You are currently viewing our desktop site, do you want to download our app instead?
Moneyweb Android App Moneyweb iOS App Moneyweb Mobile Web App

SA’s rising debt is ‘major’ threat to finance industry

The deep ties that bind South Africa’s banks and insurers to the government is a key risk to the country’s financial stability.
Image: Waldo Swiegers/Bloomberg

The deep ties that bind South Africa’s banks and insurers to the government is a key risk to the country’s financial stability, according to the central bank.

“If the planned fiscal consolidation is unsuccessful, government could face debt distress with adverse implications for the broader economy,” the South African Reserve Bank said in a financial stability review report on Tuesday. “The interconnectedness between the financial sector and the sovereign has emerged as a major threat to financial stability in South Africa.”

The National Treasury plans to reduce expenditure by about R300 billion ($20 billion) over the next three fiscal years as it targets a primary budget surplus in 2026, when debt is expected to peak at 95.3% of gross domestic product.

But Finance Minister Tito Mboweni’s efforts to reduce a government salary bill that’s surged by 51% since 2008 is facing a backlash from politically influential labour groups. Without an agreement, South Africa could face a sovereign debt crisis.

The risks flagged by the central bank include further deterioration of the creditworthiness of banks and insurers holding sovereign debt and the government’s limited capacity to act as a backstop in the event of financial sector distress.

South Africa descended deeper into junk territory last week when Moody’s Investors Service and Fitch Ratings lowered the country’s credit ratings. With banks capped at the level of the sovereign, the likes of Standard Bank Group and FirstRand will probably also see their debt assessments deteriorate.

Still, the industry is well capitalised and financial stability is expected to remain intact, the central bank said. While Covid-19 is likely to remain a primary risk in the near term, the crisis is now shifting to a phase characterized by a transition from liquidity to solvency challenges for households and firms.

“A sharp rise in non-performing loans and insurance policy lapse rates is being experienced by financial institutions,” the Reserve Bank said. “This, in turn, is putting the profitability and capital positions of financial firms under pressure.”

Smaller banks that were making losses before the pandemic are experiencing increased risk of failure, it said.

© 2020 Bloomberg
Listen: Reserve Bank Deputy Governor Rashad Cassim discusses the bank’s public debt level warning with Nompu Siziba

COMMENTS   4

Sort by:
  • Oldest first
  • Newest first
  • Top voted

You must be signed in to comment.

SIGN IN SIGN UP

Following the old economics book from 1950?

How debt does the USA have? and they are doing very well.

Sometimes debt is good, look forward.

In 2008 US debt was 10 trillion dollars when Obama started, when Obama left is was 20 trillion, when Trump leave it will be 27 trillion, and when Biden leaves in 4 years US debt will balloon to 48 trillion dollars, or 250% of GDP.

When will it crash?

The US must learn to live within its means like all of us and not stir problems in the world so that people buy their Dollars in fear.

@Speculator. The USA’s debt to GBP is a whopping 107%

The USD as a global reserve currency is a primary factor of managing their debt. US Treasury debt is also in high demand traditionally.

When will it crash you ask? When more global goods are to be traded in alternate currencies, like the Euro, Chinese Yuan, etc.

End of comments.

LATEST CURRENCIES  

USD / ZAR
GBP / ZAR
EUR / ZAR

Podcasts

INSIDER SUBSCRIPTIONS APP VIDEOS RADIO / PODCASTS SHOP OFFERS WEBINARS NEWSLETTERS TRENDING PORTFOLIO TOOL CPD HUB

Follow us:

Search Articles:Advanced Search
Click a Company: