adminAFRICAN loan volumes rose 53 percent last year to hit a record high of just less than $34bn, as banks jostled to get in on some of the sizeable deals on the continent.Thomson Reuters, which released the research on Wednesday, said this growth story should continue into this year and beyond, but that this had left some analysts concerned that the sector may be overheating in some countries.
The ratio of South African government debt to gross domestic product (GDP) was a low 23 percent in 2008, but is expected to peak at close to 50 percent of in 2015-16. While this remains well below levels of the world’s largest debtor governments, such as Greece at 170 percent and even the US at more than 70 percent, economists warn it may be getting too hot for a developing country.
Growing countries with debt to GDP of below 60 percent have been known to default on repayments in the past. Almost half of South Africa’s 20.3-million credit-active consumers are, meanwhile, struggling to meet debt repayments, according to National Credit Regulator data last month.
The Thomson Reuters research highlighted that syndicated loans — those provided by groups of lenders — attracted growing pools of foreign lenders in the year.
“Lender sentiment has been high on the continent, with Africa remaining one of the only truly syndicated markets left,” said the report.
Investment Solutions chief economist Chris Hart said on Wednesday that there were both advantages and disadvantages to the numbers.
“A lot of it is being incurred for things like infrastructure and capital equipment, so it does help lay the foundation for future growth.”
While this means systemic risk was “not a big issue” on the continent, Mr Hart said it was “a brave new world if you operate with a lot of credit”. He expects the African economy to become much more cyclical in nature — driven by credit cycles — as these trends unfold. He said many more people were becoming creditworthy and taking on credit for consumption purposes.
Investec Asset Management Pan Africa Fund’s Joseph Rohm has been positioning his portfolio, one of the largest on the continent, to take advantage of what he sees as a natural deepening of Africa’s financial markets. “Africa is unleveraged and debt to GDP is at very manageable levels — even lower than 40percent — across Nigeria to Kenya. It is 30percent in Nigeria, for example.”
“It means banks lend more aggressively into this space. There is room for increasing bank penetration into Africa,” he said on Wednesday.
While the government has said its debt levels are sustainable, Finance Minister Pravin Gordhan is coming under increasing pressure to reassure ratings agencies about South Africa’s fiscal and debt stability ahead of the budget next month. – Businessday.
Online Reporter