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16261
Mon, 08/18/2008 - 17:49
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http://m.oananews.org//node/16261
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BASEL II A POWERFUL TOOL TO ENHANCE LONG-TERM RESILIENCE & COMPETITVE ADVANTAGE
KUALA LUMPUR, Aug 18 (Bernama) -- The implementation of Basel II, which are recommendations on banking laws and regulations issued by the Basel Committee on Banking Supervision, is a powerful tool for banks to significantly enhance both long-term resilience and competitive advantage, said Malaysia's Central Bank Governor, Dr Zeti Akhtar Aziz.
Basel II, promises greater financial stability through the closer alignment of risk with capital, she said in her keynote address at the Fourth SEACEN/ABAC/ABA/PECC Public-Private Dialogue for the Asia Pacific Region here.
"To realise the full benefits from the implementation of Basel II, its multi-faceted dimensions need to be well understood and integrated with the financial structures, institutional practices, and supervisory systems," sheadded.
She also said emerging markets in particular would need to ensure that supervisory interpretations of the framework are contextualised to local conditions, and the pre-conditions for its effective implementation areadequately developed to avoid potential market distortions.
"At the institutional level, Basel II provides a unique opportunity forbanks to integrate risk considerations with their business strategies.
"Indeed, several leading financial institutions have successfully taken Basel II beyond the narrow and mechanistic risk applications to a more strategic implementation of the framework across the organisation," shehighlighted.
According to Zeti, such institutions have leveraged on the upgraded risk infrastructures that have been established for Basel II to create competitiveadvantages through the application of new business and management tools.
"This enables the risk function to have a central role in forming strategic moves into new markets or products. In the process, this will ensure that thestrategies are aligned with the bank's risk appetite and policies," she said.
She however added that the benefits of Basel II could not be achieved withjust a strict regulatory compliance approach.
"While Basel II serves as a powerful catalyst to reposition the role of, and the attention to of risk management in banking institutions, significant efforts too need to be directed at strengthening the financial structure,corporate governance, risk management and data capabilities," she said.
In the Asia Pacific region, thirteen countries have adopted thestandardised approaches under Basel II for credit and operational risks.
A number of countries have either already adopted or announced plansto embrace the more advanced approaches by 2010 or earlier.
Malaysia adopted the standardised approach this year and recently issued a concept paper detailing the parameters for the implementation of the moreadvanced approach in 2010.
Zeti said in the wake of the sub-prime mortgage crisis in the United States, several aspects of Basel II have attracted attention such as the use of ratings in the regulatory framework and whether this has unintentionallydiscouraged investors from performing their own due diligence.
"The underestimation of risk for structured credit securitisations has now come under greater scrutiny. There has also been increased debate over thecyclicality impact of Basel II," she added.
For emerging economies, Basel II has arguably a more far reaching impact as the economies continue to depend heavily on the banking system to financeeconomic activity.
Zeti explained that with a few exceptions,commercial banks are the main providers of credit in most emerging economies, accounting for an average of 90percent of total credit.
"This produces a higher correlation to the economic sectors where the implications on the banking system could result in significant disruptions to credit supply which could in turn affect economic activity," she pointedout.
In Malaysia, Zeti said the financial reforms undertaken were to strengthen the underpinnings of the banking system which are instrumental in facilitating the smooth transition to the adoption of Basel II without adverse marketoutcomes.
Basel II, promises greater financial stability through the closer alignment of risk with capital, she said in her keynote address at the Fourth SEACEN/ABAC/ABA/PECC Public-Private Dialogue for the Asia Pacific Region here.
"To realise the full benefits from the implementation of Basel II, its multi-faceted dimensions need to be well understood and integrated with the financial structures, institutional practices, and supervisory systems," sheadded.
She also said emerging markets in particular would need to ensure that supervisory interpretations of the framework are contextualised to local conditions, and the pre-conditions for its effective implementation areadequately developed to avoid potential market distortions.
"At the institutional level, Basel II provides a unique opportunity forbanks to integrate risk considerations with their business strategies.
"Indeed, several leading financial institutions have successfully taken Basel II beyond the narrow and mechanistic risk applications to a more strategic implementation of the framework across the organisation," shehighlighted.
According to Zeti, such institutions have leveraged on the upgraded risk infrastructures that have been established for Basel II to create competitiveadvantages through the application of new business and management tools.
"This enables the risk function to have a central role in forming strategic moves into new markets or products. In the process, this will ensure that thestrategies are aligned with the bank's risk appetite and policies," she said.
She however added that the benefits of Basel II could not be achieved withjust a strict regulatory compliance approach.
"While Basel II serves as a powerful catalyst to reposition the role of, and the attention to of risk management in banking institutions, significant efforts too need to be directed at strengthening the financial structure,corporate governance, risk management and data capabilities," she said.
In the Asia Pacific region, thirteen countries have adopted thestandardised approaches under Basel II for credit and operational risks.
A number of countries have either already adopted or announced plansto embrace the more advanced approaches by 2010 or earlier.
Malaysia adopted the standardised approach this year and recently issued a concept paper detailing the parameters for the implementation of the moreadvanced approach in 2010.
Zeti said in the wake of the sub-prime mortgage crisis in the United States, several aspects of Basel II have attracted attention such as the use of ratings in the regulatory framework and whether this has unintentionallydiscouraged investors from performing their own due diligence.
"The underestimation of risk for structured credit securitisations has now come under greater scrutiny. There has also been increased debate over thecyclicality impact of Basel II," she added.
For emerging economies, Basel II has arguably a more far reaching impact as the economies continue to depend heavily on the banking system to financeeconomic activity.
Zeti explained that with a few exceptions,commercial banks are the main providers of credit in most emerging economies, accounting for an average of 90percent of total credit.
"This produces a higher correlation to the economic sectors where the implications on the banking system could result in significant disruptions to credit supply which could in turn affect economic activity," she pointedout.
In Malaysia, Zeti said the financial reforms undertaken were to strengthen the underpinnings of the banking system which are instrumental in facilitating the smooth transition to the adoption of Basel II without adverse marketoutcomes.
