South Africa: Reserve Bank Says Banking Sector Resilient to Shocks - - but Public Debt Is a Threat to Financial Stability

analysis

South Africa's main commercial banks are well capitalised and can withstand further shocks, the South African Reserve Bank said on Tuesday in its biannual Financial Stability Review. The big risk to financial stability is soaring public debt.

The Covid-19 pandemic and the lockdowns to contain its spread have had a massive and negative impact on South Africa's fragile economy. But financial stability -- which broadly means the ability of financial institutions to function and maintain credit and other financial services for the economy -- remains "intact".

"Despite a challenging backdrop, financial stability is expected to remain intact. The emergence of the coronavirus (Covid-19) pandemic has dramatically worsened the economic outlook and led to financial market dislocations in the first half of 2020. However, the financial system has continued to function effectively and financial markets have since stabilised," the Financial Stability Review (FSR) said.

This edition of the FSR had a big focus on South Africa's commercial banking sector. The six biggest banks in the land, accounting for more than 90% of the sector's assets -- FNB, Absa, Standard Bank, Nedbank, Investec and Capitec -- were subjected to a solvency stress test.

Three scenarios applied to the exercise: a pre-Covid-19 baseline...

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