Credit Suisse also known as ‘global systemically important bank’, is 167-year-old and it is originated as a bank for ultra-wealthy elite is experiencing some turbulence. The uncertainty around the bank Credit Suisse has wreaked havoc on global markets as concerns over rising interest rates around the world leading to historic bank failures, which invited abrupt government intervention.
The Credit Suisse crisis comes in the wake of Silicon Valley Bank’s collapse within a week ago. Two major banking crisis that came in just two days apart, on two different continents, sparked concern over whether there could be a boarded contagion that mirrored the global financial crisis of 2008.
What Happened To Credit Suisse?
Credit Suisse announced in its financial annual report that it had uncovered ‘material weakness’ relating to its financial reporting. This sparked jitters across global markets and sent shares plummeting as nervous investors rushed to limit their exposure. The stock plunged as much as 30 per cent triggering a trading halt.
The significance of this bank is so large that its risk profile is deemed to be of such importance that its failure could trigger a wider financial crisis, so its potential collapse would be determined to the global economy.
As per the Washington Post report, the Swiss National Bank issued a statement stating that, ‘if necessary’; it would provide liquidity to Credit Suisse. Subsequently, the Switzerland’s central bank gave $54 billion liquidity as a lifeline to Credit Suisse that eventually calmed European investors as market rallied.
How This Goes Down With Saudi Arabia?
The Saudi National Bank has been Credit Suisse’s largest investor, which acquired an almost 10 per cent stake in the bank last year. After the lender shared the weakness found while reporting the annual report which shows the lack of effective risk assessment by the bank, the Saudi Bank said it would not buy any more shares in the Swiss bank. This was the exact time when the trouble for the bank turned into a full blown crisis. As per the Bloomberg report, the Saudi National Bank Chairman Ammar Al Khudairy said, “The answer is absolutely not — for many reasons,” compounding Credit Suisse’s problems.
He added that the Saudi stake was currently at 9.8 per cent and ownership over 10 per cent would activate a host of higher regulatory rules.
Interestingly, Qatar’s sovereign wealth fund is another large investor in Credit Suisse, with a 6.8 percent stake, as per The Washington Post report.
How Will Credit Suisse Crisis Impact India?
Credit Suisse is the 12th largest foreign bank in India and it owns assets worth Rs 20,000 crore. Along with the Rs 20,000 crore assets, the bank has presence in derivatives market and funded 60 per cent of assets from borrowings, of which 96 per cent in two months, as per the Jefferies report.
“Still, it is small for the banking sector with 0.1% share of assets. We watch out for liquidity issues and any rub-off on counter-party risk assessment (especially in derivatives) and the deposit market may move towards larger, quality banks,” it said.
As reported by ET, given the relevance of Credit Suisse to India’s banking sector, analysts see softer adjustments in the assessment of counterparty risks, especially in the derivative market. The Jefferies report also suggest that the RBI will keep a close watch on the liquidity issues.
Nilesh Shah of Kotak Mahindra AMC believes that an SVB or Credit Suisse-like situation is unlikely in India having the stringent liquidity norms for the banking system, as per ET report. “We have sufficient rail guards to ensure that our banking system does not get derailed vis-a-vis what happened with the SVB kind of scenario,” Shah said.
The Credit Suisse crisis or the US bank crisis will not have a direct impact on India or on the Indian banking system, but the analysts believe that it may have some impact on the Indian information Technology Industry as per the ET report.
Norms Of Indian Banking
To save guard itself from such happening, India has implemented Basel-III norms for the banking system. Under this system, banks have to maintain liquidity coverage ratio, which was actually missing from the SVB case and to some extends even in the case of Credit Suisse. In simple language, there is a cap on how much banks can put into a held-to-maturity or HTM portfolio.
Dark Records Of Credit Suisse
The bank has been previously involved in multiple scandals that have rattled investors in recent years. As per the Forbers, the bank was convicted in June 2022 of failing to prevent money laundering by a Bulgarian cocaine trafficking gang. The bank was fined by Swiss government and it ordered to pay $20 million as punishment. In another case in 2022, Bermuda court ruled the former bank owed by Georgian Prime Minister Bidzina Ivanishvili and his family around $500 million in damages from Credit Suisse’s local life insurance company. As per Forbes report, Credit Suisse’s chief executive Tidjane Thiam in 2020 was forced to resign after it was unveiled that the bank hired private detectives to spy on its former head of wealth management once he left to join a rival bank.