South Africa removes high asset status from Land Bank debt

JOHANNESBURG, May 12 (Reuters) – South Africa’s central bank will no longer allow commercial lenders to use debt issued by the state-owned Land Bank to meet their capital requirements as they are longer considered “high-quality liquid assets”.

Land Bank, the country’s largest agricultural lender, was downgraded by Moody’s in January and defaulted on loans totaling 50 billion rand ($2.74 billion) in April, sparking fears about its ability to break through to hold water.

This forced the South African Reserve Bank (SARB) last week to ban banks and investment houses from using land bank debt as collateral to access short-term funds in the central bank’s repo auctions, a key source of market liquidity.

In a circular on Tuesday, the SARB said the temporary suspension of Land Bank’s bills meant its debt could no longer be considered High Quality Liquid Assets (HQLA).

“Banks are prohibited from including land bank bills as part of Level 2 HQLA for purposes of LCR (Liquidity Coverage Ratio) calculation,” the SARB said.

“In this regard, banks are granted a period of 30 calendar days to adjust their portfolios of qualifying HQLA following the publication of this circular.” ($1 = Rand 18.2701) (Reporting by Mfuneko Toyana; Editing by Alexander Smith)

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