an address by fundi tshazibana, deputy governor of the south african reserve bank, at the central bank of eswatini, mbabane, 17 november 2023 global shifts and regional spillovers – how are we performing? introduction ladies and gentlemen, thank you for the opportunity to address you today at this event hosted by our colleagues at the central bank of eswatini. the relationships between our respective central banks go back a long way – after all, the common monetary area ( cma ) of southern africa is the oldest existing currency union in the world, dating back to the beginning of the 20th century. the deep economic ties between the economies in the cma, and our pegged exchange rates, underscore a high synchronisation in our economic cycles, especially in responding to the impact from global shocks, trends and spillovers to the african region – a central theme of my talk today. the past three to four years have seen many global shocks, and their ramifications continue to reverberate. in fact, we are still uncertain about the long - term effects these shocks will have on the world economy, trade and capital flows. while the covid - 19 pandemic may no longer be a major health concern, we still face a world of relative price shifts, high inflation, re - organisation of supply chains and increasing geopolitical risks. encouragingly, both the global economy and our regional context have shown some resilience to these shocks. but some effects might come with a lag and complicate the task we, as central banks, face in maintaining price stability and financial stability. these are some of the issues i will try to address today. some encouraging global developments we are all well aware of the inflation surge experienced globally in 2021 and 2022, driven by supply and demand mismatches that emerged as economies reopened in a staggered manner after the covid - 19 - related lockdowns. during this period, advanced economies experienced inflation levels not seen since the early 1980s. to limit the permanent release of the inflation genie out of the bottle, advanced economy central banks had to act decisively by raising rates to levels last seen before the 2008 global financial crisis. 1 in emerging market and developing countries, most central banks had to tighten too, though the degree of the policy response varied considerably based on idiosyncratic factors. the good news is that in the past year or so, inflation rates have declined around the world. however

and are preparing their it systems with the help of external consultants. in terms of regulation, as i already noted, the bank of thailand has begun implementing ias 39 for the impairment of assets or npl since december last year. by june this year, commercial banks have set an additional provision of about 90 billion baht, with their bis ratios remaining comfortably well above the minimum requirement at 14 percent. we at the bot are studying the remaining issues of ias 39 pertaining to supervisory policies and financial impacts on the banking sector. and our policies on components of capital and related reports are scheduled to be prescribed by the end of next year. ladies and gentlemen, implementing basel ii and ifrs has been a challenging experience. for basel ii, the most difficult issue is arguably going to be the application of the principles embedded in pillar 2 where supervisors have the ability to require banks to hold capital in excess of the minimum. since the amount of required capital has a direct impact on business performance, it is therefore quite a challenge for supervisors to be requiring banks to hold different amounts of additional capital. for accounting standards, the most recent challenge is the accounting methods for sophisticated financial products, such as cdo and structured notes, in which differences in financial assets ’ classifications can result in different financial impacts. for example, held - tomaturity classification conceals profit or loss until maturity, while trading classification charges profit or loss to financial statements in every accounting period. the interpretation for a suitable classification relies significantly on the intention of bank management as well as on the judgment of external auditors. the importance of this issue, as we know, has reemerged more demandingly following the sub - prime crisis in the us. another practical challenge in implementing both standards is the use of complex financial models to measure risks in banks ’ portfolio. in order to confidently use the models, there must be sufficient data, appropriate risk measurement techniques, and a rigorous validation process. at present, the most important concern is the lack of data. for example, for credit risk measurement, a certain amount of data on default is required. such data typically are not readily available, and this is also the case here in thailand. in addition to the lack of data, the ias 39 also allows the use of fair value for all financial assets and liabilities, or the fair value option. although this concept is attractive, there are still many concerns from a regulatory point of view. the fair value option may be inappropriately used and may result