Bloomberg News

South African Banks Drop on Concern Over Lending Rate (Update1)

June 10, 2008

South African banking shares dropped for the third day in Johannesburg trading on concern the country's central bank will increase borrowing costs on June 12.

Standard Bank Group Ltd. (SBK), South Africa's biggest lender, fell 1 percent to 80.55 rand, the lowest since Feb. 11. Absa Group Ltd. (ASA), the country's biggest provider of home loans, declined 4.2 percent to 83.60 rand, while FirstRand Ltd. (FSR), South Africa's No. 2 bank, dropped 1.8 percent to 13.92 rand. Old Mutual Plc's Nedbank Ltd. (NED) retreated 3.7 percent to 91.74 rand.

The South African Reserve Bank has raised interest rates nine times since June 2006 to quell inflation, which reached an annual 10.4 percent in April. Higher borrowing costs may hurt banks' earnings by weakening demand for loans and increasing the number of people and companies that can't afford to repay existing debt.

``The consensus is that the interest rate will be raised 1 percent,'' said Garth Mackenzie, head of derivatives trading at BoE Stockbrokers in Johannesburg. ``The banks face huge headwinds.''

Razia Khan, Africa economist at Standard Chartered Plc, last week also said the central bank will probably raise its benchmark interest rate by 1 percentage point.

To contact the reporters on this story: Janice Kew in Johannesburg at

To contact the editor responsible for this story: Daniel Hauck in London at

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