The creation of a liquidity pool which South African banks can tap to meet the global industry’s new Basel III regulatory requirements relieves the pressure for a credit rating downgrade when the new laws come into effect, Moody’s said on Wednesday.
The central bank has told lenders in Africa’s biggest economy that it has approved the creation of a Committed Liquidity Facility after quantitative impact studies on seven banks showed some had inadequate cash at hand to cover outflows in a stress scenario.
“I wouldn’t say it will change the outlook but it diminishes the risks of possible pressure on the ratings because of the liquidity requirements coming in,”
Moody’s senior analyst Nondas Nicolaides told Reuters.
Earlier this year Moody’s downgraded by a notch the credit rating of five South Africa banks – Standard, FirstRand , Absa, Nedbank and Investec, citing constrained public finances and a measure of the government’s ability to support multiple institutions needing financial help at the same time.
Analysts say South African banks are well capitalised and sound and are unlikely to require systemic support.
The Basel III regulations that are still under discussion are meant to protect taxpayers from having to bail out banking institutions in the event of another financial crisis.
Before the Committed Liquidity Facility came in the system’s liquidity coverage ratio (LCR) of liquid assets held as a percentage of a bank’s net cash outflows over a 30-day period was around 65-68 percent, compared with the 100 percent requirement under a stress scenario of Basel III, Nicolaides said.
The LCR, for which the central bank created a fund, will come into effect in 2015.
“Banks are unlikely to tap this liquidity line at this stage because there is no immediate need and the LCR is still not effective. There is quite a lot of liquidity in the system at the moment,”
Article courtesy of Reuters: Reporting by Helen Nyambura-Mwaura; Editing by Greg Mahlich