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Financial stability outlook has improved in past six months: Reserve Bank

24 November 2021, 9:46 PM  |
Glorious Sefako-Musi Glorious Sefako-Musi |  @SABCNews
People work at ''The Faktory", a fashion design and clothing manufacturing company in Johannesburg, March 4, 2021. [File image]

People work at ''The Faktory", a fashion design and clothing manufacturing company in Johannesburg, March 4, 2021. [File image]

Image: Reuters

People work at ''The Faktory", a fashion design and clothing manufacturing company in Johannesburg, March 4, 2021. [File image]

South Africa’s financial sector remains resilient amidst the challenges brought about by the pandemic. The Reserve Bank says the financial stability outlook has improved in the past six months in line with the stronger than expected economic recovery.

The Central Bank says profits of financial institutions are recovering following a sharp drop last year.

Global growth concerns and structural domestic challenges are however expected to negatively affect economic recovery going forward.

The state of South African financial institutions is improving following the shock suffered last year as a result of COVID-19.

The Reserve Bank says financial institutions are beginning to return to pre-pandemic profitability.

It says stress tests suggest that the banking sector will remain adequately capitalised in the event of a future shock.

But it says a number of material risks remain. They include elevated debt levels, the high level of interconnectedness between the financial sector and the sovereign and ongoing risks posed by COVID-19.

SA’s financial sector remains resilient amidst COVID-19 challenges:

‘Public debt projected to grow further’

Reserve Bank Governor Lesetja Kganyago says, “The nexus between the financial sector and the sovereign is also likely to remain a key risk to financial stability over the medium term, the exposure of domestic financial intermediaries to government remains elevated while public debt is projected to grow further over the medium term. The financial stability review presents a detailed analysis of these and other potential vulnerabilities in the domestic financial system. Overall, however, the SA  financial system has displayed a relatively high resilience under very challenging conditions.”

The Reserve Bank says stress tests conducted on six of South Africa’s largest banks suggest that even under the adverse scenario of a double-dip recession, the banking sector will remain adequately capitalised.

Reserve Bank’s Vafa Anvari says, “The possibility of fourth and further waves of COVID-19 infections which will be probably brought about by low levels of vaccinations in the country and the potential restrictions on economic activity that will come with them, threaten the economic recovery and could have spillover effects on the financial stability.”

The report says the July civil unrest disrupted financial services provision in the affected areas, but this was temporary. It says in terms of physical damage, banks estimated more than R700 million worth of damage was caused to buildings and branches.

In addition to the physical damage, more than R300 million was lost due to the theft of cash, branch assets and other goods.

R480 million worth of damage was caused to ATMs, with more than 1 200 ATMs affected. It however says the majority of the physical damage was insured.

 

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Tags: Reserve BankLesetja KganyagoJuly unrestFinancial stability outlook
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