{
  "title": "South Africa: Technical Assistance Report-Stress Testing the Central Bank Balance Sheet and Calibrating Risk-based Capital Buffers",
  "publication": "Technical Assistance Reports, May 7, 2025",
  "sourceUrl": "https://www.imf.org/en/publications/technical-assistance-reports/issues/2025/05/07/south-africa-technical-assistance-report-stress-testing-the-central-bank-balance-sheet-and-566727",
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  "summary": "Central bank balance sheet stress testing (CBST) models are designed to support central banks in determining appropriate capital levels and informing decisions on dividend distribution.",
  "sections": [
    {
      "heading": "Overview",
      "content": "- Central bank balance sheet stress testing (CBST) models support central banks in determining appropriate capital levels and informing decisions on dividend distribution.\n- Policy solvency is defined as a central bank's ability to generate realized earnings over time that exceed its monetary policy and operational costs.\n- The mission proposed a CBST model specifically tailored for the South African Reserve Bank (SARB).\n- Context: the SARB and National Treasury (NT) established a new financial framework focusing on the Gold and Foreign Exchange Contingency Reserve Account (GFECRA). A key principle is to prevent GFECRA distributions from undermining the SARB’s policy solvency."
    },
    {
      "heading": "CBST model features",
      "content": "- Forecasting balance sheet under macroeconomic scenarios to ensure robustness to external adverse shocks.\n- Value-at-Risk approach for foreign exchange (FX) revaluation losses.\n- Assessment of equity buffer adequacy under combined FX-at-Risk and Inflation-at-Risk scenarios.\n- Designed to enable the SARB to institutionalize a process for balance sheet forecasting and buffer calibration."
    },
    {
      "heading": "Key findings",
      "content": "- The CBST model can inform decisions on dividend distribution consistent with maintaining policy solvency.\n- FX revaluation risk is material and is addressed through a Value-at-Risk methodology within the model.\n- Combined FX-at-Risk and Inflation-at-Risk scenarios are necessary to assess the adequacy of equity buffers.\n- Given the SARB’s public commitment to annually recalibrate the two buffers, institutionalizing and publicly communicating the underlying methodologies is important."
    },
    {
      "heading": "Policy recommendations",
      "content": "- Institutionalize the CBST process to ensure regular forecasting of the SARB balance sheet under plausible macroeconomic scenarios.\n- Publicly communicate the methodologies underpinning buffer calibration to enhance transparency, given the commitment to annually recalibrate the two buffers.\n- Ensure GFECRA distribution rules explicitly preserve the SARB’s policy solvency."
    },
    {
      "heading": "Operational recommendations",
      "content": "- Adopt the Value-at-Risk approach for FX revaluation losses within routine stress-testing practice.\n- Combine FX-at-Risk and Inflation-at-Risk scenario analysis when assessing equity buffer adequacy.\n- Integrate the CBST outputs into decision-making on dividend distribution and buffer recalibration cycles.\n\nSource: South Africa: Technical Assistance Report-Stress Testing the Central Bank Balance Sheet and Calibrating Risk-based Capital Buffers (IMF).\n\n---\n\n Content in this bundle\n\n- tarea2025051-print-pdf\n  - tarea2025051-print-pdf (Markdown version){rel=\"alternate\" type=\"text/markdown\"}\n  - tarea2025051-print-pdf (PDF){rel=\"external\" type=\"application/pdf\"}\n\n---\n\nSource: https://www.imf.org/en/publications/technical-assistance-reports/issues/2025/05/07/south-africa-technical-assistance-report-stress-testing-the-central-bank-balance-sheet-and-566727"
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    "Published: May 7, 2025",
    "Series: Technical Assistance Reports",
    "DOI: https://doi.org/10.5089/9798229009522.019",
    "Central bank balance sheet stress testing (CBST) models support central banks in determining appropriate capital levels and informing decisions on dividend distribution.",
    "Policy solvency is defined as a central bank's ability to generate realized earnings over time that exceed its monetary policy and operational costs.",
    "The mission proposed a CBST model specifically tailored for the South African Reserve Bank (SARB).",
    "Context: the SARB and National Treasury (NT) established a new financial framework focusing on the Gold and Foreign Exchange Contingency Reserve Account (GFECRA). A key principle is to prevent GFECRA distributions from undermining the SARB’s policy solvency.",
    "Forecasting balance sheet under macroeconomic scenarios to ensure robustness to external adverse shocks.",
    "Value-at-Risk approach for foreign exchange (FX) revaluation losses.",
    "Assessment of equity buffer adequacy under combined FX-at-Risk and Inflation-at-Risk scenarios.",
    "Designed to enable the SARB to institutionalize a process for balance sheet forecasting and buffer calibration.",
    "The CBST model can inform decisions on dividend distribution consistent with maintaining policy solvency.",
    "FX revaluation risk is material and is addressed through a Value-at-Risk methodology within the model.",
    "Combined FX-at-Risk and Inflation-at-Risk scenarios are necessary to assess the adequacy of equity buffers.",
    "Given the SARB’s public commitment to annually recalibrate the two buffers, institutionalizing and publicly communicating the underlying methodologies is important.",
    "Institutionalize the CBST process to ensure regular forecasting of the SARB balance sheet under plausible macroeconomic scenarios.",
    "Publicly communicate the methodologies underpinning buffer calibration to enhance transparency, given the commitment to annually recalibrate the two buffers.",
    "Ensure GFECRA distribution rules explicitly preserve the SARB’s policy solvency.",
    "Adopt the Value-at-Risk approach for FX revaluation losses within routine stress-testing practice.",
    "Combine FX-at-Risk and Inflation-at-Risk scenario analysis when assessing equity buffer adequacy.",
    "Integrate the CBST outputs into decision-making on dividend distribution and buffer recalibration cycles.",
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