IMF says South African financial sector needs more competition

Dec 18, 2014

South Africa needs a more competitive financial sector with a number of new, smaller banks entering the market to help lower costs, according to the International Monetary Fund (IMF).

It operated a stress test and found the financial sector remains "sound", with strong regulation and supervision, and with major banks and insurers having adequate capital, Business Day reports.

However, it found these were vulnerable to liquidity shortfalls and that the financial sector faces "elevated" but "manageable" risks as it is highly interconnected and concentrated.

The country's banking sector is dominated by five players, namely FirstRand, Standard Bank, Barclays Africa Group, Nedbank and Investec. Together, they hold more than 90 per cent of banking assets.

Meanwhile, the top five insurers account for 74 per cent of the long-term insurance market. Households are also highly indebted, which adds to the risk, the IMF said.

It warned that asset quality can quickly deteriorate in a weak economy and even small institutions can entail systemic risk due to high interconnectedness.ADNFCR-2976-ID-801766546-ADNFCR