Investec warns Basel III reforms may hinder African bank growth and economic development

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1. https://financeinafrica.com/insights/investec-basel-iii-african-banks/ – Please view link – unable to able to access data
2. https://financeinafrica.com/insights/investec-basel-iii-african-banks/ – Investec, a South African banking and wealth-management group, is urging global regulators to reconsider key aspects of the Basel III framework. The bank argues that the current regulations place emerging-market lenders at a structural disadvantage compared to their developed-market counterparts. Cumesh Moodliar, CEO of Investec’s South Africa unit, highlighted that differing approaches to Basel III in the US, Europe, and the UK have imposed significant costs on banks operating in developing markets. He emphasized the need for a ‘fair playing field’ for all banks, noting that emerging-market banks already hold more capital and pay higher funding costs, making additional surcharges under Basel III more burdensome. While Investec is not under-capitalised, it warns that upcoming Basel III reforms, particularly the ‘end-game’ elements, could increase the burden on banks in markets like South Africa unless the rules are better calibrated to account for structural differences. Basel III, developed by the Basel Committee on Banking Supervision, aims to strengthen banks’ ability to absorb shocks and improve risk management. Key components include minimum Common Equity Tier 1 (CET1) capital requirements, capital conservation and counter-cyclical buffers, and liquidity and funding rules such as the Liquidity Coverage Ratio (LCR) and Net Stable Funding Ratio (NSFR). The ‘end-game’ reforms refine the calculation of risk-weighted assets (RWAs), introduce output floors, and unify regulatory approaches. Compliance with Basel III requires banks to hold more equity, manage leverage more tightly, maintain more stable funding, and sometimes alter business models, which can raise the cost of capital, constrain lending growth, and change how banks price risk. For regulators and investors, Basel III influences systemic resilience, credit availability, bank risk profiles, and ultimately the health of economies reliant on bank financing. Investec’s financial disclosures show a well-capitalised bank operating above regulatory minimums. As of September 30, 2025, the group reported a CET1 ratio of about 14.6% and a leverage ratio of about 6.3%. The South African entity, Investec Limited, reported a CET1 ratio of roughly 15.3% at the end of June 2025. The group also highlighted conservative liquidity metrics in its November 2025 interim report. These metrics confirm that Investec consistently meets and exceeds Basel capital and liquidity thresholds. The concern raised is not about Investec’s current balance sheet but the future impact of regulatory changes that could require African banks to hold even more capital or alter their business mix in ways that reduce lending capacity. The structural realities facing African banks include operating in countries with sovereign ratings below investment grade, which inflates the risk weightings they must apply to their government exposures. Higher sovereign risk weights automatically push up RWAs and therefore raise capital requirements. Additionally, African banks often face thinner and less liquid capital markets. Developed-market institutions can issue Additional Tier 1 instruments or senior debt on more favourable terms, whereas emerging-market banks must pay more for the same funding, narrowing flexibility when capital rules tighten. Their business models differ in ways that interact directly with Basel III mechanics. African lenders often book a higher share of retail, SME, and corporate lending in domestic currency, manage wider cross-border exposures, and carry more pronounced foreign exchange and sovereign-linked risks. These activities may be treated as more capital-intensive under Basel III’s standardised approaches. Major jurisdictions such as the EU and UK are phasing in the final Basel reforms through 2027 and 2028. The uneven pace of adoption and the possibility of local adaptations create competitive asymmetries that emerging-market banks cannot easily absorb. The Basel Committee has estimated that the final package of reforms would raise minimum capital requirements by around 2.1% on average for large international banks. For a European or American lender operating in deep financial markets, that increase may be manageable. For an African bank that already pays more for capital and funding, the same increase represents a much heavier burden and could materially slow credit growth. This backdrop underscores Investec’s argument that African banks risk facing higher costs, tighter lending capacity, and a more limited ability to support economic development if global rules are applied without regard to regional differences. South Africa’s Prudential Authority and the South African Reserve Bank have committed to aligning the domestic framework with Basel standards. Their challenge is to preserve the country’s international regulatory credibility while ensuring that tightening global rules do not constrain local lending capacity. The implications extend beyond South Africa. As the only African member of the Basel Committee, South Africa often provides a reference point for regulators across the continent. If the final Basel III package pushes South African banks into more capital-intensive positions, the effects could spill over into other systems where banks have less capacity to absorb higher buffers. Sim Tshabalala, Standard Bank’s Chief Executive, has supported the argument for better calibration. He has said that capital rules need to reflect the realities of emerging markets if African banks are to mobilise long-term financing for infrastructure. Standard Bank estimates that Africa requires about $170 billion of infrastructure investment each year but currently secures only about half that amount. The way global rules are set, therefore, becomes a development issue. If African banks face persistently higher capital costs, their ability to scale credit will weaken. That would affect infrastructure financing, business expansion, and economic resilience across the region. Attention now shifts to how the Basel Committee and national regulators complete the implementation of the final reforms. The most sensitive elements include the output floors that limit how much banks can reduce capital by using internal models. Regulators are also still shaping the revised standardised approaches for credit and operational risk, which may raise RWAs for banks that rely on simpler methods. Another open question is timing. African regulators will need to decide whether to match the EU and UK implementation schedules or establish their own timelines. These decisions have direct financial consequences. Higher capital requirements increase the cost of funding or reduce returns on equity unless banks adjust their business models. If banks absorb these costs without expanding lending, margins may shrink and credit growth may slow. For African lenders and regulators, the central concerns are whether capital flows will remain competitive, whether lending capacity will be constrained, and whether banks will still be able to support long-term infrastructure investment. Investec’s intervention recasts this as a matter of systemic fairness rather than individual profitability. The core question is how global rules, designed primarily for large developed-market banks, may unintentionally shape the credit capacity of African financial systems and influence the continent’s broader growth trajectory.