Latest news with #FinancialStabilityReview
IOL News
9 hours ago
- Business
- IOL News
Sarb warns of climate change woes on financial stability
As countries transition at varying paces, Sarb Governor Lesetja Kganyago said the risk of a disorderly global shift to a low-carbon economy intensified. Image: SARB/Facebook The South African Reserve Bank (Sarb) has issued a stern warning regarding the perpetual risks that climate change poses to the financial sector. In its latest Financial Stability Review (FSR) published on Thursday, the Sarb identified climate change as one of three major threats to the financial stability of the nation, alongside the looming spectre of cyber incidents and persistently low economic growth. In the review, the Sarb highlighted a growing consensus within academic and regulatory literature that climate change introduces two primary types of risks: physical risks and transition risks. Physical risks are defined as the economic losses stemming from the increasing frequency and intensity of adverse weather events, such as floods, droughts, and storms—a trend already observable in South Africa. 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Advertisement Next Stay Close ✕ On the other hand, transition risks are exacerbated by an uncoordinated global response to climate change, where financial institutions face challenges in recognising, preparing for, and complying with evolving climate-related regulations. With South Africa's financial system significantly exposed to carbon-intensive activities and assets, the bank warned that the country was particularly vulnerable to these insidious risks. Sarb Governor Lesetja Kganyago said the risk of a disorderly global shift to a low-carbon economy had intensified as countries transition at varying paces. However, Kganyago said South Africa's financial system was so far demonstrating a high degree of resilience in response to global shocks such as intensifying global conflict with the conflict in Ukraine and the escalating war in the Middle East. 'Climate change will be an abiding challenge with impacts that include risks to financial stability. Last year, we conducted a first climate risk stress test to evaluate the resilience of systemically important banks to climate-related shocks,' Kganyago said. 'The FSR provides an overview of the lessons learned from the test. We have also published a stand-alone technical report on climate risk stress tests.' The FSR introduced an overarching framework for assessing climate-related financial stability risks and vulnerabilities in the South African financial system. The framework maps the process the Sarb follows to gather relevant information and assess the residual vulnerability of the South African financial system to climate-related shocks, after accounting for existing mitigating measures. These processes aim to align the financial stability monitoring and assessment framework with international best practice. Meanwhile, the Sarb also warned about the country's cybersecurity vulnerabilities. The FRS said the convergence of rapid technological advancements, mounting geopolitical uncertainties, and a significant skills gap in the cybersecurity industry was creating an increasingly complex cyber-environment that posed substantial risks to the financial sector and beyond. The Sarb has highlighted that this technological evolution was not merely a challenge for local firms but also exacerbates the disparities between advanced economies and emerging markets like South Africa. Current reporting shows that South Africa's cybersecurity spending consistently remains alarmingly low—less than the mature market benchmark of 0.25% of GDP annually. This deficit comes despite the pressing reality of costly data breaches. In 2024, the average cost of data breaches in South Africa was $2.78 million, a marginal decrease from $2.79m the previous year, yet a figure that remains unacceptably high. Moreover, the nation's ongoing electricity-supply challenges add another layer of complexity and vulnerability to cybersecurity efforts. While improvements have been noted, inconsistent power supply poses a latent risk to digital infrastructures, exposing them to potentially devastating cyber-attacks. The Sarb cautions that many backup power systems currently in use lacked the necessary robust security protocols to guard against such threats. As for economic growth, the Sarb said South Africa was grappling with a persistent economic malaise as recent analyses revealed that real GDP growth has averaged a mere 0.54% annually since 2018. This stagnation has entrenched a series of pressing issues, including low private investment, heightened inequality, and a rising tide of unemployment that threatens the livelihoods of millions of South Africans. The economic landscape appears even murkier with the looming possibility of the non-renewal of the African Growth and Opportunity Act (Agoa) and the imposition of tariffs on South African exports. Recent findings from the Sarb's April 2025 Monetary Policy Review (MPR) illustrated the potential repercussions of such trade adjustments through three distinct scenarios.
Bloomberg
a day ago
- Business
- Bloomberg
South Africa Banks at Risk From Trade, War Shocks, SARB Says
Growing geopolitical tensions and global policy uncertainty are among the biggest risks facing South Africa's financial industry, the central bank said. The nation is vulnerable to spillover effects from trade-related tensions and international conflicts because of the limited extent to which it can mitigate them, the South African Reserve Bank said in its biannual Financial Stability Review.
RTÉ News
11-06-2025
- Business
- RTÉ News
Trump Tariffs & NAMA Dissolution
President Trump's tariffs leave the Irish economy exposed, according to the Governor of the Central Bank Gabriel Maklouf. His comments this afternoon come as the Bank released its Financial Stability Review. Our Economics and Public Affairs Editor David Murphy has more on this, and the money that NAMA will return to the Exchequer this year...
