BNM: Basel II deadline remains at 2010

09-07-2008
BNM: Basel II deadline remains at 2010

KUALA LUMPUR: Bank Negara Malaysia (BNM) has clarified that the deadline for the full implementation of Basel II risk management framework is unchanged at January 2010.

The central bank told The Edge Financial Daily that all banking institutions in the country had already started adopting the new framework since January this year and hence, there was no need for a deadline extension.

According to a mandate set by the central bank, all banks in Malaysia are required to compute their capital adequacy ratios under Basel II from January 2008.

"In addition, banking institutions adopting the new capital adequacy framework from 2008 are also subject to a capital requirement for operational risk based on either the basic indicator, standardised or alternative standardised approaches," BNM said.

An exception applies to banks that have chosen to adopt the more advanced Internal Rating Based (IRB) approach to compute capital adequacy. These banks have been given an extension until 2010.

According to a recent BNM report, most banking institutions were anticipated to experience only modest increases in their regulatory capital requirements, following the adoption of the revised capital framework.

Seven banking institutions (including four locally incorporated foreign banking institutions) had been allowed to remain under the existing capital adequacy framework (Basel I) until January 2010, in which they would be required to comply with the IRB approach for credit risk under Basel II by the stipulated deadline.

Additionally, 10 out of 12 Islamic banks had adopted the Capital Adequacy Framework for Islamic Banks, which was the revised framework that specified the standardised approach for capital computations for Islamic banks. The two remaining Islamic banks had opted to migrate directly to the IRB approach in January 2010.

The Edge Financial Daily had inadvertently reported on Monday that there was a time extension in the full implementation of Basel II framework to 2013. The report also wrongly quoted Deloitte Consulting Malaysia as saying that the deadline extension would give banks more leeway in adjusting to the complexities of the requirements.

Moving forward, the central bank said the implementation of the revised capital frameworks for the banking and insurance industries would remain as its key priority this year.

The banking institutions that have been granted approval to adopt the IRB approach for credit risk will be required to submit their internal models to the central bank for review before the models could be used to determine regulatory capital requirements.

Significant supervisory resources would be devoted to the review and validation of these models ahead of the 2010 deadline for implementation of the IRB approaches, the central bank had said.