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What Role Do Non-performing Loans Play in Propagating the Excess Liquid Asset Holdings Shock Effects on Sectoral Credit Re-allocation?

In: Achieving Price, Financial and Macro-Economic Stability in South Africa

Author

Listed:
  • Nombulelo Gumata

    (South African Reserve Bank)

  • Eliphas Ndou

    (South African Reserve Bank)

Abstract

Do the excess liquid asset holdings (LAH) of banks matter for the transmission of adverse financial shock effects to credit growth and GDP growth? The increase in excess LAH moved one-to-one with credit growth to government. Evidence shows that an adverse financial shock lowers credit growth and GDP growth and excess LAH resulted in a more pronounced decline for the sample period 2008Q1 to 2015Q4. Excess LAH was a drag on credit growth more during 2008Q1 to 2015Q4 compared to the 2000Q1 to 2015Q4. Positive shocks to excess LAH did impact the share of credit to households and companies, and the effects differed between 2000Q1 to 2015Q4 and 2008Q1 to 2015Q4. During 2000Q1 to 2015Q4, a positive excess LAH shock increased credit to the households and companies compared to a decline during 2008Q1 to 2015Q4. Furthermore, the non-performing loans (NPLs) dampened the increases in the share of credit to households due to a positive shock to excess LAH. This means that NPLs accentuated the contraction in the share of credit to households. The adverse shock effects of excess LAH on sector credit allocation were exacerbated by the increase in credit risk as captured by the NPLs.

Suggested Citation

  • Nombulelo Gumata & Eliphas Ndou, 2021. "What Role Do Non-performing Loans Play in Propagating the Excess Liquid Asset Holdings Shock Effects on Sectoral Credit Re-allocation?," Springer Books, in: Achieving Price, Financial and Macro-Economic Stability in South Africa, chapter 0, pages 373-380, Springer.
    • Handle: RePEc:spr:sprchp:978-3-030-66340-7_24
    DOI: 10.1007/978-3-030-66340-7_24
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