25 April 2007
The South African Reserve Bank (SARB) today released the March 2007 edition
of the financial stability review. This publication focuses on the six months
to December 2006 and is part of the SARB's approach to encourage debate on
financial stability issues and enhance the understanding of the financial
system and its strengths and weaknesses.
According to the financial stability review the world economy is changing to
a slower pace of expansion, following three years of uninterrupted robust
growth. It is generally expected that this adjustment will take place smoothly.
A United States (US) housing crunch (which has already impacted on US gross
domestic product growth)says , further US dollar weakness continued global
imbalances and geopolitical concerns are risks that could lead to a
sharper-than-expected slowdown in global growth. The brief global market
sell-off in February 2007 has resulted in volatility in global equity and bond
markets. Financial markets have, however, proved their resilience and recovered
fully. In emerging-market economies, financial markets continued their strong
performance in 2007 on increased investor confidence, renewed risk appetite,
continuing investment fund inflows and improved macroeconomic fundamentals.
Following decades of sluggish progress, African economies are experiencing a
major turnaround. Growth is however, uneven across countries and sub-regions.
The outlook for sub-Saharan Africa is generally positive. Excluding political
risks, the major downside economic risk is a hard landing in the global economy
that may result in a turnaround in the commodity boom.
Based on an analysis of various indicators, the South African financial
system was assessed as sound during the period under review. Overall confidence
in the financial services sector remained high. Stress-testing results showed
that the banking sector should remain resilient to a range of plausible adverse
developments. The life-insurance sector was considered to be generally healthy,
although there are concerns about the high lapses and surrenders and the low
number of new policies issued. The level of household indebtedness, already
high by historical standards, edged even higher. Mortgage advances which form a
dominant portion of credit to the household sector, continued to grow at a high
rate. Existing fundamentals do not point to overall fragility in
household-sector balance sheets as debt-servicing costs are still low and
household wealth and financial assets are growing.
The ongoing resilience of the South African financial system is also
dependent on the proactive efforts of financial authorities and policy-makers
to enhance the functioning of the financial system and reduce the risk of
financial distress and contagion. In this regard, a number of significant
regulatory development milestones were reached in the period under review.
These include regulatory amendments introduced in the insurance and retirement
industries to give effect to certain undertakings of the Statement of Intent
and the release of the draft Companies Bill of 2007 for public comment.
Issued by: South African Reserve Bank
25 April 2007
Source: South African Reserve Bank (http://www.reservebank.co.za)
