Banks need to be high Basel II-compliant by 2013

Friday June 6, 2008

PETALING JAYA: Malaysian banks will need be compliant with the highest level of Basel II banking risk management by 2013 to keep up with global developments.

Basel II is an upgrade of the previous global banking risk management accord Basel I that focused on credit risk and subsequently market risk.

Under Basel II, the risk capital charge has been extended to cover all risks including “operational risk”.

KPMG Business Advisory Sdn Bhd, head of ASPAC financial risk management, Dr John Lee, said: “It would be good to see Malaysian banks compliant to Advanced Measurement Approach (AMA) by 2013, not after that.”

He was speaking Wednesday at a press briefing on the KPMG Basel II in the Asia Pacific Banking Sector Survey 2008. At present, Malaysian banks were in the midst of adopting The Standardised Approach (TSA), which is the medium level of compliance, higher than the Basic Indicator Approach (BIA) but lower than AMA.

However, most banks were aiming to be compliant to AMA by 2010, but if they missed that target they could look towards 2013, Lee said.

The survey, conducted in the last quarter of 2007 with respondents from 35 banks in the Asia Pacific, was focused on operational risk management.

The survey on the “current state of play in operational risk” showed that banks in mature banking countries have generally adopted the AMA.

Based on KPMG's classification, mature banking countries in the region are Australia, Hong Kong, Japan, New Zealand, Singapore, South Korea and Taiwan.

The survey also found that among emerging countries, Malaysia had a generally more mature sector where seven in 11 banks were in the midst of adopting TSA.

On the subprime crisis, Lee said it was actually limited to the US and to some extent, the European markets.

“The world is affected mainly due to the large size and importance of the US market,” he said adding: “The US, which is different from most markets in that there are multiple regulators for the banking industry, was only scheduled to implement Basel II in 2009.

“I won’t say that Basel II policies would have stopped the subprime crisis but they probably could have reduced the amount of losses.”

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