IDEAS home Printed from https://ideas.repec.org/p/rbz/wpaper/11062.html
   My bibliography  Save this paper

Macroprudential policy and credit allocation evidence from South Africa

Author

Listed:
  • Serena Merrino
  • Keagile Lesame
  • Ilias Chondrogiannis

Abstract

In 2013, South Africa amended its bank regulatory framework in line with the Basel III accord, which introduced system-wide capital and liquidity adequacy requirements designed to curb the economys financial cycle so-called macroprudential policy. These regulations aim to create a more resilient banking system, but they can also lead to changes in lending behaviour, potentially affecting the availability and terms of loans to specific segments of the credit market. This is especially important in emerging markets such as South Africa, where market segmentation and inequality are more prominent than elsewhere. This paper examines how South Africas credit market has responded to macroprudential policy measures, with a focus on borrowers heterogeneity, to evaluate whether financial stability objectives are achieved at the expense of an equitable credit allocation. Our empirical approach is two-fold and employs both panel and time-series data for the period 20082023. We find that macroprudential regulation has reduced lending to households, especially if poor, to the benefit of firms, especially if large. We also find that this regulation triggers lenders adverse selection by penalising more creditworthy enterprises. Our results suggest that while Basel III has reduced reckless consumer credit, it has also redistributed finance in ways that are not beneficial to long-term growth and financial stability.

Suggested Citation

  • Serena Merrino & Keagile Lesame & Ilias Chondrogiannis, 2024. "Macroprudential policy and credit allocation evidence from South Africa," Working Papers 11062, South African Reserve Bank.
  • Handle: RePEc:rbz:wpaper:11062
    as

