SARB want to scrap prime overdraft rate

Key topics:South Africa may replace prime rate with central bank policy rate.Over 12mn contracts worth 3.2tn rand linked to prime could be affected.New loans to reference policy rate; existing contracts get fallback spread..Sign up for your early morning brew of the BizNews Insider to keep you up to speed with the content that matters. The newsletter will land in your inbox at 5:30am weekdays. Register here.Support South Africa's bastion of independent journalism, offering balanced insights on investments, business, and the political economy, by joining BizNews Premium. Register here.If you prefer WhatsApp for updates, sign up to the BizNews channel here..By Prinesha Naidoo.South Africa’s central bank aims to scrap the prime lending rate in favour of its policy rate, potentially altering loan contracts amounting to trillions of rands.Making the South African Reserve Bank’s policy rate the reference for prime-linked financial contracts would ensure “a clearer link between monetary policy and lending rates” and improve public understanding of loan pricing, the central bank said in a statement on Monday. The transition should begin from 2027 at the earliest, it said in a consultation paper, starting formal engagements with banks and industry stakeholders on the proposed reform.The prime rate has been fixed at 350 basis points above the benchmark interest rate since 2001. Lenders typically price loans using prime as a reference, with premiums or discounts to the measure depending on the cost of funding, risk appetite and the creditworthiness of clients. .Read more:. Central banks to pursue cautious rate cuts as inflation concerns linger.More than 12 million contracts with an estimated value in excess of 3.2 trillion rand ($200 billion) are linked to prime, with consumer loans and mortgages accounting for about a third, according to the central bank. The consultation paper is “a welcome formal first step from the SARB on the prime rate cessation process,” Peter Attard Montalto, managing director at advisory firm Krutham, said. The period of about one month for stakeholder comments suggests “they wish to move at pace,” he said.New ContractsIt might not be feasible to amend existing retail contracts given the scope of products as well as consumer protection laws, the Reserve Bank said in the paper. It recommended a so-called fallback spread of 350 basis points above the benchmark interest rate in existing contracts to minimize risk and ensure continuity. New contracts should directly reference the policy rate instead of prime, it said. While actual credit pricing will remain unchanged, banks will quote lending rates as a margin above the benchmark rate. The central bank will introduce a new reference rate for short-term financial contracts such as derivatives, known as Zaronia, to replace the Johannesburg interbank average rate, or Jibar, on Dec. 31. Lessons from this transition will inform its shift from prime, it said. The Reserve Bank’s benchmark rate is currently 6.75% and the monetary policy committee will meet next month to review it. .© 2026 Bloomberg L.P.

SARB want to scrap prime overdraft rate

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