Standard Bank Group, the parent company of Stanbic Kenya, has raised ZAR 2 billion (approximately USD 123.76 million or KES 16.16 billion) through the continent’s first issuance of so-called safety-buffer bonds, known as financial loss-absorbing capacity or Flac notes, the bank and financial markets reported on Thursday.
The landmark transaction, which attracted bids of more than ZAR 10 billion from over 30 institutional investors, was structured in four tranches, Standard Bank said in a statement. The strong investor interest underscores a growing appetite for instruments designed to reinforce banking sector resilience while protecting public finances.
Flac notes are part of South Africa’s newly implemented regulatory framework that came into effect in 2023. These instruments are intended to provide a mechanism for authorities to absorb losses and recapitalise lenders in the event of financial distress without resorting to taxpayer-funded bailouts. Depending on the circumstances, Flac notes can be written down or converted into equity as part of a resolution process, bolstering a bank’s capital base and reducing systemic risk.
Paul Burgoyne, Head of Treasury and Money Market at Standard Bank, described the deal as the culmination of years of legal and regulatory preparation coupled with extensive engagement with institutional investors.
The introduction of Flac instruments aligns South Africa with global trends in bank resolution frameworks, including the Total Loss-Absorbing Capacity (TLAC) standards promoted by the Financial Stability Board, which aim to ensure that shareholders and investors rather than taxpayers absorb the first losses when a bank faces stress.
Ratings agency Moody’s has characterised South Africa’s resolution framework as credit positive for senior creditors and depositors, noting that authorities are likely to resist bailing out bank creditors due to fiscal constraints. Under the new regime, junior creditors and Flac instruments would absorb losses in a failure scenario, helping to safeguard public funds.
The pioneering issuance of Flac notes by Standard Bank marks a significant development in the evolution of African capital markets, offering a new class of instruments for institutional investors and a potential blueprint for broader adoption across the continent’s banking sector.
