Basel IV - South African Banking Implementation Report 2024

Basel IV, officially known as the Basel III Reforms, as well as the Fundamental Review of the Trading Book Framework (FRTB), finalised and released in 2017 and 2019 respectively, have been a key regulatory imperative for several years now, impacting the entire international banking industry.

The main objective of this suite of regulations is to restore credibility in the calculation of risk weighted assets (RWAs) and to improve the comparability of banks’ capital ratios by the Basel Committee on Banking Supervision (BCBS). While essential, Basel IV has required a substantial implementation effort from the banking industry. Furthermore, quantitative forecasts of the regulatory capital impacts have been contentious among banks across the globe.

With South African banks nearing the final 12 months of implementation (1 July 2025), Monocle conducted a comprehensive Basel IV implementation and regulatory capital impact survey across the South African banking industry.

 

The term “Basel IV” will be used throughout the report to refer to both the Basel III Reforms and FRTB framework.

Key Findings

 

 

 

However, respondent banks still face multiple challenges, including incomplete data and poor data quality, uncertainty stemming from outstanding requirements from the SARB, and ensuring operating model embedment.

 

At a risk area level, 78% of respondents found Basel IV to have a minimal or decreased impact on regulatory capital charges. This is partly explained by the industry’s consistent approach to proactively mitigating capital impacts, with most banks focusing on engagement with the regulator on critical issues, together with various other methods to ensure capital efficiencies.

While most bank respondents indicated that they believe Basel IV will improve the risk resilience of the industry, there were various disparate views as to whether it will hinder South African banks’ capacity to effectively finance their customers and clients. However, this issue requires additional long-term research to provide definitive findings.

Deadlines

Survey Results

About the Survey

 

Monocle’s 2024 Basel IV Implementation Report was developed through the use of a comprehensive survey with the aim to gauge the progress of Basel IV implementations in South African banks and to provide critical indications of the related regulatory capital impacts.

The survey targeted senior bank risk stakeholders across all affected risk types in South Africa – including credit, credit valuation adjustment, operational, leverage and market risk – as well as implementation leads responsible for Basel IV implementation. The consolidated responses cover around 82% of all South Africa banking sector assets and approximately 80% of Tier 1 capital.

Results were collected throughout March, April and May 2024 and are reported at an industry level, unless otherwise stated.

Implementation Progress

 

The majority of respondents confirmed that their respective bank’s implementation of Basel IV had so far progressed largely as expected, despite encountering a variety of challenges throughout. Unsurprisingly, none of the bank respondents reported serious difficulties in implementation.

This is in part due to the various implementation extensions afforded to the industry – culminating in an additional 3.5 years being granted on the BCBS’s original 1 January 2022 implementation deadline – which have allowed banks additional time to ensure compliance. Recent extensions from the SARB were attributed to the Covid-19 pandemic, as well as international implementation date divergences.

 

 

 

 

Respondents were also confident in their respective bank’s ability to achieve the updated implementation deadline of 1 July 2025, as set by the SARB, with 78% of respondents regarding this deadline as achievable (without tactical solutions). This is encouraging for the industry and for regulators as long-term regulatory initiatives often lead to stakeholder fatigue due to continuous replanning and rescheduling, ultimately undermining the efficacy of industry-wide reforms.

67% of respondents indicated that they would continue to refine, automate and enhance their Basel IV capabilities post implementation.

 

 

 

 

However, bank respondents consistently highlighted several lingering challenges that would be faced over the next 12 months relating to data, outstanding regulatory requirements, operating model embedment, and change management.

 

 

 

 

Data challenges such as poor data quality or missing data requirements were most commonly cited among respondents (78%). This is particularly significant for data from banks’ African subsidiaries. Globally, banks have raised data management and complexity as their biggest concern. [1] Additionally, capital calculations will fluctuate as data becomes available and quality improves, leading to potentially significant capital adjustments.

Another major concern raised by respondents revolved around outstanding regulatory requirements. These include finalised FRTB reporting templates, various technical and reporting queries raised with the SARB, integration with Project Umoja—the SARB’s new digital reporting platform—and go-live readiness requirements.

 

Regulatory Capital Impacts

 

The anticipated inflation of regulatory capital requirements due to the Basel IV has been a prominent issue globally. In a South African context, bank respondents noted that their risk area’s capital charge impacts tended towards a minimal/decreased impact. However, it is important to note that the distribution of responses was wide-ranging and included indications of both significant capital increases and decreases.

 

 

While banks are primarily focused on compliance, the industry has been proactive in capturing incremental capital efficiencies throughout implementation of Basel IV. When asked to rate their risk area’s effort to mitigate capital impacts on a scale of 0 (no mitigation) to 10 (proactive mitigation), the average response was 6.8.

Beyond Basel IV

 

Much has been said regarding Basel IV’s possible negative impact on bank competitiveness and, ultimately, the supply of funding to the economies in which these institutions operate. In the United States, the push back against “the Basel Endgame” has been particularly fierce with Jamie Dimon, CEO of JPMorgan Chase, warning that US banks could become “uninvestable”.

 

1. S&P Global, The Road to Basel IV (2022)

2. SARB, The Impact of Basel III Implementation on bank lending in South Africa (2024)

 

Reaching Compliance with Monocle

 

With the implementation of Basel IV reaching the final stretch, banks must ensure that their journey to compliance across all processes and models is nearing completion, considering parallel runs, operational embedment, and golive
reporting submissions to the SARB.

With experience in regulatory risk management dating back to Basel II, Monocle is actively involved with our banking clients to improve RWA accuracy through projects related to data process design and development, as well as collateral management process and system enhancements.

As integration with the Project Umoja platform and new Basel IV-related reporting templates become increasingly pertinent in the coming months, Monocle is ready to assist the industry in meeting its reporting compliance requirements and driving compliance across the Basel IV data life cycle.