The South East Asian Central Banks (SEACEN) Research and Training Centre Kuala Lumpur, Malaysia

Transcription

1 BASEL III IMPLEMENTATION: CHALLENGES AND OPPORTUNITIES Edited By J P R Karunaratne The South East Asian Central Banks (SEACEN) Research and Training Centre Kuala Lumpur, Malaysia

2 TABLE OF CONTENTS Pages Foreword Executive Summary ^ XVU1 Chapter 1 OPPORTUNITIES INTEGRATIVE REPORT By J P R Karunaratne 1. Introduction Currency Volatility in 1970s Basel I Capital Accord Evolution of Basel II Framework Global Financial Crisis and Evolution of Basel III Framework Issues and Implications in the Implementation of Basel III in Global Banks Objectives, Scope of the Study and General Outline of the Paper Limitations of the Study Structure of the Paper The Overview of Financial System and Risk Assessment General Overview of the Financial System Risk Oversight Assessment and Vulnerabilities Assessment of the Impact of Basel Standards Current Status of Application of Basel Capital Adequacy Framework Assessment of Impact on Current Capital Ratios Assessment of Current Level of Leverage Assessment of Liquidity in Terms of New Liquidity Ratios 45 vi

3 4. Issues and Challenges of Implementing Basel Standards Capital Augmentation and Related Issues Implications on the Financial Markets and Economy Regulatory Constraints Review of Asset and Liability Management Strategies Implications on Cost and Profitability Infrastructure Issues Human Resources Constraints Impact on Gross Border Supervision Issues in Implementation of Counter Cyclical Buffer The Way Forward and Strategie Options Road Map for Implementation of Basel III Strengthening Regulatory Framework Measures to Address Countercyclical Capital Buffer Development of Capital Markets and Instruments and Financial infrastructure Conclusion 65 References 70 Appendices 71 Chapter 2 OPPORTUNITIES IN BRUNEI DARUSSALAM By Maizatul Najibah Hj Awang Mohammad 1. Introduction Objective and Scope of Study General Outline of Paper Overview of Financial System and Risk Assessment General Overview of the Financial System of the Country Risk Oversight Assessment and Vulnerabilities 79 vü

4 3. Status of Application of Basel Capital Adequacy Framework Assessment of Impact of Current Capital Ratios Implementing Other Basel Standards in Brunei Darussalam 84 Chapter 3 OPPORTUNITIES IN CAMBODIA By Ban Lim 1. Introduction Objective and Scope of Study General Outline of Paper Overview of Financial System and Risk Assessment General Overview of Financial System of Cambodia Risk Oversight Assessment and Vulnerabilities Status of the Application of Basel Capital Adequacy Framework Assessment of Impact of Basel Standards Current Level and Adequacy of Capital of Individual Banks or Banking Croups in Terms of Key Performance Indicators for Capital Assessment of Capital Level in Terms of Enhanced Capital Requirements of Basel under Different Capital Components Current Level and Adequacy of Liquidity of Individual Banks or Banking Group in Terms of Key Performance Indicators for Liquidity Issues and Challenges of Implementing Basel Standards Regulatory Constraints Level of Coverage Attract New Capital and Challenges for Enhancing Capital Level Adaptation with New Liquidity Requirement 96 viii

5 5. Way Forward and Strategie Options Discussion with Banks on Impact Assessment and Examine Possible Strategies Readiness for Implementation of Basel at Desired Level and Time Plan Conclusion 97 Chapter 4 CHALLENGES AND OPPORTUNITIES OF BASEL III IMPLEMENTATION: CASE OF INDONESIA By Minar Iwan Setiawan 1. Introduction Objective and Scope of Study General Outline of Paper Overview of Financial System and Risk Assessment General Overview of Indonesian Financial System Risk Oversight Assessment and Vulnerabilities The Status of Application of Basel Capital Adequacy Framework Assessment of the Impact of Basel III Standards Definition and Type of Banks Assessment of Impact on Current Capital Ratios Assessment of Current Level of Leverage Assessment of Liquidity in Terms of New Liquidity Ratios Issues and Challenges pf Implementing Basel III Standards Regulatory Constraints and Infrastructure Issues Capital Augmentation and Related Issues Review of Asset and Liabilities Management Strategies Implication on Cost and Profitability Implication on Financial Markets/Economy Human Resource Constraints 130 ix

