Most Asia-Pacific banks still in early stages of Basel 2


BY DALJIT DHESI

A MAJORITY of banks in the Asia-Pacific region are still at the early implementation stages of complying with the Basel 2 framework, according to Gloria Goh, Ernst & Young Partner for the Global Financial Services practice in Malaysia. 

She said that close to 65% of the banking institutions surveyed in the region were either still in the early implementation stages or had not started the Basel 2 programme. 

Nevertheless, she said the survey clearly indicated that the awareness of and preparation for Basel 2 in the Asia-Pacific region had increased significantly over the past two years. 

Two-thirds of the institutions surveyed believe their relative competitiveness would increase in the medium and long term because of the implementation of the framework, Goh told StarBiz in Kuala Lumpur. 

Ernst & Young, in collaboration with Hong Kong-based research company Asia Risk, conducted at the end of last year a comprehensive – and first – Asia-Pacific survey of the progress of Basel 2 implementation by 245 banks in the region. 

Goh said that generally most institutions were still principally focused on Pillar 1 compliance with the framework (i.e. determining the capital charges), but some were increasingly going beyond simple paper-based planning for Pillar 2 and Pillar 3 preparation. 

Basel 2 framework has three pillars. Pillar 1 is a revision of the 1988 Basel 1 Accord guidelines in that the minimum capital requirements are aligned more closely to each bank's actual risk of economic loss. 

Gloria Goh with a copy of the progress of Basle implementation.

In this regard, Basel 2 improves the capital framework’s sensitivity to the risk of credit losses generally by requiring higher levels of capital for borrowers thought to present higher levels of credit risk, and vice versa. 

Pillar 2 recognises the need to exercise effective supervisory review of banks’ internal assessments of their overall risks to ensure that bank managements are exercising sound judgement and have set aside adequate capital for these risks. 

And Pillar 3 leverages the ability of market discipline to motivate prudent management by enhancing the degree of transparency in banks' public reporting. It sets out the disclosures that banks must make to give better insight into the adequacy of their capitalisation. 

On the information technology (IT) side, Goh said that almost two-thirds of the institutions surveyed had not completed their planning for the IT infrastructure required for Basel 2 and almost 30% had not yet decided how they were going to tackle credit risk data capture and management. 

The Basel 2 Accord framework offers a new set of standards for establishing minimum capital requirements for banking institutions. It was prepared by the Basel Committee on Banking Supervision, a group of central banks and bank supervisory authorities in G 10 countries.  

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