The South African Reserve Bank's (SARB) decision will put additional pressure on the banking system, especially commercial and investment banks and institutional investors...
South Africa's central bank has temporarily prohibited the use of debt issued by the Land Bank as collateral after the state agricultural lender was downgraded deeper into junk status and missed $2.7 billion The South African Reserve Bank's decision will put additional pressure on the banking system, especially commercial and investment banks and institutional investors, which are already starved of the debt instruments necessary to access overnight cash to fund their daily operations.
The Land Bank had its credit rating cut to B1 from Ba2 by Moody's in January, while Fitch has also warned of downgrades, and the lender defaulted on the loans totalling 50 billion rand in late April, citing a"liquidity shortfall". "In light of recent developments surrounding the Land Bank, including the downgrade of the rating and the subsequent debt default, the SARB has taken a decision to temporarily suspend Land Bank bills as eligible collateral in its repo operations," the central bank said late on Friday.
Since the novel coronavirus outbreak prompted a national lockdown to limit its spread in March, local capital markets have suffered a severe lack of liquidity as investors rushed to sell emerging market assets.
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