RAMOS’S HOME TRUTHS

Finweek English Edition - - Cover -

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.

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