A review of the South African adoption of Basel, impact on lending practices of banks and subsequent impact on society and wealth of ordinary South Africans

We (Vincent Anthonyrajah and Musa Malwandla) will review the South African adoption of the Basel guidelines and assess the impact on South African bank lending practices, the impact on society and the wealth of ordinary South Africans.

The paper will investigate whether the regulatory capital framework resulted in banks moving away from lending practices that encourage wealth creation (mortgages) to consumption focused loans (personal loans).

The paper will build on existing analysis by Malwandla that showed evidence that over the past 15 years, South African’s rent more and own less. Furthermore, there has been a material increase in indebtedness in expensive personal loans, which have been used for consumption. It will also look at work by Malwandla that showed how this shift in lending practices had a negative impact in South Africa’s GDP growth.

The paper will analyse whether increased unrest in South Africa and worsening social cohesion are functions of the fact more South Africans have not been able to purchase homes yet have been locked in expensive personal loans. The dangers here are that recent legislation in Regulation 28 is making it easier for savers to access their savings. We question whether this will lead to more deterioration in savings and a sense of ownership in the economy.

Finally, the paper will assess whether policy changes should be made in order to reverse some of these changes, and whether policy changes could drive a more competitive home loan market. The risks and limitations of any suggested policy changes will be considered.