South African Bad Loans Don’t Pose ‘Systemic Threat’
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An increase in bad loans in South Africa is not a “major systemic threat” to banks, which are well-capitalized and profitable, the central bank said.
A tightening in lending terms and a slowdown in credit is of bigger concern because of its impact on economic growth, the Reserve Bank said in its Financial Stability Report released in Pretoria today. Consumers’ indebtedness is a possible threat to the financial system if an economic slowdown persists, it added.
Six interest rate increases in the year through June 2008 boosted consumer debt levels, while the global financial crisis has curbed corporate profits. Bad debts as a proportion of total loans increased to 3.9 percent in December from 3.6 percent in the previous month and 2.9 percent in July 2008, according to the central bank.
“Although conditions in the South African financial markets and banking sector have deteriorated in recent months, the international financial crisis has, to date, not resulted in severe instability in the domestic financial system,” Monde Mnyande, chief economist of the Reserve Bank, said in a speech in Pretoria today.
Borrowing by consumers and companies rose 8.5 percent in March from a year ago, the slowest pace since September 2004, the central bank said on April 30.
