Financial System Stability Assesment - South Africa
International Monetary Fund
Download Document| Date Published | 2014 |
| Version | |
| Primary Author | IMF |
| Other Authors | |
| Theme | |
| Country | South Africa |
Abstract
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. As a result, banks are increasingly exposed to credit risk, while households and firms are vulnerable to a rise in interest rates. The large fiscal and current account deficits, a weak growth outlook, the reliance of banks on money market funds (MMFs) for short-term wholesale funding, and banks’ active trading in the over-the-counter (OTC) derivatives market make South Africa susceptible to contagion and sudden stops of capital flows. This susceptibility and potential for spillovers have been exacerbated by the significant concentration and interconnections in the financial system, and the substantial expansion of South African banks into sub-Saharan Africa.