Tailors risk management solutions
Solutions target three distinct client profiles
Anticipates changes in policies
Expects elections to drive volatility
Stanbic Bank Botswana is bracing for potential policy adjustments across diverse jurisdictions as more than half of the world’s population prepares to participate in upcoming general elections. With 64 countries, Botswana among them, slated to choose new leadership, this year marks a historic moment in global electoral history.
During a risk management workshop, Stanbic Bank advised its clients on the potential risks stemming from these evolving global developments. The bank presented a robust portfolio of Global Markets (GM) Forex (FX) Structured Solutions and Products as viable strategies to effectively mitigate these risks.
This range of solutions encompasses Foreign Exchange (FX) Hedging Solutions, Interest Rate Hedging Solutions, and Yield Enhancement Solutions, among others.
Client Profile
The solutions are tailored for three distinct client profiles, as outlined by Nana Asare, Standard Bank’s Head of Structured Products, Africa Regions. These include clients who engage in currency exchange by selling local currency to acquire foreign currency, exposing them to foreign exchange risks. Additionally, the products target clients who borrow in foreign currency while having receivables in foreign currencies, thereby facing interest rate risk. Lastly, the solutions cater to clients who borrow in foreign currency but have receivables in local currency, thereby exposing them to both foreign exchange and interest rate risks simultaneously.
“The idea is to work together to put in solutions that give some form of protection, certainty, participation and insurance.”
Asare emphasised that by utilising these solutions, clients can effectively lock in a hedge below their budget rate, providing a safeguard against unforeseen events.
“Rather than thinking about it from the perspective of, if the currency moves here, I get to make more money, think about it from the perspective of what if it doesn’t and what if it goes beyond your budget rate.”
By hedging and locking in rates, Asare believes businesses will continue as a going concern, irrespective of what the currency does.
Market volatility
Stanbic anticipates market volatility, particularly in currency markets, in the lead-up to the elections.
“Certainly, there would be political uncertainty around policy changes if the governments change,” Onalethata Letlole, the Global Markets Corporate Dealer at Stanbic Bank said during the workshop.
A pertinent example is the United States, the world’s largest economy. Letlole points out a significant possibility of Donald Trump returning to office. Trump has signaled intentions to reinstate tariffs between the US and China.
“There might be some volatility in the currencies as the people or investors become uncertain closer to elections,” Letlole said. “When the market is facing risk you find that investors opt to go to more non-luxurious and safer assets like USD and Gold.”
South Africa also faces elections this year. Letlole noted that the rand has weakened against the dollar, influenced by a combination of domestic and international factors since the start of 2023.
The rand continues to face several global headwinds, including wars, elections in several countries, SA elections, as well as persistent investor concerns about weak trend growth and fiscal sustainability.
“We forecast the rand to end the year on a firmer footing. With hope that elections yield a kind outcome, which could support the currency,” Letlole said.
Globally, the rand is particularly affected by the strength of the US dollar, which surged as investors lowered their expectations of a March interest rate cut by the US Fed.
Investors are closely monitoring the Federal Reserve’s decisions regarding interest rates. The United States has been grappling with inflationary pressures, adding to the anticipation surrounding the Fed’s actions.
“We anticipate that should they start taking down their interest rates, we will see the dollar get weaker, and hopefully some of the emerging market currencies will benefit from that.”
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