    Download full text from publisher

    File URL: https://www.resbank.co.za/content/dam/sarb/publications/working-papers/2024/macroprudential-policy-and-credit-allocation-evidence-from-south-africa.pdf
    File Function: Revision
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Akinci, Ozge & Olmstead-Rumsey, Jane, 2018. "How effective are macroprudential policies? An empirical investigation," Journal of Financial Intermediation, Elsevier, vol. 33(C), pages 33-57.
    2. James, Christopher, 1987. "Some evidence on the uniqueness of bank loans," Journal of Financial Economics, Elsevier, vol. 19(2), pages 217-235, December.
    3. Meuleman, Elien & Vander Vennet, Rudi, 2020. "Macroprudential policy and bank systemic risk," Journal of Financial Stability, Elsevier, vol. 47(C).
    4. Gambacorta, Leonardo & Mistrulli, Paolo Emilio, 2004. "Does bank capital affect lending behavior?," Journal of Financial Intermediation, Elsevier, vol. 13(4), pages 436-457, October.
    5. Cally Ardington & David Lam & Murray Leibbrandt & James Levinsohn, 2004. "Savings, Insurance And Debt Over The Post‐Apartheid Period: A Review Of Recent Research," South African Journal of Economics, Economic Society of South Africa, vol. 72(3), pages 604-640, September.
    6. Cohen, Benjamin H. & Scatigna, Michela, 2016. "Banks and capital requirements: Channels of adjustment," Journal of Banking & Finance, Elsevier, vol. 69(S1), pages 56-69.
    7. King, Michael R., 2013. "The Basel III Net Stable Funding Ratio and bank net interest margins," Journal of Banking & Finance, Elsevier, vol. 37(11), pages 4144-4156.
    8. Mark Freel, 2007. "Are Small Innovators Credit Rationed?," Small Business Economics, Springer, vol. 28(1), pages 23-35, January.
    9. Moritz Schularick & Alan M. Taylor, 2012. "Credit Booms Gone Bust: Monetary Policy, Leverage Cycles, and Financial Crises, 1870-2008," American Economic Review, American Economic Association, vol. 102(2), pages 1029-1061, April.
    10. International Monetary Fund, 2022. "South Africa: Financial Sector Assessment Program-Technical Note on Cybersecurity Risk Supervision and Oversight," IMF Staff Country Reports 2022/181, International Monetary Fund.
    11. Richter, Björn & Schularick, Moritz & Shim, Ilhyock, 2019. "The costs of macroprudential policy," Journal of International Economics, Elsevier, vol. 118(C), pages 263-282.
    12. Zambaldi, Felipe & Aranha, Francisco & Lopes, Hedibert & Politi, Ricardo, 2011. "Credit granting to small firms: A Brazilian case," Journal of Business Research, Elsevier, vol. 64(3), pages 309-315, March.
    13. Carreras, Oriol & Davis, E. Philip & Piggott, Rebecca, 2018. "Assessing macroprudential tools in OECD countries within a cointegration framework," Journal of Financial Stability, Elsevier, vol. 37(C), pages 112-130.
    14. De Schryder, Selien & Opitz, Frederic, 2021. "Macroprudential policy and its impact on the credit cycle," Journal of Financial Stability, Elsevier, vol. 53(C).
    15. Stiglitz, Joseph E & Weiss, Andrew, 1981. "Credit Rationing in Markets with Imperfect Information," American Economic Review, American Economic Association, vol. 71(3), pages 393-410, June.
    16. Cerutti, Eugenio & Claessens, Stijn & Laeven, Luc, 2017. "The use and effectiveness of macroprudential policies: New evidence," Journal of Financial Stability, Elsevier, vol. 28(C), pages 203-224.
    17. International Monetary Fund, 2022. "South Africa: Financial Sector Assessment Program-Technical Note on Financial Safety Net and Crisis Management," IMF Staff Country Reports 2022/182, International Monetary Fund.
    18. Harimohan, Rashmi & Nelson, Benjamin, 2014. "How might macroprudential capital policy affect credit conditions?," Bank of England Quarterly Bulletin, Bank of England, vol. 54(3), pages 287-303.
    19. International Monetary Fund, 2022. "South Africa: Financial Sector Assessment Program-Technical Note on Systemic Risk Oversight and Macroprudential Policy," IMF Staff Country Reports 2022/186, International Monetary Fund.
    20. International Monetary Fund, 2022. "South Africa: Financial Sector Assessment Program-Technical Note on Systemic Liquidity Management," IMF Staff Country Reports 2022/183, International Monetary Fund.
    21. Timo Baas & Mechthild Schrooten, 2006. "‘Relationship Banking and SMEs: A Theoretical Analysis’," Small Business Economics, Springer, vol. 27(2), pages 127-137, October.
    22. International Monetary Fund, 2022. "Mexico: Financial Sector Assessment Program-Technical Note on Systemic Risk Analysis and Stress Testing," IMF Staff Country Reports 2022/359, International Monetary Fund.
    23. Kang, Qiaoling & Wu, Ji & Chen, Minghua & Jeon, Bang Nam, 2021. "Do macroprudential policies affect the bank financing of firms in China? Evidence from a quantile regression approach," Journal of International Money and Finance, Elsevier, vol. 115(C).
