We have seen some of the headlines coming from popular publications and we are dismayed by the some of the social media sentiments on the stability of the financial system that supports premier companies in Zambia. For the record, we are not experts on the Zambian banking system, however, we do know what systemic risk looks like when we see it. In short, recent happenings at a known bank are not indicative of systemic risk. Far from it.
What is Systemic Risk?
Before you rush to your bank and start withdrawing your hard earned “dividends”, its important to know what systemic risk is. But wait! Why are we calling it systemic..risk? Well, the formal definition is mandatory in this situation because of the alarm that social media has raised. It’s so hostile that even the central bank had to issue a cautionary note over this matter of the banks it supervises (read it here http://www.boz.zm/publishing/PressReleases/Admin1411Press%20Statement.pdf).
We are not faced with the collapse of our financial system. Far from it. According to investopedia.com, systemic risk is the possibility that an event at the company level could trigger severe instability or collapse an entire industry or economy. In this case we are talking about our financial system.
We have been monitoring the health of premier financial companies and we glad to note that all of them have taken (and are taking) the steps to protect shareholder value. We know this from the ratios on performance, liquidity, risk and efficiency on their recent financial statements. Our expert assessment shows that their numbers are not indicative of rocking our financial system hence BOZ is within its faculty to ‘school’ the social media novices.
So before social pundits mislead the masses, think of 2002’s Sarbanes-Oxley Act and 2008 financial crisis that was caused by systemic risk (which ultimately led to Dodd-Frank). Recall there were many exotically package financial instruments that went belly up and had the US government bailing out several big name banks. Furthermore, listen to the “macro story” as told by the Finance Minister in his latest budget speech. We envisage “quantitative easing” by way of additional liquidity being availed onto the Zambian market with fiscal policies to support them being the crucible of financial hope. In short, the outlook of many of our bank’s balance sheets over the coming months will have quite a few positive surprises. We are bullish on banking in Zambia.
