Category: Finance

Foreign investors sell China shares at record pace in August

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Foreign investors sold a record $12bn worth of Chinese stocks in August as piecemeal support measures from Beijing failed to assuage concerns over slowing growth in the world’s second-largest economy and a worsening crisis in the country’s property sector.

The unprecedented outflows come as figures on Thursday showed China’s manufacturing sector contracted for a fifth consecutive month, despite pledges from leaders in late July to deliver more substantial support measures for the vital property sector, which is typically responsible for about a quarter of annual economic activity.

Simmering tensions with Washington have also dimmed western investors’ appetite for Chinese assets, with US commerce secretary Gina Raimondo warning during a four-day visit to the country this week that American companies were starting to see China as “uninvestable”.

Calculations by the Financial Times based on exchange data show net sales of almost Rmb90bn ($12.4bn) worth of Shanghai- and Shenzhen-listed shares by offshore traders in August, more than any month since the programme launched in late 2014.

Asset managers and analysts said the surge in sales reflected disappointment from global investors, whose focus has shifted this year from hopes for a broad stimulus to a more targeted bailout for property developers. But Chinese leaders have so far remained reluctant to launch such a rescue.

“Investors are quite worried about GDP and whether [policymakers] can even hit that 5 per cent growth target,” said Stephen Innes, managing partner at SPI Asset Management. “That’s directly attributable to the property market because the hit to GDP from that could be 1 percentage point or more.”

Innes added that investors were also wary of “high-level political risk” as the outlook for US-China relations remained dim despite describing Raimondo’s visit as “positive”.

Concerns over the outlook for the country’s real estate market have worsened this month as private Chinese developer Country Garden, once considered among those least likely to default, missed payments on international bonds and sought to push back on renminbi repayment obligations coming due next week.

Meanwhile, shares in China Evergrande, the developer whose defaults on dollar bonds two years ago marked the start of the sector’s liquidity crisis, resumed trading in Hong Kong this week for the first time in 17 months and immediately fell almost 90 per cent.

“The word ‘stimulus’ has been misused too many times and now nobody expects a big bang on the fiscal front anymore,” said Alicia García-Herrero, chief Asia-Pacific economist at Natixis. “Now investors’ clients are focused on the real estate sector policy — that’s the new mantra.”

She said there had been a handful of property policy changes over the past month, including the easing of mortgage conditions for first-time buyers in the megacities of Guangzhou and Shenzhen. But these amounted to “tiny bits, not the big bang [that would cause] equity inflows from foreign investors”.

The economic slowdown has weighed heavily on broader valuations of Chinese stocks, dragging the benchmark CSI 300 index down 8 per cent in dollar terms in the year to date even as big markets elsewhere in the world have notched double-digit gains.

Efforts to prop up shares through cuts to trading fees and other measures, which delivered substantial gains when previously deployed, have likewise failed to provide a lasting boost to investor sentiment.

“You need substantial stimulus to get people back in,” said García-Herrero, before adding: “Don’t hold your breath.”

 

Culled from Financial Times

Senegal to Receive €50m from Africa Finance Corporation to Boost Oil & Gas Industry.

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Africa Finance Corporation (AFC) (www.AfricaFC.org), the leading infrastructure solutions provider on the continent, is partnering with the Government of Senegal to fund the development of the landmark Sangomar oil field.

Through this strategic collaboration, AFC will invest €50 million in the oil field to help boost the country’s emerging oil & gas industry and improve energy access and security in Senegal. Located 100 kilometers southwest of the capital, Dakar, the Sangomar oil field spans 7,490 square kilometers and is estimated to hold around 500 million barrels of crude oil.

The Corporation’s investment in the Sangomar oil field will be used to drive the first phase of development towards achieving first oil, a key milestone in the advancement of the country’s hydrocarbons sector. The facility will provide a significant boost to Senegal’s economy, supporting the country’s ambitions to become a regional hub for the oil & gas industry. It will also generate significant revenues for the government through taxes and royalties, create employment opportunities for local workers, and contribute to energy security by reducing dependence on imported oil & gas.

