on the money
STUART THEOBALD: Bailing out SOEs ups risk for banks
Dangers of increased lending to entities in terms of creating problems for the economy and the banking system trigger decrease in loans
Governments globally lean on the banking system when they need cash. SA is no exception. During the latter half of the Zuma presidency, as the financial position of state-owned enterprises (SOEs) deteriorated, banks sharply increased their lending to them. That creates problems for the economy and the banking system. My analysis of banks’ statutory returns shows that the amount they lent to SOEs increased sharply from 2013 to 2018, when it reached a record high of R56.4bn, up 2.6 times from R21.6bn five years earlier. While the figures don’t break out just which SOEs received this cash, it is safe to assume that by far the biggest of these borrowers was Eskom. Several issues arise when the banking system is being tapped in this way. The first is the overall risk of the system. Such lending is often driven more by political considerations than the usual balance of risk and return within an overall balance sheet context. Any bank has to be sensitive to being seen to support the gover...