Basel II deadline extension to give banks more leeway

The Edge 07-07-2008

KUALA LUMPUR: Bank Negara’s recent extension of the deadline for banks operating in Malaysia to meet the Basel II capital adequacy ratio requirement to 2013 from 2010 has given banks more leeway in adjusting to the complexities of the requirement.

“It is a good decision by Bank Negara to extend the deadline to 2013. From a practical standpoint, this allows more time for the readiness of data availability, which is normally a key challenge for the banking industry.

“It also allows banks more time to gain a deeper understanding in interpreting the Basel Accord to gain competitive advantage beyond regulatory compliance by reducing capital reserves, consequently increasing capital available for investments,” Deloitte Consulting Malaysia executive director Ow Chee Hong told The Edge Financial Daily.

Basel II was aimed at creating an international benchmark for regulating how much capital banks need to put aside as security against financial and operational risks.

BNM required that all banks in Malaysia compute their capital adequacy ratios under Basel II from January 2008 but allowed an extension of up to 2010 for those that chose to adopt the more stringent internal rating base (IRB) approach.

Intelligent software solution provider SAS Malaysia, which has provided Basel II compliance software system to Affin Bank Bhd, EON bank and AmBank Bhd, said most banks in Malaysia had opted for the more stringent standard as the deadline approached.

But according to John Lee, KPMG’s head of financial risk management for the Asia-Pacific region, the lack of data and shortage of appropriate experience are the biggest obstacles to implementing the preferred Basel II approach.

Lee said that most Malaysian banks were adopting a phased approach, opting for The Standardised Approach (TSA) or Basic Indicator Approach (BIA) that is less sophisticated before considering the Advance Measurement Approach (AMA).

The Basel II Capital Accord and its implementation in Asia Pacific has placed banks in the region on a varied and disparate platform.

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