South Africa’s largest banks have raised about $322 million in new loss-absorbing debt as part of a central bank framework designed to ensure troubled lenders can be recapitalised without relying on taxpayer bailouts.
Absa Group Ltd. issued 3.2 billion rand ($199 million) of instruments known as funding for loss-absorbing capacity (FLAC) notes, Bloomberg reported.
The securities are linked to Zaronia, a new reference rate for short-term financial contracts that will replace the Johannesburg interbank average rate by the end of the year.
Demand exceeded expectations: the bank targeted 3 billion rand but received bids totalling 8.41 billion rand, making the offer 2.65 times oversubscribed, according to Absa Treasurer Richard Klotnick.
Rival Standard Bank Group Ltd. sold 2 billion rand of FLAC notes across four tranches, attracting more than 10 billion rand in bids from over 30 institutional investors. The transaction marked the first public note issuance conducted using the Zaronia benchmark, the bank said Thursday.
Bank rescue rules
The fundraising is part of South Africa’s new bank-resolution regime, which requires systemically important lenders to maintain a buffer of debt that can be written down or converted into equity if they encounter financial distress.
The framework aligns with global reforms introduced after the 2008 financial crisis to shift potential losses from taxpayers to investors.
The central bank estimated in 2024 that the country’s six biggest banks may need to raise as much as 360 billion rand by 2030 to meet the requirements. Lenders are expected to have at least 60% of the target in place by the end of 2027, with some excess regulatory capital allowed to count toward the buffer.
Moody’s Ratings has previously said the plan would be credit-positive for senior creditors.