Johannesburg - The government welcomes the relaxation of credit requirements by certain banks, but hopes that they will not revert to their former strategies.
It does not plan, as its international counterparts do, to downscale its incentive packages for the local economy anytime soon.
This was the message from Minister of Finance Pravin Gordhan in Johannesburg on Sunday, shortly after he returned from London where he attended a G20 summit over the weekend.
He said a perception existed that South Africa had excessively curbed its credit lines after the collapse of global financial systems; but the relaxation was not being irresponsibly managed.
He referred to the decision by certain banks to grant 100% mortgage loans in certain markets once more.
The delegates to the summit agreed on further steps to strengthen their respective countries' financial systems.
Gordhan emphasised that local financial institutions had no hopes of returning to "their old ways" as soon as their credit lines returned to normal.
Should they try to do so, the authorities would bring out their claws. "The regulatory authorities have agreed to stricter capital requirements for risky investment activities."
He stressed that authorities such as the Financial Stability Board would do everything in its power to contain new risks.
The board was established in April after the G20 summit to identify weak areas in the financial system and introduce sound policies for financial stability. These include oversight of credit rating agencies and hedge funds.
According to Dr Renosi Mokate, deputy governor of the South African Reserve Bank, the application of international standards such as Basel II could help. She was also part of the delegation.
The Financial Stability Board wants to encourage more circumspect regulation by requiring banks to hold additional and better-quality capital when the economy has recovered.
Gordhan says South Africa supports the Financial Stability Board's other efforts to reduce risk in the financial services sector.
"South Africa is especially in favour of initiatives to regulate bankers' remuneration packages to put a stop to the culture of excessive and reckless risk-taking that has developed within many banks."
He says the economic storm is not over, and therefore the decision has been taken to continue with the current incentives until there is certainty about the sustainability of a recovery.
South Africa's incentives are largely limited to the government's infrastructural projects, with few additional supporting projects for enterprises or industries.
"At the meeting recognition was given to the tentative signs of economic recovery, but the outlook remains cautious and it is too early to declare that the recovery has traction."
He believes that South Africa still has a "long and difficult path" to tread, but adds that the country will be better equipped if it keeps to the sound application of its fiscal and monetary policy.
The countries agreed that the nature and timing of finalisation strategies would depend on each country's circumstances.
The authorities' sharp claws will also extend to tax havens -countries or regions where companies can reduce their tax liability.
According to Gordhan, by March next year action will be taken against jurisdictions that fail to comply with standards for the exchange of tax information.
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- Sake24