6 4.7 Impact on Gross Border Supervision Issues in Implementation of Countercyclical Capital Buffer The Way Forward and Strategie Options Strengthening the Regulatory Framework Development of Capital Markets and Instruments Balancing Between Conservativeness and Competitiveness of Indonesian Banking Industry Roadmap for Implementation of Basel III Conclusion 134 References 136 Chapter 5 THE EFFECTS AND POLICY IMPLICATIONS OF BASEL III IN KOREA By Jinshik Son 1. Introduction Overview of Korean Financial Systems and Risk Assessment Financial Institutions Financial Markets Risk Oversight Assessment and Vulnerabilities Current Status of Global Financial Regulation Contents of Global Financial Regulations Current Status of Compliance by Korean Banks Effects of Basel III Capital Regulations Effects on Banks' Behaviour Effects on Financial Markets Effects on Economic Growth Banks' Risk Management Behaviour and Effects of Countercyclical Capital Buffer 165 x

7 5. Effects of Basel III Liquidity Standards Effects on Banks' Behaviour Effects on Financial Markets Policy Implications and Conclusions 177 References 179 Chapter 6 OPPORTUNITIES IN MALAYSIA By Muhammad Syukri bin Shamsuddin 1. Introduction The Overview of Financial System and Risk Assessment General Overview of the Malaysian Financial System The Application of Basel Capital Adequacy Framework in Malaysian Banks Assessment of the Impact of Basel III Current Level and Adequacy of Capital of Individual Banks or Banking Croups in Terms of Key Performance Indicators for Capital Assessment of Capital Levels in Terms of Enhanced Capital Requirements of Basel under Different Capital Components Issues and Challenges of Implementing Basel III Standard on Malaysian Banks The Way Forward and Strategie Options Conclusion 203 References 205 xi

8 Chapter 7 OPPORTUNITIES IN MYANMAR By Cho Cho Lwin 1. Introduction Objectives and Scope of Study Outline of Paper Overview of Financial System and Risk Assessment General Overview of the Financial System Risk Oversight Assessment and Vulnerabilities Status of Application of Basel Capital Adequacy Framework Assessment of Impact of the Basel Standards Assessment of Impact on Current Capital Ratios Assessment of Current Level of Leverage Assessment of Liquidity in Terms of New Liquidity Ratios Impact on Different Peer Croups and the Banking System Issues and Challenges in Implementing the Basel Standards Regulatory Constraints Capital Augmentation and Related Issues Review of Assets and Liability Management Strategies Implications on Cost and Profitability Implications for the Financial Markets/Economy Infrastructure Issues Human Resource Constraints Impact on Cross-border Supervision The Way Forward and Strategie Options Strengthening the Regulatory Framework Capital and Liquidity Management Strategies of Banks Development of Capital Market Instruments Development of Infrastructure and Addressing of Related Issues Capacity Building for Staff of Regulator and Banks Road Map for Implementation of Basel III 239 xii

9 6. Conclusion Capital Deposit Ratio Unattractive Interest Rates Lack of Banking Services Narrow Range of Banking Products Delay to Establish Capital Market 241 References 242 Appendices 243 Chapter 8 OPPORTUNITIES IN NEPAL By Chet Prasad Uprety 1. Introduction Objectives and Scope of Study General Outline of the Paper Overview of Financial System and Risk Assessment in Nepalese Financial System General Overview of Nepalese Financial System Risk Oversight Assessment and Vulnerabilities in Nepal Banking System Status of Application of Basel Capital Adequacy Framework in Nepal Assessment of the Impact of Basel III Assessment of Impact on Current Capital Ratio Assessment of Current level of Leverage Assessment of Liquidity in Terms of New Liquidity Ratios Impact on Different Peer Croups and Banking System Issues Challenges and Implications of Implementing Basel III Regulatory Constraints Capital Augmentation and Related Issue 267 xiii

