Basel III may be incompatible with S.Africa


“From a liquidity point of view we have raised concerns because the mismatch between deposits that banks pull in and, banks in South Africa, the way the financial system is structured, don’t have access to too much long-term funding,” Coovadia, the managing director at the Banking Association of South Africa, told CNBC Africa on Monday.  

“We’ve been working very closely with the banking registrar on Basel III. We have consistently indicated that, while from a capital point of view, our banks are well capitalised but depending on what sort of buffers are needed, we need to keep an eye on that.”

Basel III, an international regulatory framework, is aimed at strengthening regulation, supervision and risk management in the banking sector.

“I think the Basel focus has gone broader, issues around liquidity and long-term funding and then the SIFI has been brought into the equation. The regulators are trying to make the global banking system safer and more comfortable for the man in the street,” stated David Danilowitz, a banking analyst at Nedbank Capital.

Systematically Important Financial Institutions (SIFIs) are institutions whose eventual default may pose systemic risks to the economy. The Basel III framework indicates that SIFIs may be subject to enhanced capital requirements.

“The regulators internationally are trying to dis-incentivise the banks to be getting into these more risky types of business lines. South African banks were much more conservative in how they were regulated. So the question is to what degree do we need to be subject to what dynamics get put into the international regulatory table,” added Danilowitz.

Coovadia suggested that the requirements for Basel III would need to be phased in over a period of time and that there are still a number of issues that need to be addressed on the African continent.

“Some countries do have infrastructure challenges particularly telecommunications, which is important for the banking sector. I think there are a number of issues, regulatory and infrastructure in particular, that we are sensitive to and where we can assist other jurisdictions with experience gains in South Africa.”