the banking sector at this stage appear to be limited, as unsecured lending ( which includes traditional forms of unsecured lending such as overdrafts, credit cards and loans to sme ’ s ), at around 8 per cent, is a relatively small proportion of total lending although this ratio has been rising. if loans to sme ’ s, overdrafts and credit cards are excluded, the ratio is 4 per cent. from a financial stability perspective, we also need to consider whether it is likely to lead to asset price bubbles elsewhere in the system. the housing market remains very subdued, with some of the house price indices still reflecting falling prices. although the equity market reached an all - time high in april before falling back in recent days following increased global risk aversion, it would be difficult to argue that this is a bubble. in any event the link between high rates of growth in unsecured lending and equity or bond price movements is extremely tenuous at best. bis central bankers ’ speeches growth in credit extension by banks to the private sector has been relatively muted. growth over twelve months in private sector credit extension was 7, 3 per cent in april, down from to 9, 2 per cent in the previous month. it is significant that total loans and advances to households, which includes unsecured lending, is still only growing at annual rates of around 7 per cent. there is a potential concern about the possibility of an excessive burden of household debt. although the ratio of household debt to disposable income is still high, it has been declining. having peaked at 82, 3 per cent in 2008, the ratio declined to 74, 6 per cent in the final quarter of 2011. household debt is nevertheless still rising, but at a slower pace than that of disposable incomes. so at a macro level, there does not appear to be a cause for concern. the concern, however, could be the distribution of these debts. there is the risk that some households are becoming over - leveraged, but this would suggest that the limits set by the national credit act are not being adhered to. a further concern that is often expressed is : what happens when the interest rate cycle turns and many of these new borrowers may find it difficult to service their loans. some of these loans are on a fixed interest basis with monthly repayment commitments, thus the servicing of the loans should not be materially affected by interest rate increases. there is

work is ongoing to determine the appropriate policy instruments. to date, while counter - cyclical measures have been introduced to address the fallout of the ongoing global economic crisis, south africa ’ s banking system has emerged largely unscathed. while there is no room for complacency, no policy decisions have had to be taken in respect of financial stability. one area of potential concern for financial stability is the acceleration in the growth of unsecured lending by the banking sector, although unsecured lending is not restricted to the banking sector only. this form of lending has been growing at rates in excess of 30 per cent and, at face value, anything growing at such elevated rates must be a cause for concern. but this also needs to be seen in context as total loans and advances, of which unsecured lending forms part, is still growing at relatively moderate levels. both the fsc of the bank and the registrar of banks are keeping a close eye on these developments, and are trying to understand this phenomenon more fully. without coming to any definitive conclusion on the issue, a number of points can be raised. firstly, should we be concerned about this from a financial stability, a microprudential, or a monetary policy perspective? from a monetary policy point of view, we would need to understand the extent to which this lending translates into excessive expenditure with potential inflationary consequences. at this stage, this does not seem to be the case. while it may well be that unsecured lending may have contributed to the growth rate of 5 per cent in household consumption expenditure, this growth was in line with real income growth and not considered unsustainable or excessive. in fact, there are signs of a moderation in the rate of growth of household consumption expenditure in the first quarter of 2012, particularly with respect to durable goods. furthermore there is little evidence that cpi inflation is being driven in any meaningful way by excess demand pressures. a microprudential approach would focus on the risk profile and key ratios of the individual institutions. this is part of the function of the registrar of banks. at this stage, there are no signs of stress in any of the banks or in the banking system as a whole. to the contrary, the ratio of impaired advances to total loans and advances, which had remained stubbornly high for some time, has declined from 5, 8 per cent in march 2011 to 4, 6 per cent in march 2012. from a more systemic perspective, the risks to