the South African banks agree that loans that cannot undergo immediate rate adjustments are exposed to the repo-rate adjustment after the Monetary Policy Committee (MPC) meeting. Banks surveyed see the need for the development of a short-term interest rate risk (SIRR) management process to better control such repo-rate risk. The next key empirical finding is that interest rate risk is still managed via traditional repricing gap and sensitivity analysis which is not ideal for risk management due to inherent weaknesses (such as not quantifying capital risk exposure). This agrees with the Pricewaterhousecoopers Balance Sheet Management benchmark survey

scholarly journals Bank stability in South Africa: what matters?

2019 ◽  
Vol 14 (1) ◽  
pp. 122-136
Author(s):  
Syden Mishi ◽  
Sibanisezwe Alwyn Khumalo
Keyword(s):  
South African ◽  
Business Models ◽  
Banking Sector ◽  
Financial Sector ◽  
The South ◽  
Bank Stability ◽  
Panel Data Estimation ◽  
Panel Data Estimation Techniques ◽  
Lending Activity ◽  
Data Estimation

The study examined the determinants of bank stability within the South African banking sector. By controlling for individual bank characteristics and market characteristics, the study determined possible determinants of solvency, a proxy for bank stability, measured by z-score within the South African financial sector. The South African financial sector is highly concentrated but with a significantly large number of banks, the greater portion being foreign owned banks. The business models of some of the financial intermediaries differ from the big four and therefore the influence of the type of business model is of great interest in this study, as it highlights a unique feature of the South African financial sector. The study’s investigation used panel data estimation techniques and found that among the specific bank characteristics, lending activity and capitalization do significantly affect solvency of banks and at sector level concentration was significant. The crisis dummy also revealed that the presence of a financial crisis heightened insolvency. The results have implications for financial institutions and therefore are of interest to regulators, bank management and researchers. Policy prescription in the form of Prompt Corrective Action framework is made to ensure proactive reaction to trends likely to cause instability.

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