Finweek English Edition - - Economic Trends & Analysis - GRETA STEYN gre­tas@fin­

WHEN IT COMES TO bank credit ex­ten­sion, the United States has the op­po­site prob­lem to South Africa. Private sec­tor bor­row­ing is grow­ing at too slow a rate in the US, while in SA growth in bank credit ex­ten­sion is de­fy­ing grav­ity. Ac­cord­ing to the In­ter­na­tional Mone­tary Fund, in first quar­ter 2008 US private sec­tor bor­row­ing growth fell to 5,2% – a level last seen af­ter the 2001 re­ces­sion. The IMF says with con­tin­u­ing pres­sures on banks to de-lever­age that growth might slow fur­ther.

The slow growth in credit in the US is the re­sult of the sub-prime mort­gage cri­sis, which came about when banks ex­tended credit to cus­tomers who weren’t cred­it­wor­thy and then pack­aged those loans into mort­gage-backed se­cu­ri­ties. As eco­nomic con­di­tions in the US wors­ened, home­own­ers could no longer meet their mort­gage re­pay­ments and banks suf­fered huge losses. Credit mar­kets froze and even cred­it­wor­thy clients bat­tled to get the be­lea­guered banks to ex­tend loans to them. As a re­sult, growth in private sec­tor bor­row­ing fell.

The IMF puts the po­ten­tial bank losses stem­ming from the credit cri­sis at a mas­sive US$945bn in its latest Fi­nan­cial Sta­bil­ity Re­port Mar­ket Up­date. It noted that with in­fla­tion risks on the rise the scope for mone­tary pol­icy to be sup­port­ive of fi­nan­cial sta­bil­ity has be­come more con­strained. The US Fed­eral Re­serve has al­ready slashed in­ter­est rates to just 2% in re­sponse to the sub-prime cri­sis and the threat of a US re­ces­sion.

In SA, banks have been vir­tu­ally un­scathed by the sub-prime cri­sis. Here, the prob­lem for banks will in­creas­ingly be bad debts.

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