Abstract
<p>It is argued that the Basel III Accord will undermine the ROE of South African banks, and with the downgrading of South African banks during August 2014, will force investors to revaluate South African banking shares as attractive investment options. However, results from the Sharpe and Omega ratios, based on returns forecast using the Kalman filter, accentuate the likelihood that the South African industry can still be expected to be a competitive and feasible investment option after the downgrade. Evidence suggests that Capitec Bank Holdings Limited and Standard Bank Group Limited will perform the worst of all the South African banks, whereas FirstRand Limited, Investec Limited, and Barclays African Group will exhibit more promise in the future, outperforming world indices, such as the DAX, FTSE 100 and the S&amp;P 500.</p>
Highlights
T he 2007-2009 global financial crisis reinforced the importance of revaluating bank competition (GFD, 2013), especially if the competitive edge is associated with financial innovations, like sub-prime lending, which is considered as one of the contributors to the financial crisis (Bianco, 2008; Blundell-Wignall, Atkinson & Lee, 2008)
Due to several failures that where highlighted by the global financial crisis, the Basel Committee on Banking Supervision (BCBS) introduced the Basel III Accord to enhance the financial landscape in terms of complexity, interdependency, supervision and dynamism that may contain further economic failures
By adapting the Kalman filter as a suitable forecasting tool, performance prognoses were generated of expectations pertaining to South African bank shares over the 6, 12 and 24 months after the downgrade in August 2014
Summary
T he 2007-2009 global financial crisis reinforced the importance of revaluating bank competition (GFD, 2013), especially if the competitive edge is associated with financial innovations, like sub-prime lending, which is considered as one of the contributors to the financial crisis (Bianco, 2008; Blundell-Wignall, Atkinson & Lee, 2008). This Accord will enhance the financial landscape in terms of complexity, interdependency, supervision and dynamism in order to contain further economic failures, this Accord can have a significant impact on banks (KPMG, 2011) This may for instance initiate a higher demand for long-term funding, caused by the introduction of the Net Stable Funding ratio and the Liquidity Coverage ratio (Härle, Lüders, Pepanides, Pfetsch, Poppensieker & Stegemann, 2010; BIS, 2011); a decrease in competition, due to weaker banks failing to acquire the new required level of regulatory capital; and lower profitability and Returns on Equity (ROE) levels, due to higher pressure on operating capacity and margins (KPMG, 2011). These lower profitability and ROE levels will eventually spill over to the investor, which will have a negative influence on the future sentiment of investing in banking shares
Sign-in/Register to view highlights & summary Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a callDisclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.
