The SARB’s common scenario stress test (CSST) of the banking system is conducted every two years and covers banks that are designated as systemically important financial institutions (SIFIs). The tests estimate potential losses and capital shortfalls in the banking sector resulting from severe and plausible scenarios over a three-year horizon.
The CSST is conducted on bottom-up (BU) and top-down (TD) bases and include sensitivity analyses intended to assess the effects of specific risk factors that might adversely affect the solvency position or liquidity profile of a financial institution. Participating banks receive the scenarios to conduct BU stress tests based on their internal models, while the SARB simultaneously conducts a TD stress test to validate and benchmark the results from each bank. Both approaches are designed to assess the effect of the scenarios on the solvency position (including, credit risk, market risk and interest rate risk in the banking book) and the liquidity profile of the South African banking sector. For each scenario, new capital and liquidity ratios are calculated and compared to their minimum prudential regulatory requirements. Individual bank results are not published, although sector-wide results are published in the SARB’s Financial Stability Review. The most recent exercise was conducted in 2023 and results indicated that banks are adequately capitalised and able to withstand the protracted economic disruptions contained in the adverse scenarios. For a more detailed discussion of the 2023 CSST see Financial Stability Review - Second edition 2023.
After conducting an exploratory sensitivity stress test of the South African insurance industry in 2020/21, the SARB conducted the inaugural bottom-up insurance common scenario stress test (ICSST) in 2023/24. The ICSST exercise, developed in consultation with the industry, required insurers to assess their resilience against a set of severe but plausible macroeconomic scenarios, in addition to a selection of sensitivity shocks. The exercise included a selection of the largest life and non-life insurers and was conducted on a solo-entity level. For a more detailed discussion of the 2023/24 ICSST see Financial Stability Review - First edition 2024.
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