SOUTH AFRICAN RESERVE BANK BANK SUPERVISION DEPARTMENT ANNUAL REPORT1997 Issued by Authority MISSION TO PROMOTE THE SOUNDNESS OF BANKS THROUGH THE EFFECTIVE APPLICATION OF INTERNATIONAL REGULATORY AND SUPERVISORY STANDARDS PHILOSOPHYMarket principles underlie all activities and decisions, and we strive to project an image of professionalism, integrity, credibility and impartiality at all times. We subscribe to a service-oriented approach, which entails accessibility and integrity, and a high premium is placed on ethical behaviour at all levels of activity. A relationship of mutual trust between this Department and all other key players is regarded as essential and is built up through regular open communication. ROLE OF BANKING SUPERVISIONIn view of the current financial market turmoil emanating from South-East Asia, it is deemed useful to highlight the role of banking supervision in the economy of a country: "Effective supervision of banking institutions is an essential component of a strong economic environment in that the banking system plays a central role in making payments and mobilising and distributing savings. The task of supervision is to ensure that banks operate in a safe and sound manner and that they hold capital and reserves sufficient to support the risks that arise in their business. Strong and effective banking supervision provides a public good that may not be fully provided in the marketplace and, along with effective macroeconomic policy, is critical to financial stability in any country. While the cost of banking supervision is indeed high, the cost of poor supervision has proved to be even higher." Core principles for effective banking supervision. In: Compendium of documents produced by the Basle Committee on Banking Supervision - Volume one: Basic supervis-ory methods, Basle: Bank for International Settlements, April 1997, p. 24. SOUTH AFRICAN RESERVE BANK BANK SUPERVISION DEPARTMENT Annual report for the calendar year ended 1997-12-31 in terms of section 10 of the Banks Act, 1990, and section 8 of the Mutual Banks Act, 1993 The purpose of this report is to present an overview of the objectives and activities of the Bank Supervision Department of the South African Reserve Bank, with particular reference to the period 1997-01-01 to 1997-12-31.