Is my money safe?
If there’s a run on a local bank, will you lose your deposits? In all likelihood, no, given South Africa’s strong regulatory system, good management and excess capital requirements
With the recent collapse of a number of US banks and concerns once again about Credit Suisse, how safe is money in a South African bank?
First, we don’t have deposit insurance, but we do have it in the works. The Deposit Insurance Scheme planned for the first quarter of 2024 will be limited to R100,000. According to the Reserve Bank, this will cover the 90% of account holders who have less than that limit, and it will pay out within 20 days of a bank collapse.
Until then, we rely on the safety of our banks and the government, which stepped in with R100,000 per individual when VBS Mutual Bank went bust in 2018.
Importantly, our traditional big four banks are safe, and the easiest way to test this is their common equity tier 1 (CET1) ratio. This is a measure of a bank’s capital compared with its total risk-weighted assets.
After the global financial crisis of 2008, the Basel 3 agreement on banking supervision was introduced to make banks safer. South Africa introduced the new regulations in 2013, they came into effect over the following decade, and they are now fully implemented.
The regulations further restricted what qualified in CET1. Locally, CET1 is mostly
cash and highly liquid near-cash assets such as government bonds. (Preference shares no longer count, hence the fading away of the local preference share market from banks.)
Globally, Basel 3 requires commercial banks to maintain a minimum capital ratio of 8%, of which 6% must be CET1.
The big four banks are all well ahead of the global requirements and even their own targets. This data is released with results and announced every quarter on Sens.
Standard Bank’s CET1 ratio is 13.5%, FirstRand’s 13.2%, Absa’s 12.8% and Nedbank’s 14%. So all are well capitalised and considered to be at low risk of collapsing.
I say low risk because there are no certainties in life except death and taxes. But I have money with one of our large banks and I’m neither worried nor rushing to withdraw it.
Of importance is that the Silicon Valley Bank collapse was a classic case of a bank run caused by mismanagement of its assets. We have smart bankers, so this is unlikely to happen here.
The RSA retail savings bonds (which I also hold) are equally safe, as they’re backed by the government. In the worst case, it can print money to repay the debt and, yes, I know what it would do to inflation, but that’s a different worry.
The bottom line is that money deposited with the large local banks is as safe as it can be, backed by a strong regulatory system, good management and excess capital requirements.