Africa’s banking sector has reached a regulatory milestone after Standard Bank Group successfully completed the continent’s first issuance of Financial Loss-Absorbing Capacity (FLAC) notes, raising R2 billion (approximately $123.76 million) in a transaction that drew overwhelming investor support.
The landmark deal marks a significant step in aligning South Africa’s banking framework with global post-crisis standards designed to strengthen financial stability and protect taxpayers from the cost of bank failures.
Strong demand signals investor confidence
The issuance was split into four tranches and attracted bids exceeding R10 billion from more than 30 institutional investors, underscoring strong market appetite for the new loss-absorbing instruments. According to Reuters, the scale of oversubscription highlights growing confidence in both the regulatory framework and the bank’s credit profile.
Paul Burgoyne, Head of Treasury & Money Market at Standard Bank, described the outcome as the result of “many years of legal and regulatory work, as well as extensive institutional investor engagement.”
What FLAC notes mean for financial stability
FLAC instruments are designed to absorb losses if a bank encounters severe financial distress. In a resolution scenario, regulators can write them down or convert them into equity, effectively shifting losses to investors rather than relying on public funds.
The structure mirrors the principles of the Financial Stability Board’s Total Loss-Absorbing Capacity (TLAC) framework, introduced globally after the 2008 financial crisis. Under these rules, banks must maintain sufficient buffers so that shareholders and certain creditors — not taxpayers — take the first hit in the event of failure.
South Africa’s updated bank resolution regime, introduced in 2023, provides the legal foundation for such instruments. The reforms aim to ensure that the country’s financial system can withstand shocks without triggering state-funded bailouts.
Ratings agency Moody's Investors Service has described the new regime as credit positive for senior creditors and depositors. With the government facing constrained fiscal space, the availability of FLAC tools offers authorities a credible alternative to traditional bailouts.
Pioneering ZARONIA-linked issuance
Alongside the FLAC transaction, Standard Bank also became the first issuer of public floating-rate notes linked to ZARONIA — the South African Rand Overnight Index Average — in a public auction.
The move supports the country’s transition away from the long-established Johannesburg Interbank Average Rate (JIBAR) toward a more transparent, transaction-based benchmark aligned with global best practice. The shift mirrors similar reforms in major markets where legacy interbank offered rates have been phased out in favour of overnight reference rates.
A turning point for capital markets
By leading on both FLAC notes and ZARONIA-linked instruments, Standard Bank is positioning itself at the forefront of South Africa’s evolving capital markets landscape. The dual milestones signal not only regulatory progress but also a broader deepening of the domestic funding market.
Beyond the immediate R2 billion raised, the transaction sets a precedent that could influence funding structures across the continent, particularly as other African jurisdictions strengthen their own bank resolution regimes.
The issuance represents more than a single deal; it reflects a structural shift toward resilience, market-based discipline, and long-term financial stability in Africa’s largest banking economy.