Sunday, January 24, 2021

BSE aims to boost capital markets through toxic assets

The Botswana Stock Exchange (BSE) is mulling over plans to introduce a securitisation market in a bid to offÔÇôload the local banks and insurance companies of toxic assets while at the same time bolstering the fledgling capital market in the country.

Thapelo Tsheole, product development manager at BSE, told Sunday Standard in an interview that the move towards the introduction of securitization will first be discussed at the upcoming conference slated for October 9 at GICC.
The process of securitization involves a situation where the primary dealers such as the banks sell some of their illiquid assets which are then transformed into instruments that can be traded on the counter.

This can take the form of mortgage loans or credit cards which their risks would then be transferred to the third party from the primary dealers and be listed on the exchange through a Special Purpose Vehicle.

However, toxic assets as they are commonly referred to need to be subjected to a credit rating to avoid markets crunch as it happened with the sub-prime mortgage in the United States of America.

According to Tsheole, primary dealer institutions stand to benefit immensely from the transfer of risk on loans to investors, and further through the improvement of velocity of assets turnover, thereby improving return on capital of the banks or concerned financial institutions.

Tsheole, however, acknowledged the fact that securitization has in the recent past been largely blamed for the credit crisis in the USA which this week President George W Bush was passionately pleading with Congress to approve US $ 700 billion to inject into the economy following the collapse of the mortgage market.

Tsheole shrugged-off fears that the same could happen locally saying that the local banking system is stringent and does not dole out loans to people even those who do not qualify as it happened in the USA.

“In our country,” he argued, “we do not have sub prime loans which apparently are associated with the issue, thanks to the country’s regulatory system for the banks.

Additionally, he said the securitized products are subjected to a rigorous and world class, credit rating system to eliminate any avoidable risks, and also to boost confidence on the part of investors whilst at the same time ejecting a sense of commitment on the part of sellers or the originating organization.

“In this way, the quality of the listed products is bound to be enhanced,” he said.

The securitization gives the market some flexibility as the toxic assets are sold for cash and that will enable the primary dealers to quickly realize their cash and be able to plough it back into the system.

However, the challenge will come in if the hedge funds which are not stringently regulated as commercial banks are allowed to participate as third partiesÔÇöa move which has seen the USA government trying to correct when it urged collapsed banks to register as commercial banks so that they can come under scrutiny.
The BSE has invited a number of renowned experts in the field to excite the participants by sharing their experiences and the challenges to be expected.

The Head of Debt Capital Market Team at ABSA Capital, Werner Nel, is expected to grace the occasion. Also present will be Mark Rafaelli, who is the founder of Geometric Progression SA, Dr Zoumana Kone, the Open Operations Manager at Bank of Botswana and Investec Botswana’s Managing Director, Martinus Seboni, along with Nick Taylor of Fleming Advisors. They are scheduled to form part of the fuel that will steam this all powerful business day.

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