The impact of Basel III higher capital and liquidity requirements on the profitability of South African banks
- Authors: Mdandalaza, Zuko Ludwig
- Date: 2024-04
- Subjects: Basel III , Bank capital , Banks and banking, International , International finance
- Language: English
- Type: Doctoral theses , text
- Identifier: http://hdl.handle.net/10948/65153 , vital:74038
- Description: This study employs a robust quantitative research design meticulously tailored to investigate the nuanced impact of Basel III capital and liquidity requirements on the profitability of South African banks. The data collection process is anchored in a rigorous approach, driven by the acquisition and meticulous review of financial statements sourced from a carefully curated sample of South Africa’s banks. Ensuring the sample’s representativeness is of paramount importance for bolstering the study’s findings. To this end, a purposive sampling technique, distinguished for its deliberate selection methodology, was applied judiciously. This method yielded the selection of 10 banks, chosen carefully to encapsulate a cross-section of the South African banking landscape, thus enhancing the research’s validity and robustness. The analysis of this intricate dataset is underpinned by advanced statistical techniques, with regression analysis as the principal analytical tool. Specifically, the study harnesses the Arellano-Bond generalized method of moments (GMM), a sophisticated yet versatile statistical methodology appropriate for disentangling complex relationships in longitudinal data. This analytical approach is perfectly suited to trace the nuanced interactions between Basel III’s capital and liquidity requirements and the profitability trajectories of South African banks. Spanning a 12-year timeframe, 2010 to 2022, this study attempts to encapsulate the evolution of the banking landscape in the wake of Basel III’s implementation. This extensive temporal scope enables the research to capture both short-term fluctuations and long-term trends, enriching its insights and lending depth to the analysis. The first objective of this study was to unravel the intricate web of macro-specific and bank-specific factors influencing the profitability of banks in South Africa. Net interest margin (NIM), a pivotal metric reflecting bank profitability and efficiency, was central to the investigation. Empirical insights gleaned from the analysis revealed several key determinants of NIM for South African banks. Notably, NIM displayed a high degree of persistence over time. This suggests that South African banks do not adjust swiftly to changes in market conditions, emphasizing the importance for bank managers of considering the long-term repercussions of their decisions on interest, income, and expenses. The results also illuminated a set of critical variables closely linked to NIM. These include credit loss, non-interest income, market concentration, stability (Z-score), and inflation. These variables collectively underscored the banks’ ability to navigate the multi-faceted landscape of risks and uncertainties in the banking sector, including credit risk, operational risk, market risk, and inflation risk. The positive relationship between these variables and NIM indicated the banks’ adeptness at passing on costs and risks to customers through higher interest rates or fees, all while leveraging their market power and diversification strategies. Conversely, a negative and significant association emerged between NIM and bank size, GDP per capita, private credit, and the repo rate. These variables underscored the competitive pressure and macroeconomic dynamics influencing the demand for and supply of credit in the banking sector. In this context, the negative relationship suggested that larger banks, those operating in more developed and competitive markets, and those encountering lower policy rates, tend to exhibit lower NIM. These banks, due to heightened competition and lower demand for credit, face diminished interest income and narrower margins. Notably, variables like cost-to-income ratio, funding structure, and loan-to-deposit ratio did not emerge as significant in explaining NIM for South African banks. This implies that these variables exert a relatively weaker influence on the profitability and efficiency of South African banks, or that their effects are subsumed by other variables in the model. The second objective examined the effect of higher capital buffers on bank profitability. Empirical findings revealed a negative yet statistically insignificant co-efficient for the CET1 variable in the regression analysis. This observation indicated that there is no substantial relationship between Basel III Tier 1 capital ratio (CET1) and bank profitability, as measured by NIM, among South African banks. This suggests that Basel III capital requirements do not have a significant influence on the profitability and efficiency of these banks, or their effect varies depending on other bank-specific or macroeconomic variables. The third objective focused