South Africa Introduces ILAAP: What It Means for Banks That Have Already Implemented It — and Those That Have Not

For South Africa’s big banks, the concept of an Internal Liquidity Adequacy Assessment Process (ILAAP) is not new. Most have already implemented ILAAP frameworks in response to global regulatory expectations so as to align with international best practices, even though not strictly required by the Prudential Authority (PA). Similarly, foreign bank branches operating in South Africa may already leverage group-level ILAAP frameworks. 

The PA’s consultation document¹ – which was open for comment until 30 April 2026 – outlines high-level ILAAP requirements spanning governance, risk identification, stress testing, regulatory compliance, and supervisory review. The document does not signal a reinvention of liquidity risk management for these institutions. Instead, it marks an important shift: ILAAP moves from good practice or group expectation to a formal, locally supervised regulatory requirement, applied consistently across the banking sector. 

For smaller South African banks, however, this represents a more fundamental change — introducing, for the first time, a structured, board‑owned framework for assessing liquidity adequacy beyond regulatory ratios. Importantly, the ILAAP must also document the bank’s funds transfer pricing (FTP) framework, its detailed methodology, its alignment with the business strategy and its role in incentivising business to achieve liquidity risk management objectives. Most smaller banks do not yet have an FTP framework in place that meets these requirements.  

Why this matters for banks who already have an ILAAP 

For big banks and foreign branches that already operate ILAAP frameworks, the PA’s proposal is not a “tick‑box” exercise. It matters for several reasons: 

• Local supervisory ownership: ILAAP outcomes will become a direct input into the PA’s supervisory assessment of liquidity risk. Assumptions, scenarios and conclusions that were previously driven by group expectations or offshore supervisors will now be subject to local challenge and interpretation. 

• Proportionality cuts both ways: While proportionality benefits smaller banks, larger and more complex institutions should expect higher supervisory expectations, particularly around stress severity, governance challenge, intraday liquidity and integration with recovery planning. 

• Consistency between group and local views: Foreign branches will need to demonstrate that group‑level ILAAP frameworks are appropriately tailored to South African balance sheets, funding structures, currencies and market conditions — not blindly adopted. 

• Direction of travel matters: Internationally, regulators expect robust, bank-led liquidity adequacy assessments that complement regulatory ratios, and they are increasingly harmonised on key elements like governance, documentation, and the use of stress testing. Regulators are also raising expectations around speed of stress, usability of liquidity buffers and operational readiness, as reflected in the UK PRA’s latest liquidity consultation as outlined below.² The PA’s formalisation of ILAAP creates a platform for similar supervisory evolution over time. 

What the Prudential Authority is proposing 

Key elements of the proposed framework include: 

• Scope & Proportionality: All banks (big and small, including subsidiaries and foreign branches) are in scope. The PA emphasises that ILAAP expectations will be proportionate to each bank’s nature, size and complexity. 

• Board ownership and accountability: Boards will be required to approve the ILAAP annually and sign a Liquidity Adequacy Statement (LAS) confirming that liquidity resources are adequate under both normal and stressed conditions. Boards are expected to set a clear liquidity risk appetite ensure an independent review of the ILAAP at least once a year.  

• A dual internal and regulatory perspective: In line with global practice, South African banks will need to assess liquidity adequacy using both an internal economic perspective (based on internal models, assumptions and risk assessments), and regulatory liquidity requirements (such as LCR and NSFR). This two-pronged approach, grounded in the Basel Committee’s Principles for Sound Liquidity Risk Management (2008), ensures that meeting minimum regulatory ratios is balanced with a more conservative internal view of liquidity needs.  

• Comprehensive risk identification and stress testing: The ILAAP must cover all material liquidity and funding risks across time horizons, including intraday liquidity risk, severe stress scenarios and reverse stress testing. Liquidity stress testing is expected to be integrated with ICAAP to capture liquidity–capital interactions. These quantitative exercises must be supported by high-quality data, sound modelling techniques, and periodic validation of assumptions. 