“We are pleased to support the development of the Sangomar field which we expect to have a transformative impact on the Republic of Senegal and its people though the reduction of import reliance, the generation of increased government revenues, the creation of local jobs and an overall contribution to accelerated industrialisation and economic development,” said Mr. Samaila Zubairu, President & CEO of the Africa Finance Corporation.

Since the Republic of Senegal acceded to membership of the Corporation in 2019, AFC has helped to finance several critical sectors of the country’s economy. These include:  the 300MW combined-cycle gas power project in Cap des Biches, the country’s largest Independent Power Project (IPP); the construction and rehabilitation of road networks in Senegal through Fonds d’Entretien Routier Autonome (FERA); and the provision of funding to the Ministry of Economy and Finance for projects such as the 128MW Sambangalou Hydro Power Dam in the Kedougou region and the procurement of petroleum products for power generation.

AFC is a major investor in the continent’s largest renewable energy platform through its recent acquisition of Lekela Power in partnership with Infinity Power. The platform operates 1.3 GW of solar and wind power projects in South Africa, Egypt and Senegal, and has a 1.8GW project pipeline at various stages of development.

Africa: Afreximbank and Development Reimagined Support Access of High-End, Sustainable Made-in-Africa Brands to China

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CAIRO, Egypt — In continuation of its strategy to assist African businesses in increasing their international presence, the African Export-Import Bank (Afreximbank) (www.Afreximbank.com) and international consultants Development Reimagined (DR) have entered into a partnership to promote the entry and sale of high-end sustainable African brands in China.

The partnership which includes a grant from Afreximbank, has seen Africa Reimagined (AR), a flagship programme created and managed by DR, introducing high-end value-added Made-in-Africa goods from such sectors as fashion, skincare and beverages, to China.

The AR team led Africa’s participation at the 2023 China-Africa Economic and Trade Expo (CAETE) in Changsha from 29 June to 2 July, solidifying the partnership’s dedication to fostering China-Africa trade relations and seizing the opportunity to further leverage growth.

The outing achieved several unprecedented milestones, including:

  • Exhibition of the largest number of luxury African brands to date – from 10 in 2019 to 20, including Maxhosa and Jessica Jane, two unique and luxury South African fashion brands; Taibo Bacar, Nkanda Yetu and Larry Jay, sustainable fashion brands from Mozambique, Zambia and Ghana respectively; Skin Gourmet, a beautifully branded Ghanaian skincare company; Zaaf – a handcrafted luxury bags and leather brand from Ethiopia; Monks Gin, a South African gin company; Yenae – a stunning jewelry brand from Ethiopia; and many more.
  • Several brands successfully sold out their products and connected with many potential business partnerships to accelerate their entry into the Chinese market. For the first time, the participating fashion brands were invited to showcase in a fashion show and business match-making event. The skincare and beverage brands were invited to a business match-making and promotional event in the Gaoqiao China-Africa Free Trade Zone (FTZ). This led to the brands establishing strong connections with Gaoqiao and displaying their products in the FTZ for future business partnerships;
  • The brands participated in numerous media interviews with Chinese news agencies, such as CGTN, Mango TV, and China Financial News, in addition to an exclusive interview with the BBC World Service’s Focus on Africa Podcast with Skin Gourmet and DR CEO, Ms. Hannah Ryder. The booth was also visited by dignitaries from Rwanda, Uganda and Senegal.

Mr. Yusuf Daya, Director, AU/AfCFTA Relations and Trade Policy, Afreximbank, commented;

“We are encouraged about our partnership with Development Reimagined, aimed at enabling access of African brands to global markets. The vast Chinese consumer market provides immense opportunities for African businesses. We urge African entrepreneurs to embrace this challenge, crafting goods that resonate with the market, not only boosting the presence of African products in China but also fostering more jobs, collaborations, and economic growth. Alongside our partners, we will continue forging global partnerships that support African trade.”

