The impact of Basel III compliance on South African banks
Date
2015-05-27
Authors
Malotana, Joana Hlaphogadi
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Abstract
This research examined the impact of compliance and implementation of Basel lll global banking regulation on South African banks. As the centrepiece for capital regulation, to avoid crises the Basel approach has failed in its 1st and 2nd formulations. Today the world is still dealing with the after effects of the greatest financial crisis since the Great Depression of 1931.
The Basel Committee on Banking Supervision (BCBS) reformed the regulatory package from Basel l and Basel II. These were sets of regulatory rules designed to stop banks from taking on excess risk and thereby potentially damaging the real economy. Both these accords have now been replaced by Basel III, which is a series of amendments to the existing Basel II Accord. The new accord introduces two new liquidity standards and it also requires banks to hold more capital against their assets, with the objective for more liquidity of assets and stable funding. The phased implementation of Basel lll Accord has been scheduled globally over the next seven years, from January 2013 until December 2019.
This research focuses on examining the potential impact of Basel lll compliance on South African Banks. The investigation was undertaken by: firstly finding out whether South African banks are currently meeting Basel lll targets; secondly, by investigating the perceived impact of compliance on the banks; and thirdly, investigating the potential implementation.
Quantitative calculations were set up and carried out to compute Basel lll output ratios. In order to understand the challenges and possible strategies that banks may use to mitigate potential negative impacts, a further qualitative study was carried out in the form of interviews with Capital and Credit Risk Managers dealing with Basel lll implementation within the selected banks. The BCBS have been attempting a analogous quantitative impact study since June 2011, at the time of this study they had only managed to obtain responses from only three out of the four banks that responded to this research.
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The research findings favoured preferences of more banking regulation in the financial services industry. The data collected in both the qualitative and quantitative studies indicated that South African banks have partially adopted the capital aspects of Basel lll and not the liquidity aspects. Banks chose early implementation mainly due to investor pressures and regulatory compliance. The findings indicated that, through this new regulation, South African bank managers will face the challenge of minimising the cost of capital and liquidity and maximising earnings. The research found that South African banks will have to face up to a host of operational and funding challenges, to be able to meet the full Basel lll requirements by 2019.
The study concludes that the ultimate responsibility will rest on bank managers that have to implement these regulatory changes. Knowledge gained from this study will enable the Capital and Liquidity Risk Bank Managers in South Africa to adequately respond to Basel lll requirements and implementations.
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Keywords
Basel III (2010) ;Banks and banking -- South Africa.