In 2013, South Africa aligned its bank regulatory framework with the Basel III accord. This move introduced capital and liquidity adequacy requirements to manage the financial cycle through macroprudential policy. The regulations aim to enhance banking system resilience but may also alter lending behaviors, impacting loan availability and terms for specific credit market segments. This issue is particularly relevant in emerging markets like South Africa, where market segmentation and inequality are pronounced.
A recent study investigates how South Africa's credit market has responded to these macroprudential measures, focusing on borrower heterogeneity. The study evaluates whether achieving financial stability objectives compromises equitable credit allocation. The empirical approach uses both panel and time-series data from 2008 to 2023.
The findings indicate that macroprudential regulation has decreased household lending, especially affecting poorer households, while benefiting firms, particularly larger ones. Additionally, the regulation appears to cause lenders' adverse selection by penalizing more creditworthy enterprises.
"Our results suggest that while Basel III has reduced reckless consumer credit," the study notes, "it has also redistributed finance in ways that are not beneficial to long-term growth and financial stability."