A number of banks have failed in South Africa over the last few years. In 2002 Saambou was placed under curatorship. In 2014 African Bank nearly collapsed and needed more than R8 billion to survive. Recently VBS Mutual Bank was also placed under curatorship by the South African Reserve Bank (“SARB”).
Banks in South Africa are heavily regulated by legislation. The SARB is responsible for the overall stability and managing of the banking sector in South Africa, together with two regulatory bodies, namely the Prudential Authority and the Financial Sector Conduct Authority.
The different functions or services provided by a bank are subject to different laws and regulations.
Only banks as defined in the Banks Act may take deposits from the general public. The SARB implemented amended regulations in 2013, which are contained in the Banks Act. In terms of these regulations, banks are obliged to ensure it has sufficient reserves or equity in line with the prescribed minimum requirements to fulfil its obligations to depositors.
South Africa currently has no deposit insurance scheme in place, however the SARB is reviewing this position. South Africa is currently the only G20 country without deposit insurance in place. Deposit insurance is insurance to protect a depositor’s money kept in a bank, should that bank fail to meet its obligations.
Currently, if a bank has liquidity issues in South Africa, the SARB will step in and place the bank under curatorship. As soon as there are any concerns for a bank’s financial viability, the SARB will step in. This was the case with African Bank and VBS recently.
The South African Government does not guarantee deposits in bank accounts. The Government therefore has no obligation to step in and pay depositors out if a bank fails. In the past the Government, SARB and other banks have stepped in to save the banks from failing.
In the future the SARB and Government will most likely implement a deposit insurance scheme to protect depositors. There are proposals to guarantee at least R100 000.00 per depositor with the insurance scheme.
Until such an insurance scheme is implemented, the Government will decide on a case-to-case basis whether or not it will step in when a bank fails.
It is up to the SARB to attempt to prevent banks from failing through regulations. In the current economic climate, especially with the coronavirus causing havoc, the Government will do everything in their power to protect the economy and prevent banks from going under. Luckily there are strict regulations that require banks to keep certain reserves to protect the banks and depositors in difficult financial times.