The Afreximbank-DR partnership marks a significant milestone in promoting trade and economic cooperation between Africa and China, said Ms. Hannah Ryder, CEO, DR.

Noting that the Chinese consumer market, valued at US$6.3 trillion, was projected to experience substantial growth), DR reported that African exports to China amounted to US$117.5 billion in 2022, a remarkable 24-fold increase compared to 2000.

The collaboration with Afreximbank is expected to include follow-up activities over the next six months to cement the sales and partnerships made at CAETE, testifying to the unwavering commitment of Afreximbank and DR to driving sustainable economic development in Africa through scaled up and improved exports of Made-in-Africa products to China. By leveraging their respective networks, market insights, and financial capabilities, the partnership will facilitate accelerated and value-for-money entry into the Chinese market for African brands, thereby supporting the growth of African economies, contributing to job creation and fostering community development.

Turkish Central Bank faces key test on economic turnaround after Erdogan’s reelection

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The Turkish central bank faces a key test Thursday on turning to more conventional economic policies to counter sky-high inflation after newly reelected President Recep Tayyip Erdogan gave mixed signals about an approach that many blame for worsening a cost-of-living crisis.

It is the bank’s closely watched first interest rate-setting meeting since the longtime leader named internationally respected officials to head the bank and the finance ministry. While a sharp rate hike is expected, it’s not clear if it will be enough to ease market concerns.

The appointments were seen as a sign that Turkey would change course and abandon Erdogan’s unorthodox belief that lowering interest rates fights inflation. Traditional economic theory says just the opposite, and central banks around the world have been rapidly raising rates to combat spikes in consumer prices — including a likely rate hike Thursday by the Bank of England.

Erdogan — a self-declared “enemy” of high borrowing costs — has said he would “accept” his new finance minister’s policies but also insisted that his views have not changed. That has led to questions about whether Turkey’s central bank could act independently.

“We will take decisive steps in the fight against inflation,” Erdogan said Wednesday. “We will increase our efforts to protect large sections of our people from the effects of inflation.”

Under pressure from Erdogan, the central bank cut its key interest rate from around 19% in 2021 to 8.5% earlier this year, despite soaring inflation that hit an eye-watering 85% last year. Inflation has eased to 39.5% last month, according to official figures, but independent research group ENAG says the true rate is 109%.

Economists say Erdogan’s unconventional belief has exacerbated economic turmoil, leading to currency and cost-of-living crises that have brought hardship to many households struggling to afford food, housing and other necessities. Erdogan says his economic model prioritizes growth, exports and employment.

Experts also say the central bank has depleted its foreign currency reserves as it tried to prop up the Turkish lira ahead of elections last month. The currency has lost around 21% of its value against the dollar since the start of the year.

It was not clear just how substantial an expected hike in the bank’s benchmark interest rate could be.

A huge increase in the rate from 8.5% to around 20% “wouldn’t necessarily satisfy the markets, but it would have to be read as a signaling toward more orthodox monetary policy going forward,” said Can Selcuki, director of the Turkiye Raporu polling agency and a former World Bank economist for Turkey.

Selcuki said a hike to around 30% to 35% “would mean that the central bank has decided to actively target inflation going forward.”

Erdogan, who won a third term in a runoff election May 28, reappointed Mehmet Simsek to the helm of the economy. The former Merrill Lynch banker had previously served as Erdogan’s finance minister and as a deputy prime minister until 2018.

Simsek said soon after his appointment that Turkey had no other option but to return to a “rational ground.”

In another sign of a move toward more pragmatic policies, Erdogan appointed Hafize Gaye Erkan this month as Turkey’s first female central bank governor. A former co-chief executive of the now-failed San Francisco-based First Republic Bank, Erkan replaced Sahap Kavcioglu, who oversaw a series of rate cuts.

Erdogan had fired three central bank governors who resisted pressure to cut interest rates before appointing Kavcioglu in 2021. Naci Agbal, who proceeded Kavcioglu, was removed from his post days after he raised rates.

Selcuki said questions remain about whether the newly appointed officials would be able to “stick to their preferred policy” as the country heads to local elections in March 2024.

