South African banks have little direct exposure to the United States mortgage-backed securities market, South African Reserve Bank Governor Tito Mboweni said on Thursday at the bank’s 88th ordinary annual general meeting.
”To date, the South African Reserve Bank has not been required to take any special action to intervene in domestic liquidity conditions,” he told shareholders in his address.
”South African banks continued to operate relatively smoothly,” Mboweni said.
However, he noted that South African financial markets have not been spared the indirect effects of the global market turmoil and the sharp repricing of risk.
”Our own equity market has reacted in line with global markets,” he said.
The all-share index on the JSE dropped by 7% in the first half of September 2008.
In the month to September 16, non-residents sold a net R4,3-billion of South African equities, taking their sales in the year to that date to almost R18-billion.
Mboweni said non-residents had sold bonds amounting to R5-billion on a net basis in the first two weeks of September.
He said the spread on South Africa’s foreign-exchange-denominated government debt, as measured by the country’s sub-component of the EMBI+ index, stretched to 312 basis points — the widest yet and more than six times the spread of 50 basis points that prevailed just before the beginning of the subprime crisis in May 2007.
”Increased market volatility, a significant repricing of risk, rising costs of international capital and less capital flows to emerging markets clearly pose threats to the domestic economy and financial markets.”
Mboweni said that with South African financial markets being integrated into world markets to the extent that they are, ”spill-over effects become more likely”.
”In this regard, the [Reserve] Bank will continue to monitor market developments closely.”
He added that during the past year, the domestic financial system had been assessed as sound. — Sapa