RAMOS’S HOME TRUTHS
THE GLOBAL FINANCIAL CRISIS, its causes and consequences loomed large over Budget 2009. Its impact on domestic growth will clearly be felt and, warned Finance Minister Trevor Manuel, South Africa’s regulators will exercise even tighter oversight than has been the case to date.
Ironically, excessive regulation has emerged as the primary bugbear of senior banking executives, both globally and domestically, in successive PricewaterhouseCoopers Banana Skins surveys. Bankers complained of not only the extent of regulation but also its cost. While many international regulators have been left shamefaced in the wake of the crisis, SA’s regulatory regime has enjoyed rare praise as being key to restraining overzealous risk taking.
Manuel’s Budget Speech, ominously his 13th, painted a sober picture of SA’s economy, in which he tacitly warned the country is unlikely to remain on the periphery of a worldwide slowdown should it morph from a financial crisis into a second Great Depression.
“Although South African banks weren’t significantly exposed to sub-prime related products, they were nonetheless affected by deteriorating credit conditions,” Manuel said in Parliament last Wednesday. “It’s incumbent upon us to remain vigilant, to sharpen our regulatory oversight and to work with banks to identify any potential problems early and deal with them decisively.”
Manuel pointed to the rapid slowdown in credit extension as being “probably more rapid than is desirable” but also highlighted the expectation that banks were expected to continue lending, as they have, to creditworthy customers, noting it was precisely that withdrawal of credit that sent the developed world into its spectacular decline.
Manuel last week predicted growth of 1,2% for 2009. That’s an ambitious target that, if reached, would indicate a level of potential optimism for investors in SA’s banks – but comes with a caveat.
“In responding to the crisis, immense commitments of funds have been made by the governments of major economies in support of their financial institutions, and central banks have lowered interest rates to historically unprecedented levels.
“However, low interest rates don’t automatically translate into easily available credit. Households remain wary of further debt and firms that face trading losses aren’t yet creditworthy,” warned Manuel.