South Africa: Financial Sector Assessment Program-Stress Testing the Financial System-Technical Note

IMF Staff Country Reports, March 3, 2015

Source details

Canonical URL: South Africa: Financial Sector Assessment Program-Stress Testing the Financial System-Technical Note

This Technical Note discusses stress testing (ST) results for the financial system of South Africa.
The bank STs suggest that banks have adequate capital to withstand severe shocks, but need larger liquidity capacity to meet regulatory requirements.
Even in the severe scenario in which GDP falls for three consecutive years, banks’ capital buffers seem sufficient, although the impact of a large default could be significant.
Banks also appear resilient to market risks in both the trading and banking books.
Some banks, however, would have difficulty meeting the Liquidity Coverage Ratio without the Committed Liquidity Facility of the South African Reserve Bank.

Capital adequacy:
- Banks have adequate capital to withstand severe shocks.
- In a severe scenario with GDP falling for three consecutive years, banks’ capital buffers seem sufficient.
- A large default could have a significant impact despite generally adequate buffers.
Liquidity:
- Banks need larger liquidity capacity to meet regulatory requirements.
- Some banks would have difficulty meeting the Liquidity Coverage Ratio without access to the Committed Liquidity Facility of the South African Reserve Bank.
Market risk:
- Banks appear resilient to market risks in both the trading book and the banking book.

Subjects: Banking; Capital adequacy requirements; Credit; Credit risk; Financial institutions; Financial regulation and supervision; Financial sector policy and analysis; Insurance companies; Liquidity requirements; Money; Stress testing
Keywords: Africa; bank STs; banking sector; coverage ratio; CR; Credit; Credit risk; Global; Insurance companies; insurance ST; interest rate shock; ISCR; Liquidity requirements; market risk shock; mortgage portfolio; net income; Stress testing