on the effect of Basel III liquidity regulations, epitomized by the liquidity coverage ratio (LCR), on bank profitability in South Africa. Empirical results revealed a negative but statistically insignificant relationship between LCR and NIM. This observation indicates that Basel III liquidity regulations exert no discernible effect on the net interest income of South African banks. This finding could be attributed to the fact that South African banks had already fortified their liquidity positions before Basel III implementation, adhering to stringent regulatory requirements and prudent liquidity management practices. As a result, the introduction of LCR did not pose a significant alteration or constraint on the liquidity standing and profitability of South African banks. It also implies that other factors, like market conditions, funding structures, or asset compositions, play more pivotal roles than the LCR in shaping the profitability of South African banks. These factors may influence the net interest spread, cost of funds, or risk-adjusted returns of these banks. , Thesis (PhD) -- Faculty of Business and Economic Sciences, School of Economics, Development and Tourism, 2024
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- Date Issued: 2024-04
Determinants of Foreign Direct Investments into the Southern African Development Community Region: The case of financial sector development, institutional quality and financial openness
- Authors: Makalima, Sisonke
- Date: 2022-03
- Subjects: Investments, Foreign -- Africa , International finance , Monetary policy
- Language: English
- Type: Master's theses , text
- Identifier: http://hdl.handle.net/10353/21954 , vital:51855
- Description: The SADC region is a 15-member states grouping. Countries in the region have experienced low growth coupled with high levels of poverty and inequality. Attracting FDI to the region has been top priority. However, much is still to be realised. The study employed the Generalised Method of Moments (GMM) technique for the period 1980 to 2019. Empirical results show that financial sector development and financial openness are important determinants of foreign direct investment (FDI) inflows. The results also showed that institutional quality is also a very important variable in determining the inflow of FDI, even though its effect is conditional on financial sector development and financial openness. These results imply that countries with good institutional framework, as well as a developed financial sector and are financially open tend to attract more capital inflows in the form of FDI, thereby creating adequate conditions to boost private sector and investment abroad. Countries in the SADC region should therefore pursue policies which are aimed at improving the institutional framework, the level of financial sector development and further enhance the openness of their financial openness. , Thesis (MCom,) -- Faculty of Management and Commerce, 2022
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- Date Issued: 2022-03
The impact of unanticipated news announcements by the US Federal Reserve On South African stock returns
- Authors: Sibanda, Lorna
- Date: 2019
- Subjects: Monetary policy -- United States , International finance , South Africa -- Foreign economic relations -- United States , United States -- Foreign economic relations -- South Africa , Banks of issue -- United States , Investments -- South Africa , Stocks -- Prices -- South Africa , Stocks -- Rate of return , Rate of return -- South Africa
- Language: English
- Type: text , Thesis , Masters , MCom
- Identifier: http://hdl.handle.net/10962/94703 , vital:31070
- Description: This thesis analyses whether monetary policy announcement shocks are transmitted across countries, with special emphasis on the impact of US Federal Reserve announcements on the South African stock market. Monetary policy is an important source of economic news and affects the risk perceptions of market participants. This study will improve the understanding of stock price determinants and possibly influence SA monetary policy in guarding against possible shocks originating from abroad. Using Federal Reserve Open Market Committee (FOMC) announcements over the period 2008 – 2014, the research studied changes in volatility of the South African FTSE/JSE All Share Index returns over this period. An event study and GARCH model approach was adopted to reach the goals of the analysis. The findings were a statistically insignificant connection between SA stock returns and both anticipated and unanticipated US Federal Reserve announcements. Over the sample period, each shock to SA stock returns persisted for approximately 4-5 months. Although SA stock return volatility demonstrated clustering behaviour (indicating sensitivity to economic shocks), the research could not find an obvious relationship between these spikes in volatility and US Federal Reserve announcements. It is concluded that South African stock returns do not change in response to unexpected US monetary policy announcements.
