SA seeks debt clarity under Basel 3 terms

Chief among these is how to alleviate the so-called liquidity coverage ratio gap that SA's banks have to fulfil as part of Basel 3 liquidity requirements.

The liquidity coverage ratio was formed to ensure that banks hold sufficient liquid assets like cash or bonds that cover all net cash outflows under a stress scenario for 30 days. In simple terms, this is to ensure that if a bank were to experience a shortfall in cash due to withdrawals by depositors, it could withstand this without recourse to a bail-out.

Tests on seven banking groups in SA show that as a collective they meet about 67% of the requirements, representing a shortfall in recognised high-quality liquid assets used to meet the liquidity funding gap of about R200bn.

The Reserve Bank has, however, announced a committed liquidity facility that can cover the shortfall should there be a crisis. This would not be funded through public or taxpayer money. Banks that require the facility will pay a fee for its potential future use and will be required to place collateral for the amount borrowed.

South African banks have been largely dependent on volatile wholesale and short-term funding to finance long-term business.

Seeking greater clarity

However, in a bid to push for more liquidity, the Bank wants clarity from the Basel committee on whether corporate debt in SA qualifies under the Basel requirements. The concern is that globally, the rating of SA's corporate bonds cannot exceed the rating of sovereign debt when measured on an international rating scale.

The sovereign debt rating in SA is BBB+ and the minimum rating recognised is AA-. This means that even if a corporate bond was rated AA+ it would not be recognised as it cannot exceed that of the sovereign rating.

"We want the Basel committee to allow us to recognise more local liquid assets because we are not keen for banks going for foreign rated bonds," Mr van Wyk said. This would help minimise risks to the currency that could come with more money being invested, or borrowed from abroad.

Overall, SA's banking system was sound, well governed and continuing to grow its assets, Nkosana Mashiya, a deputy registrar at the Reserve Bank, said.

Total banking sector assets increased 9% to R3,4tr as at last December, he said. This was driven by the rise in gross loans and advances in the last two quarters of last year.

Gross loans grew 8,8% to R2,6tr in the same period. Impaired advances fell R20bn from a peak of R138bn in October 2010 to R118bn last December, due to stricter lending criteria, active credit risk management processes and increased write-offs.

Source: Business Day via I-Net Bridge