Bank sector vulnerability to bond valuation

Today’s IMF Global Stability Report contains several interesting pieces of analysis. South Africa’s banking sector is relatively exposed to bond market re-valuation as banks have relative high exposures to securities, particularly securities marked to market, and a relatively small proportion kept on a held-to-maturity basis (first chart below). That said, estimates from the IMF suggest that South African banks’ marked-to-market bond portfolios would be expected to suffer smaller valuation losses in the event of a  global stress event (second chart). This is because of relatively lower implied steepening in the yield curve, shorter average duration of securities, and stronger expected hedging positions by South African banks.

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