“What needs to be done right now is some form of tightening, and that is an undesired process for any incumbent before elections,” he said.

On Tuesday, the government increased the minimum wage by 34% — a move that critics say is designed to ease the impact of inflation on households in the runup to next year’s vote.

 

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Culled from AP

Bank of England launches first sector-wide liquidity ‘stress test’

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The Bank of England has launched its first system-wide liquidity ‘stress test’ to establish how big banks, insurers, clearing houses and investment funds respond collectively during extreme stresses in markets, it said on Monday.

The BoE had said in December that investment funds and other non-bank financial institutions would face their first ‘stress test’ to apply lessons from the near-meltdown in Britain’s pension fund sector in September.

“The launch of this exercise will provide valuable insight into the system-wide dynamics for banks and non-banks following a severe but plausible stress to financial markets,” BoE Deputy Governor Jon Cunliffe said in a statement.

Liability-driven investment (LDI) funds, used by pension funds to ensure their long-term payouts, struggled to meet collateral calls after turmoil caused by the fiscal plans of Liz Truss’s short-lived government in September. The BoE had to step in to buy government bonds to stabilise markets.

Money market funds also came under “dash-for-cash” pressure during market stresses following economy lockdowns to fight COVID-19 in 2020.

The BoE has long run separate stress tests of individual banks and insurers to help determine correct capital buffers, but this is the first financial-system wide test, with the bank saying results are expected in the second half of next year to help manage risks better.

The test, the first of its kind globally and which includes hedge funds and pension funds, will focus on UK government bond and repo markets, sterling corporate bond markets and associated derivatives markets, the BoE said.

“The exercise is not a test of the resilience of the individual firms participating. Published materials will not provide information on any individual firms.”

The test will ask firms to show how stresses such as heavy redemptions from investors or rocketing margin calls from clearing houses affect liquidity, amplify shocks and threaten financial stability.

The test is the latest sign of how central banks are seeking a grip on the huge non-bank sector that now plays a key role in funding the economy, often involving leverage and bank-like activities such as lending.

 

 

Culled from Reuters

European Central Bank Raises Rates to Highest Level Since 2001

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The European Central Bank raised interest rates to their highest level in more than two decades on Thursday and warned that there was further to go in order to stamp out inflation.

Unlike the Federal Reserve, which left interest rates unchanged on Wednesday, policymakers who set rates for the 20 countries that use the euro said they hadn’t even discussed pausing rate increases at this week’s policy meeting.

“Are we done? Have we finished the journey? No, we are not at destination,” Christine Lagarde, the president of the bank, told reporters in Frankfurt.

The bank lifted rates by a quarter of a percentage point, putting the deposit rate at 3.5 percent, the highest since 2001, as officials said inflation was forecast to remain too high for too long. It was the bank’s eighth consecutive increase. The move had been well telegraphed since the last meeting of the bank’s Governing Council in early May, when policymakers expressed concern about underlying inflation pressures from wage growth and corporate profits or the impact of rising food prices.

A day earlier, the Federal Reserve held interest rates steady for the first time in more than a year. After last month’s mirror-image move, when both raised rates a quarter point, the two central banks have begun to diverge again. The European Central Bank, which began to raise rates from below zero in July, hasn’t been raising them for as long or as high as the Fed.

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“We are not thinking about pausing,” Ms. Lagarde said on Thursday. It is “very likely” that the bank will raise rates again in July, she added, as long as there isn’t a “material change” to the bank’s expectations for inflation.

Policymakers say they want to avoid the risk of declaring victory in their fight against rising prices prematurely, even as the eurozone’s annual rate of inflation has dropped from its double-digit peak late last year to 6.1 percent in May, the slowest pace in more than a year. Much of the slowdown can be attributed to lower wholesale energy costs, but central bankers have been alert to signs that inflation is becoming embedded in the economy, which could impede them from getting inflation back to their 2 percent target.

