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Thumbs up for SA money systems

7 May 2004

The Reserve Bank has given South Africa's financial system its official stamp of approval. In its first financial stability review, released at the beginning of May, the Bank said the system is "robust" and capable of withstanding "considerable shocks".

The Reserve Bank is responsible for price stability in South Africa, which is in turn dependent on the broader financial set-up in the country.

"South Africa's financial safety-net system has been rigorously tested and assessed, and was found to adhere to international best practice", SA's central bank said in its report.

The report also says that the prospects of a global economic recovery improved during the second half of last year, but that some areas of concern remain.

These included the risk of terror events disrupting global financial houses, the rising United States budget deficit, the deteriorating ability of households in the United Kingdom to service their debt, and destabilising capital flows in emerging-market economies.

"However, it appears that the risk of contagion between emerging-market economies has reduced significantly", the Bank said.

In the southern African region, political instability, HIV/Aids and poor infrastructure remain the key concerns.

For South Africa's financial system, however, contagion from some of the country's neighbours due to political uncertainty "provides little cause for concern, as exposure of South African financial institutions is relatively small".

For some, the report came as no surprise. Absa Bank economist Chris Hart told online finance publication Moneyweb that the soundness of South African financial institutions has never been in question, a fact that sets SA apart from other emerging market economies.

"In the context of emerging markets, this is the key differentiating factor for South Africa", Hart said. "We are financially stable and have always been able to absorb shocks."

The review was the first to be concluded by the Reserve Bank's financial stability department — set up in 2001 to identify, analyse and research potential threats to and weaknesses in the financial system.

It was also tasked with making policy proposals and encouraging regulatory and structural changes to promote safety and effectiveness of the financial system.