This paper examines the bank lending channel of monetary policy transmission in South Africa, despite the absence of typical bank loan-level data. The study measures supply-side changes in credit provision using data on home-loan supply composition by banks versus nonbanks. High-frequency surprises in forward rate agreements serve as instruments for exogenous shifts in monetary policy within a proxy-structural vector autoregression model.
The findings indicate that the bank lending channel is functional. Banks tend to reduce home loan supplies following monetary tightening, negatively impacting the housing market. Additionally, the deposits channel's effectiveness is demonstrated as banks increase deposit spreads after monetary tightening, leading to a decrease in deposit volumes. Retail deposits provide a stable funding source for banks, supporting the operativeness of the bank lending channel in South Africa, aligning with theoretical expectations.