Ms. Lagarde highlighted the growing effect of wage increases on inflation, saying that “wage pressures, while partly reflecting one-off payments, are becoming an increasingly important source of inflation.” Higher wage costs for companies also explain why core inflation, which excludes energy and food costs, is expected to be higher over the next two years, she said.

Christine Lagarde, the European Central Bank president, said in Frankfurt that wages were becoming “an increasingly important source of inflation.”

Wage growth will be persistent, Ms. Lagarde said, especially in the short term as the summer travel and tourism season begins. While she is laying the groundwork for strong wage gains in the eurozone, unexpectedly fast wage growth in Britain has led traders to bet on higher interest rates there.

The European Central Bank forecasts headline inflation to average 5.4 percent this year, but expects it to still be above the target in two years, at 2.2 percent, slightly higher than projections set out three months ago. That 2.2 percent forecast is “not satisfactory,” Ms. Lagarde said.

As inflation slows, the question of how much policy tightening is the right amount has become difficult to gauge. Too much could restrain the economy more than necessary and cause or worsen a recession. Too little could allow inflation to become a persistent problem that policymakers can’t root out. It’s a challenge facing central bankers around the globe.

On Wednesday, the Fed said it was giving itself time to assess how the U.S. economy was reacting to the rapid pace of past rate increases. But policymakers warned that they might need to raise rates again later. Such a pattern was established recently in Australia and Canada, where central banks held rates steady for a short period before resuming increases.

On Thursday, Ms. Lagarde said policymakers would know where to keep rates only when they arrived there. Nevertheless, traders are betting that date will arrive at the bank’s September or, more likely, October meeting.

“The E.C.B. just talked itself into two more rate hikes,” Claus Vistesen, the chief eurozone economist at Pantheon Macroeconomics, wrote in a note after Thursday’s announcement. Each one, in July and September, will be a quarter point, leaving the deposit rate at 4 percent, where he predicted it would stay. But economists at Berenberg bank and Commerzbank expect the E.C.B. to stop after one more increase, to 3.75 percent, and keep rates there throughout 2024.

In May, the European Central Bank slowed its rate increases as it acknowledged the impact that tighter monetary policy was having on the region’s economy through more restrictive lending conditions. On Thursday, the bank said tighter financing conditions were expected to further dampen demand.

As the Central Bank signaled higher interest rates, it also slightly lowered its forecasts for economic growth, predicting that the economy will grow 0.9 percent this year and 1.5 percent next year. The eurozone slipped into recession earlier this year as high prices caused people to spend less.

The central bank’s next decisions “will ensure that the key E.C.B. interest rates will be brought to levels sufficiently restrictive to achieve a timely return of inflation to the 2 percent medium-term target,” it said in a statement, “and will be kept at those levels for as long as necessary.”

 

Culled from The New York Times

Crypto markets face mounting pressures

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Major cryptocurrencies faced renewed pressure Thursday as the industry grappled with new challenges on numerous fronts.

Bitcoin (BTC-USD), the largest digital coin, slipped 4% and fell to its lowest level in the past three months. Other major cryptocurrencies dipped, with ether (ETH-USD) and BNB (BNB-USD) falling more than 5% and a stablecoin called tether going below its crucial $1 price.

Those drops dragged the total market value for all crypto assets to its lowest level since the banking turmoil began in March, according to Coinmarketcap.

Publicly traded crypto companies also fell, including the stock of Coinbase Global (COIN). Other crypto stocks including MicroStrategy (MSTR), Riot Platforms (RIOT), and Marathon Digital (MARA) sold off as well.

The new price pressures follow assurances from the Federal Reserve that it isn’t done hiking interest rates this year along with reports that crypto lending platforms Delio and Haru paused withdrawals after facing heightened requests from customers.

Regulators also are turning up the heat on the industry with two new lawsuits filed by the Securities and Exchange Commission last week against crypto exchanges Coinbase and Binance, alleging that 19 specific cryptocurrencies are securities and thus should be registered with the SEC.

Those tokens — which include BNB, SOL, ADA, and MATIC — have fallen 10-14% since the lawsuits.

