The Bank Lending Channel in South Africa: Lessons from an Emerging Market Economy

Our paper exploits balance sheet data on the South African banking sector in order to analyse the sensitivity of loan supply through the Bank Lending Channel (BLC). Our results show that bank size, capitalization and efficiency are significant bank characteristics that influence the transmission of contractionary monetary shocks through the banking sector. However, less liquid and less capitalised banks are slower increasing the supply of loans during periods of monetary easing suggesting interest rate asymmetry. There are also differences in the sensitivity of loan categories to monetary tightening. We find that smaller banks are more sensitive to private loans than mortgage loans but the reverse is the case for less capitalised banks. On the other hand, public loans and credit card loans are not sensitive to the BLC. Finally, money supply is a less powerful instrument in the transmission of monetary shocks via the BLC than interest rates.