The Basel III regulatory measures are expected to have less impact on the earnings of Nepali banks compared to their counterparts in the developed world as local institutions are less exposed to securitized assets, derivatives and trading portfolio.
A study conducted by the central bank on Basel III and Nepali banking found that the profits of Nepali banks would not be affected much as they do not have to maintain additional capital for such assets.
The review of possible effects was prompted by a report released by McKinsey & Company which said that Basel III would reduce return on equity (RoE) for the average bank by about 4 percentage points in Europe and about 3 percentage points in the US.
Nepal Rastra Bank ( NRB ) plans to implement Basel III from the current fiscal year, and it has made the study report public to obtain feedback from the stakeholders.
Basel III refers to “Basel III: A global regulatory framework for more resilient banks and banking systems” issued by the Basel Committee on Banking Supervision (BCBS) in December 2010. It is designed to improve the banking sector’s ability to absorb shocks arising from financial and economic stress.
Basel III aims to improve the shock absorbing capacity of each and every bank as the first order of defence. The strategy is directed at ensuring that the banking system as a whole does not weaken, and that its spillover impact on the real economy is minimized.
NRB Spokesperson Bhaskarmani Gnawali said that the regulation would be implemented gradually over the next five years after receiving feedback from the stakeholders during the next one month. “The necessary directives will be issued after consultations with the stakeholders to implement the plan,” he added.
As far as capital requirement against risk is concerned, the central bank has already created a rule requiring banks to maintain capital at a higher level than specified by Basel III.
Similarly, the regulatory framework requires banks to maintain the capital adequacy ratio at 8 percent while NRB has gone a step forward and already set it at 10 percent. While Basel III requires banks to make a provision of buffer capital by 2.5 percent in 2019 starting from 2016, but the central bank has already asked banks here to maintain a buffer capital of 1 percent starting from the last fiscal year. As per the draft regulation on implementation of Basel III in Nepal, the central bank will increase the buffer capital to 2.5 percent in 2019. It plans to raise the total capital adequacy ratio to 12.5 percent in the next five years while Basel III has proposed maintaining it at 10.5 percent by that time.
Nepali banks are not yet exposed to complex financial instruments like derivatives and securitized assets. The global standard has prescribed higher risk weights to such exposure. For this reason, the study says that the risk exposure of Nepali banks is unlikely to be affected much by the measures prescribed by Basel III.
“However, this will ensure good coverage in the future when the scope of Nepal’s banking industry expands to such instruments and exposure,” it stated.
source:the kathmandu post,12 Dec 2013
LINK
A study conducted by the central bank on Basel III and Nepali banking found that the profits of Nepali banks would not be affected much as they do not have to maintain additional capital for such assets.
The review of possible effects was prompted by a report released by McKinsey & Company which said that Basel III would reduce return on equity (RoE) for the average bank by about 4 percentage points in Europe and about 3 percentage points in the US.
Nepal Rastra Bank ( NRB ) plans to implement Basel III from the current fiscal year, and it has made the study report public to obtain feedback from the stakeholders.
Basel III refers to “Basel III: A global regulatory framework for more resilient banks and banking systems” issued by the Basel Committee on Banking Supervision (BCBS) in December 2010. It is designed to improve the banking sector’s ability to absorb shocks arising from financial and economic stress.
Basel III aims to improve the shock absorbing capacity of each and every bank as the first order of defence. The strategy is directed at ensuring that the banking system as a whole does not weaken, and that its spillover impact on the real economy is minimized.
NRB Spokesperson Bhaskarmani Gnawali said that the regulation would be implemented gradually over the next five years after receiving feedback from the stakeholders during the next one month. “The necessary directives will be issued after consultations with the stakeholders to implement the plan,” he added.
As far as capital requirement against risk is concerned, the central bank has already created a rule requiring banks to maintain capital at a higher level than specified by Basel III.
Similarly, the regulatory framework requires banks to maintain the capital adequacy ratio at 8 percent while NRB has gone a step forward and already set it at 10 percent. While Basel III requires banks to make a provision of buffer capital by 2.5 percent in 2019 starting from 2016, but the central bank has already asked banks here to maintain a buffer capital of 1 percent starting from the last fiscal year. As per the draft regulation on implementation of Basel III in Nepal, the central bank will increase the buffer capital to 2.5 percent in 2019. It plans to raise the total capital adequacy ratio to 12.5 percent in the next five years while Basel III has proposed maintaining it at 10.5 percent by that time.
Nepali banks are not yet exposed to complex financial instruments like derivatives and securitized assets. The global standard has prescribed higher risk weights to such exposure. For this reason, the study says that the risk exposure of Nepali banks is unlikely to be affected much by the measures prescribed by Basel III.
“However, this will ensure good coverage in the future when the scope of Nepal’s banking industry expands to such instruments and exposure,” it stated.
source:the kathmandu post,12 Dec 2013
LINK
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