Standard Bank’s reliance on trade finance is a factor that makes the lender the most likely to lose earnings if South Africa is placed on the Financial Action Task Force (FATF) grey list, according to a report by RMB Morgan Stanley.

South Africa has until October 2022 to demonstrate progress in addressing its anti-money-laundering and counter financing of terrorism shortcomings or risk being added to the FATF list of ‘jurisdictions under increased monitoring’, better known as the grey list.

Absa is also substantially reliant on trade finance while Nedbank is also likely to suffer loss of earnings if South Africa is grey listed according to the report published by the joint venture formed in 2005 by Morgan Stanley and Rand Merchant Bank (RMB).

Trade finance reliance

“Standard Bank and Absa have the largest reliance on trade finance, which is sensitive to import/export disruption, but also incremental compliance costs, given the cross-border nature, which carries inherently higher money laundering/terrorism financing risk,” the report seen by BusinessDay says.

“In terms of potential impact, our illustrative analysis suggests a reduction in capital flows would affect Standard Bank and Nedbank’s earnings the most, given their larger proportional trading revenues,” it adds.

Bank analysis

“Nedbank is heavily reliant on the trading activity of its corporate and investment banking unit, which accounts for about half its earnings. Absa is also at some risk due to the rest of Africa operations it inherited after its separation from Barclays,” according to the report.

However, RMB Morgan Stanley says South Africa will be somewhat insulated from the negative effect of grey-listing due to its deep capital markets, well-developed financial system and orthodox monetary and fiscal policies.

The BusinessDay report, Standard Bank faces biggest greylist risk, RMB Morgan Stanley warns, is available to subscribers here.

Categories: Trade Based Financial crimes News

Tags: FATF, grey list, South Africa