Non-performing loans (NPLs) — loans that are more than 180 days overdue or considered irrecoverable — amount to 2% of the total loan book of South African commercial banks, South African Reserve Bank Governor Tito Mboweni said in his inaugural address of his second five-year term on Tuesday.
NPLs had in fact declined to R21-billion at the end of June 2004 from R25-billion at the end of June 2003 and at the end of June, 65,6% of NPLs were specifically provided for and 37,9% were covered by the market value of securities.
“The South African banking system is sound. The turbulence experienced in 2002 was resolved relatively quickly, but led to a consolidation of activities and reluctance on the part of depositors to place funds with smaller banks. From April 2003, however, deposits slowly started to flow back to the smaller banks as confidence in their viability started to improve,” Mboweni said.
At the end of June 2004, the big four banks’ share of total deposits amounted to 82,6%, which was 2,5% lower than in June 2003, but still about 10% higher than in early 2002.
“Banks are well capitalised and their liquidity is adequate. Banks remained well managed and the efficiency ratio, the yield on equity and the return on assets improved over the past 12 months.”
The average risk-weighted capital adequacy ratio came to 13,3% at the end of June 2004 compared with 12,3% at the end of June 2003 and well above the regulatory minimum requirement of 10%.
Broader indicators of credit risk also suggest that the South African banking sector is sound. The 12-month growth rate in bank credit extension to the corporate sector has declined significantly from 14,5% in June 2003 to only 2,5% in June 2004.
Although household debt as a percentage of household disposable income has risen from 50,7% in the fourth quarter of 2002 to 54,3% in the second quarter of 2004, the level of this ratio is still low compared with levels recorded in the 1990s when it exceeded 60%, and compares favourably with most developed countries, where this ratio exceeds 100%. — I-Net Bridge