Many Asia Pacific systems have started implementing final Basel III standards. A key feature of final Basel III is that it limits risk-weighted asset (RWA) benefits from the use of internal models for regulatory capital calculation. However, the new capital regime will not materially affect most Asia Pacific systems because the use of internal models, which often result in smaller RWAs than prescribed levels, is not very extensive, and previous rules were already stringent. Asia Pacific systems lead globally in the implementation of final Basel III. Banks in Australia, China, Japan, Indonesia, Korea, New Zealand and Singapore have adopted parts or all of final Basel III. By comparison, banks in the EU will start implementation only in 2025, with a longer transitional period to 2032, while the timeline for the US remains uncertain. Increases in capital requirements have not been and will not be material for most Asia Pacific systems. Common equity tier 1 (CET1) ratios in Indonesia rose after the full implementation of final Basel III. CET1 ratios in Korea also climbed, although the increases will be partially eroded when the transitional period ends. CET1 ratios in Australia and China increased as well after most of the new rules took effect, but overall capital requirements were largely unchanged in Australia because of increases in regulatory capital buffers. Final Basel III will not cause capital ratios in Taiwan, China; Hong Kong SAR, China; and Singapore to change materially after full implementation. As such, the new capital regime will not drive Asia-Pacific banks to make substantial changes to their capital or business strategies. CET1 ratios in Japan will fall after the transitional period, but banks in the country will not raise new capital because they will still meet minimum requirements. In New Zealand, where capital requirements have increased significantly, banks' organic capital generation will be sufficient to meet the new rules. Generally, marginal increases in capital requirements reflect the limited use of internal models and already stringent local rules. Several Asia Pacific systems that use internal models include more credit exposures under the standardised and foundation internal ratings-based (F-IRB) approaches than under the advanced internal ratings-based (A-IRB) approach, which tend to result in lower risk weights. Capital requirements in Australia and New Zealand have and will continue to incorporate more conservative rules than global standards. Regulators in some Asia-Pacific jurisdictions also applied an old output floor to limit capital relief from the use of internal models prior to final Basel III implementation. Japan is an exception. Large banks in the country included more credit exposures under the A-IRB approach and they have larger long-term equity portfolios. For New Zealand, the adoption of even more conservative rules drove the increases in capital requirements. Moody’s Ratings report re-disseminated by The Asian Banker