“Until the regulatory environment is better, cryptos might struggle here,” Oanda market analyst Edward Moya said Thursday.

The multiple pressure points leave the industry with another problem: a lot of sellers and not enough buyers. Major trading firms that once might have acted as market makers have retrenched over the last year.

In the last week trading volumes have fallen on Coinbase and Binance. Liquidity is also lower on Binance’s US-affiliated platform, Binance.US. The amount of money available for trading on Binance’s US-affiliated platform fell 75% following last week’s SEC charges, according to Kaiko Research.

“Everything is coming together all at once and we have thin liquidity in markets now,” crypto investor and entrepreneur Thomas Dunleavy said.

Another sign of increased stress is the pressure on tether (USDT), the market’s largest dollar-pegged stablecoin by market capitalization and trading volume.

It fell as much as 0.20% between Wednesday and Thursday, its biggest one-day drop since November.

As of Thursday at 2:00 AM New York time, the $83 billion stablecoin, which isn’t supposed to fluctuate below its crucial $1 price, fell to $0.9958. It is issued by a company called Tether.

“Markets are edgy in these days, so it’s easy for attackers to capitalize on this general sentiment,” Tether’s chief technology officer Paolo Ardoino said over Twitter earlier Thursday.

Tether tokens are collateralized by other assets the company holds in reserves, including 85% in cash and cash equivalents such as US Treasuries, 6.5% in secured loans, and 4% in precious metals according to its March 31 reserve report.

When the stablecoin slips below its $1 peg, “verified” market participants also can make a profit by buying the token and redeeming it for other currencies.

However, in periods of heightened selling, the redemption process does not always keep up with the market.

In May 2022, the so-called “algorithmic stablecoin” terraUSD collapsed after slipping too far below its $1 peg, causing a rapid shift in sentiment that led to a loss in confidence for the coin by the market leading to its ultimate collapse.

During the month of terra’s collapse, Tether’s Ardoino told Yahoo Finance that Tether faced heightened withdrawals as investors rushed to liquidate $10 billion worth of holdings in 11 days.

Despite temporarily slipping as low as 95 cents during the period, it gradually regained its $1 price over the following weeks.

 

Santander appoints Castro e Almeida to drive growth in Europe

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Pedro Castro e Almeida has been appointed to replace Antonio Simoes, who has been hired as the new CEO of Britain’s Legal and General Group (LGEN.L) for Bank, Santander.

Santander said on Thursday it has appointed Castro e Almeida as regional head for Europe as the Spanish bank bets on the region to drive growth.

As regional chief, Castro e Almeida will be responsible for the bank’s units in Europe, including its businesses in Spain, Britain, Poland and Portugal, the bank said.

Castro e Almeida will lead the transformation in the region and report to the group’s CEO, Hector Grisi, while remaining CEO of Santander Portugal, a role he has had for the past five years.

In the past, Santander has relied on Latin America for growth to offset the tough conditions for banks in Europe since the 2008 financial crisis. But banks across Europe are now beginning to benefit from higher interest rates despite economic uncertainty.

In the first quarter of 2023, Europe was already the biggest contributor to the group’s earnings among its the three main core regions, which also comprise North America and South America.

Santander’s first-quarter net profit in Europe rose 17% year-on-year to around 1.2 billion euros ($1.30 billion).

As part of a February strategy update, Santander said its business in Europe would achieve an annual accumulated growth rate of between 7% and 8% in revenues between 2022 and 2025.

It is also targeting a 15% return on tangible equity ratio (ROTE), a measure of profitability, in 2025 for Europe compared with 9.28% by the end of 2022, the biggest increase in percentage points among its three core regions.

The appointment of Castro e Almeida will take effect on September 1, subject to customary approvals, with Simoes continuing in his current position until then, the lender said. ($1 = 0.9252 euros)

 

ECOWAS deepens support to Private Sector to take advantage of the AfCFTA

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The Economic Community of West African States (ECOWAS), in collaboration with the United Nations Development Programme (UNDP) and the International Trade Centre (ITC), organized a regional capacity building workshop for Master Trainers from Business Associations on the African Continental Free Trade Area (AfCFTA) from 6 – 8 June 2023 in Abuja – Nigeria.

