South African banks have been largely protected against the direct effects of the global financial crisis, the South Reserve Bank (SARB) said in its latest Financial Stability Review on Wednesday.
One of the reasons for this was that domestic banks had not invested as heavily in high-risk securities or complex instruments, the SARB said in its report.
They had also maintained a mostly traditional and relatively conservative banking model and kept relatively high lending standards.
Domestic banks had also enjoyed high profitability for a number of years and had maintained high capital levels, SARB said.
In addition, they had low levels of foreign funding and had limited activity outside the African continent. SARB emphasised that South African banks had primarily felt the impact of the global financial crisis indirectly.
This was through higher funding costs and increased impairments due to retrenchments and the negative impact of lower real economic activity on corporate borrowers, SARB said.
The magnitude of the indirect impact was reflected in part in the sharp decline in the share prices of banks, it added. Increased signs of pressure build-up in the banking sector were evident in the second half of 2008, the SARB said.
In January 2009 impaired advances [bad debt] had increased by 118% compared with a year earlier, and had increased by 47% since July 2008, the review said.
”Nevertheless, the increase in impaired advances is not seen as a major systemic threat, since it was to be expected after such a prolonged period of extensive credit growth in recent years.”
South Africa’s banks remained well capitalised and profitable, SARB said. — Sapa