Impact of the Basel IV framework on securitization and performance of commercial banks in South Africa

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Securitization has been used as a tool for bank funding, liquidity, risk management, and performance for over two decades. However, securitization activities were negatively affected by the recent financial crises, which led to stricter regulations of banks’ off-balance-sheet activities. This study examined the possible impacts of the Basel IV capital requirements on securitization activities and the performance of commercial banks in South Africa if implemented. The study used aggregated financial data of selected South African commercial banks to create a sample representative projection as if the selected banks had implemented the Basel IV capital requirements between 2002 and 2018. The simulated data were analyzed and compared to Basel III data using panel data analysis under certain assumptions, while other conditions held constant. The results revealed that the implementation of the Basel IV capital requirements will have a significant positive impact on securitization activities of commercial banks in South Africa. However, higher capital requirements of Basel IV may have no significant impact on performance of securitizing banks but it can protect banks from securitization exposure.

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    • Table 1. Definition of model variables
    • Table 2. Summary statistics of key variables
    • Table 3. Frequency of securitization per bank per year
    • Table 4. Results of capital requirements and securitization (random effects)
    • Table 5. Results of securitization and bank performance (fixed effect)
    • Conceptualization
      Damilola Oyetade, Paul-Francois Muzindutsi
    • Data curation
      Damilola Oyetade
    • Formal Analysis
      Damilola Oyetade, Adefemi A. Obalade, Paul-Francois Muzindutsi
    • Investigation
      Damilola Oyetade
    • Methodology
      Damilola Oyetade, Adefemi A. Obalade, Paul-Francois Muzindutsi
    • Project administration
      Damilola Oyetade
    • Resources
      Damilola Oyetade, Paul-Francois Muzindutsi
    • Software
      Damilola Oyetade, Paul-Francois Muzindutsi
    • Writing – original draft
      Damilola Oyetade, Paul-Francois Muzindutsi
    • Writing – review & editing
      Damilola Oyetade, Adefemi A. Obalade, Paul-Francois Muzindutsi
    • Supervision
      Adefemi A. Obalade, Paul-Francois Muzindutsi
    • Validation
      Adefemi A. Obalade, Paul-Francois Muzindutsi