Securitisation and asset-backed securities in South Africa

M.Comm.Securitisation and asset-backed securities are established lending and investment concepts internationally. It changed the manner in which lending is facilitated and the funding of banks and finance entities other than banks are managed, thereby transforming lending into packaged tradeable debt paper in which investors invest directly. Capital requirements introduced on banks worldwide by the Bank of International Settlements created pressure on margins, which led to banks finding ways through financial engineering in substituting margin income with fee income to better manage their balance sheets and minimum capital requirements for the purpose of capital adequacy. South African Banks are characterised by high infrastructure costs compared with international banks, where technology has been utilised in optimising operating logistics. Foreign banks operate on much narrower margins and are reentering the South African economy which creates an element of threat to South African banks. This creates the need for more innovative funding strategies for both South African banks and finance entities that operate in the grey market in improving competitiveness. Securitisation and asset-backed securities offers this potential, but is underdeveloped in South Africa due to bank legislation and legislation pertaining to tradeable debt paper being derived from the commercial paper and debenture schedule. Only two securitisation and asset-backed security issues have been conducted in South Africa, which creates questions as to why securitisation and asset-backed securities are not actively being practised and, if there is potential for securitisation and asset-backed securities to evolve and be practised by banks and financiers, what prevents it from being developed as seen internationally? The objective of the study is to explain the mechanics of securitisation and assetbacked securities, what the developments in South Africa have been, what the problems are in South Africa, relating to securitisation and asset-backed securities, and how these problems could be alleviated based on recent developments internationally. The study is one of literature and discussions held with professional people