RISK MANAGEMENT | 10 MARCH 2022 Why we need specialist problem-solvers in banking Absa | Corporate and Investment Banking > Insights and Events > Why we need specialist problem-solvers in banking Anthony Evens Head of Special Asset Management, Absa CIB SHARE South Africa is globally recognised as having one of the most resilient, well-capitalised and technically competent banking sectors in the world. These skills have been honed through a variety of different economic cycles and allow our teams to work on large deals – but who manages the risk when a sector or the economy as a whole hits an unexpected speed bump? Whether we are looking at geopolitical issues such as the events in Eastern Europe or measuring the economic fallout from a spike in oil prices or rising global interest rates, this topic of “Distressed Assets” becomes topical for bankers, shareholders, asset managers and public sector entities. This term often conjures up an impression of debt collectors, but the reality is that these are the matters which are brought to our Special Asset Management business. These could include high-profile restructurings for the likes of JSE-listed heavyweights Tongaat and Aveng or public-sector operations like the Land Bank or SAA. Our day-jobs entail coming up with solutions to support our clients through challenging times, protect the bank’s capital and to bring leadership and strategic dialogue to complicated transactions. These skills are likely to become increasingly important for a couple of key reasons in 2022 and into the medium term: Economic disruptions We will have a clearer picture as the big banks in SA start reporting, but while the risk has moderated since 2020, pent-up risk remains elevated. While events in the Ukraine continue to unfold, the impact is already being felt with surging oil prices and global supply chains being interrupted yet again. This is unfolding just as we were beginning to return to pre-COVID-19 levels. The ordinary consumer may be feeling it at the petrol pump, but these shocks will be felt across the globe. South Africa may feel somewhat shielded geographically, however the ripple effects will wash through into our economy, the severity of which remains to be seen. Shaky African SOEs African State-Owned Enterprises represent one of the most interesting and challenging debt propositions at the moment. Many of these entities play critical roles in their respective economies, but require strategic restructuring to ensure their continued viability. Matters such as Eskom, SAA and Land Bank in South Africa have dominated the headlines and resolutions of these matters require an astute appreciation of the social and political backdrop and constructive dialogue between affected stakeholders. Technical competence alone is insufficient, all stakeholders need to mobilise constructively towards an equitable solution. In an ideal world, the ability to move at speed is a key ingredient to a successful restructure, which has proved to be really challenging when working within the confines of the Public Finance Management Act in South Africa. Perhaps it would be worthwhile to consider practical enhancements that would enable a more effective approach to distressed public entities? Property sector remains vulnerable Looking ahead there are some other dark clouds on the horizon in terms of sectors which are not firing on all cylinders. The Chinese property market has attracted a lot of attention but it is hard to ignore the number of empty office buildings that were full pre-COVID lockdowns. If one throws in rising global interest rates, it is clear that there will be some sacrificial lambs along the way in property. Opportunity in crisis The African economy remains poised for growth and we will increasingly see more integration as intra-African trade increases. In particular distressed sectors and entities provide market entry or expansion opportunities. There have already been a number of deals in the hospitality sector, which we expect to continue and we have seen new capital providers participate in the “distressed asset spectrum” of the African market. We anticipate that this market will continue to broaden and mature. As a leading Pan-African bank we have invested in a highly-competent team of problem solvers to assist our clients navigate distress and find optimal solutions, which ultimately protect value, employment and economic growth, at a particularly sensitive time. Anthony EvensHead of Special Asset Management, Absa CIB https://cib.absa.africa/wp-content/uploads/2020/07/file_example_MP3_700KB.mp3 Related Articles RISK MANAGEMENT Corporate Treasury through Crisis Why banks and corporate treasurers are forging new relationships based on co-creation and true business partnership Read more RISK MANAGEMENT Keeping your Digital FX Safe The global marketplace is a world of opportunity – and risk. How do our systems keep your cross-border transactions safe? Read more Videos Managing FX liquidity in frontier markets Frontier markets are a subset of emerging markets that are considered to be riskier than developed markets – and from a foreign exchange (forex, or FX) perspective, they’re characterised by volatile currencies. But there’s tremendous value to be found here.