The quality of the lenders’ assets remains an “issue” for Moody’s, analyst Nondas Nicolaides said in a presentation in Johannesburg today. Bad debts may rise when interest rates increase, and the bulk of non-performing loans are mortgages, he said.
Basel III international rules will come into effect over the next six years, requiring banks to hold enough capital to survive market turmoil without causing risk to the financial system. Moody’s downgraded credit ratings on South Africa’s five largest banks in February, citing “the country’s increasingly constrained public finances,” which may mean the state would find it difficult to extend support to the banking system if needed.
The growth of unsecured lending in South Africa doesn’t pose a “systemic” risk, Nicolaides said. That South Africa is monitoring unsecured lending is “positive,” he said.