1. 1 Credit crisis update June 2009

2. 2 Overview Causes of the credit crunch Effect on the world’s financial system Impact on SA housing market

3. 3 Causes of the credit crises Development of a parallel banking system Low interest rates after dotcom bust Flawed incentives for market participants, especially in subprime housing –Originators –Rating agencies –Regulators Tradability of risky assets

4. 4 The shadow banking system now matches formal banks Sources: Federal Reserve; NERA Economic Consulting

5. 5 Virtuous cycle of 1990 - 2006 Supply tight as everyone chases property House prices rise Lower interest rates, easy credit House prices rise

6. 6 Low interest rates and easy credit led to rapid house price growth

7. 7 The bursting of the subprime bubble has reversed the growth trend Sources: Standard & Poor’s, Federal Reserve

8. 8 International housing market now stuck in a vicious cycle Repossessions and fire sales House prices fall Interest rates climb, tighter lending standards House prices fall

9. 9 Falling prices and a lack of confidence are crippling banks Burns capital Erodes confidence of depositors Consumes manpower Embarrasses regulators

10. Banks: Market Cap Morgan Stanley RBS Deutsche Bank Credit Agricole Societe Generale Barclays BNP Paribas Unicredit UBS Goldman Sachs Santander Citigroup JP Morgan HSBC Market Value as of Q2 2007, $Bn Market Value as of January 20 th 2009, $Bn While JPMorgan considers this information to be reliable, we cannot guarantee its accuracy or completeness Source: Bloomberg, Jan 20 th 2009 Credit Suisse 49 120 76 67 80 91 108 93 116 75 100 116 255 165 215 16 4.6 10.3 17267.432.52635 27356419 85 97

11. 11 South African banks have stopped granting new bonds Source: South African Deeds Office (May 2009)

12. 12 High prices and a tight credit hurt the local property market Source: South African Deeds Office (May 2009)

13. 13 So far the South Africa has avoided the brunt of the crisis Positive Banks are solvent Prudent economic policies offer leeway Property market probably hit bottom in 1 st quarter of 2009 Negative Cannot escape the effects of the crisis Recession since Q4-08 Property worst affected Slow recovery

14. 14 Financial crises are destructive Source: Reinhart and Rogoff, The Aftermath of Financial Crises, 2009