Southeast Asian banks’ growth and profitability to take a hit from Basel III
Alec Kourloukov, director of enterprise risk services at Deloitte, feels banks need to focus on growth, ensure regulatory compliance, and develop robust liquidity and contingency funding plans. August 06, 2012 | Alec KourloukovBasel III, introduced by the Basel Committee on Banking Supervision (BCBS) in 2010, is a response to the failure of existing regulations to stem the global financial crisis of 2007-08. It is changing the way banks manage risks and introducing a more rigorous regulatory stance towards key components of risk and financial management, such as derivatives and systemic risks, statutory capital, leverage, liquidity, and cyclicality. Increased capital requirements because of Basel III have sent ripples around the globe. According to McKinsey estimates, using 2010 data as a baseline, the return on equity (ROE) of the top 13 global banks would fall from around 20% to 7 % post-Basel III implementation. Southeast Asian banks had expressed confidence in their ability to meet the new requirements fairly early in the game, largely due to historically high capital adequacy ratios. At the same time, leading financial institutions emphasised the challenge with implementation of the new liquidity ratios: liquidity coverage ratio (LCR) and net stable funding ratio (NSFR), as the levels of government debt needed to meet the minimum requirements for both LCR and NSFR continued to remain low. For example, Singapore has a significant shortfall of government debt relative to the size of the domestic banking industry. Such a situation can actually create new risks, instead of mitigating existing ones, as banks may take in more foreign currency denominated debt, thus increasing both currency and sovereign risks. Implementation costs, which banks will most likely transfer on to customers, were also cited as one of the key concerns. Is there a silver lining? As the cautiously optimistic mood persisted among Southeast Asian banks through 2011, regulators set forth with defining the scope of Basel III in their national contexts. Their key task was not only to identify the approach to Basel III implementation, but also to highlight its benefits to both dom... Please login to read the complete article. If you already have an account, you can login now or subscribe/register.
Categories: Basel III, Philippines, Regulation, Risk and Regulation, Singaporebasel III,Philippines,riskregulation,Risk and Regulation,Singapore, Basel III,Philippines,Regulation,Risk and Regulation,Singapore, Keywords:BCBS, CAR, LCR, NSFR, Systemic Risk, MAS, BSP, Capital Conservation Buffer, ROE BCBS, CAR, LCR, NSFR, Systemic Risk, MAS, BSP, Capital Conservation Buffer, ROE
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