The Central Bank of Egypt

Transcription

1 The Current Issues in Regulation and Supervision of the Financial Sector in MENA Region Gamal Negm Deputy Governor Abu Dhabi, UAE,19 November 2013

2 Current Situation Arab Spring and its effect on: 1. Political Instability 2. Economic Repercussions 2

3 Major Economic Repercussions Macroeconomic Impact Down grading of Country's credit rating and its effect on Sovereign debts Disrupted Capital Market Impact on the Banking Sector 3

4 Impact on the Banking Sector Liquidity squeeze Foreign reserve pressure due to outflow of foreign investments Foreign exchange pressure due to trade deficit Possible increase in NPL s 4

5 Current Regulatory and supervisory Issues I- The effect of applying Basel III on MENA Region: 1. Spill over effect 2. Implementation issues 5

6 1. Basel III Spill over effect (Deleveraging) Internationally active banks will be forced to reassess their Portfolios and Subsidiary networks and might exit or reduce their participations in the markets that they perceive as high risk. ( emerging markets ) 6

7 1.Basel III Spill Over Effect A. Effect on Banks: A range of activities will no longer be economically sound given the new capital and liquidity requirements. Increase cost of funding and capital requirements will lead to significant pressure on profitability and ROE. 7

8 1.Basel III Spill Over Effect B. Effect on Economies Reduction in banks lending capacity Reduction in investors appetite for bank debt and equity Market size shrinkage and slowing down in economic growth leading to possible recession. 8

9 2.Basel III Implementation Issues A. Conduct detailed and comprehensive QIS B. The countercyclical buffer: - The build up relies on a macro quantitative indicator (credit / GDP ratio ) and fails to apply qualitative & institution specific measures. - National discretion regarding its usage. 9

10 2.Basel III Implementation Issues C. New liquidity ratios ( LCR NSFR ): Ensuring quality of high liquid assets Preserving liquidity features of high liquid assets. Strategy mismatch due to different implementation dates Monitoring and control mechanism 10

11 2.Basel III Implementation Issues D. Leverage ratio Increasing the loan equivalent of off balance sheet exposures when calculating the Basel III leverage ratio 11

12 II- Other Supervisory Issues 1. Highly concentrated banking sector dominated by state owned banks with entry difficulties. 2. Local sovereign debt versus banks liquidity and concentration issues. 3. Exceptional uncertainties affect the results of macro prudential studies and hinders proper views toward financial stability. 4. Lack of coordination between regional credit registries in MENA region to consolidate risk of cross borders customers. 12

13 II- Other Supervisory Issues 5. Governance: Frame work is in place yet improvement is required under: Setting an ethical tone at the top Transparency & disclosure Assessing BOD efficiency & independence Establishing a governance culture & overcoming cultural related issues. Compensation: 1. linked to long term targets. 2. Balance out between Control & business function. 6. Activating the role of the internal control & its independence. 13

14 II- Other Supervisory Issues 7. MENA region regulators mostly apply standardized approaches so they lack: loss experience & accordingly calibration of pillar I frame work (ex: def of regulatory retail portfolio & its applicable RW). Experience to execute validation required under IRB approach ( qualitative & quantitative). The ability to give capital release advantage to more advanced banks applying ICAAP. 14

15 Recommendations 15

16 1.Growth from with in: A. Promotion of financial inclusion Promoting access to finance (ex:msme) Financial consumer protection Mini branches and branchless banking E-banking and outsourcing Financial literacy 16

17 1.Growth from with in: B. Enhance regional financial integration through promoting and facilitating new investment opportunities between MENA countries. 17

18 2.Stringent supervisory rules Better quality of capital Concentration limits ( ex: sovereign, country limits) Capital buffer on concentration portfolio (ex: sovereign, high risk transactions) Capital buffer on liquidity mismatch in excess above acceptable level Strengthening governance & internal control. 18

19 3.Strengthening financial infrastructure Strengthening: 1. Credit information systems (locally & regionally) 2. Collateral regimes 3. Insolvency regimes 4. Bank competition 5. The effectiveness of policy interventions 6. Collaboration between local supervisors to regulate any shadow areas and develop non bank financial sector. 19

20 4.Strengthening Home-Host supervision Applying financial and supervisory integration through: A. Maintaining a strong relations on the level of the MENA region countries through: - MOU - Supervisory colleagues B. Full participation in crises management groups regardless of materiality to home. 20

21 Thank you 21