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    SARB Proposes NSFR Directive for Banks, Issues Other Updates

    November 29, 2022

    The South African Reserve Bank (SARB) proposed a directive on the calculation of net stable funding ratio (NSFR) for banks, along with the draft prudential standard on the transfer of assets and liabilities of designated institutions in resolution. SARB also issued a document on code of conduct, governance process, and operating rules for contributors of the Johannesburg Interbank Average Rate (JIBAR) and published the financial stability review for May 2022 to November 2022.

    The proposed directive on NSFR amends the regulations dated January 01, 2013 to implement the revised NSFR framework for banks. The proposed directive incorporates various documents issued by the Basel Committee on Banking Supervision (BCBS) related to banks’ exposure to liquidity risk, including revisions to the Basel III framework for the calculation of the minimum required NSFR into the amendments to the regulations. The proposed directive provides information on the calibration of the NSFR and the national discretions exercised in respect of specified items related to the NSFR. The proposed directive applies to all banks, branches of foreign institutions, controlling companies and auditors of banks or controlling companies. The comment period for the proposed directive will end on December 14, 2022.

    The draft prudential standard on resolution rules sets out the principles and requirements for the transfer or creating an interest in the assets and liabilities of designated institutions in resolution; it must be complied with by all designated institutions, in line with sound principles, practices, and processes for the orderly resolution of a designated institution. The draft standard applies to all designated institutions, unless exempted by the Prudential Authority, based on the resolution strategy set by SARB. The Annexes to the draft prudential standard includes the Statement of need, for intended operation and expected impact and the Comments Template. The comment period for the draft prudential standard will end on December 20, 2022.

    The document on JIBAR formalizes a code of conduct and a governance process for the JIBAR in the Republic of South Africa, as well as operating rules for contributor. The Johannesburg Interbank Average Rate (JIBAR) is a money market term reference rate, which is constructed using quoted rates for Negotiable Certificate of Deposits (NCD) by JIBAR-contributing banks. SARB is the administrator of JIBAR and is primarily responsible for all aspects of the determination process and the integrity of the reference rate. The document highlights the importance of transparently determining money market reference rates for the efficient functioning of money markets, the broader capital market, the interest rate derivatives market, and the loan market. The Code of Conduct sets out the qualifying criteria for contributors to serve on the JIBAR panel, the obligations of contributors, and panel exit criteria, while the Governance process outlines the responsibilities of SARB and sets out procedures for dealing with disputes lodged and queries raised relating to the determination of these reference rates. Operating Rules are intended to subject contributors to certain requirements, restrictions and guidelines to create transparency in the process of determining money market reference rates, and to reduce the risk of manipulative market practices.

    The results of the financial stability review reveal that despite an increase in global systemic risk, the domestic financial system continued to be resilient under highly challenging global and domestic conditions. Prudentially regulated domestic financial institutions remained resilient, partly owing to their ability to maintain adequate capital buffers to absorb the impact of shocks. The concerns over global stagflation and the consequent tightening of financial conditions have materialized, while fears of a global recession have continued to grow. The results show that the financial sector’s high level of exposure to government debt continues to pose a risk to domestic financial stability. The increased incidence of state-owned enterprises’ debt being taken over by government exacerbates this vulnerability. This edition of the financial stability review covers an update on the Financial Action Task Force Mutual Evaluations (FATF ME) of South Africa, the financial stability implications of crypto-assets, an overview of the structures and committees that assist the SARB in executing its financial stability mandate, and an overview of the South African Overnight Index Average (ZARONIA).

     

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    Keywords: Middle East and Africa, South Africa, Banking, Basel, NSFR, JIBAR, Governance, Financial Stability Review, Financial Stability, Interest Rate Benchmark, Zaronia, Benchmark Reforms, Liquidity Risk, SARB

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