SA BANKING NEWS
South African
News
Basel III creates opportunity
for innovative project funding
The efforts of South African banks to comply with the Basel III framework
paves the way for innovative solutions for funding long-term infrastructure
projects, according to professional services firm, Deloitte.
‘S
outh African infrastructure projects have
traditionally relied heavily on banks for most of
their financing but, due to the impact of Basel III,
many are going to have to look at a broader range
of funding options as banks find it increasingly
difficult to finance long-term projects,’ says Andre Pottas, Infrastructure
and Capital Projects Leader at Deloitte. ‘Instead of banks funding the
entire 20-year project, we are likely to evolve to a model where they
finance the initial stages of a project,’ he says. ‘The remaining funding
will stem from project bonds or loans sold to institutional investors, such
as pension funds and life companies that have an appetite for long-dated
assets to match their long-dated liabilities.’
The tighter capital requirements of Basel III, along with the new
liquidity standards – the Liquidity Coverage Ratio (LCR) and the net
stable funding ratio (NSF ratios) – means that banks will be required to
match the tenure of their funding with that of their lending. Banks have
until 2015 to comply with the LCR, and until 2018 to meet the NSF ratio.
In other words, if a South African bank wants to fund a 20-year
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infrastructure project, it will need to structure its balance sheet funding
to align with the project tenure to meet the Basel III funding and
liquidity requirements. However, Wayne Savage, Financial Services
Partner at Deloitte, says that South African fund managers, which are
a large source of funding for domestic banks, are typically reluctant to
provide such long-term funding to banks due to the perceived real rate
of return on such investments.
The result is that South African banks are heavily exposed to shorterterm funding of between three and six months as local fund managers
are reluctant to provide capital to banks over a timeframe that may
involve being repaid over 15 to 20 years. This restricts their ability to
invest in other asset classes that may p