Bank deposit funding and mortgage lending

The recent collapse of Silicon Valley Bank (SVB) has demonstrated how banks sometimes get the maturity transformation process spectacularly wrong. Maturity transformation involves using short-term funding (such as deposits) to make long-term loans to customers (such as mortgage advances).

In the chart below, we compare the exposure of registered banks in South Africa to corporate deposits (an often used indicator of deposit ‘flight risk’ on the liability side of the balance sheet) and the importance of mortgages on the asset-side of their balance sheets. Greater simultaneous exposure of a bank’s balance sheet to these two components might increase the risk of maturity mismatches. We calculate the ratio of short-term corporate deposits to total deposits by isolating insurers, pension funds and the private corporate sector (i.e. excluding the government, state-owned enterprises and household deposits from the numerator). Banks with no short-term corporate deposits or mortgages are excluded from the graph.

Although there is some clustering of banks around about 30% in each ratio, there is also a large amount of dispersion. The bank with the highest share of short-term corporate deposits is HBZ. Among the largest banks, Nedbank and Standard Bank have the largest proportions of mortgages in their total assets.

It is worth pointing out that the South African banking industry has historically high liquidity and capital buffers (see here and here). Unfortunately, the Prudential Authority does not publish regulatory compliance data at bank-level so it makes it difficult to assess bank-level risks in South Africa.

By Pietman Roos (Associate – Codera Analytics)

Codera Blog Newsletter

Sign up to receive a weekly summary of our blog posts