Banks: Draft Directive on Forest and Agricultural Land Risk Exposures

Posted 30 June 2025 Written by Acts Online
Category Financial Sector

Brought to you by SA Legal Academy: The Prudential Authority (PA) has invited stakeholders to provide input on a draft directive concerning the treatment of risk exposures secured by forest and agricultural land.

In terms of the Banks Act, No. 94 of 1990 and the Regulations relating to Banks, the PA proposes to refine the risk-weighting framework for exposures secured by these specific land types. The draft directive is underpinned by the requirement that such risks be assessed within the broader real estate framework, ensuring consistency in how residential and commercial real estate exposures are treated across the banking sector.

The proposed directive introduces specific weightings for exposures secured by forest and agricultural land, categorized by their application within residential and commercial real estate contexts. These weightings are intended to reflect the specific risk profiles of these assets under various sets of circumstances. The PA has set a deadline of 14 July 2025 for the submission of comments on these proposals.

Key focus areas of the draft directive

  • The alignment of forest and agricultural land risk exposures with the amended real estate framework.
  • The application of specific risk weightings based on the nature of the security and the underlying real estate category.
  • The standardisation of risk treatment for exposures that were previously subject to varying interpretations under the 2012 regulations.

What this means for you, your business, or your clients

  • For yourself: No direct individual obligations; professional impact is limited to the requirement for compliance officers and risk managers to update internal capital adequacy assessment processes (ICAAP) if the directive is finalised.
  • For your business: Banks and financial institutions must conduct a quantitative impact study on their current portfolios secured by agricultural or forest land to determine how the mooted weightings will affect their regulatory capital requirements.
  • For your clients: Clients in the agricultural and forestry sectors may experience changes in loan pricing or credit availability as banks adjust their lending criteria to reflect the updated risk-weighting costs associated with these asset classes.

Originally published at https://legalacademy.co.za/news/read/banks-input-sought-on-forest-agricultural-land-risk-exposure-related-draft-directive

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