In her remarks, Madame Massandjé Toure-Litse, the ECOWAS Commissioner for Economic Affairs and Agriculture, highlighted the need for West African businesses to take advantage of the opportunities provided by the African continental market.

She reiterated the commitment of the ECOWAS Commission to support the Private Sector to unlock investment, boost production and promote business linkages. Finally, she urged network of Trainers to accompany Micro, Small and Medium Enterprises (MSMEs), especially women and youth entrepreneurs, to start trading under the AfCFTA.

In his remarks, Mr. Lealem Berhanu Dinku, the UNDP Deputy Resident Representative, recalled that intra – African trade is driven by MSMEs, which form the majority of Africa’s private sector. As a result, the UNDP promotes MSMEs capacities to produce and trade for the African market through capacity building, market access and policy advisory services.

In his remarks, Mr. Ashish Shah, Director of the Division of Country Programmes at ITC, outlined how ITC’s AfCFTA trainings emphasize the importance of investment, trade, market intelligence, and value chain development. He highlighted the need to mentor MSMEs to robust business cases for potential financing, and the available tools for support such as ITC’s trade and market intelligence tools.

During the 3-day workshop, participants from Business Associations were trained on key elements of export readiness, including export market research, export strategy, as well as operational tools of the AfCFTA. The Masters Trainers were empowered to sensitize businesses on the benefit of the AfCFTA and help them start trading in the continental market.

The workshop was attended by representatives from Business Associations, the ECOWAS Commission, UNDP, ITC and the AfCFTA Secretariat. The ECOWAS – UNDP Capacity Building Programme was launched in April 2021 with the aim to support the Private Sector in the ECOWAS region to benefit market opportunities within the framework of the AfCFTA.

 

 

 

EU financial sector resilient, but fragile, European Central Bank official says

Paradise Erhuvwu

 

May 31 (UPI) — Efforts to control inflation in the European economy run the risk of creating “vulnerabilities” in the banking sector, where conditions remain fragile, the vice president of the European Central Bank said Wednesday.

The ECB highlighted potential economic risks in the May 2023 Financial Stability Review published Wednesday.

Concerns about the health of the global financial sector emerged in the wake of the collapse of Silicon Valley Bank in California in March. Looming fears about a repeat of the recession from the mid-2000s spread to other financial institutions, leading to a shotgun wedding of sorts between troubled Credit Suisse and Swiss investment bank UBS.

Luis de Guindos, vice president of the European Central Bank, said Wednesday that efforts to keep prices stable are essential for a healthy market, though that could result in some collateral damage.

“(A)s we tighten monetary policy to reduce high inflation, this can reveal vulnerabilities in the financial system,” he said. “It is critical that we monitor such vulnerabilities and fully implement the banking union to keep them in check.”

Banking officials told U.S. lawmakers there were subject to a contagion effect, with depositors pulling billions of dollars out of their accounts in a matter of hours amid fears of a broad-based collapse. But officials weren’t convinced.

“The simplest explanation is best,” said Sen. Sherrod Brown, D-Ohio, the chairman of the Senate Banking Committee. “It is first and foremost the bankers’ fault that the banks crashed.”

In Europe, ECB President Christine Lagarde expressed concern that downside risks from “recent financial market tensions ” raised doubts about the bank’s estimate that headline inflation would fall from around 8% to 2% by 2025.

“Some of this uncertainty will recede as the fallout from recent events in financial markets becomes clearer,” she said. “But faced with overlapping shocks and shifting geopolitics, the level of uncertainty will most likely remain high.”

So far, however, her deputy said banks in the EU have been resilient to the stresses witnessed in the U.S. and Swiss financial sectors, through policymakers need to ensure that resilience is preserved.

Banks, it was suggested, may need to set aside more funds to cover any losses and manage their credit risks appropriately.

 

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