Transition and systemic risk in the South African banking sector assessment and macroprudential options

Pierre Monnin, Ayanda Sikhosana and Kerschyl Singh

No 11065, Working Papers from South African Reserve Bank

Abstract: By signing the Paris Agreement, South Africa committed to transform its economy to contribute to keeping global temperature rises well below 2C. 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 systems 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.

Date: 2024-07-22
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