SA banks’ bad loans no major systemic risk, SARB

PRETORIA – Rising credit impairments at South African banks do not pose a major systemic threat to the financial sector and conditions are likely to improve due to lower interest rates, the central bank said yesterday.

The South African Reserve Bank said in its latest Financial Stability Review that local banks have been largely shielded against the direct effects of the global financial crisis.But deteriorating economic conditions and the indirect impact of the crisis had pushed up bad debts by 37,5 per cent to N$124,9 billion (US$15,8 billion) from December 2008 to June 2009.’Nevertheless, the weakening asset quality of banks is not seen as posing a major systemic threat, as banks have maintained high levels of capital and continued to be profitable, albeit less than before,’ the central bank said.’Conditions are likely to improve with a bottoming out of the economic downturn.’The central bank has cut its repo lending rate by five percentage points to seven per cent since December last year, to help stimulate an economy in its first recession since 1992.Loans to the private sector have eased sharply due to stricter lending rules introduced in June 2007 and as households and companies curb their appetite for more debt, reflecting the strain on budgets from the global downturn and from South African interest rate hikes between June 2006 and June 2008.’The slowdown in economic activity and prevailing stricter lending conditions by banks resulted in a further moderation in growth of total loans and advances during the first half of 2009,’ the central bank said.’Combined with the continuous increase in impaired advances, the quality of banks’ loan books was bound to be affected negatively.’It said while easier monetary policy would have a positive effect on the ability of households to service debt, the financial position of households was ‘relatively fragile’ in part due to job losses, with household debt remaining high at 76,3 per cent of disposable income.Statistics South Africa said last week close to 500 000 jobs were lost in the third quarter with the manufacturing sector hardest hit.SARB chief economist and executive general manager Monde Mnyande said the job losses ‘further confirm the feebleness on the household’s financial situation this year’.The SARB said the corporate sector was also under pressure, with liquidations rising by 33,8 per cent year-on-year in July likely due to declining world trade, higher wage demands and weak local demand and high production costs.The central bank said banks seem to have begun to ease their lending criteria.-Nampa-Reuters