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De-risking threatens global financial system - deputy Sarb governor

Johannesburg – De-risking and de-globalisation are becoming common trends as global financial institutions work to recover from the global financial crisis. However, this is fragmenting the global financial system and will impact efforts to create open and integrated structures, said Deputy Reserve Bank governor Daniel Mminele.

Mminele was speaking at the Think Tank 20 (T-20) Africa conference held at the Crowne Plaza Hotel in Rosebank on Wednesday night. He raised points on how de-risking is affecting correspondent banking and the impact of developments in the digital economy on Africa.

“Much of the work in the G-20 has focused on improving the resilience of the financial system. The global financial system is stronger and safer now than before the global financial frisis,” said Mminele.

However, Mminele said that some of the reforms in place have led to consequences. Among these is de-risking behaviour by banking institutions towards emerging market and development economies. De-risking involves the withdrawal of activities to prevent financial loss.

This has seen a decline in correspondent banking services on the African continent, particularly in northern and southern Africa, said Mminele.

The International Monetary Fund (IMF) also identified withdrawals in countries such as Angola, Guinea and Liberia. “Some international banks have either restricted or exited correspondent banking relations,” he explained.

He said efforts by regulators, national authorities and institutions like the T-20 are needed to lessen financial exclusions such as this.

“Markets in all jurisdictions must have access to a well-functioning global financial system in order to develop and prosper,” he said.

“On the other hand, this trend poses an opportunity for Pan-African banks to fill the gap in services left by European and US banks,” he added. 

READ: Globalisation facing growing pushback - deputy Sarb governor

Other areas of potential include developments in the digital economy.

“Africa in particular shows enormous potential in this area as the broader population gains increasingly more access to the internet,” said Mminele.

Referencing the G-20 High-Level Principles for Digital Financial Inclusion released last year, Mminele explained that digital finance promotes financial inclusion.

He added that the Fourth Industrial Revolution and developments in digital finance hold huge potential for job creation, and promote small business development in emerging market and developing economies.

Mminele said financial technology needs an enabling policy environment.

“We need harmonised rules and consistency among regulators and central banks, both domestically and internationally, and a level playing field between existing regulated entities and new financial technology firms competing for the same business.”

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