South Africa’s central bank will seek backing from other members of the Basel Committee on Banking Supervision to ensure corporate debt can be classified as highly liquid when its rating exceeds that of the sovereign.
“We’re looking for a consensus that assets in our market with a good rating will qualify as highly liquid assets,” Rene van Wyk, who represents South Africa’s central bank on the Basel committee, said in a presentation in Pretoria today.
That, for example, would mean that a higher-rated Anglo American Plc (AAL) bond won’t be discounted by South Africa’s lower risk ceiling, said Van Wyk, who will attend the next Basel meeting starting on June 19 in Stockholm. That qualification may boost the country’s bond market, he said.
The Basel committee aims to revise the December 2010 draft of the so-called liquidity coverage ratio this year as part of a regulatory overhaul intended to avoid a repeat of the collapse of Lehman Brothers Holdings Inc. in 2008. The group is weighing changes to a list of easy-to-sell assets, which banks must hold to survive a 30-day credit squeeze. The committee also wants to ensure banks can run down their liquidity coverage ratio buffers during times of market stress.
Countries helping to draw up the Basel III rules have been asked to propose national solutions.
The bank bailout facility proposed by South Africa, which has a sovereign rating of BBB+ from Standard & Poor’s, may be unnecessary should corporate debt be counted as highly liquid, Van Wyk said. The size of the proposed facility would depend on the size of the default, he said.
While Basel III also sets out minimum requirements for how much capital banks should hold against deposits, different countries can also propose their own rules.
South African lenders should have a minimum common equity capital adequacy ratio of 7.1 percent by 2016 and 9 percent by 2019, higher than Basel III’s 7 percent requirement, according to charts released by the central bank today. Total tier 1 capital, along with a so-called conservation buffer, should reach 8.6 percent by 2016 and 10.5 percent by 2019, while the total capital adequacy ratio should be 10.6 percent by 2016 and 12.5 percent by 2019.
South African banks already exceed these targets, which also go beyond Basel III, Van Wyk said.
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