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Denker Capital’s Kokkie Kooyman, an expert banking analyst and one of South Africa’s top investment specialists, joined the BizNews Power Hour to weigh in on the repercussions of the events that transpired in the last month. Kooyman delivered some valuable insights and bittersweet news regarding the burden that state-owned insurer Sasria now carries as a consequence of the deadly riots and widespread looting that occurred in KwaZulu-Natal and parts of Gauteng in early July. Kooyman, who has substantial experience with Chinese banks, also weighed in on the intensifying crackdown by Chinese authorities on tech companies. – Nadya Swart
Kokkie Kooyman on the effect of the July riots and looting on insurance companies:
The advantage in South Africa on the insurance side is that we’ve got an institution called Sasria and Sasria is an independent insurer. And generally, always, when you take out insurance on property there’s always a Sasria insurance attached to that. And it’s obviously never been used on this scale. We’ve never seen anything like this in South Africa causing this amount of damage. So Sasria has over the years built up very large reserves and made a statement during this week that it will be able to pay out and actually process claims fairly quickly.
So the claims are handled through your normal insurer who actually insured you with Sasria on your behalf and then Sasria have what we call a reserve – an excess insurance with overseas insurers. In other words, if the claims go more than R15bn, then SCOR or Allianz or Munich Re pick up the tab for that. So Sasria picks up the first amount and then the reinsurers pick up the excess. So in that regard, for those who have lost physical assets and have suffered physical damage and financial damage, they will be paid out – if obviously their premiums and so are up to date. So it doesn’t really impact the insurance industry in South Africa because Sasria stands outside the insurance industry.
On this being good news for business owners who might have thought they weren’t going to be getting compensated:
Yeah, so the larger your claim, the longer you wait to be compensated – which makes sense because obviously then it’s got to be properly investigated. But the smaller claims, the normal claims, I think I saw [that they are paid out] within a month – it’s actually a fairly quick payout. But you are right in the end, what you said just now; the government is obviously helping out as well in making up for the shortfall that Sasria has that the reinsurers don’t cover. So, it’s the reinsurers and the government, which in the end is the taxpayer again which pays for it.
On whether he’s seen any feedback from the Life Offices:
Nothing yet, and Liberty is the company that reported post the event and didn’t say much about it. In fact, it was not really mentioned. Obviously, they’ve been boosting reserves for covid-related death claims. And I suppose – compared to covered – this is fairly small. I mean, the psychological impact is massive. But in terms of the number of deaths, it is fairly small. So I don’t think you’ll see it on the life insurance side.
On Nedbank’s share price strengthening after its trading update was released:
Funnily enough the share price movement surprised me. I actually checked in our forecast and it’s quite close to what Nedbank eventually now says – [it’s in] the range. You know, we had more or less 140% up for Nedbank. It was fairly predictable in that, you’ll recall, in the last year and as the banks were providing last year, we said these claims look as if they are excessive. And it’s not as if we were clever. We were just listening to what management was saying and what we were seeing was happening internationally. So we’ve seen that in almost every bank result throughout the world so far there are huge releases of provisions and that makes the results look artificially very good.
If you look back, then Nedbank’s results next year will still be, I think, 20%, 25% below what it was in 2019, 18, 17. And the differences are still in the provision line. So the provision that we’ve built in for next year is still fairly high. And that might now be conservative still, because now you’ve had the looting – you’re going to have losses from that as well. But it does show [that] if you go three years out, when all the claims have been processed and you know where your benefits are, there could be more reserve releases or a lower recurring bad debt charge. So, you know, we’ve got Nedbank going back to an ROE of 15% and I think this year it will only still be 12%, 13%. So there is still further fat to come.
On his experience with Chinese banks:
I think at the top, the guys, they’re the same – but we would often see investor relations. And we actually had a few meetings with management. Think of ICBC because of their connection with Standard Bank; we actually brought our own South African Chinese analyst with us and they didn’t like that because all the meetings are through an interpreter. And when you have your own guy who can speak Chinese, then suddenly they can’t talk amongst each other. So they actually didn’t like that. But you are right. The Chinese banks have looked incredibly cheap now since we started visiting them in 2005, and we’ve always had huge concerns about the quality of the assets.
So effectively, the largest part of the, let’s say, five big banks in China have, in South African terms, Eskom, Telkom, Post Office, SAA as their clients. Ok, Eskom and SAA are better run in China than here, but they are still state-owned enterprises in which these banks have been pumping more and more loans. And at most we had very low rates. And you’ve got no transparency because the press in that regard isn’t free to know what the quality of Chinese airlines or other state owned enterprises are. Technologically, the Chinese banks are actually very good. They have caught up. So in terms of your retail, consumer banking is very good. But the problem is always on the corporate side.
On what to make of China’s crackdown on their most successful entrepreneurs, particularly in the internet space:
I’ve been reading as much as I’m sure you have, and we’ve been trying to read both sides of the coin. And there are those who say, and you can make a good argument for it, that a lot of what they’re doing is for the better of society without giving society the choice to decide what is good for it, but good. But it’s more the fact that they don’t give warning or transparency. The equivalent in terms of what happened here is that the South African government, Cyril Ramaphosa, calls another family meeting and he says, ‘Well, from Monday, Curro will have to run and STADIO will have to run as a nonprofit organisation.’ Just think about that; Curro; STADIO, PSG share prices. And you do that without any compensation and without any warning. I mean, that’s the size of what’s happening. So I think, regarding the financial sector and all the other industries, they have created an amount of uncertainty that has, I think, done them a lot of damage. It will take a long time before investor confidence returns, because you’ve always got this potential shock coming.
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