On Dec. 11, RSA CB detailed new positive cycle-neutral capital buffer.
RSA CB issued Directive D6-2024 on details of the introduction of a new positive cycle-neutral countercyclical capital buffer (PCN CCyB) within South Africa, applicable 2026.
Directive Summary
The new Directive had been issued in terms of section 6(6) of Banks Act 94 of 1990.
The Regulations relating to Banks (Regulations) set out, among other things, all of the prescribed minimum requirements related to the use of a countercyclical capital buffer.
It directs banks, controlling companies and branches of foreign institutions (banks) to maintain positive cycle-neutral countercyclical capital buffer of 1% from Jan. 1, 2026.
Basel had issued a document entitled Risk-based capital requirements, RBC30, Buffers above the regulatory minimum, as an integral part of current Basel capital framework.
Paragraphs RBC30.6 to RBC30.23 of this document set out, among other things, the countercyclical capital buffer (CCyB) requirement, and were included in RSA regulation.
Directive 5 of 2021 sets out the components of the required total minimum regulatory capital, including defining a minimum requirement sum for each relevant component.
During Covid-19 period, the Prudential Authority (PA) temporarily reduced a minimum Pillar 2A capital requirement to zero, as South Africa’s CCyB was set to zero at time.
However, the objectives of the Pillar 2A minimum requirement can differ fundamentally from that of the CCyB, and various economic circumstances in RSA now are all in line.
The PA, together with the RSA CB have, therefore agreed to implement a new positive cycle-neutral countercyclical capital buffer (PCN CCyB) in South Africa to control risks.
Implementation
The introduction of the new PCN CCyB shall now have a 12-month implementation lead time, which will commence on Jan. 1, 2025 and will then be ending on Dec. 31, 2025.
Next Steps
An acknowledgement of the receipt of the Directive, on the form provided, is required.
Effectiveness
The Directive becomes effective on Jan. 1, 2025, with buffer in place on Jan. 1, 2026.
