South Africa Financial Sector Assessment Program Financial System Stability Assessment

The economy recovered strongly in 2021, following an unprecedented real output contraction in 2020. However, the outlook remains precarious amidst projected future low growth, high unemployment and adverse debt dynamics, and the recovery pace is unlikely to be sustained. Ample buffers allowed the financial system to handle the COVID-19 shock relatively well, but domestic and external downside risks remain substantial—with potential implications for asset quality, profitability, and solvency.

This paper assesses the stability of the financial system of the United Kingdom as a whole, not that of individual institutions. Since the last Financial Sector Assessment Program (FSAP), the U.K. financial system has put the legacy of the crisis behind it and has become stronger and more resilient. This FSAP found the system to be much stronger and thus better able to serve the real economy. Like all systems, the U.K. financial system is exposed to risks. Its position as a global hub exposes the U.K. financial system to global risks. In addition, the uncertainties associated with the possibility of British exit from the EU weigh heavily on the outlook.

This paper discusses findings of the Financial System Stability Assessment for South Africa. South Africa’s financial sector operates in a challenging economic environment. Despite remarkable progress since the end of apartheid in 1994, South Africa still has one of the world’s highest unemployment and income inequality rates. Slow economic growth since 2008 has further aggravated unemployment, real disposable income is stagnant, and households are heavily indebted. Relatively high capital buffers as well as sound regulation and supervision have helped mitigate the risks. Stress tests confirm the capital resiliency of banks and insurance companies to severe shocks but illustrate a vulnerability to liquidity shortfalls.

This paper presents an assessment of the stability of the financial system in New Zealand. Imbalances in the housing market, banks’ concentrated exposures to the dairy sector, and their high reliance on wholesale offshore funding are the key macro-financial vulnerabilities. The banking sector has significant exposure to real estate and agriculture, is relatively dependent on foreign funding, and is dominated by four Australian subsidiaries. A sharp decline in the real estate market, a reversal of the recent recovery in dairy prices, deterioration in global economic conditions, and tightening in financial markets would adversely impact the system. Despite these vulnerabilities, the banking system is resilient to severe shocks. Strengthening the macroprudential framework is important.

This paper discusses the findings of the assessment of the financial system in Zambia. Nonperforming loans have risen and private sector credit growth has turned negative, owing to the severe pressures of 2015–16. The pressures included slower economic growth, sharply lower copper prices, electricity shortages, very tight monetary policy, and mounting fiscal arrears and severe fiscal funding pressures. Looking ahead, the financial system faces considerable risks, owing to high dependence on copper exports, rising public debt and funding pressures, and an uncertain monetary policy regime. A sharper-than-expected global slowdown may lead to copper price declines and additional pressures on government finance and the exchange rate. A lack of fiscal adjustment may worsen government payments arrears, further impacting asset quality.

This paper discusses key findings of the Financial System Stability Assessment (FSSA) for the Republic of Mozambique. As a result of a comprehensive financial sector reform program largely based on the 2003 Financial Sector Assessment Program recommendations, Mozambique has made significant progress toward developing and strengthening the banking sector, enhancing supervision, and improving central bank operations. However, despite several government initiatives and legal and regulatory reforms, progress in financial deepening and access has been less satisfactory.

The paper assesses the stability of Namibia’s financial system. Macrofinancial vulnerabilities have built up over a period of rapid economic growth in Namibia, and the financial cycle has now turned down. The sovereign debt/GDP ratio has nearly doubled since 2014 which has reinforced the already strong bank-sovereign link. The rapid rise in housing prices and household debt, banks’ large exposure to mortgages, and banks reliance on wholesale funding are sources of concern. A major decline in real estate prices would adversely affect bank capital and profitability. Financial sector oversight has been strengthened significantly since the 2006 Financial System Assessment Program, but further upgrades are needed.

This paper discusses the Financial System Stability Assessment for South Africa, and reviews the Report on the Observance of Standards and Codes on Securities Regulation. The assessment reveals that South Africa’s 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. The financial sector regulatory framework is modern and generally effective. Stress tests suggest that capital and reserve cushions at banks and insurance companies are sufficient to absorb large shocks.