South African Banks at Risk as Mining Strikes Increase Bad Debts

South Africa’s banking industry faces risks as protracted labor strikes lead to increased unemployment and loan defaults, the central bank said.

“Strike action not only hampers productivity, but could also reduce the capacity of mining houses and workers to service their debt,” the Pretoria-based South African Reserve Bank said in the Financial Stability Review today. These are “risks for the banking sector and eventually for the financial stability of the country.”

A platinum-industry strike that’s lasted three months so far has cost producers 14.5 billion rand ($1.4 billion) in lost revenue and employees 6.5 billion rand in wages, according to the companies. Banks including Standard Bank Group (SBK) Ltd., FirstRand Ltd. (FSR) and Capitec Bank Holdings (CPI) Ltd. increased lending to low-income earners in the past four years, leaving them vulnerable to a rise in unemployment and bad debts.

While the banking industry remains “adequately” capitalized, labor disruptions and higher borrowing costs mean the outlook for economic growth “remains uncertain,” the central bank said.

The Reserve Bank has increased its benchmark interest rate for the first time in more than five years as inflation threatened to breach the 3 percent to 6 percent target range. Rising fuel costs in an economy where almost one in four adult South Africans are unemployed have added to pressure on consumers’ ability to service debt.

Banks including Barclays Africa Group Ltd. (BGA) and African Bank Investments Ltd. (ABL) tightened their lending criteria in the past year to decrease their consumer-related risks.

Anglo American Platinum Ltd. (AMS), Impala Platinum Holdings Ltd. (IMP) and Lonmin Plc (LMI), the world’s three largest platinum producers, are meeting with union officials today to try to end what has become South Africa’s longest mining strike.

To contact the reporter on this story: Renee Bonorchis in Johannesburg at rbonorchis@bloomberg.net

To contact the editors responsible for this story: Dale Crofts at dcrofts@bloomberg.net Nasreen Seria, Karl Maier

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