It seems a strange concept. Why would a decline in the Chinese economy affect one South African bank more than others? We know that a slowdown in Chinese industry has caused exports to suffer, and this has affected the rand value against the dollar. But Chinese concerns may affect Nedbank more than other banks due to its affiliation with the Bank of China.
The Nedbank Association with Bank of China
Back in 2013 the Chinese economy was booming. Thus a partnership between Nedbank and the Bank of China seemed like an excellent move. The strategic business agreement was intended to increase business flows between South Africa and China. China would have an easier time investing in South Africa and South Africa would, in turn, ride the coat-tails of China’s steadily growing economy.
The initial numbers looked good, and it soon appeared that Nedbank’s partnership with the Bank of China looked to be the necessary stepping stones for both banks to establish themselves further across Africa.
However, just over two years on and the Shanghai Composite Index began falling rapidly, causing stocks to be suspended earlier this year. The yuan was performing at lower than expected levels, which triggered risk aversion and large shareholders were suddenly limited with regards to how much stock they could sell.
This coincided with global tension originating in the Middle East. Amidst uncertainty in the region, and with Russia and the US bombing parts of Syria, international markets seemed to be agitated. The Brent crude oil price dropped by over 5 percent, reaching lows it hadn’t seen in 11 years. And, in addition, North Korea’s successful hydrogen bomb tests served to increase geopolitical tension.
None of this helped investments, in China or South Africa, and the JSE all-share had dropped by 2.73 percent in early January.
Does This Spell Disaster for Nedbank?
The association with China didn’t punish Nedbank more than other banks during this period, but it didn’t help it either. In fact, all of South Africa’s banks bore the brunt of the situation, leading the way in losses.
As it happens, Standard Bank was the biggest loser, dropping 5.38 percent to settle at R105.03. First Rand bank was close behind, dropping 5.09 to come down to R38.01.
Nedbank’s association with the bank of China didn’t noticeably hurt or help it. But, in this trying period it would do well to use its ties with the BoC to formulate some recovery strategies.
Image credit: http://ewn.co.za/2013/08/06/SAs-Nedbank-partners-with-Bank-of-China