, the financial sector regulation act was enacted in august last year, and the prudential authority was officially established within the sarb on 1 april 2018. this involved the transfer of a number of employees from the former financial services board, particularly those tasked with the regulation of the insurance industry. this responsibility now resides in the sarb and adds to the longstanding role that the sarb has played in regulating and supervising the banking sector. the amalgamation facilitates the sarb ’ s role in maintaining, promoting and enhancing financial stability in the country, at both the macro - and the microprudential levels. in general, the banking system remains sound and well capitalised and there were no significant financial stability risks during the past year. nevertheless, there were a number of highly publicised events that were not assessed to be systemic in nature, but which do hold important lessons for all of us. in particular, they have underlined the importance of having a strong and ethical auditing profession as an integral component of maintaining financial stability. page - 5 - of 9 in march 2018, having observed signs of a severe liquidity crisis, the sarb placed vbs mutual bank under curatorship with the aim of protecting the interests of depositors. subsequent to this step, the sarb instituted a forensic investigation into possible fraud and / or material misstatements. financial statements are currently being restated, and until they are, we will not know the full extent of the problem. any evidence of wrongdoing will be handed over to the relevant law enforcement agencies. given the size of vbs mutual bank and its limited interconnectedness with the rest of the financial sector, it is not assessed to pose a systemic risk. nevertheless, it did create hardship and anxiety for the thousands of retail depositors who stood to lose their life savings. fortunately, most of these deposits are now guaranteed by the national treasury, although the corporate and municipal deposits are not. on 9 july, the sarb announced a mechanism to repay retail depositors up to r100 000 of their deposits in the troubled bank. some criticism has been levelled at the sarb for not picking up evidence of fraud and / or wrongdoing at vbs mutual bank earlier. it is not the role of the regulator to run the bank. the regulator ’ s role is to protect the depositors of the bank, not the shareholders, and to ensure that the bank adheres to its prescribed prudential requirements. the governance of the bank

and downside growth risks. bis central bankers ’ speeches apart from international factors, growth risks stem from relatively weak business and consumer confidence, which have impacted on private sector real gross fixed capital formation, and have also moderated household consumption expenditure, the latter also being constrained by subdued employment growth, and higher costs for electricity and fuel, and relatively high debt levels. an additional risk would be possible disruptions from strike action as part of the current wage negotiations in various sectors. recent data releases and base effects suggest a better performance in the second quarter of 2013 when compared to the growth rate of 0. 9 % in first quarter, but much will depend on the performance in the subsequent quarters to improve an outlook that currently exhibits downside risks. risks to the inflation outlook present themselves mainly through a more depreciated exchange rate of the rand, especially if such depreciation occurs very rapidly and is sustained, and possible inflationary pressures arising from excessively high wage settlements, and from higher food prices. demand driven pressures continue to be relatively low, and the pass through from the exchange rate depreciation at this stage appears somewhat weaker than observed previously during periods of exchange rate depreciation. as regards the exchange rate, the fact that south africa has a current account deficit and is reliant on portfolio flows has meant that the impact of global risk aversion has been somewhat more severe on south africa than other emerging market countries, coupled with the fact that our markets tend to be more liquid and deeper than other emerging markets. however, while depreciation in the rand exchange rate poses inflationary threats, it could also improve south africa ’ s outlook if it results in greater competitiveness of south africa ’ s exports and an improvement in the terms of trade and current account deficit. this presupposes that the benefits arising from and exchange depreciation can be locked - in and such weakness does not translate into higher wages not matched by productivity gains, and thus higher inflation. for now, the bank deemed it prudent to keep policy unchanged, but depending on unfolding events in the global and domestic environment, the bank stands ready, as always, to act in whichever manner is deemed prudent, in line with its mandate, to ensure that inflation does not breach the upper end of the inflation band on a sustained basis, and results in a deterioration of inflation expectations. let me finish by wishing you all the very best as you try to navigate these very difficult times. these are