• Integration with ICAAP and recovery planning: The PA expects consistency across ILAAP, ICAAP and recovery plans, ensuring that management actions under stress are credible, aligned and executable. This ensures consistency between how a bank manages capital versus liquidity under stress. For example, ILAAP scenarios should consider potential interactions between liquidity and solvency, such as how a liquidity shortfall could force asset fire-sales that erode capital, or how declining capital ratios might lead to funding runs. Likewise, any assumed liquidity actions (like selling assets or accessing central bank facilities) should align with the firm’s recovery plans for severe crises. 

The ILAAP is intended to become a key input into the PA’s ongoing Supervisory Review and Evaluation Process (SREP) for liquidity, allowing it to set Pillar 2 liquidity guidance or requirements where needed based on each bank’s risk profile and ILAAP outcomes. As such, South Africa’s PA is moving to formalise ILAAP as a cornerstone of liquidity oversight, mirroring the established practice in other jurisdictions. 

International alignment 

The PA’s ILAAP initiative is closely aligned with the frameworks long in place in the UK and Europe. 

In the European Union, the European Central Bank (ECB) ILAAP Guide has long required banks to apply a dual internal and regulatory perspective, with annual management body sign‑off via a Liquidity Adequacy Statement.³ ⁴  The concept of ILAAP was introduced under the Capital Requirements Directive IV (CRD IV) (Article 86) and has been a supervisory expectation for banks for over a decade. The ECB, through the Single Supervisory Mechanism (SSM), published a comprehensive “ECB Guide to the ILAAP” in 2018, setting out seven key principles for banks’ internal liquidity adequacy processes. These principles cover much the same ground as the PA’s proposal. In practice, Euro-area banks subject to the SSM conduct annual ILAAP exercises and submit their results (and LAS statements) to supervisors. The SSM then evaluates these in the annual SREP process, which can inform qualitative findings or lead to Pillar 2 Liquidity guidance for individual institutions. 

In the UK, the Prudential Regulation Authority (PRA) ILAAP framework under the Overall Liquidity Adequacy Rule (OLAR) similarly emphasises firm‑specific stress testing, board accountability and supervisory use of ILAAP outcomes to inform Pillar 2 liquidity expectations⁵. Over the years, the PRA has refined its liquidity regime (Pillar 2) through additional statements and updates. In 2018 the PRA rolled out a new Pillar 2 cashflow mismatch risk framework (with a standard 90-day stress scenario and granular liquidity reporting via template PRA110) to complement the 30-day LCR requirement. In 2020, the PRA also updated its guidance to explicitly recognise non-emergency central bank facilities as part of firms’ liquidity plans, provided banks are appropriately prepared (e.g. have collateral pre-positioned). In March 2026 the PRA released Consultation Paper CP5/26 “Modernising the Liquidity Policy Framework”, which proposes the most significant updates to UK liquidity standards since the post-2008 reforms. While this is a UK-specific initiative, it reflects global lessons from recent bank failures and provides insight into evolving supervisory focus areas that are relevant to banks everywhere. Key proposals include:  

• Stronger short-term stress testing: Introduce a new “sudden and severe” scenario focused on rapid outflows over 7 days, supported by daily cash‑flow analysis. This complements the 30‑day LCR by capturing the speed of runs and identifying peak liquidity needs early in a crisis. 

• Focus on monetisation of assets: Reframe “marketable assets risk” as monetisation risk, i.e. the practical ability to turn liquid assets into cash quickly. Banks must assess frictions (market or central bank) and test usability of buffers. The PRA proposes removing the Level 1 asset exemption from operational monetisation tests. 

• Central bank facilities as part of the toolkit: Treat standard‑terms central bank facilities as a normal funding source in the UK framework (excluding emergency windows). Regular operations (e.g., repo) may support OLAR needs if firms are operationally ready—e.g., collateral pre‑positioned and access tested under stress. 

