The short- and long-run drivers of lending behaviour by South African banks

Abstract

Purpose

The role of banks to efficiently allocate loans to borrowers is fundamental to a thriving economy. In South Africa this is particularly important, given a challenging socio-economic environment with high levels of unemployment and poor levels of economic growth. This paper investigates the short- and long-run determinants of bank lending behaviour for South African banks.

Design/methodology/approach

The study design uses time-series data in an autoregressive distributed-lagged model for the period 1994–2016.

Findings

The results indicate that factors such as the volume of deposits and the size of a bank are central to explaining bank lending behaviour in the short run, whereas GDP was found to be the only factor explaining lending behaviour in the long run.

Originality/value

The results suggest that the regulatory role of the South African Reserve Bank to ensure financial stability instils trust and certainty in the banking industry and is reflected in the short-run implications to ensure that large banks are stable and depositors avoid a run on a bank's deposits. This is particularly relevant if the long-run trajectory of the economy is one of sustainable economic growth. Furthermore, although the reserve bank is constantly under threat of not having a pro-growth policy agenda, the results support its role to promote confidence and trust through its financial stability policy. Should confidence in the financisal system not be present, it is argued that systemic risk will be exacerbated through the potential failure of large banks and depositors withdrawing their funds through a run on the bank in the short run. Where financial stability is present, market participants will be more inclined to make deposits into the large South African banks, given the trust and certainty within the system.

Citation

Coetzee, J. and Genukile, L. (2020), "The short- and long-run drivers of lending behaviour by South African banks", African Journal of Economic and Management Studies, Vol. 11 No. 4, pp. 639-651. https://doi.org/10.1108/AJEMS-08-2019-0316