. in comparison to other emerging - market economies, the south african banking sector proved remarkably resilient during the global financial turmoil. banks were able to weather this storm better than some of their counterparts in other countries because of good management, strict legislative requirements, low international credit exposures and diligent risk management. the level of the net external liabilities of banks is low, in other words their exposures to exchange rate risks are minimal. in addition, our banks eased the increased burden of high interest rates on borrowers by extending the repayment period. the non - performing loans of banks nevertheless increased by more than r8. 2 billion over one year to r27. 4 billion at the end of june 1999, but the gross overdues of banks as a percentage of total loans and advances amounted to only 4. 7 % on this date ; a level which is still low enough not to be of concern. many of the banks have in any case also increased their provisions for bad and doubtful debts, which amounted to 2. 7 % of loans and advances at the end of june 1999. the banks in south africa are well capitalised. the average risk - weighted capital - adequacy ratio for the system as a whole reached 11. 6 % at the end of june 1999, compared with the required minimum ratio of 8 % stipulated by the basel core principles. moreover, more than half of the banks had a capital - adequacy ratio of 15 % or better. the disruptions internationally did not materially affect the profitability of banks, and their return on equity reached approximately 15 % at the end of june 1999. cost control and an expansion of the business of banks into new areas helped to sustain profit levels. banks have successfully developed alternative non - interest - bearing sources of income, and transaction - based fee income and investment income now represent nearly half of their net revenues. the return to financial stability the way in which the banking sector coped with the international financial crisis, together with a prudent monetary policy approach, were important factors that contributed to a relatively quick return to financial stability in south africa. by the fourth quarter of 1998 there were signs that the storm was abating. the strain on the south african situation slackened so much in the last part of 1998 that the exchange rate of the rand against the united states dollar eased from about r6. 66 on 28 august 1998 to r5. 70 early in january 1999. domestic interest rates declined by

, treating customers fairly means : bis central bankers ’ speeches • pay due regard to the interests and needs of customers. • do not engage in unfair business practices. • be transparent, and fully disclose all risks and rewards. • solve eventual problems in a timely and effective manner. in the context of the twin peaks proposal, the expectation is that customers ’ interests should be at the heart of how firms in the banking and broader financial sector do business. customers should expect to obtain financial products and services which meet their needs from firms that they can trust. meeting their reasonable and fair expectations should be the responsibility of firms, not of the regulators, whose role should rather be to create a conducive regulatory environment and, through their supervisory activities, encourage good conduct. it is important to emphasise that the proposed twin peaks reforms are not an adverse judgement on the country ’ s current regulatory architecture. rather, they are aimed at making continuous improvements to the regulatory framework which helped the domestic financial sector weather the storm of the global financial crisis better than many other countries. the twin peaks reforms answer the following question : “ how can we do better in what we are already doing very well? ” the financial sector regulation bill provides for a broad mandate and scope for the fsca to ensure improved market conduct outcomes in the south african financial sector. this mandate includes powers to issue conduct standards for product design, marketing, distribution, and disclosure. it also places an important onus on governance arrangements within financial institutions in order to ensure that such arrangements deliver on expected market conduct outcomes in support of the objectives of the fsca. clearly, organisational culture is at the heart of improved market conduct outcomes for financial institutions, as it is ‘ the tone from the top ’, so to speak, that has the greatest impact on how a financial institution treats its customers, contributes to financial integrity, and ensures market efficiency. furthermore, the culture and approach to risk taking, particularly for material risk takers in regulated institutions, are a critical consideration from both a prudential and a market conduct perspective. the financial stability board has done much work in this area, specifically on the development of remuneration principles, malus and clawbacks for material risk takers. south africa, as a member of the financial stability board, subscribes fully to these principles. as such, both twin peaks authorities envisage having powers aimed at influencing the governance arrangements in regulated entities in order to ensure adequate risk outcomes from both a soundness and