South African banks under strain from high interest rates – Reserve Bank

South Africa’s central bank said the quality of bank loan books has suffered amid high interest rates and announced plans to have lenders add protectively to their capital buffers in 2025.

“The longer interest rates remain high, combined with cost-of-living increases, the more borrowers will experience strain,” the Reserve Bank said Wednesday in its Financial Stability Review.

“This could manifest in rising non-performing loans and payment lapses, which could reduce capital and profitability in the financial sector,” it said.

The central bank said that it has decided to implement a 1% counter-cyclical capital buffer for lenders commencing 1 January 2025, to be completed by the end of that year.

The buffer can be drawn down in the face of an economic shock, and countries who had them in place during the Covid-19 pandemic had found them to be helpful in relieving strain, it said.

“The increase of the CCyB is not intended as a policy tightening measure but as a structural change that will make it possible in future for the SARB to reduce it to up to 0% if there is excessive pressure on the banking system,” it said.

The buffer can also be increased “up to 2.5% if there are signs of overheating in the banking system.”


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