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GLOBAL ECONOMY
The past year was one of unprecedented economic turmoil globally.We witnessed the start of a widespread recession, the implosion of the financial sector and the demise and even nationalisation of some of the most established and reputable global institutions. Few could have predicted the magnitude of this catastrophe.At the core of the problem was the deteriorating credit environment that resulted in the subprime mortgage crisis which surfaced in the United States during 2007. Simplistically stated, credit was extended to people who could not afford it, based on the ill-founded assumption that property values would continue to appreciate.
These substandard mortgage loans were packaged as collateralised instruments using complex derivative structures. These loans defaulted in mounting volumes and resulted in massive writedowns for many leading financial institutions.
Nedbank had no direct exposure to the foreign subprime market or any of these related derivative instruments.
The effects of this meltdown will be felt for some time to come. However, it is hoped that business the world over will learn valuable lessons and once again focus on sustainable business practices, underpinned by ethical behaviour, which is in the interests of all stakeholders, not just the self-serving interests of a few.
DOMESTIC ENVIRONMENT
South Africa’s resilience in the face of this worldwide crisis can be attributed largely to the regulatory framework and prudent fiscal policies that define our business practices and banking system and ensure companies and individuals operate within conservative bounds.Three specific regulations warrant mention. The National Credit Act, introduced in 2006 to curb lending and shield consumers from reckless credit granting, has also sheltered the industry from the poor credit practices applied in many first-world countries. The implementation of the Basel ll risk management philosophy and discipline in January 2008 and the conservative capital adequacy requirements imposed by the Banking Regulator have ensured that local banks continued to manage risk prudently and remained wellcapitalised. Finally, our foreign exchange controls, which limit the flow of funds offshore, have added further protection and provided a measure of insulation for our economy. Further details on the impact of the global crisis on South Africa and Nedbank, and the reasons why our country was largely sheltered from the turmoil, are contained in the Risk and Capital Management Report.
Domestically we have not only seen our economy slowing to the brink of a recession, but we have also seen momentous changes on the political front.
It should be reassuring to the international community that South Africa has firmly established institutions and forums such as our constitution and the rule of law that underpin our democracy. This ensures that people in leadership roles are constrained in their actions and that politicians remain accountable to their constituencies.
Recent developments on the political landscape have introduced a healthy diversity and bode well for the future of our young democracy, as well as our economy.
BANKING SECTOR
The South African banking environment is experiencing the effects of a slowing domestic economic cycle brought on by high interest rates and high levels of inflation, and the secondary effects of the global financial crisis. Across the banking sector we have seen rising bad-debt levels and lower levels of recoveries in the retail environment as household finances remain strained.On the positive side our banks have experienced less volatility than many of their international peers, while also not facing the same liquidity challenges and levels of writedowns. Throughout the year rand liquidity remained stable, with the interbank lending market continuing to operate efficiently.
Our banking system is highly advanced with sophisticated, worldclass risk management techniques that have been more conservatively applied than has often been the case offshore.
On the regulatory front the Competition Commission’s inquiry into bank charges resulted in the release of its report late in the year and it has called for comment on the recommendations. It is anticipated that the final outcome of the banking inquiry process will be finalised during 2009.We remain supportive of the objectives of the inquiry and are committed to an outcome that provides real benefit to consumers and ensures the ongoing competitiveness and stability of the financial services industry.
Extract from Chairman's statement in the 2008 Nedbank Group Annual report
| This page was updated on 28 June, 2009 |  Return to top |
