Testing for competition in the South African banking sector

This paper employs the Panzar and Rosse (1987) and the Bresnahan models to determine the level of competition in the South African banking sector. This level of competition was tested during the period 1998 to 2008 for the Panzar and Rosse approach and from 1992 to 2008 for the Bresnahan model. We �find evidence of monopolistic competition in the South African banking sector. Our fi�ndings are consistent with those of Bikker et al (2012) for South Africa

Heterogeneous agent models to determine spillover effects in the context of quantitative easing

We develop heterogeneous agent models to investigate financial spillover effects in the context of Quantitative Easing (QE). We consider these spillover effects from two perspectives. The first perspective studies spillovers within a network of financial institutions. The aim is to understand where amplification effects occur in the event of a shock. For this purpose, we calibrate a model of fire-sale contagion to the South African banking sector. We use cross-sectional balance sheet data for 29 South African banking institutions. Fire-sale externalities are pecuniary externalities that operate through prices. They pose a threat to the financial system because they amplify price shocks across assets and thus lead to liquidation spirals. In the first step, we investigate general shock propagation scenarios to an unsecured lending portfolio of a large bank and to a marketable asset held by all banks, i.e. South African government bonds. We rank individual banks according to their contribution to systemic risk and show the importance of cash liquidity buffers in reducing risk of fire-sale occurrences. Further, we find a critical threshold parameter which, if exceeded, makes the banking system highly unstable. In the second step, we build on findings presented by Cecchetti et al. (2017) that determine a relationship between Quantitative Easing and risk-taking behavior of financial institutions in emerging markets. Assuming that QE increases banks’ leverage, we show that the fire-sale contagion channel becomes much more pronounced. The same shock to the government bond asset class leads to higher banking sector instability. The risk to banking sector losses is not linear, but rather increases exponentially with higher leverage ratios. The second perspective of the dissertation considers spillovers between financial markets in the context of QE. We contribute to the literature that investigates the portfolio balance effect associated with QE. In essence, the portfolio balance channel is the consequence of an assumed imperfect substitutability of assets. To account for this, we develop a dynamic agent-based model to study international asset price spillover. Our two-country model features heterogeneity in assets and in investor preferences. Both are crucial for a meaningful model-based impact assessment of QE because preferences for asset maturity, asset class (bonds, equities and currencies) and whether an asset is issued at home or abroad can influence the substitutability of assets, and hence the portfolio balance effect of central bank asset purchases. We implement a novel pricing mechanism that allows us to approach market clearing prices. This allows us to take advantage of the flexibility of the agent-based methodology, while keeping the model comparable to more standard equilibrium-based portfolio balance models. We calibrate the two countries in our model to the Eurozone (EZ) and a representative sample of rest-of-the-world (ROW) countries in order to estimate the international impact of the ECB’s asset purchase program announced in January 2015. For this purpose, we compile data on asset holdings of 15 374 EZ and 25 930 ROW open-end investment funds from the Morning Star Database, as well as data on investment portfolios of EZ and ROW banks from the ECB’s Statistical Warehouse and Bankscope. When simulating our model, we find a negative impact of central bank asset purchases on both domestic and foreign returns. While the effects of QE on domestic bond yields and the exchange rate are rather modest and smaller than commonly assumed in the literature, they can cause domestic stock prices increase substantially. Somewhat surprisingly, however, we find that spillovers from portfolio balancing to the rest of the world are negligible

Using a naive Bayesian classifier methodology for loan risk assessment: evidence from a Tunisian commercial bank

