South Africa to Boost Lender Collateral Amid Harder Rules

Strate Ltd., South Africa’s central securities depository, will offer counterparties technology to boost collateral management in capital markets ahead of next year’s stricter Basel III rules on liquidity.

South Africa’s banks will by January need to have more saleable assets on their balance sheets to comply with Basel’s 2015 liquidity coverage ratio targets. The liquidity coverage ratio is a measure which requires lenders to have enough cash and liquid assets, such as sovereign debt, to survive a 30-day run on the bank.

“There’s going to be a greater demand for high-quality liquid assets,” Anthony van Eden, strategic projects manager at Strate, said in an interview in Johannesburg on Aug. 19. “The key is the correct collateral at the right time and the right value. If there’s a shortfall, it should get topped up and if there’s an excess, it should be returned -- that’s what our technology does.”

Strate, which is South Africa’s only licensed central securities depository, has spent about 70 million rand ($6.5 million) implementing Clearstream International SA’s collateral management technology. It allows lenders and other financial institutions to use equities and bonds, rather than just cash, as collateral for bilateral trade. While Strate already clears most trades in South Africa, it can now match the supply and demand of collateral using Clearstream’s technology.

Changing Mindset

“We went live in November and can take on clients” from today, Monica Singer, chief executive officer of Strate, said in the same interview. “It’s a voluntary sign up but it needs a big change in mindset -- some banks will have to give up their inefficiencies.”

Instead of manually managing collateral and operating a range of trading desks from repurchase rate to over the counter, banks would be able to consolidate collateral management through the use of Strate’s automated system. Clearstream’s technology was first used in Brazil three years ago before being adopted in Australia, Spain and now South Africa.

“All the countries that have joined have a liquidity alliance,” Singer said. “One day, no matter where you are, you’ll be able to use your assets to collateralize trade across the world.”

Using Strate’s services is free for those receiving collateral while those giving will pay 4 basis points for 50 billion rand and 2.75 basis point for 100 billion rand, according to Van Eden.

“We hope with Basel III that collateral management becomes a high priority,” Singer said. “It’s our biggest investment since we implemented Strate.”

To contact the reporter on this story: Renee Bonorchis in Johannesburg at rbonorchis@bloomberg.net

To contact the editors responsible for this story: Dale Crofts at dcrofts@bloomberg.net John Bowker

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