Johannesburg - South African banks, while adequately capitalised, face increased risks as household disposable incomes lag behind gains in net wealth that are largely down to the performance of the local equity market.
“The financial vulnerability of consumers remains significant,” the South African Reserve Bank said in its Financial Stability Review, released in Johannesburg today.
Equity valuations are at “elevated levels” and any correction could have a negative impact on asset prices and financial institutions in South Africa, according to the SARB.
Protracted strikes in mining and manufacturing, rising inflation and increased unemployment have hurt consumers’ ability to repay loans.
African Bank Investments Ltd collapsed in August because of bad debts and mounting losses.
Unsecured lending among six of South Africa’s largest banks increased 2.3 percent to 490 billion rand in the six months to June from December last year.
Banks’ profitability already showed a decline by the end of June amid a slowing economy, it said.
“A sudden and sharp correction in equity markets could expose vulnerabilities that could have certain significant indirect effects on the financial system,” the central bank said.
While bad debt levels at South Africa’s biggest lenders have declined, “there are indications of increasing credit stress in retail exposures.” - Bloomberg News