Featured Product

    SARB Issues Directive to Amend Capital Framework Under Basel III

    August 27, 2020

    SARB published a directive (D4/2020) on the capital framework for South Africa, based on the Basel III framework. This directive covers information on the prescribed minimum capital ratio requirements and the application of various components of the said capital requirements such as the systemic risk capital requirement (Pillar 2A), the domestic systemically important bank (D-SIB) capital requirement, the countercyclical buffer range, and the capital conservation buffer range. Annexure A of the directive contains a table that specifies the minimum capital requirement of a bank, based on the Basel III framework, while Annexure B presents phase-in arrangements for the minimum capital requirements.

    The Pillar 2A capital requirement is currently 0% of risk-weighted exposures for all banks at a total capital level. To assist banks in appropriately managing their capital plans, the Prudential Authority of SARB is notifying banks that the combined total capital adequacy requirement in respect of the Pillar 2A and the higher loss absorbency (HLA) requirement for D-SIBs will not exceed 3.5% of the risk-weighted exposure of a bank. The aggregate requirement will not exceed 2% for common equity tier 1 (CET 1) and 2.5% for tier 1. Furthermore, excluding both bank-specific individual capital requirement (ICR, also known as Pillar 2B), and the countercyclical buffer requirement, the highest minimum total capital adequacy requirement to be met by any bank or banking group conducting business in South Africa receiving the highest possible HLA requirement for a D-SIB will not exceed 14%.

    The Prudential Authority will specify the HLA requirement for each individual bank or banking group identified as a D-SIB. The HLA requirement will accordingly vary between banks identified as D-SIBs. The Prudential Authority has decided to apply a "bucketing approach" when assigning the relevant HLA requirement for D-SIBs. The first 50% of the specified D-SIB capital requirement, up to a maximum of 1% of the risk-weighted exposures of a bank, must be fully met by CET 1 capital and reserve funds while any requirement exceeding the aforementioned requirement may be met by a combination of additional tier 1 and tier 2 capital and reserve funds. Banks should maintain an additional discretionary capital buffer above the specified minimum requirements to ensure that the execution of internal business objectives or the occurrence of adverse external environmental factors do not prevent banks from operating above the relevant minima.

    The Prudential Authority will continue to monitor and assess the adequacy of this internal buffer against a bank’s strategy, risk profile, and levels of capital. To ensure that no confusion exists in the market, banks are required to refrain from disclosing to the public their ICR requirement. Banks are required to publicly disclose their D-SIB capital add-on as part of their composition of regulatory capital disclosure. In the event that the capital-adequacy ratios of a bank fall below the levels set out in Annexure A and Annexure B of the Directive, capital conservation ratios will be imposed, which will limit discretionary payments such as dividend distributions. These limits will be increased as capital levels of a bank approach the specified minimum requirements. Once imposed, capital conservation measures will remain in place until such time as minimum required capital-adequacy ratios have been restored. If a bank wants to make payments in excess of distribution limits, sufficient capital will have to be raised to fully compensate for the excess distribution. 

     

    Related Link: Directive D4/2020

     

    Keywords: Middle East and Africa, South Africa, Banking, Basel, Regulatory Capital, Systemic Risk, D-SIB, Pillar 2, SARB

    Featured Experts
    Related Articles
    News

    US Agencies Issue Regulatory Updates, FDIC Launches Tech Sprint

    The Board of Governors of the Federal Reserve System (FED) published the final rule that amends Regulation I to reduce the quarterly reporting burden for member banks by automating the application process for adjusting their subscriptions to the Federal Reserve Bank capital stock, except in the context of mergers.

    January 13, 2022 WebPage Regulatory News
    News

    EBA Issues Guide on Bank Resolvability, Consults on Transferability

    The European Banking Authority (EBA) published its assessment of risks through the quarterly Risk Dashboard and the results of the Autumn edition of the Risk Assessment Questionnaire (RAQ).

    January 13, 2022 WebPage Regulatory News
    News

    HKMA Extends Repayment for Trade Facilities, Consults on Crypto-Assets

    The Hong Kong Monetary Authority (HKMA) published a circular, along with the reporting form and instructions, for self-assessment, by authorized institutions, of compliance with the Code of Banking Practice 2021.

    January 12, 2022 WebPage Regulatory News
    News

    FCA Registers Securitization Repositories; PRA Issues 2022 Priorities

    The Financial Conduct Authority (FCA) decided to register European DataWarehouse Ltd and SecRep Limited as securitization repositories under the UK Securitization Regulation, with effect from January 17, 2022.

    January 12, 2022 WebPage Regulatory News
    News

    EC Regulation Sets Out Methods for Measuring K-Factors Under IFR

    The European Commission (EC) published the Delegated Regulation 2022/25, which supplements the Investment Firms Regulation (IFR or Regulation 2019/2033) with respect to the regulatory technical standards specifying the methods for measuring the K-factors referred to in Article 15 of the IFR.

    January 11, 2022 WebPage Regulatory News
    News

    BIS Studies How Platform Models Impact Financial Stability & Inclusion

    The Bank of International Settlements (BIS) published a paper that assesses the ways in which platform-based business models can affect financial inclusion, competition, financial stability and consumer protection.

    January 10, 2022 WebPage Regulatory News
    News

    ESAs Publish List of Financial Conglomerates for 2021

    The European Supervisory Authorities (ESAs) published the list of identified financial conglomerates for 2021.

    January 07, 2022 WebPage Regulatory News
    News

    APRA Licenses Two More Banks, Reduces Committed Liquidity Facility

    The Australian Prudential Regulation Authority (APRA) updated the list of authorized deposit-taking institutions, granting license to Barclays Bank PLC and Crédit Agricole Corporate and Investment Bank to operate as foreign authorized deposit-taking institutions under the Banking Act 1959.

    January 07, 2022 WebPage Regulatory News
    News

    EU Issues SII Corrigendum; EIOPA Assesses SII Reporting Exemptions

    EU published, in the Official Journal of the European Union, a corrigendum to the Delegated Regulation 2015/35, which supplements Solvency II Directive (2009/138/EC).

    January 06, 2022 WebPage Regulatory News
    News

    EBA Opines on Impact of De-Risking and Associated AML/CFT Challenges

    The European Banking Authority (EBA) published an Opinion on the scale and impact of de-risking in European Union and the steps that competent authorities should take to tackle unwarranted de-risking.

    January 05, 2022 WebPage Regulatory News
    RESULTS 1 - 10 OF 7860