IMF Issues Reports on 2019 Article IV Consultation with South Africa
IMF published its staff report and selected issues report under the 2019 Article IV consultation with South Africa. The IMF Directors welcomed resilience of the financial sector and called for continued vigilance, given the recent pick up in unsecured lending. They also encouraged SARB to use the forthcoming Financial Sector Assessment Program (FSAP) as an opportunity to further strengthen its supervisory and regulatory framework. Directors welcomed the entry of new players and technological innovations to promote financial inclusion.
The staff report highlights that the financial sector is strong and resilient but exposed to weak economic growth, given its high interconnectedness and the vulnerabilities in small banks. Banks are fully compliant with the Basel III solvency and liquidity requirements. Solvency risk is low, although non-performing loans, or NPLs, have risen (to 3.8% of gross loans). Unsecured lending picked up in banks looking to boost profit and the resolution framework is being buttressed. To further enhance resilience of the system, the authorities have sought assistance from international bodies. Amid low growth and increasing competition, financial stability should be preserved while advancing progress on financial inclusion.
The report further notes that the recent increase in unsecured lending and vulnerabilities in small and medium-size banks warrant close monitoring. The commitment of SARB to adapt supervision to the rising risks from the subdued economy and changes in banks’ business models is welcome. The early warning system and crisis management framework need to be strengthened by complementing stress testing with assessments of domestic and cross-border interconnectedness and enhancing the resolution regime, including the deposit insurance scheme. Enhancements to stress testing are expected to assist risk identification and improve supervision of riskier banks. The fintech space has expanded, particularly in payment services, which, together with the entry of several new banks, could reduce fees and improve access to financial products. Going forward, deepening the local corporate bond markets would help widen the pool of high-quality liquid assets and reduce the sovereign-bank nexus. Promulgation of the bank resolution bill is expected in 2020.
Related Links
Keywords: Middle East and Africa, South Africa, Banking, Article IV, FSAP, Fintech, Stress Testing, Basel III, NPLs, Crisis Management Framework, IMF
Featured Experts
María Cañamero
Skilled market researcher; growth strategist; successful go-to-market campaign developer
Metin Epözdemir
Metin Epözdemir helps European and African banks with design and implementation of credit risk, stress testing, capital management, and credit loss accounting solutions.
Amnon Levy
Financial researcher; authority in credit portfolio management and AI/ML, risk-based pricing, climate and credit, CECL/IFRS 9; credit and ALM
Related Articles
EC Adopts Financial Reporting Changes Arising from Benchmark Reforms
EC published Regulation 2021/25 that addresses amendments related to the financial reporting consequences of replacement of the existing interest rate benchmarks with alternative reference rates.
BIS Bulletin Examines Key Elements of Policy Response to Cyber Risk
BIS published a bulletin, or a note, that examines the cyber threat landscape in the context of the pandemic and discusses policies to reduce risks to financial stability.
HMT Updates List of Post-Brexit Equivalence Decisions in UK
HM Treasury, also known as HMT, has updated the table containing the list of the equivalence decisions that came into effect in UK at the end of the transition period of its withdrawal from EU.
EBA Issues Erratum for Technical Package on Reporting Framework 3.0
EBA published an erratum for technical package on phase 1 of the reporting framework 3.0.
APRA Publishes FAQ on Measurement of Credit Risk Weighted Assets
APRA updated a frequently asked question (FAQ), for authorized deposit-taking institutions, on the measurement of credit risk weighted assets.
EBA Publishes Risk Dashboard for Third Quarter of 2020
EBA published the quarterly risk dashboard, along with the results of the Risk Assessment Questionnaire survey among 60 banks and 15 market analysts.
ECB Analysis Shows Privacy as Biggest Concern in Use of Digital Euro
ECB concluded the public consultation on the introduction of a digital euro in EU.
ECB Finalizes Guide on Supervisory Approach to Bank Consolidation
ECB published a guide that sets out the supervisory approach to consolidation in the banking sector.
SRB Chair Outlines Work Priorities for 2021
The SRB Chair Elke König published an article setting out work priorities for 2021.
FDIC Selects Companies to Compete in Final Phase of Tech Sprint
FDIC has selected 11 technology companies—including BearingPoint, Fed Reporter, Inc, and S&P Global Market Intelligence, LLC—for inclusion in the third and final phase of the rapid prototyping competition.
