Transition and Systemic Risk in the South African Banking Sector: Assessment and Macroprudential Options
Pierre Monnin, Ayanda Sikhosana and Kerschyl Singh | 22 July 2024
Monetary, Working Papers | Tags: Central Banks, Climate Risks, Financial Stability, Macroprudential Policy, South Africa
This Working Paper was published by the South African Reserve Bank
By signing the Paris Agreement, South Africa committed to transform its economy to contribute to keeping global temperature rises well below 2°C. This transformation will inevitably impact financial institutions and could represent a systemic risk for the financial sector. According to central bank and academic research, an orderly transition should not jeopardise financial stability – but understanding transition risks for the banking sector, monitoring them and, when necessary, implementing macroprudential measures is necessary to ensure this stability. This paper is a step towards achieving this outcome. It presents the main transition risks for the South African banking sector, highlighting that the coal value chain is central to these risks. It assesses the banking system’s exposure to transition risks in the corporate sector, showing that they are material and widespread. It concludes by suggesting some macroprudential policy options that could address these risks.
Read the full Working Paper.