The Prudential Authority (PA) has been monitoring the levels of exposures by the banks to South Africa’s sovereign debt, following a notable increase in the banking industry’s overall exposure and concentration to government securities in the period since 2020.
CEO of the Prudential Authority Nomfundo Tshazibana said in the PA’s latest annual report that: “The PA continues to encourage banks to actively manage, monitor and report such exposures to their appropriate internal governance structures to ensure that exposures remain within approved internal risk appetite metrices,”
She said that while government securities were frequently utilised in banks’ risk mitigation strategies, exposures to these securities also needed to be appropriately balanced against credit extension to the real economy.
Meanwhile PA chairperson Lesetja Kganyago said two non-systemic banks were placed under curatorship during the 2022/23 financial year, while one insurer was placed under final curatorship, one in liquidation and another placed under statutory management. Despite these developments, the South African financial sector remained safe and sound.
Tshazibana said five financial institutions were under various stages of resolution during the reporting period to protect depositors and policyholders, and due to various governance failures,
She said In May 2022 the Minister of Finance, on recommendation from the PA, placed Ubank under curatorship due to it having inadequate capital. Following a competitive bidding process, Ubank’s assets and liabilities were sold to African Bank and no losses were incurred by depositors.
The New Era Life Insurance Company was placed under statutory management in November 2022 when the PA determined the insurer’s failure to comply with the Policyholder Protection Rules, she said.
The Habib Overseas Bank was placed under curatorship in March 2023 due to non-compliance with governance and other operational requirements.
3Sixty Life continued to be under curatorship following the replacement of the curator in February 2023.
Constantia Insurance Company was currently being wound up as the curator found the business to be insolvent.
Tshazibana said the financial sector’s resilience would be tested by rising inflation and the resultant high interest rates, increasing costs and lacklustre gross domestic product growth during the 2023/24 financial year..
“The PA and the South African Reserve Bank (SARB) will continue to monitor the impact of these macro and microeconomic factors and take appropriate corrective action where necessary,” she said.
During the past year the PA undertook various remedial actions to address and enhance the application of its risk-based approach to supervision relating to anti-money laundering and countering the financing of terrorism (AML/CFT).
The PA issued guidance and directives, introduced a mandatory requirement for the submission of risk returns, developed an automated risk tool to profile accountable institutions, conducted regular outreach with the banking and insurance sectors, and issued the second round of sector risk assessments.
“At its Plenary meeting in February 2023, the FATF recognised South Africa’s extensive efforts undertaken during the 12-month observation period. The FATF, however, added South Africa to its list of jurisdictions under increased monitoring. Work in the areas identified by the FATF for further remediation has been prioritised to meet the deadline of January 2025 for South Africa to be removed from the list,” she said.
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