How the global banking crisis impacts African markets

The recent collapse of the Silicon Valley Bank in the US and the rescue of the 167-year-old banking institution Credit Suisse have sent shockwaves through global markets, putting confidence to a test. Many are now questioning if the next banking crisis is looming on the horizon. To delve deeper into the potential impact on markets in Sub-Saharan Africa (SSA), CNBC Africa spoke with Rufas Kamau, Lead market analyst at EGM Securities. Kamau shed light on how the recent events could affect markets in the region. The crisis stemmed from the banks' investments in US 10-year bonds, which took a hit as the Federal Reserve raised interest rates from 0.5% to 4.75%. The inverse relationship between bond yields and prices caused significant losses for the banks and raised concerns about the stability of the banking sector. With the Silicon Valley Bank marking the second-largest bank failure in US history and the first major collapse since the 2008 financial crisis, the implications for global markets are significant. The rescue of these banks by the Fed has raised questions about moral hazard and the potential for further bailouts in the future. Should other banks face similar crises, will they receive the same support, and what will the long-term consequences be? The US Treasury Secretary, Janet Yellen, is currently grappling with these complex issues, with potential ramifications for the entire financial system. The ongoing volatility in the markets, fueled by uncertainty around interest rate hikes and the fear of hyperinflation, has investors on edge. The Federal Reserve's decision to either raise or cut interest rates will have far-reaching effects on banks' ability to honor withdrawals and lend to businesses, potentially leading to a recession if not managed carefully. Closer to home, the Nairobi Securities Exchange has felt the ripple effects of the global banking crisis. Foreign investors have been fleeing the market, causing the cash yield to depreciate rapidly against the dollar. Major players like Safaricom and KCB PLC Bank have been particularly hard hit, with investors seeking more stable markets to protect their investments. The devaluation of the local currency has eroded confidence in the Kenyan market, leading to a cycle of capital flight that further destabilizes the economy. Restoring confidence in the region's markets will require swift action to stabilize the cash yield and reassure investors of the market's resilience. As SSA braces for potential impacts from the global banking crisis, the need for proactive measures to safeguard the financial system and restore investor confidence has never been greater.