SA comfortable with Basel III rules

This morning the Basel Committee on Banking Supervision - which South Africa is part of - is set to finalise guidelines and capital ratio requirements that banks across the world should have so as to cushion themselves against potential losses.

The new regulations and policies, known as the Basel III reforms, are a response by the Group of 20 leading countries to the financial crisis.

Policymakers are seeking to raise the quality of reserves held by banks to avert another financial meltdown. However, the reception to these amendments has been lukewarm; Germany is concerned that financial institutions will not be able to bear the burden of tougher capital requirements until their countries' economies have fully recovered.

As if to illustrate its concern, on Friday Germany's biggest bank, Deutsche Bank, saw its shares plunge more than 5% on reports that it wants to raise à9-billion in new capital.

Lesetja Kganyago, the director-general of SA's Treasury, was quoted as saying that "issues of financial sector reform are beginning to overshadow the macroeconomic problems we face". He noted, too, that requirements for banks to hold more cash didn't take into account the impact of capital inflows to emerging market economies.

The Basel Committee will decide on a proposal that the minimum Tier 1 capital ratio for financial institutions be 6% and a conservation buffer of 3% for bad times, according to a German newspaper.

Banks would be required to hold 5% common equity and a buffer of 2.5%.

The regulators will finalise how much more capital banks that are "too big to fail" - that is, those financial institutions whose possible failure could pose a severe risk to the global financial system - should hold.

The Group of 20 leaders will meet in November in Seoul to approve the rules.

Basel III standards are tipped to be phased in over a five to 10 years, starting in 2013.

This week deputy finance minister Nhlanhla Nene said SA's financial regulation was on par with the rest of the world.

Speaking at the annual banking summit, Nene said the country's banks would not have a problem meeting new global requirements.

Commenting on the meeting of banking regulators over new banking and liquidity rules, Nene said the Treasury had agreed to implement the proposals, bearing in mind the different national starting points and circumstances.

The treasury "supports the global effort to improve the quality and quantity of capital, and strengthen our banks' liquidity positions, provided this is done in a way that does not derail the economic recovery or our long-term growth prospects", he said.