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South Africa’s Banking System: Secure Despite Global Turmoil
South Africa’s banking system has consistently withstood global financial crises and economic instability. However, concerns remain about the safety of deposits. In this article, we investigate what makes SA banks safe for customers.
Regulated to Perfection: South African Banking Laws
The South African Banks Act clearly defines the business of a bank and puts in place strict regulations. Obtaining a banking licence isn’t easy, notes quantitative analyst Jacques Bagraim.
- The South African Banks Act sets out clear guidelines for banks
- Strict regulations are in place to ensure banks operate safely
Banks Must Meet Minimum Regulatory Requirements
All licensed banks report to the Prudential Authority (PA) and must ensure they meet minimum regulatory requirements, says Cheslyn Jacobs, chief commercial officer at TymeBank. These cover ratios that banks need to manage carefully, including liquidity risk management.
- Banks are required to maintain adequate capital
- Liquidity risk management is crucial for bank stability
The Role of the South African Reserve Bank
The PA, which forms part of the South African Reserve Bank (SARB), is responsible for licensing banks and ensuring they meet or exceed regulatory standards. This helps maintain financial stability.
- SARB plays a critical role in regulating the banking sector
- The Prudential Authority oversees banks to ensure compliance with regulations
Basel III: The Prudential Regulation Framework
South African banks must adhere to Basel III, a set of prudential regulations that require banks to control their risks, hold enough capital, and manage financial activities soundly.
- Basel III sets out strict guidelines for bank risk management
- Banks are required to maintain adequate capital buffers
Liquidity Risk Management in SA Banks
Banks aim to honour depositor and borrower obligations without suffering loss. Adequate capital allows banks to continue operating during economic downturns, notes an Absa Bank spokesperson.
- Liquidity risk management is critical for bank stability
- Adequate capital enables banks to weather economic crises
Deposit Insurance: A New Era of Protection
SARB has set up the Corporate for Deposit Insurance (CODI) scheme to protect South African depositors. It will come into effect from April 2024 and will be managed independently.
- CODI provides a safety net for depositors
- Banks are now accountable for protecting depositor funds
Emerging Risks: Load Shedding and Sanctions
SARB notes that load shedding is a significant risk that may affect ATM and cellular network functioning. The threat of secondary sanctions due to South Africa’s relationship with Russia also poses a risk to the banking sector.
- Load shedding can disrupt bank operations
- Secondary sanctions pose a risk to the banking sector
Digital Banking: Safe and Secure?
Fully digital banks are no different from brick-and-mortar banks, and online security breaches pose a risk. However, all banks manage their concentration risk well, says Jacobs.
- Digital banks must maintain robust online security measures
- Concentration risk management is crucial for bank stability
SA Banks Are Generally Well-Capitalised
Banks that manage their concentration risk well are safe, notes Bagraim. Assets are rarely concentrated in any one bank, reducing exposure risk.
- Well-capitalized banks can weather economic crises
- Diversified assets reduce exposure risk