South African Banks Tighten Lending as Bad Debts Decline

South African banks tightened lending conditions in the fourth quarter even as impairments fell and the central bank kept interest rates at the lowest in more than 30 years.

“Compared to the third quarter of 2012, banks that are active in both retail and investment-type banking activities tightened, on a net basis, lending standards,” the Reserve Bank said in its Financial Stability Review released today in Pretoria, the capital. “The number of banks that tightened investment-banking lending standards increased from zero to 29 in the fourth quarter of 2012.”

The tightening in lending rules may undermine consumer spending and the recovery in Africa’s biggest economy. The government has urged lenders to improve access to finance to South Africans in a bid to boost growth and curb joblessness. The central bank has kept its benchmark interest rate at 5 percent since a 50 basis point cut in July. The banking industry’s total impaired advances dropped 5.1 percent in December from a year earlier, according to the report.

FirstRand Ltd.’s consumer unit, First National Bank, is restricting mortgage lending, favoring loans to its own customers. Other banks including Barclays Plc-controlled Absa Group Ltd. have slowed lending, mainly in home loans.

‘Ridiculous’ Ratios

“It’s a tough one -- on the one hand you want banks to lend and on the other everyone chastises banks if they lend too much,” said Neville Chester, who helps oversee the equivalent of $42 billion at Coronation Fund Managers Ltd. in Cape Town. “Economic times are tough, so is it responsible to give people more credit? One thing that will help ease lending is if we can get the ridiculous proposed Basel III funding ratios changed so banks’ cost of funding won’t go up.”

South Africa’s banks are facing more regulation, both from Basel and from the country’s central bank. The top five lenders, including Standard Bank Group Ltd. and Investec Plc, agreed to a code of conduct on calculating the Johannesburg interbank agreed rate. This follows a review of money-market rates to avoid manipulation.

“The Jibar code of conduct became effective on March 1,” the regulator said in today’s report. The central bank “will be responsible for supervising compliance with the terms and conditions” of the code, according to the report.

South Africa’s banks, which increased assets 7 percent to 3.65 trillion rand ($400 billion) in December from a year earlier, remain well capitalized and will have “little difficulty” meeting most of the requirements of Basel III rules, the regulator said. Basel’s so-called liquidity-coverage ratio, which requires lenders to hold enough easy-to-sell assets to survive if they’re shut out of credit markets for 30 days, still poses a “potential difficulty,” the regulator said.

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