The main risk facing Africa - including South Africa - remains a stalling of the global economic recovery, the South African Reserve Bank (SARB) said on Wednesday.

"This could place downward pressure on commodity prices which could also undermine government revenues and raise public debt to unsustainable levels," deputy governor of the SARB Dr Xolile Guma said.

He was speaking at the release of the SARB's Financial Stability Review, March 2010 which focuses mainly on the six month period ending December 2009.

Guma said that in South Africa, economic performance started improving in the third quarter of 2009 and continued at a markedly stronger pace in the fourth quarter, as the economy gradually emerged from its first recession in 17 years.

"Confidence in the financial services sector increased further in the fourth quarter of 2009, boosted mainly by higher levels of confidence among investment managers and life insurers," he said.

According to the SARB, the banking sector continued to maintain levels of capital well above the minimum prudential requirement.

But despite the recovery in real economic activity, bank loans and advances contracted during the period under review.

The contraction in credit extension had both demand and supply side elements, Guma said.

"On the demand side, it would appear that households continued to be reluctant to incur more debt, while on the supply side lending standards have remained tight."

Guma said that although the quality of loans and advances had been deteriorating consistently over the past two years, the pace of deterioration had moderated during the second half of 2009.

"Banking profitability dropped somewhat during the second half, but efficiency has remained fairly stable."

Guma said that the financial strength of long term insurance in South Africa was assessed as being generally sound, based on the capital-adequacy levels.

However, he said other financial soundness indicators for typical long term insurers suggested that this sector "continued to experience some strain".