The rapid growth in banks’ unsecured lending had not created a credit bubble and was not a threat to South Africa’s banking system, the Reserve Bank said on Wednesday.
Bank officials have expressed concern about the trend, which has gathered momentum as commercial banks look for more profitable ways of lending in the absence of mortgage demand.
In its biannual Financial Stability Review, released on Wednesday, the Reserve Bank dismissed fears that the pace of growth in unsecured lending could destabilise South Africa’s financial system.
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"At current levels, unsecured lending does not constitute a bubble and the Bank is monitoring developments closely," the review said. "Unsecured lending does not currently present any systemic risk to the financial system."
The exposure of South Africa’s banks to unsecured credit amounted to R334,9-billion at the end of last year, comprising only 8% of their total gross exposure, the Bank said.
Unsecured lending to households shot up by more than 35% in February compared to the same month last year, according to Bank data released earlier this year. That dwarfs the pace of overall credit growth, which rose by about 8% over the same period.
Banking registrar Rene van Wyk said there was no official probe into the trend, but the Bank had asked commercial banks to clarify what was driving it and to provide more details on the components of the lending.
"We need to hone in a bit more on not just the top line but the underlying processes," Mr van Wyk said on Wednesday.
"We’ve sent our letter to the banks and during the course of the year we will gather information. I don’t expect anything in the next two months or so."
The query was one of three themes to which the Bank had asked commercial banks to respond, as part of a process carried out each year, Mr van Wyk said.
The other two themes this year were African expansion and the ability of banks to recover and survive a crisis.
Most of the unsecured lending exposure was in the "retail revolving credit" category, which consisted mainly of credit card lending and overdrafts, the Bank said in its review. The banking sector was managing its exposure to the lending "prudently".
Last week, Standard & Poor’s financial institution analyst Mathew Pirnie said rapid growth in unsecured lending in South Africa could create problems if it grew at the same pace for an extended period.
His remarks followed an outburst by Blade Nzimande, general secretary of the South African Communist Party, who described unsecured lending by banks as "reckless" and exploitative of the working class.
In its review, the Bank said South Africa’s financial system had proved to be "relatively resilient" in the face of a volatile and uncertain global environment.
"Although the recent conjuncture is uncertain and several challenges remain, the South African financial system is relatively sound," it said.
The credit exposure of domestic banks to debt-ridden Greece, Italy, Ireland, Portugal and Spain amounted to less than 1% of their total in the fourth quarter of last year, it noted.
South African banks were also on track to meet the capital requirements of Basel 3, a new global regulatory standard to be phased in over a 10-year period from next year, the Bank said.
But it said banks would "face challenges" in meeting stricter liquidity requirements likely to result from implementation of the standard, if adjustments were not made in the transition period.
A survey carried out by the Bureau for Economic Research suggested that banks remained "risk averse" in the third and fourth quarters of last year, the review said.
At the end of the fourth quarter of last year, the largest concentration of exposure by banks was to the private household sector, followed by the financial intermediation and insurance sectors, it said.
"Given the fairly low level of consumer confidence and the burden of high levels of household debt, the growth rate of household demand remains at moderate levels," the review said.
Household debt as a ratio of disposable income dipped to 74,6% in the fourth quarter of last year from 75,6% in the third quarter, figures from the Bank have shown.
During the same period, the ratio of debt service costs to disposable income declined to 6,7% from 6,8% - well below a peak of 12,7% in the third quarter of 2008.
Lower household demand would be likely to "have a negative impact" on corporate sector earnings, the Bank said. Consumer spending is the economy’s main engine.
The Reserve Bank also warned the global economic recovery could be "derailed" if oil prices remained at their "current high level".
Oil prices have rocketed by more than 10% in the year to date, although they are off their peaks hit last month.