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Pretoria - The government is to ease foreign exchange control on banks from March, but the easing will fall considerably short of banks' expectations because Finance Minister Pravin Gordhan was spooked by the global financial crisis.
Many analysts have argued that South Africa's exchange controls helped protect the country's banks from the massive crises that erupted worldwide in 2008.
In line with past announcements, the banks had expected to be allowed to keep foreign exposures of 40% of their liabilities. This figure will now be 25%.
The Budget Review said government had finalised reporting measures for prudential foreign exposure limits on banks.
"These measures will liberalise exchange controls for these institutions. As of March 1 2010, South African banks will be able to acquire direct and indirect exposure of up to 25% of their total liabilities (excluding equity), covering all foreign exposure but excluding foreign direct investment. The initial limit of 40% has been adjusted downwards in light of recent international developments."
The review said that, in the wake of the global financial crisis, the broad strategy remained prudential management of foreign exposure risk, along with improved management of capital flows and maintaining macro-economic and financial stability.
In keeping with this stance, South Africa would implement relevant financial regulatory reforms in line with Group of Twenty recommendations. These included better management of the foreign risk exposure of banks and institutional investors.
The National Treasury would release a framework document on reforming exchange control legislation.
Preparatory work in this area will also inform a modernised approach to policy on inward and outward investment. The National Treasury would initiate public consultation on these reforms.
An additional move resulting in slightly eased controls was the announcement in the review that "appropriately mandated" private equity funds meeting certain criteria would be able to obtain upfront Reserve Bank approval for investments in Africa for up to a year.
- Fin24.com