Purpose – Loan default risk or credit risk evaluation is important to financial institutions which provide loans to businesses and individuals. Loans carry the risk of being defaulted. To understand the risk levels of credit users (corporations and individuals), credit providers (bankers) normally collect vast amounts of information on borrowers. Statistical predictive analytic techniques can be used to analyse or to determine the risk levels involved in loans. This paper aims to address the question of default prediction of short-term loans for a Tunisian commercial bank. Design/methodology/approach – The authors have used a database of 924 files of credits granted to industrial Tunisian companies by a commercial bank in the years 2003, 2004, 2005 and 2006. The naive Bayesian classifier algorithm was used, and the results show that the good classification rate is of the order of 63.85 per cent. The default probability is explained by the variables measuring working capital, leverage, solvency, profitability and cash flow indicators. Findings – The results of the validation test show that the good classification rate is of the order of 58.66 per cent; nevertheless, the error types I and II remain relatively high at 42.42 and 40.47 per cent, respectively. A receiver operating characteristic curve is plotted to evaluate the performance of the model. The result shows that the area under the curve criterion is of the order of 69 per cent. Originality/value – The paper highlights the fact that the Tunisian central bank obliged all commercial banks to conduct a survey study to collect qualitative data for better credit notation of the borrowers.Propósito – El riesgo de incumplimiento de préstamos o la evaluación del riesgo de crédito es importante para las instituciones financieras que otorgan préstamos a empresas e individuos. Existe el riesgo de que el pago de préstamos no se cumpla. Para entender los niveles de riesgo de los usuarios de crédito (corporaciones e individuos), los proveedores de crédito (banqueros) normalmente recogen gran cantidad de información sobre los prestatarios. Las técnicas analíticas predictivas estadísticas pueden utilizarse para analizar o determinar los niveles de riesgo involucrados en los préstamos. En este artículo abordamos la cuestión de la predicción por defecto de los préstamos a corto plazo para un banco comercial tunecino. Diseño/metodología/enfoque – Utilizamos una base de datos de 924 archivos de créditos concedidos a empresas industriales tunecinas por un banco comercial en 2003, 2004, 2005 y 2006. El algoritmo bayesiano de clasificadores se llevó a cabo y los resultados muestran que la tasa de clasificación buena es del orden del 63.85%. La probabilidad de incumplimiento se explica por las variables que miden el capital de trabajo, el apalancamiento, la solvencia, la rentabilidad y los indicadores de flujo de efectivo. Hallazgos – Los resultados de la prueba de validación muestran que la buena tasa de clasificación es del orden de 58.66% ; sin embargo, los errores tipo I y II permanecen relativamente altos, siendo de 42.42% y 40.47%, respectivamente. Se traza una curva ROC para evaluar el rendimiento del modelo. El resultado muestra que el criterio de área bajo curva (AUC, por sus siglas en inglés) es del orden del 69%. Originalidad/valor – El documento destaca el hecho de que el Banco Central tunecino obligó a todas las entidades del sector llevar a cabo un estudio de encuesta para recopilar datos cualitativos para un mejor registro de crédito de los prestatarios

Big data driven decision making model: a case of the South African banking sector

The quest to develop a Big Data Driven Decision Making framework to support the incorporation of big data analytics into the decision-making process resulted in the development of a decision making model. The study was conducted within the banking sector of South Africa, with participants from three leading South African banking institutions. The conducted research followed the design science research process of awareness, suggestion, development, evaluation and conclusion. This study developed a theoretical Big Data Driven Decision Making model which illustrates the decision-making process in banking using big data. The study further determined the organizational supports that need to be in place to support the big data analytics decision-making process.http://sacj.cs.uct.ac.zaInformatic

Addressing the growing spectre of cyber crime in Africa: evaluating measures adopted by South Africa and other regional role players

Cyber crime is thriving on the African continent. The increase in broadband access has resulted in an increase in internet users. Thus, Africa has become a ‘safe haven’ for online fraudsters. African countries are pre-occupied with attending to pressing issues such as poverty, the Aids crisis, the fuel crisis, political instability, ethnic instability and traditional crimes such as murder, rape and theft, with the result that the fight against cyber crime is lagging behind.The lack of IT knowledge by the public and the absence of suitable legal frameworks to deal with cyber crime at national and regional levels have compounded the problem. However, attempts are being made by some African countries to address cyber crime. The South African government has taken the lead in introducing cyber legislation to address cyber crime. The ineffectiveness of the South African common law to combat cyber crime, led to the promulgation of the Electronic Communications and Transactions Act, Act 25 of 2002 (ECT). Whilst the advent of the ECT is lauded, there is still room for improvement. To illustrate this, criminal sanctions in terms of section 89 of the ECT have been criticised for not being stringent enough! Recent case law also reveals that the courts are adopting a progressive approach towards cyber crime cases. The South African banking sector is also vulnerable to cyber crime. However, the establishment of initiatives such as the South African Banking Risk Information Centre (SABRIC) and public-private partnerships between government and the IT industry to combat cyber crime in the South African banking sector are welcomed. Although South Africa has adopted the Council of Europe’s Convention on Cyber crime (COECC), it has not ratified the treaty.Criminal and Procedural La