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- Date Issued: 2019
The effect of foreign direct investment on economic growth: evidence from South Africa
- Authors: Mazenda, Adrino
- Date: 2012
- Subjects: International Monetary Fund , Investments, Foreign -- South Africa , Economic development -- South Africa , International finance , Finance -- Developing countries
- Language: English
- Type: Thesis , Masters , M Com
- Identifier: vital:11462 , http://hdl.handle.net/10353/d1007027 , International Monetary Fund , Investments, Foreign -- South Africa , Economic development -- South Africa , International finance , Finance -- Developing countries
- Description: Foreign direct investment amongst other mechanisms provides capital inflow meant to stimulate economic growth. Apart from promoting economic growth, FDI can also lead to increase in employment, technology, technical knowhow and managerial skills. South Africa has implemented various policy initiatives in attempts to attract foreign investment. This study investigates on the effect of foreign direct investment on economic growth, with particular reference to the South African economy. The period of study is from 1980 to 2010. The study begins by reviewing literature on economic growth and foreign direct investment. South Africa’s macroeconomic background is examined to determine the trends in FDI inflows and economic growth. An empirical model linking theoretical and empirical literature on the effect of FDI on economic growth is estimated using the Johansen cointegration and VECM framework. Variables specified in the methodology include real gross domestic product (RGDP), foreign direct investment (FDI), domestic investment (INVE), real exchange rate (REXCH) and foreign marketable debt (DEBT). The long run results showed that FDI, REXCH and DEBT have a negative impact on growth. INVE has a positive impact on growth. Short run results indicated that there is no strong pressure on RGDP to restore long-run equilibrium whenever there is a disturbance. The short run lag of FDI was found to exert a positive impact on growth. The impulse response and variance decomposition analysis complemented the long and short-run findings. Shocks on REXCH, and DEBT generated a negative response on RGDP. The shocks were not significantly different from zero and were transitory. Results from the variance decomposition analysis revealed that the fundamentals explain some, but not all, of the variations of RGDP. For the fifth year forecast error variance RGDP explains the largest component of the variation followed by INVE, REXCH, FDI and DEBT. After a period of ten years, the influence of RGDP and INVE declines, whereas REXCH, FDI and DEBT increase. Conclusions and policy recommendations were made using these results.
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- Date Issued: 2012
Cointegration, causality and international portfolio diversification : investigating potential benefits to a South African investor
- Authors: Msimanga, Nkululeko Lwazi
- Date: 2011
- Subjects: Cointegration , Econometrics , International finance , Stock exchanges -- South Africa , Stock exchanges -- Developing countries , Stock exchanges -- Developed countries , Investments -- South Africa , Portfolio management -- South Africa , Investment analysis , Autoregression (Statistics)
- Language: English
- Type: Thesis , Masters , MCom
- Identifier: vital:962 , http://hdl.handle.net/10962/d1002696 , Cointegration , Econometrics , International finance , Stock exchanges -- South Africa , Stock exchanges -- Developing countries , Stock exchanges -- Developed countries , Investments -- South Africa , Portfolio management -- South Africa , Investment analysis , Autoregression (Statistics)
- Description: Research studies on portfolio diversification have tended to focus on developed markets and paid less attention to emerging markets. Traditionally, correlation analysis has been used to determine potential benefits from diversification but current studies have shifted focus from correlation analysis to exploring cointegration analysis and other forms of tests such as the Vector Error Correction Methodology. The research seeks to find if it is beneficial for a South African investor to diversify their portfolio of emerging market equities over a long-term period. Daily weighted share indices for the period of January 1996 to November 2008 were collected and analysed through the application of the Johansen cointegration technique and Vector Error Correction Methodology. Granger Causality tests were also performed to established whether one variable can be useful in forecasting another variable. The study found that there was at least one statistically significant long-run relationship between the emerging markets. After testing for unit roots for all the share indices and their first difference using the Augmented Dickey-Fuller test (ADF), Philips-Perron and Kwiatkowski, Phillips, Schmidt, and Shin (KPSS) unit root tests, similar conclusions were m~de. All the unit root tests and their levels could not be rejected for all the series. However, unit root tests on the first differences were rejected, meaning that all series are of order 1(1) - evidence of cointegration. Simply put, emerging markets tend not to drift apart over time. This suggests that emerging markets offer limited benefits to investors who are looking to add some risk to their portfolios. In addition, the study also found evidence of both unidirectional and bidirectional causality (Granger-Cause tests) between markets. This implies that the conditions for a particular market are exogenous of the other market. The study concludes that emerging markets are gradually adopting the same profile as developed markets.
