The outlook for financial stability in South Africa has improved following successful elections, reduced power cuts, and the expectation of lower interest rates, the central bank said on Thursday.

The coalition government formed in June after the governing African National Congress lost its parliamentary majority for the first time in 30 years has markedly improved investor sentiment.

The rand has strengthened against the U.S. dollar and remains the only emerging market currency to have done so this year.

South Africa has also had eight months of uninterrupted power supply, after years of rolling blackouts of up to 10 hours a day.

The South African Reserve Bank (SARB) is also well into its rate cutting cycle, reducing its main lending rate by another 25 basis points to 7.75% earlier this month, with analysts forecasting more cuts from next year.

In the second edition of its Financial Stability Review (FSR), a biannual health check of the financial system, the central bank said risks remained, many of them structural.

"The perpetual risks to financial stability include persistently low and inequitable domestic economic growth, the impact of climate change on the financial sector and the ever-present threat of a cyber incident with systemic impact," it said.

In addition, ratings agencies have kept South Africa at sub-investment grade for years, although a recent upward revision of the outlook by S&P Global has boosted confidence.

To bolster the long term stability of the financial sector, the SARB is requiring banks to build up additional capital buffers from January 2025.

Banks will have to increase their capital holdings by 1%, with the central bank able to tap these funds in periods of stress.

(Reporting by Kopano Gumbi Editing by Mark Potter)