The banking-political nexus is complex. Banks lend government a lot of money. On most recent published data (for end-November last year), 11% of all the assets in the banking system consist of government bonds, which are loans by banks to the government. This is a nominal R830bn and has been growing significantly. In 2018, government lending was only 6% of assets and in 2008 it was 2.5%. The banking system has become more exposed than before to the financial health of the sovereign, and the government has become more dependent than before on banks lending it money. This has happened precisely as the government’s creditworthiness, measured by the debt-to-GDP ratio or ratio of interest spending to total revenue, has been deteriorating.

This has been highlighted by the SA Reserve Bank as a growing risk to the financial system, with concerns rising that a sovereign financial crisis will trigger a banking crisis, while a banking crisis would trigger a sovereign funding crisis...<...

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