Irish Independent
11-06-2025
- Business
- Irish Independent
Companies have become cautious about making investments, says Central Bank
In its first Financial Stability Review of 2025, the bank says its assessment is that the risks facing the financial system have increased since it last reported in December. 'In the short run, the main channel through which these developments are likely to affect the domestic economy is uncertainty as well as a reduction in external demand,' said Gabriel Makhlouf, the bank's governor. 'There has already been some softening in consumer sentiment and industry engagement points to cautiousness amongst companies, at least for now, in terms of new investments.' He said that borrowers and the Irish banking system have built up substantial resilience in recent years, and these strong financial positions provide an important buffer against potential adverse shocks. 'Given the ongoing uncertainty, however, it is important that we are prepared for potential macro or market shocks, and that the financial system is maintaining – and indeed, where necessary, building - both financial and operational resilience for the period ahead,' Mr Makhlouf said. Increased uncertainty may lead to even stronger household savings, which would slow consumption and broader economic activity, and potentially affect house purchase decisions, the Financial Stability Review says. It noted that the April consumer sentiment index, the first since US president Donald Trump announced reciprocal tariffs, reported the largest decline since the onset of the COVID-19 pandemic, although this was followed by a modest improvement in May. 'A large proportion of households are employed in multinational enterprise-dominated sectors, or in the broader export-orientated sectors. An analysis of stock of mortgage credit shows a high proportion of lending to households in these exposed sectors,' the Review says. 'While the debt-service ratio for households has remained stable over the past number of years, credit risk via [that] sector represents a potential channel through which a trade shock may impact the domestic financial sector.' Although they are in a stronger position than in the past, households are exposed to potential future increases in borrowing costs, the bank points out. About 40pc of mortgages are on variable rates. Of the rest, most are fixed for less than five years. ADVERTISEMENT The Government could also face higher interest rates on its borrowings, the Review notes. As global government bonds yields rise, the interest bill on Ireland's national debt will go up, and loans will roll over onto higher rates than in the past. The higher cost of corporate bonds could also have an impact on the housing market, leading to less investment in house-building. 'As non-bank lenders that are active in Irish real estate can be sensitive to global capital market developments, a persistent deterioration in global financial conditions would have implications for development financing and could exacerbate the recent falls in private capital for residential development,' the Review says. 'Further, while the Irish sovereign has a current strong funding position, Ireland's high US exposures combined with any perceived or realised negative economic impacts arising from future trade or tax announcements may raise future borrowing costs.'
Irish Examiner
11-06-2025
- Business
- Irish Examiner
Global trade and geopolitical tensions to hurt domestic demand as Ireland 'particularly exposed' to external shocks
Rising geopolitical tensions, shifting trade policy and growing economic uncertainty have increased the risks facing Ireland's financial system, which is "particularly exposed" to recent external events, the Central Bank has warned. Publishing its first Financial Stability Review of the year on Wednesday, the regulator said that Ireland's small, open economy, which is highly reliant on foreign direct investment, was especially vulnerable to recent trade tensions. However, it stated that the economy was entering this new period of uncertainty from a position of strength, with households, businesses, and the domestic banking system providing a buffer against adverse shocks. It noted that the current uncertainty underlines the importance of capital buffers, continued prudent risk management, and building financial and operational resilience. Short-term impacts Speaking at the launch of the review, Central Bank governor Gabriel Makhlouf said it remains unclear where US tariffs and countermeasures might settle over time, leaving markets vulnerable to sudden adjustments. 'In the short run, the main channel through which these developments are likely to affect the domestic economy is uncertainty as well as a reduction in external demand," the governor said. "There has already been some softening in consumer sentiment, and industry engagement points to cautiousness amongst companies, at least for now, in terms of new investments.' Over the medium-term, Mr Makhlouf said: 'Any reduction in activity by US-owned multinationals, particularly in economically concentrated and trade-sensitive sectors such as pharmaceuticals and ICT, could affect employment, tax revenue and investment. "The economic effects of any such shifts are subject to significant uncertainty and would materialise over a longer horizon. "From a financial stability perspective, any material slowdown in domestic economic growth could raise credit risks for Irish banks and negatively affect market sentiment towards the Irish sovereign.' Given the ongoing uncertainty, Mr Makhlouf said it was important to be prepared for potential macro or market shocks, and that the financial system is both maintaining and building both financial and operational resilience for the period ahead. Cyber and climate-related risks continue to be important sources of adverse shocks, the governor said, adding that ensuring resilience remains a key focus of the bank's supervisory and macroprudential work. "In that context, we are also confirming today that the Countercyclical Capital Buffer rate, a tool used by the Central Bank that requires banks to set aside financial resources to act as a shock absorber, will remain at 1.5%," Mr Makhlouf said. On financial markets, the governor said the global market volatility in April led to higher liquidity demands for certain groups of investment funds based in Ireland, similar to patterns globally, but the market continued to function. 'Given the large, internationally-focused non-bank financial intermediary (NBFI) sector in Ireland, we have dedicated a part of today's report on how different segments of the sector responded to the heightened volatility that we observed in April. "At a global level, structural vulnerabilities in parts of the sector mean that the behaviour of non-banks could amplify future market stresses. This underscores the importance of continued progress in strengthening the regulatory framework for NBFI, including at a multilateral level. Future challenges On the broader outlook, Governor Makhlouf said the fragmenting geo-economic relationships and transitions around demographics, climate and digitalisation present clear challenges but also opportunities for Ireland and Europe. 'The Central Bank is engaging proactively with the simplification agenda without compromising on the standards required to deliver on our mandate and maintain resilience across the domestic financial system," he said. "Harnessing the power of the Single Market, moving towards a genuine Savings and Investment Union, and forging new trade links can 'have the potential to contribute towards domestic and European financial stability, while also fostering long run economic growth."
