How Basel III and the Latest Changes in Regulation are Likely to Affect Access to Housing Finance in Africa
In 2018, the Centre for Affordable Housing Finance in Africa (CAHF) conducted an initial study to understand how Basel III and IFRS 9 are likely to affect access to housing finance across Africa, with a particular focus on West African Economic and Monetary Union (WAEMU) countries and South Africa.
Based on a literature review, the study shows that while the Basel III stricter capital and liquidity requirements are meant to strengthen the stability and soundness of the banking system, they may actually lead to negative effects on lending, though these effects may differ by banks and countries. Regarding IFRS 9, which introduces new impairment rules based on expected credit losses, the study shows that adoption will automatically result in higher credit loss allowances and thus in lower profits for banks and similar financial institutions. The adverse effects this may have on lending are similar to those of Basel III, and include higher lending rates and fees, lower lending volumes, and lower loan maturities.
This report reviews how the African financial sector is reacting to the Basel III requirements, and examines how Basel III and IFRS9 regulations are affecting, or are likely to affect, the capacity of African financial institutions (including NBFIs) to provide affordable housing finance products. The main focus is twofold: 1) clarify the likely effects of the Basel III and IFRS 9 proposed regulatory changes initiatives on the supply of affordable housing finance in Africa; and 2) describe implementation of Basel III in WAEMU and South Africa.