The real value of loans from the South African banking sector has been flat over the last eight years or so, with credit extension to the public sector declining even in nominal terms. But banks have dramatically increased their investments in government assets such as sovereign debt. This has partly reflected regulatory requirements for banks to hold higher levels of such assets, but also attractive relative returns (as we suggested in this earlier post). This raises concerns around the possibility that such regulations might be reinforcing the crowding-out effects of the relative steepness of the South African sovereign yield curve on private credit.