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- Date Issued: 2011
Integration between the South African and international bond markets : implications for portfolio diversification
- Authors: Rabana, Phomolo
- Date: 2009
- Subjects: Bond market , Bond market -- South Africa , Principal components analysis , International finance , Foreign exchange rates -- South Africa , Investments -- South Africa
- Language: English
- Type: Thesis , Masters , MCom
- Identifier: vital:947 , http://hdl.handle.net/10962/d1002681 , Bond market , Bond market -- South Africa , Principal components analysis , International finance , Foreign exchange rates -- South Africa , Investments -- South Africa
- Description: International bond market linkages are examined using monthly bond yield data and total return indices on government bonds with ten years to maturity. The bond yield data covers a nineteen-year period from January 1990 to July 2008, while the bond total return index data covers a nine-year period from August 2000 to July 2008. The international bond markets included in the study are Australia, Canada, Germany, Japan, the United Kingdom, and the United States. The examination of international bond market linkages across these markets has important implications for the formulation of effective portfolio diversification strategies. The empirical analysis is carried out in three phases: the preliminary analysis, the principal component analysis (PCA), and the cointegration analysis. For each analysis and for each set of data the full sample period is first analysed and subsequently a five-year rolling window approach is implemented. Accordingly, this makes it possible to capture the time-varying nature of international bond market linkages. The preliminary analysis examines the bond market trends over the sample period, provides descriptive statistics, and reports the correlation coefficients between the selected bond markets. The PCA investigates the interrelationships among the bond markets according to their common sources of movement and identifies which markets tend to move together. The cointegration analysis is carried out using the Johansen cointegration procedure and investigates whether there is long-run comovement between South Africa and the selected bond markets. Where cointegration is found, Vector Error-Correction Models (VECMs) are estimated in order to examine the long-run equilibrium relationships in addition to their short-run adjustments over time. The empirical analysis results were robust, and overall integration between SA and the selected major bond markets remained weak and sporadic. In addition, the results showed that even after accounting for exchange rate differentials, international bond market diversification remained beneficial for a South African investor; and since international bond market linkages remained weak with no observable trend, international bond market diversification will remain beneficial for some time to come for a South African investor.
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- Date Issued: 2009
Interdependence and business cycle transmission between South Africa and the USA, UK, Japan and Germany
- Authors: Mugova, Terrence Tafadzwa
- Date: 2009
- Subjects: International economic relations -- Developing countries , Business cycles -- Developing countries , Economic development -- Developing countries , Industrial policy -- Developing countries , International finance
- Language: English
- Type: Thesis , Masters , MCom
- Identifier: vital:946 , http://hdl.handle.net/10962/d1002680 , International economic relations -- Developing countries , Business cycles -- Developing countries , Economic development -- Developing countries , Industrial policy -- Developing countries , International finance
- Description: The process of globalisation has had a large impact on the world economy over the past three decades. Economic globalisation has manifested itself in the increasing integration of goods and services through international trade and the integration of financial markets. As a consequence the existence of co-movements in economic variables of different countries has become more evident. The extent to which globalisation causes a country’s economy to move together with the rest of the world concerns policy-makers. When such co-movement is significant, the influence of policy-makers on their respective domestic economies is significantly reduced. South Africa re-entered the international economy in the early 1990s when the forces of globalisation, especially for developing countries, seemed to gain momentum. Empirical research such as Kabundi and Loots (2005) found strong evidence of international co-movement between the world business cycle and the South African business cycle, particularly following South Africa’s integration into the global economy. This study examines the relationship and interdependence between South Africa and four of its major developed trading partners. More particularly, the study examines the question of whether business cycles are transmitted from Germany, Japan, US and UK to South Africa, and/or from South Africa to Germany, Japan, the US and UK. The study employs structural vector autoregressive (SVARs) models to analyse monthly data from 1980:01–2008:04 on industrial production, producer prices, short-term interest rates and real effective exchange rates. The results show that South Africa benefits from economic growth in both the UK and US. They also indicate significant price transmission from Germany and Japan to South Africa, with transmission in the opposite direction being statistically insignificant. The impulse response graphs show that a positive one standard deviation shock to both German and Japanese producer prices has a negative impact on South African output (industrial production) growth. Furthermore, South African monetary policy is relatively unresponsive to international monetary policy stances. The findings of this study indicate that South African policymakers need to take into consideration economic performance of the country’s major trading partners, with particular emphasis on the UK and US economies.
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- Date Issued: 2009