As capital preservation represents one of the main pillars of the reserves management policy of the Bank, various steps have been taken to protect South Africa’s reserves from the instability and volatility experienced in these markets. Accordingly, counterparty risks, exposure to specific asset classes and the overall duration of the reserves portfolio were reduced, and the Bank’s conservative investment guidelines were tightened further.
However, the demise of Lehman Brothers, in particular, gave rise to a series of downgrades in the credit ratings of financial institutions and investment instruments, which resulted in mark-to-market declines or unrealised losses in the value of some of the instruments on the balance sheet of the Bank. A comprehensive review of the external fund management programme was conducted during the year under review.