10 4.3 Review of Assets and Liability Management Strategies Implications on Cost and Profi tability Implication on Financial Market/Economy Infrastructure Issues Human Resources Constraints Impact of Cross-border Supervision Issue in Implementation of Counter Cyclical Capital Buffer The Way Forward and Strategie Options Strengthening Regulatory Reforms Capital and Strategie Liquidity Management by Banks Development of Capital Markets and Instruments Development of Infrastructure and Address Related Issues Capacity Building for Staff of Regulators and Banks Road Map for Implementation of Basel III Conclusions 273 References 275 Abbreviations 276 Appendix 277 Chapter 9 BASEL III IMPLEMENTATION IN THE PHILIPPINES: CHALLENGES AND OPPORTUNITIES By the Supervision and Examination Sector and Department of Economic Research, Bangko Sentral ng Pilipinas 1. Introduction Objective and Scope of the Study General Outline of the Paper Overview of Financial System and Risk Assessment General Overview of Financial System of the Country Risk Oversight Assessment and Vulnerabilities 288 xiv

11 2.3 Status of Application of Basel Capital Adequacy Framework Assessment of the Impact of Basel III Current Level and Adequacy of Capital of Individual Banks or Banking Croups Assessment of Capital Levels in Terms of Enhanced Capital Requirements of Basel III under Different Capital Components Assessment of Future Capital Requirements in Terms of Business Models of Banks and Identification of Caps Current Level and Adequacy of Liquidity of Individual Banks or Banking Croups in Terms of Key Indicators for Liquidity Assessment of Current Liquidity in Terms of New Liquidity Requirements of Basel and Identification of Additional Requirements Issues and Challenges in Implementing Basel Standards Regulatory Constraints Level of Coverage Attract New Capital and Challenges for Enhancing Capital Level Adaption of New Liquidity Requirements Enforcement Capabilities Assessment Macroeconomic Impact The Way Forward and Strategie Options Introduction of Legislative Reforms and Preparation of Necessary Guidelines/Directions Discussions with Banks on Impact Assessment and Examination of Possible Strategies Improved Risk Management Framework Development of Capital Markets and Instruments Addressing Resource Constraints and Challenges (Capacity Building and Modifications to the IT Infrastructure) Some Final Thoughts 315 References 317 xv

12 Chapter 10 OPPORTUNITIES IN SRI LANKA By R R S De Silva Jayatillake 1. Introduction Objective and Scope of Study General Outline of Paper Overview of Financial System and Risk Assessment General Overview of Financial System of Sri Lanka Risk Oversight Assessment and Vulnerabilities Status of Application of Basel Capital Adequacy Framework Assessment of Impact of Basel Standards Assessment of Impact on Current Capital Rules Impact of Different Peer Croups and the Banking System Issues and Challenges of Implementing Basel Standards Regulatory Empowerment Capital Augmentation and Related Issues Review of Asset and Liability Management Strategies Human Resource Constraints Infrastructure Issues Impact on Cross-border Supervision Issues in Implementation of Countercyclical Buffer The Way Forward and Strategie Options Strengthening Regulatory Framework Capital and Liquidity Management Strategies by Banks Development of Capital Markets and Instruments Development of Infrastructure and Related Issues Capacity Building for Staff of Regulators and Banks Road Map for Implementation of Basel II and III Conclusion 356 References 357 xvi

13 Chapter 11 PECKING ORDER MACRO-PRUDENTIAL TOOLS: BOT'S EXPERIENCE FROM TAILORED POLICY MEASURES TO BASEL III'S COUNTERCYCLICAL BUFFER By Maetinee Hemrit 1. Introduction Objective and Scope of the Study General Outline of the Paper Overview of Financial System and Risk Assessment General Overview of the Financial System of the Country Risk Oversight Assessment and Vulnerabilities Why Macro-prudential? Basel III's Countercyclical Buffer Macro-prudential Policy Choices: BOT's Experience Tightened Restrictions on Credit Card and Personal Loan: Addressing Sectoral Imbalance Loan-to-value (LTV) Ratios on Mortgage Loans: A Flexible Preemptive Tool Tightened Loan-loss Provisioning: Leaning against the Wind BOT's Reflection on Use of Countercyclical Buffer 375 References 377 xvii