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    SARB Publishes NSFR Rules and Proposal on Benchmark Reforms

    January 25, 2023

    The Prudential Authority of the South African Reserve Bank (SARB) issued a directive on the calculation of net stable funding ratio (NSFR) for banks while the Market Practitioners Group (MPG) proposed market conventions for derivative products that will use ZARONIA as an alternative reference rate to Jibar.

    SARB issued the Directive D1/2023 to inform banks about the calibration of the net stable funding ratio (NSFR) and the national discretion exercised in respect of specified items related to the NSFR. This Directive replaces Banks Act Directive 8/2017. NSFR should be calculated in accordance with Regulation 26(14)(d) of the Regulations relating to Banks by dividing the available amount of stable funding by the required amount of stable funding and multiplying it by one hundred. Funding with a residual maturity of less than one year received from non-financial corporate customers, sovereigns, and public-sector entities as well as funding from financial corporate customers with a residual maturity of between six months and one year shall be assigned an ASF factor of 50%. Moreover, an available stable funding (ASF) factor of 0% is assigned to funding with a residual maturity of less than six months from financial corporate customers. The Prudential Authority concluded, in 2017, that it would be appropriate to deviate from the international standard and to assign an ASF factor of 35% to secured and unsecured funding received in Rand (ZAR) from financial corporate customers, excluding banks, with a residual maturity of less than six months. This dispensation was only available for banks conducting business in South Africa. To be fully compliant with the NSFR framework, the Authority has decided to phase out the ASF factor to 30% from June 01, 2023 to December 31, 2023, 20% from January 01, 2024 to 31 December 31, 2024, 10% from January 01, 2025 to December 31, 2027, and 0% from January 01, 2023 onward.

    Additionally, SARB announced that The Market Practitioners Group (MPG) has published a paper that proposes market conventions for derivative products that will use the newly launched South African Rand Overnight Index Average (ZARONIA) as an alternative reference rate to the Johannesburg Interbank Average Rate (Jibar). The transition away from Jibar to an alternative reference rate will have a significant impact on the derivatives market. The gross notional exposure of financial contracts that reference Jibar was estimated to be approximately ZAR 27 trillion as at the end of 2021. Derivative instruments account for the largest portion of the exposure, totaling just under 90% of financial instruments traded in South Africa that reference Jibar. Thus, it is essential that market participants consider the recommendations contained in the white paper and provide their comments to ensure a smooth transition. The recommendations provide a framework for interest rate and cross currency swaps that will reference ZARONIA. Comments on this paper should be submitted by February 20, 2023.


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    Keywords: Middle East and Africa, South Africa, Banking, Basel, Benchmark Reforms, NSFR, Liquidity Risk, Interest Rate Risk, ZARONIA, Jibar, Derivatives, SARB

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