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Banks in the spotlight as economies and markets play out

Banks around the world, be they central, national or privatised, grabbed the headlines over the past week in response to global and local economies seeking stability amid inflationary headwinds and market events.
Banks around the world, be they central, national or privatised, grabbed the headlines over the past week in response to global and local economies seeking stability amid inflationary headwinds and market events. Starting with China and its currently sputtering economy, some major Chinese lenders’ ratings were downgraded to ‘Sell’ in a Goldman Sachs report published on 5th July 2023, mainly instigated by local government debt exposure. Agricultural Bank of China went from ‘Neutral’ to ‘Sell’ while Industrial and Commercial Bank of China, China’s largest lender, tumbled from ‘Buy’ to ‘Sell’, prompting share price drops of almost 3% and nearly 2% respectively. Beijing-backed newspaper Securities Times downplayed the investment bank’s decision, deeming it as a ‘misinterpretation’ and based on ‘pessimistic assumptions’. Fresh out of celebrating its 247th Independence Day, the US’s Federal Reserve eased its lending to the banks – lending via the Fed’s discount window was US$3.4 billion on 5th July 2023 from US$3.2 billion a week prior.
Total lending stood at $270.2 billion down from US$274.7 billion over the same period, including “other credit” tied to the wind down of failed banks, which stood at US$164.8 billion from June 28’s US$168.3 billion.
Speaking of failed banks, a 40% stake in Credit Suisse was denied to Saudi National Bank by Swiss regulator FINMA for unknown reasons. Foreign investors must receive FINMA’s approval to take a stake of more than 10% in any major Swiss bank. Before UBS completed its emergency takeover of Credit Suisse, Saudi National Bank owned 9.88% of the Swiss bank and was considered its biggest shareholder to the amount of US$5 billion. Indian banking giant HDFC Bank merged with its parent company and the largest home financing lender in India, Housing Development Finance Corporation. The US$40 billion merger is the largest in the country’s corporate history and the combined entity’s loan book of US$273.77 billion takes HDFC Bank into the world’s top 10 by market capitalisation. Back home in Australia, the country’s ‘Big Four’ have appealed to Australian Prudential Regulation Authority (APRA) to ease a rule that would prevent some mortgage holders from refinancing their current loans.
APRA advises banks to extend loans to customers only if the bank believes they can repay at three percentage points higher than current market rates.
National Australia Bank announced a revamp to its approach to ‘like-for-like’ refinancing criteria to help customers who would otherwise fail to meet the industry standard advised by APRA. Commonwealth Bank of Australia has cut its buffer rate for some borrowers refinancing their existing home loan to 1% from the industry standard of 3%. Woe is indeed RBA Governor Phillip Lowe, whose future with the central bank is under question after he backpedalled on his 2021 statement to not increase interest rates until 2024. Since 2021, the RBA has raised the cash rate by 400 basis points to its highest in 11 years. Undeterred by the pending decision, the RBA has warned that more interest rate hikes are in order, potentially up to 4.35% in August and further to 4.6%, to bring inflation under control. Past performance is not a reliable indicator of future performance.

 

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