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Transcript
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 • • • • • • • • 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