An evaluation on the impact of new capital requirements introduced under the Basel III regulations on banks' lending rates and loan growth : a case study of the eThekwini region and surrounding areas

Abstract

The aim of this study is to evaluate the impact of new capital requirements introduced under the Basel III regulations on banks’ lending rates and loan growth. It further analyses how the regulation impacts positively and negatively on the banks’ lending rate. The study was conducted to discover how the Basel III framework affects the banking industry’s loan growth in KwaZulu-Natal. The rationale for this study was based on the information that this financial regulation has led to a substantial decrease in the loan growth of the banking sector. Little research, if any, has been done on this particular topic. Therefore, there was a need to conduct research of this magnitude in order to eliminate the issues related to new capital requirements. A qualitative approach was followed as the dissertation that required this method. The theme of this study focused on credit, interest rates and the cost of credit within the banking industry while the actual research was conducted amongst professionals with 15 to 20 years of experience within the banking industry. Interviews were conducted as part of attempts to gather data in studying the phenomenon. The objective of this study is to identify the difficulties faced by the bank in order to assist in granting a client with a credit facility being in line with the Basel III accord requirements. A further objective is to establish how the Basel III accord has affected the loan growth over the past three to five years in the banking industry and to investigate how the increased cost of credit due to the implementation of the Basel III accord affected the banks and its consumers over the past three to five years. Semi-structured interviews with open ended questions were used to gather data. Due to the type of professionals being interviewed namely; credit managers, business credit managers as well as credit analysts, a total of 10 interviews were conducted. The interviews were recorded and transferred verbatim. The study evaluated the impact that the new Basel III regulation requirements have on the loan growth within the financial industry. Major findings of the research were that banks have become stricter with credit lending; the loan growth has decreased over the past five years, after the Basel III Accord. Due to this being a government regulation, banks have now shifted their focus on promoting non-credit products to increase profitability. This research contributes to the body of knowledge in the financial field of study and helps to bridge the gap on the topic. It is hoped that future research on banking scoring models, Basel III and bank employees’ rapport, as well as on interest rates trends examination would be highlighted as recommended in this study.