Towards a socio-specific artificial intelligence adoption framework

Organisations need to be able to adopt AI successfully, but also responsibly. This requirement is not trivial, as AI can deliver real value to adopters. However, can also result in serious impacts on humans. AI’s technical capabilities make AI powerful, still the implementation of AI in organisations is not limited to the technical elements and requires a more holistic approach. An AI implementation within an organisation is a socio-technical system, with the interplay between social and technical components. When AI makes decisions that impact people, the socio considerations in AI adoption frameworks are paramount. Although technical adoption challenges are well researched and can overlap with aspects associated with traditional IT implementations, artificial intelligence adoption often faces additional social implication. This study focuses on these social challenges, which is a problem frequently experienced by many organisations. The study investigates how an organisation can increase adoption of AI as part of its quest to become more data-driven. This study was conducted at an automotive manufacturer’s analytics competence centre, located in South Africa. This paper describes the first iteration of a larger research effort that follows the design science research methodology. A socio-specific artificial intelligence adoption framework was created and can be used by organisations to help them succeed with their AI adoption initiatives in a responsible manner.http://www.easychair.org/publications/EPiC/Computingam2023Informatic

Much ado about nothing? Legal principles on money, bank and their clients after Joint Stock Company Varvarinskoye v ABSA bank Ltd

A fairly recent case that involved important issues pertaining to money, banks and their clients was Joint Stock Company Varvarinskoye v ABSA Bank Ltd & Others ([2008] 3 All SA 130 (A) (‘Joint Stock’)). In my analysis I will discuss the role and nature of money and banks, as well as important features of relevant legal principles of banking law. The judgment is considered against this background in order to determine its potential impact and influence on banking law and in general on the business of banks.http://www.jutalaw.co.za/catalogue/itemdisplay.jsp?item_id=360

Inflation targeting and it's applicability to the South African economy.

Thesis (MBA)-University of KwaZulu-Natal, 2004.With the change in Governor at the South African Reserve Bank in August 1999, also came the announcement by the South African monetary authorities of the decision to move to formal inflation targeting. There seems, however, to be a lack of understanding by the South African public on the concepts and issues of inflation targeting and thus the potential benefits. This is mainly due to the lack of international evidence given that inflation targeting is not even a decade old yet. This study was largely motivated by the need for a more comprehensive understanding of the intricacies of inflation targeting as the future monetary policy strategy. Thus, the aim of this study is to examine inflation targeting in its entirety and determine whether South Africa is truly ready for the new age of inflation targeting. There are three prerequisites for inflation targeting: 1. central bank independence 2. having sole target 3. existence of stable and predictable relationship between monetary policy instrument and inflation. Inmany developing countries, the use of seigniorage revenues as an important source of financing public debts, the lack of commitment to low inflation as a primary goal by monetary authorities, considerable exchange rate flexibility, lack of substantial operational independence of the central bank or of powerful models to make domestic inflation forecasts hinder the satisfaction of these requirements

A social networking approach to security awareness in end-user cyber-driven financial transactions

Cyberspace, including the internet and associated technologies have become critical to social users in their day to day lives. Social users have grown to become reliant on cyberspace and associated cyber services. As such, a culture of users becoming dependent on cyberspace has formed. This cyberculture need to ensure that they can make use of cyberspace and associated cyber services in a safe and secure manner. This is particularly true for those social users involved in cyberdriven financial transactions. Therefore, the aim of this research study is to report on research undertaken, to assist said users by providing them with an alternative educational approach to cyber security, education, awareness and training

A social networking approach to security awareness in end-user cyber-driven financial transactions

Cyberspace, including the internet and associated technologies have become critical to social users in their day to day lives. Social users have grown to become reliant on cyberspace and associated cyber services. As such, a culture of users becoming dependent on cyberspace has formed. This cyberculture need to ensure that they can make use of cyberspace and associated cyber services in a safe and secure manner. This is particularly true for those social users involved in cyberdriven financial transactions. Therefore, the aim of this research study is to report on research undertaken, to assist said users by providing them with an alternative educational approach to cyber security, education, awareness and training.Thesis (MIT) -- Faculty of Engineering, the Built Environment and Technology, Information Technology, 201