The Global Financial Crisis: A Wake-Up Call

The 2008 Global Financial Crisis exposed critical weaknesses in the global banking system. Banks around the world—including some of the largest—were undercapitalized, over-leveraged, and heavily reliant on short-term funding. When property markets collapsed and mortgage-backed securities went sour, these weaknesses triggered a domino effect of financial failures.

To restore confidence, ensure financial stability, and protect economies from future shocks, the Basel Committee on Banking Supervision introduced Basel III, an internationally agreed set of banking regulations.

What Is Basel III?

Basel III is a regulatory framework designed to strengthen regulation, supervision, and risk management in the banking sector. It builds upon the previous Basel I and II frameworks, adding stricter capital requirements, liquidity standards, and leverage ratios.

Key Components of Basel III:

• Higher Capital Requirements
  • Banks must hold more high-quality capital, especially Common Equity Tier 1 (CET1), to absorb losses.
  • The minimum capital adequacy ratio is increased to reduce the risk of failure.
• Leverage Ratio
  • A non-risk-based leverage ratio limits the amount of borrowing a bank can do relative to its capital base.
• Liquidity Coverage Ratio (LCR)
  • Banks must hold enough high-quality liquid assets to cover net cash outflows for 30 days in a stress scenario.
• Net Stable Funding Ratio (NSFR)
  • Encourages longer-term funding to reduce reliance on short-term borrowings.

Why Basel III Was Necessary

Prior to the crisis, many banks had:

• Insufficient capital to withstand losses
• Mispriced risk, particularly in mortgage lending
• Poor liquidity management
• Off-balance sheet exposures that weren’t properly accounted for

Basel III addresses these issues by forcing banks to be better prepared for economic stress and to operate more prudently.

Basel III and South African Banks

South Africa’s banking sector, while relatively conservative and resilient, is not immune to global standards. The South African Reserve Bank (SARB) has adopted Basel III with phased implementation, aligning local banks with international best practices.

Implications for South African Banks:

• Increased Capital Buffers
  • Local banks must maintain higher capital reserves, reducing the funds available for riskier or highly-leveraged lending.
• Stronger Risk Management
  • Banks have had to upgrade risk models, systems, and governance frameworks—especially around retail credit products like home loans.
• Cost of Compliance
  • Meeting Basel III standards involves significant costs—reporting systems, stress testing, and capital management—all of which can influence product pricing.

Impact on Home Loan Products

While Basel III isn’t aimed specifically at mortgage lending, it indirectly reshapes the home loan landscape in several ways:

• Tighter Lending Criteria
  • Banks must be more selective in approving home loans. This means:
    • Lower risk tolerance for high Loan-to-Value (LTV) mortgages
    • Stricter income verification and credit scoring
    • Greater scrutiny of self-employed and high-risk borrowers
• Higher Interest Rates for Riskier Borrowers
  • To offset higher capital requirements, banks may price risk more sharply—charging higher rates for lower credit scores or riskier properties.
• Increased Focus on Loan Quality
  • Basel III encourages banks to improve asset quality, so more emphasis is placed on long-term affordability and the borrower’s ability to withstand economic shocks
• More Emphasis on Capital Efficiency
  • Banks may bundle or securitize certain mortgage portfolios to manage capital more effectively, though under tighter regulatory oversight than before the 2008 crisis

The Bigger Picture

Basel III aims to make banks safer, stronger, and more resilient—and that’s good for the economy, depositors, and borrowers alike. For homebuyers in South Africa, the most noticeable effect may be tighter access to credit, but also greater protection from financial instability.

In the long run, Basel III supports a healthier property market—one where lending is responsible, sustainable, and better equipped to weather the next economic storm.

Final Thought

For mortgage originators, real estate professionals, and financial advisors, understanding Basel III is crucial. It not only changes the rules for banks—it reshapes the way credit is extended, risk is priced, and client relationships are managed in a regulated financial environment.

If you’re in the business of home loans, Basel III isn’t just a banking regulation—it’s a blueprint for how the mortgage market will evolve in the coming decade.

Getting ready to apply for a home loan?

If you’re getting ready to apply for a home, it might be a good idea to get in touch with a mortgage broker – who will check your profile, complete a pre-assessment and give you the best advice to prepare for your application going forward.

Using a reputable broker will ensure you get more clarity out of the bureau data and how it might affect your chances of approval. By using a broker, you can access multiple offers simultaneously and negotiate on fees and interest rates so you can have the confidence knowing you received the best deal in the market at the time.

Phoenix Bonds is a premium mortgage broker in South Africa, with a proven track record (check out the reviews on Google).  For expert advice and personalised service, fill in your details HERE and one of our experienced Consultants will be in touch.