SA’s financial system “remains resilient”, but geopolitical tension, fragile infrastructure and the threat of sudden capital outflows have all intensified since the November review, the Reserve Bank warns in its latest Financial Stability Review released on Thursday.
Still, there is a bright spot: the Bank notes that SA is likely to be removed from the Financial Action Task Force (FATF) greylist in October, when the risk would also fall away from future reviews.
Nicola Brink, head of the Bank’s financial stability department, said this meant SA would be removed from the list after just more than two years, “and it speaks to the commendable combined efforts of government regulators and the private sector to address requirements”.
“Conditions in 2025 have been more challenging,” the Bank writes in its review, citing a “global polycrisis” of trade conflicts, US recession fears and fresh or ongoing military conflicts that have battered risk appetite and driven gold to record highs.
Governor Lesetja Kganyago said the Bank encountered the word “uncertainty” in all its meetings worldwide. “The one thing that is certain is that uncertainty is here with us,” he said.
This view was supported by Brink, who likened the uncertainty to the Covid-19 era. “During the review period, the global financial system experienced a degree of uncertainty and volatility that is similar to and in some respects worse than ... at the onset of the Covid-19 pandemic.”
Perpetual risks
Besides the review’s temporal risks, perpetual risks include the impact of climate change on the financial sector, the threat of a cyber incident with systemic impact and persistently low and inequitable domestic economic growth.
Domestic financial conditions remain “relatively tight” as high equity-market volatility, weak household credit and higher long-bond yields lift borrowing costs just weeks before the monetary policy committee meets again in July.
Foreigners sold R111bn in local equities in the first part of the year, while bond inflows were marginal, leaving overseas investors with just 24.5% of government debt, the lowest share in years.
A special climate-risk stress test found banks and insurers remain adequately capitalised under an “orderly net-zero” and a “delayed transition” scenario.
The Bank’s base case is resilience to June 2026, but it warned that weaker growth could again test indebted households and a fiscally constrained state if global sentiment soured.
One of the new policy actions to enhance financial stability is that, from September, the Reserve Bank will require banks to add a one percentage point countercyclical capital buffer.
Brink said this buffer gave banks leeway “if there’s a really severe stress, like we had with Covid-19 in the financial system”. The capital buffer is set at 0% now, she said.
The following has occurred regarding risk since November:
- Higher geopolitical and global policy uncertainty. Trade flare-ups, new conflict zones and US election noise have dented risk appetite and bruised the rand. The Bank said it would track the 30% “liberation day” tariffs on selected SA exports when the 90-day pause ends in July.
- “The likely implications that a decline in GDP could have for financial stability would be by amplifying the vulnerability of the financial system to the existing risks of deteriorating public sector debt ratios, critical domestic infrastructure failure and increased financial distress in households and SMEs,” the review report states.
- Higher, rapid capital outflows. A heavier equity sell-off could spill from markets into the wider financial system, the Bank cautioned.
- Slightly higher infrastructure failure. Load-shedding has eased, but collapsing municipal finances and the undersea cable break in March show how one fault can still freeze payments and data flows. The review says rail freight has already plunged from 226-million tonnes to 150-million tonnes in 2017-22.
- Lower FATF greylist risk. SA has “largely addressed” all 22 anti-money-laundering action items.
- Unchanged public-sector debt ratios. Debt is projected to peak at 77.4% of GDP in 2025/26 and prudent bank hedges mean the vulnerability is stable for now.
- Unchanged but high household & SME distress. Missed payment rates are down for mortgages and personal loans but up for companies and small and medium enterprises. Overall, the vulnerability of the SA financial system to the risk of increased financial distress in households and SMEs has remained unchanged, the report noted.
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