The impact of liquidity on bank lending in South Africa

This study investigates the effect of the introduction of the net stable funding ratio (NSFR) on South African domestic banks lending. We decompose total lending by customer type (corporate vs household) and by loan categories (instalments, mortgages, credit cards, overdrafts and other loans) to account for different risk profiles and maturities (short-, medium- and long-term lending). Our results show that NSFR regulations in South Africa are largely compliant with Basel III standards. While total lending does not appear to have been affected, our results indicate that the introduction of the NSFR has influenced loan composition and maturity profiles. We find that South African banks have increased the proportion of short-term lending in their loan portfolios, decreasing long-term lending, especially in residential mortgages. This effect aligns with the NSFRs aim to reduce maturity transformation but could nonetheless impact households ability to obtain long-term credit.