ON THE MONEY
STUART THEOBALD: Higher rates give bankers a reason to smile
Upward-heading interest rates aren’t bad news for everyone. SA banks have finally shrugged off the Covid-19 blow to their share prices, significantly outperforming the market over the past year. Had you bought at the lows of March 2020 you would have more than doubled your money.
Why? The prospect of higher interest rates isn’t all good news for banks. On the one hand, banks’ interest margins grow but on the other hand more customers find it harder to pay as the cost of prime-linked debt rises. That can be catastrophic — indeed, the record interest rates of 1998 (reaching 25.5%) triggered such borrower distress that several banks collapsed. Given the astronomical unemployment rate that continues to head upwards, you might think that consumers particularly were highly vulnerable to higher rates. Unemployment reflects a generally weak economy that has no chance of growing average per capita incomes for years to come, so even those who are employed are under increasing pressure....