High credit costs threaten economic growth in South Africa, warns Moody's

HIGH credit costs are emerging as a formidable barrier to economic growth in South Africa, despite the country’s entrenched banking sector relying heavily on deposits for funding.

- TAWANDA KAROMBO

This stark warning from Moody's Ratings on Monday highlights the critical role domestic and international funding play in bolstering the economy, with a particular emphasis on the pressures created by rising interest rates.

Lucie Villa, senior vice president for Moody’s, explained that the South African Reserve Bank (Sarb) repo rate directly impacts the cost of savings and term deposits.

The Sarb’s repo rate “influences the cost of savings and term deposits, as well as money market rates” for institutional deposits.

“South African banks depend heavily on deposits for funding. This includes deposits from companies and households, and deposits raised from institutions, which are more sensitive to interest rate changes,” explained Villa.