    24. Shekhar Aiyar & Charles W. Calomiris & Tomasz Wieladek, 2014. "Does Macro‐Prudential Regulation Leak? Evidence from a UK Policy Experiment," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 46(s1), pages 181-214, February.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Marcin Czaplicki, 2022. "Measuring the restrictiveness of (macro)prudential policy: the case of bank capital regulation in Poland," Journal of Banking Regulation, Palgrave Macmillan, vol. 23(3), pages 322-338, September.
    2. Coulier, Lara & De Schryder, Selien, 2024. "Assessing the effects of borrower-based macroprudential policy on credit in the EU using intensity-based indices," Journal of International Money and Finance, Elsevier, vol. 142(C).
    3. Ćehajić, Aida & Košak, Marko, 2021. "Macroprudential measures and developments in bank funding costs," International Review of Financial Analysis, Elsevier, vol. 78(C).
    4. De Schryder, Selien & Opitz, Frederic, 2021. "Macroprudential policy and its impact on the credit cycle," Journal of Financial Stability, Elsevier, vol. 53(C).
    5. Tiago F. A. Matos & João C. A. Teixeira & Tiago M. Dutra, 2023. "The contribution of macroprudential policies to banks' resilience: Lessons from the systemic crises and the COVID‐19 pandemic shock," International Review of Finance, International Review of Finance Ltd., vol. 23(4), pages 794-830, December.
    6. Poghosyan, Tigran, 2020. "How effective is macroprudential policy? Evidence from lending restriction measures in EU countries," Journal of Housing Economics, Elsevier, vol. 49(C).
    7. Elien Meuleman & Rudi Vander Vennet, 2022. "Macroprudential Policy, Monetary Policy, and Euro Zone Bank Risk," International Journal of Central Banking, International Journal of Central Banking, vol. 18(4), pages 1-52, October.
    8. Retselisitsoe I. Thamae & Nicholas M. Odhiambo, 2022. "The impact of bank regulation on bank lending: a review of international literature," Journal of Banking Regulation, Palgrave Macmillan, vol. 23(4), pages 405-418, December.
    9. Lin, Xin & Zhang, Jinhong & Yu, Lina & Zhong, Qiming, 2024. "Does macroprudential policy matter for corporate green innovation? The role of financing constraints and public environmental concerns," Economic Analysis and Policy, Elsevier, vol. 82(C), pages 877-892.
    10. Yang, Jin Young & Suh, Hyunduk, 2023. "Heterogeneous effects of macroprudential policies on firm leverage and value," International Review of Financial Analysis, Elsevier, vol. 86(C).
    11. Fernandez-Gallardo, Alvaro, 2023. "Preventing financial disasters: Macroprudential policy and financial crises," European Economic Review, Elsevier, vol. 151(C).
    12. Apergis, Nicholas & Aysan, Ahmet F. & Bakkar, Yassine, 2022. "Borrower- and lender-based macroprudential policies: What works best against bank systemic risk?," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 80(C).
    13. Kim, Soyoung & Mehrotra, Aaron, 2022. "Examining macroprudential policy and its macroeconomic effects – Some new evidence," Journal of International Money and Finance, Elsevier, vol. 128(C).
    14. Matos, Tiago F.A. & Teixeira, João C.A. & Dutra, Tiago M., 2024. "Macroprudential regulation and bank risk: The role of shareholders' and creditors' rights," Global Finance Journal, Elsevier, vol. 59(C).
    15. Peter Karlström, 2023. "Macroprudential Policy, Credit Booms, and Banks' Systemic Risk," CEMLA Working Paper Series 03/2023, CEMLA.
    16. Ms. Juliana Dutra Araujo & Manasa Patnam & Ms. Adina Popescu & Mr. Fabian Valencia & Weijia Yao, 2020. "Effects of Macroprudential Policy: Evidence from Over 6,000 Estimates," IMF Working Papers 2020/067, International Monetary Fund.
    17. Davis, E. Philip & Karim, Dilruba & Noel, Dennison, 2022. "The effects of macroprudential policy on banks' profitability," International Review of Financial Analysis, Elsevier, vol. 80(C).
    18. Ka Kei Chan & E. Philip Davis & Dilruba Karim, 2024. "Macroprudential policy, bank competition and bank risk in East Asia," Journal of Banking Regulation, Palgrave Macmillan, vol. 25(3), pages 326-358, September.
    19. Simona Malovaná & Dominika Ehrenbergerová, 2022. "The effect of higher capital requirements on bank lending: the capital surplus matters," Empirica, Springer;Austrian Institute for Economic Research;Austrian Economic Association, vol. 49(3), pages 793-832, August.
    20. Agénor, Pierre-Richard & Flamini, Alessandro, 2022. "Institutional mandates for macroeconomic and financial stability," Journal of Financial Stability, Elsevier, vol. 62(C).

    More about this item

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:rbz:wpaper:11062. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Jessica VanWyk (email available below). General contact details of provider: https://edirc.repec.org/data/rbagvza.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.