Download Data and a lack thereof

Where does The South African
Reserve Bank fit in
and why focus on
Credit data
Esti van Wyk de Vries
SAFARI into the Credit Industry
16 February 2017
* The view expressed are my own, and not those of the SARB
Overview
• SARB Mandate(s)
▫ Price stability
▫ Financial stability
• What is financial stability?
• Credit data matter
▫ Indicators
▫ Disaggregated credit data
SARB’s mandate
• The primary purpose of the Bank is to achieve and
maintain price stability in the interest of balanced
and sustainable economic growth in South Africa.
Together with other institutions, it also plays a
pivotal role in ensuring financial stability.
• The Minister of Finance announced during the 27
October 2010 Medium Term Budget Policy
Statement, a revised mandate of the Bank to include
particular responsibility for financial stability.
SARB responsibilities
•
•
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•
•
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formulating and implementing monetary policy;
issuing banknotes and coin;
supervising the banking sector;
ensuring the effective functioning of the national
payment system;
managing official gold and foreign-exchange
reserves;
acting as banker to the government;
administering the country's remaining exchange
controls;
acting as lender of the last resort in exceptional
circumstances.
(i) Price stability
The Monetary Policy Committee
Members
Target – price stability
Tools
Economic theory:
interest rates =>
more people can borrow money =>
Consumers SPEND MORE =>
Inflation
(ii) Financial stability
But what is financial stability?
Unfortunately, there is no single, widely accepted and used
definition of financial stability (IMF, 2004)
• The absence of the macroeconomic costs of
disturbances in the system of financial exchange
between households, businesses and financial-service
firms. Stability would be evidenced by:
▫ (i) an effective regulatory infrastructure,
▫ (ii) effective financial markets and
▫ (iii) effective and sound financial institutions.
Other definitions…
Bank of England
• SARB
▫ Financial stability refers to a financial system that
is resilient to systemic shocks, facilitates efficient
financial intermediation and mitigates the
macroeconomic costs of disruptions in such a way
that confidence in the system is maintained.
Twin peaks
Prudential
SOUTH AFRICAN
RESERVE BANK
Macroprudential
Market conduct
FINANCIAL
SERVICES BOARD
Microprudential
Prudential Authority
• Financial Stability Oversight Committee
Financial Sector
Conduct Authority
(FSCA)
Policy instrument
Potential indicators
Macroprudential toolkit
Capital-based instruments
Countercyclical capital buffers
Measures of the aggregate credit cycle
Sectoral capital requirements
Measures of sectoral concentrations
Distribution of borrowing within and across sectors
Real-estate prices (commercial and residential,
old and newly developed properties)
Price-to-rent ratios
Dynamic provisions
Bank-specific credit growth and specific provisions (current
and historical average)
Asset-side instruments
Maximum leverage ratios
Total assets to bank equity
Loan-to-value and debt-to-income ratios Real-estate prices (commercial and residential, old and
newly developed properties)
Price-to-rent ratios
Mortgage credit growth
Underwriting standards
Indicators related to household vulnerabilities
Indicators of cash-out refinancing
Liquidity-based instruments
Countercyclical liquidity requirements :
Liquid assets to total assets or short-term liabilities
liquidity coverage ratio and net stable
Loans and other long-term assets to long-term funding
funding ratio
Loan-to-deposit ratios
Lending spreads
Margins and haircuts in markets
Margins and haircuts
Bid-ask spreads
Liquidity premiums
Tool: Countercyclical capital buffer
Indicator: Private sector credit-to-GDP gap
Source: Financial Stability Review, Second edition 2016
Financial cycle (credit cycle)
Debt and disposable income –
aggregate data….?
Per cent
100
80
60
40
20
0
1994
1996
1998
2000
2002
2004
2006
2008
2010
2012
Household debt to disposable income of households
Ratio of debt-service cost to disposable income
Long-term average debt-to-disp income
2014
2016
Disaggregated credit data matter
• A lot of South African’s are (very) indebted
▫ Inequality could limit the reliability of aggregated
indicators
• Currently it’s unclear, on a consolidated basis,
where losses will accumulate
• Lack of transparency
Disaggregated credit data matter
(cont)
• Banking sector often accused of exposing the
economy to systemically important risks through
excessive credit creation (asset bubbles?) or
excessive cut-back in credit.
• Changes in credit: demand or supply driven?
• Policymakers should understand the extent to
which supply-side factors generate aggregate
fluctuations in credit
▫ Need timely and comprehensive credit data
Source: Mian, A. The case for a credit registry. 2012
More on being informed..
Minimum target score (5 or more) on financial knowledge
Source: OECD, Adult Financial Literacy Competencies. 2016
Thank you