The impact of Basel III on bank balance sheet structure in South Africa

Abstract

The global financial crisis cost the world economy an estimated 17 trillion dollars. (Wiese, 2012). This crisis was partly due to banks inability to have the required liquidity on hand to meet their necessary obligations. The Bank of International Settlements (BIS) released Basel III requirements in 2010 to mitigate the risk of the liquidity problems that banking sectors experienced during the 2007-2008 financial crisis, happening again. This research seeks to understand the impact of one aspect of the Basel III regulation, namely the Liquidity Coverage Ratio (LCR), on the South African (SA) banking sectors balance sheet structure. This research aims to ascertain whether there has been a significant reduction in credit extension in the SA economy, whether there has been a significant increase in the maturity term structure of bank liabilities from asset managers and whether the type of depositor that banks seek to attract has significantly changed in line with previous research done in the US, UK and the EU. The research follows a case study methodology which analyses the SA banking sector as a single case. Monthly, publically available data was sourced from the SA Reserve Bank and the testing of the hypotheses was carried out using an Autoregressive Integrated Moving Average Approach (ARIMA). The results show that the implementation of the LCR has not had a significant impact on credit extension in the SA economy. The SA banking sectors reliance on funding from asset managers did reduce, however, not significantly as a result of the regulations. The proportion of medium and long term funding that bank receive from asset managers decreased contradicting the literature on the subject