There is a growing concern about the impact of country risk rating on financial institutions due to increased political, financial and economic risk. This study utilizes the autoregressive distributed lag (ARDL) model and the Toda– Yamamoto approach of Granger causality test to analyse the long and short run effects of economic, financial and political components of country risk on credit extended to the South African private sector. The results indicate that there is a negative long-run relationship between credit extension and country risk. In the short-run, credit extension is mainly affected by its previous changes, with a limited effect from financial and economic risks. The causality analysis showed that previous changes in country risks do not Granger-cause changes in current credit extension, but that credit extension Granger-causes the economic and financial risks. The study concluded that changes in country risk have a long-term implication on credit extended to the South African private sector.