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
EU Amends CRD4 and CRD5 as Part of Capital Markets Recovery Package
EU published Directive 2021/338, which amends the Markets in Financial Instruments Directive (MiFID) II and the Capital Requirements Directives (CRD 4 and 5) to facilitate recovery from the COVID-19 crisis.
EU Committee Recommends Systemic Risk Buffer of 4.5% in Norway
The Standing Committee of the European Free Trade Association (EFTA) recommended that a systemic risk buffer level of 4.5% for domestic exposures can be considered appropriate for addressing the identified systemic risks to the stability of the financial system in Norway.
PRA Clarifies Approach to Onshoring of Credit Risk Rules for UK Banks
In a recent statement, PRA clarified its approach to the application of certain EU regulatory technical standards and EBA guidelines on standardized and internal ratings-based approaches to credit risk, following the end of the Brexit transition.
FSB Sets Out Work Priorities for 2021
In a recently published letter addressed to the G20 finance ministers and central bank governors, the FSB Chair Randal K. Quarles has set out the key FSB priorities for 2021.
EU Publishes Corrigendum to Revised Capital Requirements Regulation
EU published, in the Official Journal of the European Union, a corrigendum to the revised Capital Requirements Regulation (CRR2 or Regulation 2019/876).
ESAs Issue Statement on Application of Sustainability Disclosures Rule
ESAs published a joint supervisory statement on the effective and consistent application and on national supervision of the regulation on sustainability-related disclosures in the financial services sector (SFDR).
EC Consults on Crisis Management and Deposit Insurance Frameworks
EC published a public consultation on the review of crisis management and deposit insurance frameworks in EU.
HKMA Enhances Loan Guarantee Scheme to Alleviate Pressure on SMEs
HKMA announced that enhancements will be made to the Special 100% Loan Guarantee of the SME Financing Guarantee Scheme (SFGS) and the application period will be extended to December 31, 2021.
EBA Proposes Standards for Supervisory Cooperation Under IFD
EBA launched consultations on the regulatory and implementing technical standards on cooperation and information exchange between competent authorities involved in prudential supervision of investment firms.
BoE Addresses Banks in Scope of First Resolvability Assessment
BoE issued a letter to the CEOs of eight major UK banks that are in scope of the first Resolvability Assessment Framework (RAF) reporting and disclosure cycle.
