'What global credit crisis?' - South African banks

South African banks were not coming under significant pressure in the face of the global credit crunch and a worsening local climate, according to a recent survey.

While the Ernst & Young financial sector confidence index slipped to a six-year low of 61 points in the third quarter of 2008, down from 70 in the previous period, eight out of 10 investment banks continued to regard prevailing business conditions as “satisfactory” and four out of 10 retail bankers felt the same.

Despite a more challenging environment, which has seen more consumers become indebted as a result of higher interest rates, South African banks have not suffered the same liquidity difficulties as has been the case for banks in the Unites States and Europe.

The report argues that South African banks had escaped much market turmoil as exchange controls had limited the country’s exposure to risk and because an act limiting irresponsible lending had come into effect in the middle of last year.

The report said investment banks were confident despite weaker business volumes and an expected deterioration in the fourth quarter as economic growth slows. The rand and Africa’s biggest stock exchange were also under pressure.

Africa’s largest economy’s central bank raised its repo rate by 5 percentage points to 12 percent between June 2006 and June 2008 to beat inflation, but also slowing economic activity as spending power dropped.

“After the boom of overall business activity of the second half of 2007, growth halved during the first half of 2008, During Q3, growth slackened further,” the report said.

Tighter monetary policy has slowed consumer spending, and put household budgets under severe strain, as highlighted by contracting retail and new vehicle sales. Credit growth has eased this year and household debt levels dropped in the second quarter from a record high.

A government minister has also come out in support of local banks.

"Were South African banks to come under pressure, the government would intervene strongly to protect them," said ANC Treasurer General Mathews Phosa