General Information & Client Service
  • Americas: +1.212.553.1653
  • Asia: +852.3551.3077
  • China: +86.10.6319.6580
  • EMEA: +44.20.7772.5454
  • Japan: +81.3.5408.4100
Media Relations
  • New York: +1.212.553.0376
  • London: +44.20.7772.5456
  • Hong Kong: +852.3758.1350
  • Tokyo: +813.5408.4110
  • Sydney: +61.2.9270.8141
  • Mexico City: +001.888.779.5833
  • Buenos Aires: +0800.666.3506
  • São Paulo: +0800.891.2518
July 30, 2018

IMF publishes its staff report and selected issues report under the 2018 Article IV consultation with South Africa. Directors welcomed the introduction of the Twin Peaks approach, which strengthens financial sector oversight and cross-agency coordination. They took positive note that the banking system remains sound, but stressed that continued vigilance will be important in light of pockets of vulnerabilities in small and medium-sized banks. Directors welcomed the authorities’ continued efforts to upgrade stress-testing capabilities.

The staff report states that the banking sector is large, highly concentrated, and well capitalized. As of the end of 2017, banking sector assets corresponded to around 110% of GDP, with more than 90% accounted for by the five largest banks. On average, capital adequacy is above regulatory requirements and profitability, while having declined moderately amid weak economic growth, remains strong. The non-performing loan (NPL) ratio edged higher to 3.2% and the liquidity ratio exceeds the regulatory requirement. Medium-size and smaller banks have higher NPLs and capital than large five banks do. The operations of medium-size and small banks appear more sensitive to economic activity, notably if growth remains low for a protracted period, as they target riskier customers. These banks have lower asset quality compared to large banks and, although accompanied by larger holdings of equity capital, appear to have some pockets of vulnerabilities. While in isolation these banks are small, the broader banking system could be affected negatively through confidence effects, triggering vicious macro-financial feedback loops.

The recognition of contagion risk prompted the SARB to take a firm action when African Bank’s balance sheet conditions deteriorated in 2014. SARB also took a firm action when VBS Mutual Bank faced liquidity shortages in March 2018. Staff welcomed the ongoing initiatives to further buttress financial sector stability. The new Financial Sector Regulation Act lays the foundation of the Twin Peaks model of financial regulation and confers on the SARB an explicit statutory mandate to enhance and protect financial stability. Putting in place a deposit insurance scheme will help stem the potential contagion from a localized event. Upgrading the stress testing framework and conducting it at least annually will help identify potential bank vulnerabilities. The authorities view the transition to the new Twin Peaks model as a way of further strengthening the financial stability framework. The envisaged resolution framework will allow failed small and medium-size banks to exit the system, thus limiting depositors’ losses without a negative impact on financial stability. SARB intends to expand stress tests (produced in cooperation with IMF capacity development) to include insurance companies.

The selected issues report highlights that the financial sector is large and highly integrated with other sectors of the economy. Overall, the large and highly concentrated banking sector is well-capitalized and profitable. Capital adequacy is above regulatory requirements, and profitability remains strong. However, a further slowdown in growth could result in an increase in the share of non-performing loans, thereby feeding into bank balance sheets. However, there are pockets of vulnerabilities within the sector. On average, banks outside the top 5 hold equity capital of around 15% of unweighted assets—nearly twice the level observed among Top 5 banks. However, NPLs among the smaller banks are also significantly higher than among the Top 5, with some smaller banks reporting NPLs of above 20% of loans. Notably, the balance of capital ratios and NPLs for a couple of medium-size and small banks is near that observed for African Bank when it was moving toward curatorship in 2014. Public Investment Corporation (PIC) constitutes a major part of the South African financial sector. Managing a significant share of pension fund assets in South Africa, the government-owned PIC is also the largest asset manager on the African continent, with more than R2.1 trillion of assets under management as of the end of 2017. Of these, close to 90% are those of the Government Employees Pension Fund (GEPF).


Related Links

Keywords: Middle East and Africa, South Africa, Banking, Article IV, NPLs, IMF

Related Insights

US Agencies Extend Consultation Period for the Proposed SA-CCR

US Agencies (FDIC, FED, and OCC) extended the comment period for a proposed rule to update their standards for how firms measure counterparty credit risk posed by derivative contracts.

February 18, 2019 WebPage Regulatory News

FED Extends Consultation Period for Stress Testing Rule

FED has published in the Federal Register a notice proposing amendments to the company run and supervisory stress test rules.

February 15, 2019 WebPage Regulatory News

EBA Single Rulebook Q&A: Third Update for February 2019

EBA published answers to two questions under the Single Rulebook question and answer (Q&A) updates for this week.

February 15, 2019 WebPage Regulatory News

FSB Report Examines Financial Stability Implications of Fintech

FSB published a report that assesses fintech-related market developments and their potential implications for financial stability.

February 14, 2019 WebPage Regulatory News

US Agencies Amend Regulatory Capital Rule to Allow Phase-In for CECL

US Agencies (FDIC, FED, and OCC) adopted the final rule to address changes to credit loss accounting under the U.S. generally accepted accounting principles; this includes banking organizations’ implementation of the current expected credit losses (CECL) methodology.

February 14, 2019 WebPage Regulatory News

FASB Proposes Taxonomy Improvements for the Credit Losses Standard

FASB proposed the taxonomy improvements for the proposed Accounting Standards Updates on Targeted Transition Relief for Topic 326 (Financial Instruments—Credit Losses) and Topic 805 (on Business Combinations—Revenue from Contracts with Customers).

February 14, 2019 WebPage Regulatory News

SRB Publishes Framework for Performing Valuations in Resolution

SRB published its framework for performing valuations in resolution. The framework provides independent valuers and the general public with an indication of the expectations of SRB on the principles and methodologies for valuation reports, as set out in the legal framework.

February 14, 2019 WebPage Regulatory News

FED Issues Correction in Historical Dataset in its 2019 Stress Tests

FED identified an error in the historical dataset used in its 2019 stress tests and issued a correction.

February 13, 2019 WebPage Regulatory News

OCC Consults on Company-Run Stress Test Requirements for Banks

OCC proposed amendments to its company-run stress testing requirements for national banks and Federal savings associations, consistent with section 401 of the Economic Growth, Regulatory Relief, and Consumer Protection (EGRRCP) Act.

February 12, 2019 WebPage Regulatory News

CFTC Extends Comment Periods for Trade Execution Requirement Proposals

CFTC announced that it is extending comment period for the proposed amendments related to the regulations on swap execution facilities (SEF) and trade execution requirement.

February 12, 2019 WebPage Regulatory News
RESULTS 1 - 10 OF 2610