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Higher public debt threatens S.Africa's financial system, c.bank says

·1 min read

JOHANNESBURG, Nov 24 (Reuters) - A massive increase in projected government debt poses a "major threat" to financial stability in South Africa, the central bank warned on Tuesday, while problem mortgages were also a risk.

South Africa's government debt is now set to hit 82% of gross domestic product this year as the Treasury grapples with the impact of the COVID-19 pandemic.

In its bi-annual review on the soundness of the financial system, the South African Reserve Bank (SARB) said this meant close links between the financial sector and government were now a serious worry.

"The interconnectedness between the financial sector and the sovereign has emerged as a major threat to financial stability in South Africa," the document said.

Domestic banks hold 23% of total government bond holdings and pension funds account for a further 29%, meaning any deterioration in the public finances has a perceived impact on these institutions' own credit worthiness, it said. (Reporting by Emma Rumney; Editing by Olivia Kumwenda-Mtambo)