• Enhanced collateral tracking: Strengthen monitoring of pre‑positioned collateral and estimate other assets that could be mobilised quickly. Build central bank drawing capacity into ILAAP/internal limits to quantify contingent liquidity and ensure collateral and operational processes support timely access. 

These UK changes do not alter Pillar 1 requirements, but they raise the bar for what banks must demonstrate in their ILAAP and internal systems. The overarching message – for UK and globally – is that regulators expect banks to be prepared for faster-moving liquidity crises, to actively manage the composition and usability of their liquidity buffers, and to integrate contingency measures (like central bank access) into their planning. Pro-active South African banks should anticipate that, over time, similar themes may potentially inform the PA’s future supervisory approach. 

Next steps 

In summary, the PA’s proposed ILAAP framework represents a critical evolution for liquidity risk management in South Africa. It closes a gap in the regulatory architecture by formalising how banks must internally evaluate liquidity adequacy, bringing local standards into closer alignment with global norms. For South African banks – whether large or small, local or international – the direction is clear: start laying the groundwork now. By learning from the ECB and PRA experiences and investing in robust internal processes, banks can turn ILAAP compliance into an opportunity to strengthen their resilience against future liquidity shocks. 

Large banks should focus on refinement rather than reinvention: 

• Assess whether existing ILAAP frameworks fully meet the proposed PA‑specific expectations, particularly around intraday liquidity, local stress calibration and documentation. 

• Re‑engage boards on the LAS, ensuring it reflects South African risks rather than group‑level narratives. 

• Review consistency between ILAAP, ICAAP and recovery plans from a local supervisory lens. 

For smaller banks, ILAAP implementation is more transformational: 

• Establish a proportionate ILAAP framework that is robust but practical, avoiding unnecessary complexity. 

• Strengthen liquidity stress testing capabilities, even where regulatory ratios have historically been the primary focus. 

• Upskill boards and senior management to ensure meaningful oversight and challenge. 

Foreign branches should prioritise local relevance and defensibility: 

• Map group ILAAP frameworks to South African operations, identifying where local assumptions, data and stress scenarios are required. 

• Clarify governance responsibilities between head office and local management, particularly around LAS sign‑off. 

• Prepare to evidence operational and funding realities specific to South Africa. 

How Deloitte can help 

Deloitte supports banks across the liquidity risk lifecycle, with services tailored to institution size and complexity: 

• Gap assessments and design or enhancement of proportionate ILAAP and FTP frameworks 

• Initial and annual independent ILAAP reviews  

• Development, enhancement or validation of stress testing models 

• Alignment of ILAAP with local funding, treasury and recovery arrangements 

• Board, management and technical training  

• Governance, policy and documentation support  

Deloitte combines regulatory insight, quantitative expertise and practical implementation experience to help institutions move from compliance to resilience. 

Sources

1. Prudential Authority, Proposed Directive relating to the Internal Liquidity Adequacy Assessment Process (ILAAP), March 2026 
   https://www.resbank.co.za/content/dam/sarb/publications/prudential-authority/pa-documents-issued-for-consultation/2026/proposed-directive-ilaap.pdf

2. UK Prudential Regulation Authority, CP5/26 – Modernising the liquidity policy framework, March 2026 
   https://www.bankofengland.co.uk/prudential-regulation/publication/2026/march/modernising-the-liquidity-policy-framework-consultation-paper

3. European Central Bank, Guide to the internal liquidity adequacy assessment process (ILAAP), November 2018 
   https://www.bankingsupervision.europa.eu/ecb/pub/pdf/ssm.ilaap_guide_201811.en.pdf

4. European Central Bank, ECB publishes final guides for banks on their capital and liquidity management, November 2018 
   https://www.bankingsupervision.europa.eu/press/pr/date/2018/html/ssm.pr181109.en.html

5. UK Prudential Regulation Authority, SS24/15 – The PRA’s approach to supervising liquidity and funding risks 
   https://www.bankofengland.co.uk/prudential-regulation/publication/2015/the-pras-approach-to-supervising-liquidity-and-funding-risks-ss