INTERNATIONAL MONETARY FUND SOUTH south africa... · PDF fileINTERNATIONAL MONETARY FUND...

Click here to load reader

  • date post

    05-Sep-2018
  • Category

    Documents

  • view

    213
  • download

    0

Embed Size (px)

Transcript of INTERNATIONAL MONETARY FUND SOUTH south africa... · PDF fileINTERNATIONAL MONETARY FUND...

  • INTERNATIONAL MONETARY FUND

    SOUTH AFRICA

    Financial System Stability Assessment

    Prepared by the Monetary and Capital Markets and African Departments

    Approved by Herv J. Ferhani and Antoinette M. Sayeh

    August 19, 2008

    A joint IMF-World Bank Financial Sector Assessment Program (FSAP) mission visited South Africa from May 6 to 20, 2008 to conduct an FSAP Update. The mission findings were discussed with the authorities during the Article IV Consultation mission in June 2008. The mission comprised Ann Rennie (Co-Mission Chief, World Bank); S. Kal Wajid (Co-Mission Chief, MCM); Federico Galizia, Ian Tower, Alexander Tieman, and Jrme Vacher (all MCM); Bernie Egan (consultant, IMF), Robert Burgess (AFR); Greg Brunner, Katherine McKee, Carlos Cuevas, Jonathan Katz, and Loic Chiquier (World Bank). Sean Nolan, the Funds Senior Resident Representative for South Africa also participated in some of the meetings. The missions main findings are:

    South Africas sophisticated financial system is fundamentally sound and has so far weathered the global financial market turmoil without major pressures. Banks and insurance companies have enjoyed good profitability, capitalization levels, and reserves.

    However, the system faces heightened macro-financial risks and financial institutions are bracing for a less benign environment. Banks are exposed to increased credit risk, given record household indebtedness and mounting debt service burden and are seeing some impairment of asset quality. Stress tests suggest that capital and reserve cushions at banks and insurance companies are sufficient to absorb large shocks.

    The financial sector regulatory framework is modern and generally effective. There is a need to strengthen supervision of conglomerates with a focus on risks that span more than one sector, and to further promote cooperation, consistency, and effectiveness among regulators.

    The framework for securities regulation has been enhanced, but there is a need to strengthen surveillance of over-the-counter (OTC) markets and for improved monitoring of listed company disclosure.

    The main author of this report is S. Kal Wajid, with substantial contributions from the FSAP team.

    FSAP assessments are designed to assess the stability of the financial system as a whole and not that of individual institutions. They have been developed to help countries identify and remedy weaknesses in their financial sector structure, thereby enhancing their resilience to macroeconomic shocks and cross-border contagion. FSAP assessments do not cover risks that are specific to individual institutions such as asset quality, operational or legal risks, or fraud.

  • 2

    Contents Page Glossary .....................................................................................................................................4

    Executive Summary...................................................................................................................6

    I. Macroeconomic Setting and Risks .........................................................................................9

    II. Financial Institutions and Risks ..........................................................................................10 A. Commercial Banks..................................................................................................10 B. The Insurance Sector ...............................................................................................13 C. Pension Funds .........................................................................................................14

    III. Financial Markets, Infrastructure, and Safety Nets ...........................................................15 A. Financial Markets....................................................................................................15 B. Systemic Liquidity Management ............................................................................19 C. Crisis Management and Safety Nets .......................................................................21

    IV. Financial Supervision and Standards Assessments ...........................................................22 A. The Supervisory and Regulatory Framework .........................................................22 B. Banking Supervision ...............................................................................................25 C. Insurance .................................................................................................................26 D. Pensions ..................................................................................................................27 E. IOSCO Assessment of Securities Markets ..............................................................27 F. National Credit Regulator........................................................................................28

    V. Financial Access and Inclusion...........................................................................................28 A. Recent Performance and the Financial Sector Charter ...........................................28 B. Housing Finance......................................................................................................29

    Tables 1. Summary Implementation of the IOSCO Principles ...........................................................32 2. Recommended Action Plan to Improve Implementation of the IOSCO .............................35 Figures 1. Mortgage and Credit Card Debt Performance .....................................................................12 2 Market Indicators ..................................................................................................................16 3. Composition of Listing on the Bond Exchange of South Africa .........................................17 4. Selected Countries: Size of Spot Foreign Exchange Markets and OTC..............................19 5. Regulatory and Supervisory Structure for the Financial Sector ..........................................24 6. Selected Household Indicators.............................................................................................39 7. Money Market Rates............................................................................................................42 8. SARB Liquidity Draining Operations .................................................................................43 9. Financial System Development Indicators ..........................................................................44

  • 3

    10. Financial System Development .........................................................................................45 11. Market Risk Stress Tests for the Banks .............................................................................54 12. Life Insurance Stress Test Results .....................................................................................57 Box 1. Recommendations..................................................................................................................8 Appendices I. Selected Macroeconomic and Financial Indicators ..............................................................38 II. Stress Testing Coverage and Results ..................................................................................46 III. Detailed Recommendations ...............................................................................................60 Appendix Tables 3. Selected Economic and Financial Indicators, 200309 .......................................................38 4. Financial Soundness Indicators, 200207............................................................................40 5. Selected Indicators for the Corporate Sector .......................................................................40 6. Pension Funds, Insurers, and Unit Trusts ............................................................................41 7. Selected Indicators for the Insurance Sector, 200607........................................................41 8. Institutional Investors, Corporates, and Household Deposits..............................................42 9 Single-Factor Market Risk Shocks for Banks.......................................................................49 10. Single-Factor Market and Insurance Risk Shocks .............................................................50 11. Single-Factor Credit Risk Shocks for the Banks ...............................................................51 12. Macroeconomic Variables Under the ................................................................................51 13. Market Risks Stress Tests for the Banks............................................................................53 14. Market and Insurance Risk Stress Tests ............................................................................56 15. Credit Risk Stress Tests for the Banks...............................................................................57 Annex 1. Observance of Financial Sector Standards and CodesSummary IOSCO Assessment ....30

  • 4

    GLOSSARY

    ABCP Asset-backed commercial paper

    ABSA Amalgamated Bank of South Africa

    ACI Association of Collective Investments

    ATM Automatic teller machine

    BCP Basel Core Principle

    BESA Bond Exchange of South Africa

    BSD Bank Supervision Department

    BU Bottom-up stress testing

    CAR Capital adequacy ratio

    CPI Consumer Price Index

    DFI Development Finance Institution

    DTI Department of Trade and Industry

    FAIS Financial Advisory and Intermediary Services Act

    FSAP Financial Sector Assessment Program

    FSB Financial Services Board

    FSC Financial Sector Charter

    FSDU Financial S