JAKARTAKOMPAS.com – Global markets are highlighting the plight of investment banking giants, Swiss credit. The financial condition of the Swiss bank is considered to be in poor condition and some have even assessed that it is on the verge of bankruptcy.
Market concern about the potential bankruptcy of Credit Suisse is reflected in the skyrocketing spread of the bank credit default swap (CDS). Just so you know, CDS is a hedging contract that is provided in the event of a default on a debt.
In light of these conditions, the market fears that Credit Suisse will follow suit Lehman Brothersthe US financial services giant went bankrupt in 2008, which ultimately triggered the global financial crisis that same year.
Andry Asmoro, Bank Mandiri’s chief economist, said Credit Suisse’s conditions are currently similar to those of Lehman Brothers. However, he said the impact would be different.
One of the points of differentiation between the two financial institutions is linked to the composition of their respective portfolios. Andry said, Lehman Brothers in its management has very massive derivative contracts.
“So when the derivatives portfolio is very massive, when market conditions are unfavorable, it will collapse,” he said in the Mandiri Economic Outlook, quoted on Wednesday (10/5/2022).
He also assessed that Credit Suisse, which had been established since 1856, was too big at this time to fail. The financial authorities of the European Union should intervene to solve the problems of the investment bank.
“The key to getting in is two places, namely asset quality and portfolio price when they issue bonds or buy bonds from affected countries but issuers (from affected countries) cannot pay for them,” he said.
How are the conditions of the national banks?
Andry also believes that Credit Suisse’s conditions will not significantly affect the domestic banking sector. The reason is that the Swiss bank is said to have no significant relationship with domestic banks.
Furthermore, conditions in the domestic banking sector itself are still considered to be very good. This is reflected in the bank capital adequacy ratio (CAR) which reached 25.21% in August 2022.
“The same volatility in Europe fears it may have a domino effect, but the impact on Asia, particularly Indonesia, is relatively small,” Andry said.
Receive updates Featured News And latest news every day from Kompas.com. Let’s join the Telegram group “Kompas.com News Update”, how to click the link https://t.me/kompascomupdate, then join. You must first install the Telegram application on your mobile.