South Africa’s banking system has avoided the sub-prime crisis currently being seen in the US – as a wave of American homeowners find themselves unable to repay their bonds.
"SA has a well regulated banking system ... largely unaffected by contagion arising from the financial market turmoil which started in the sub-prime market of the US last year,” said Dr Xolile Guma, Deputy Governor of the SA Reserve Bank, speaking at the African Banking Congress in Johannesburg.
The current global turmoil in the financial markets has affected South Africa only indirectly, in the volatility of the domestic financial markets and the higher price of off-shore funding. Local banks, however, have had very little exposure to the US sub-prime market, added Guma.
The US sub-prime crisis was sparked after years of US banks lending home loans at a higher rate of interest to those that often couldn’t get a loan in the prime market. As borrowers defaulted, and house prices fell, the banks began to lose money on their investments.