Basel II - PowerPoint PPT Presentation

1 / 19
About This Presentation
Title:

Basel II

Description:

... but in a year the Internal-Ratings Based approach: Hong Kong, Japan, Thailand ... II gives incentives for developing capital market products exactly what is ... – PowerPoint PPT presentation

Number of Views:59
Avg rating:3.0/5.0
Slides: 20
Provided by: vuk64
Category:
Tags: basel | capital | hong | is | kong | of | the | what

less

Transcript and Presenter's Notes

Title: Basel II


1
Basel IIs Impact in the Emerging European
Markets 15th International Banking Congress
Saint Petersburg, June 7-10, 2006
  • Piroska M. Nagy
  • EBRD

2
Outline of presentation
  • Basel II update
  • Impact of Basel II
  • The EBRDs role

3
Basel II timeline
  • Basel II is designed for large internationally
    active banks, but it will spread more widely
  • Compulsory in the EU adopted by the European
    Parliament. Implementation from Jan 1, 2007
  • Will be introduced in many advanced economies
    Canada, Japan, Switzerland, Singapore, Hong Kong,
    Australia
  • Delay in the USA 2009 instead of 2008, and only
    the most sophisticated method allowed. They will
    modify Basel I for the other banks
  • Peer pressure will accelerate its introduction in
    other EMs (Asia, Latin America). In transition
    economies Croatia, Albania, other SEEs
    Kazakhstan, Russia.

4
Basel II will be introduced in stages in many
countries
  • Full introduction of simple and more
    sophisticated approaches Australia, Korea,
    Singapore, New Zealand, EU
  • First Standardized Approach only, but in a year
    the Internal-Ratings Based approach Hong Kong,
    Japan, Thailand
  • Only Standardized Approach for the time being and
    later move to advanced ones at a date not yet
    known China, India

5
Basel II in one picture
6
Impact of Basel II
  • On
  • Regulatory capital
  • Bank behaviour
  • Industry competition and consolidation
  • Macro economy
  • Special issues in CEEs

7
Impact of Basel II Capital the biggest question
Individual/regional
Global

8
Hungary QIS3 and QIS5 outcomes
TOTAL
Op risk
Credit risk
TOTAL
9
Summary
  • Advanced economies capital requirement of banks
    with good risk management and reasonable
    portfolios will decline
  • Emerging Markets the results will be very diverse
  • Winners
  • Banks that can afford expensive models and IT
  • Banks that improve their risk management and
    database ? Start early with the preparations!
  • Banks with large retail exposures the winning
    asset class of Basel II
  • Losers
  • Banks with weak portfolio and risk management
    quality
  • Banks whose lending is concentrated on low or
    non-rated corporates and sub-investment grade
    sovereigns
  • Banks that delay preparations

10
Impact on bank behaviour
  • Big improvement in risk management. In emerging
    markets, it is a mini-revolution
  • Better risk management will help better pricing
    of credit risk by business line
  • Use of risk mitigation instruments is expected to
    jump
  • Possible portfolio shakeouts
  • Results clearly depend on the type of approach
    chosen

11
Impact on banking industry
  • Further bank consolidation can be expected
  • Dispersion is large (remember the Hungarian case)
    clear winners and losers
  • Large banks have an edge because only they can
    afford best IT and models. The result will be
    freed-up capital for expansion
  • Medium-sized and small banks without a clear
    niche may be targeted
  • In Central and Eastern Europe and also in Russia,
    ongoing bank consolidation may get a boost from
    Basel II

12
Impact on macro economy
  • Probably positive on growth better pricing ?
    better capital allocation ? higher potential
    growth
  • Procyclicality big debate, but probably
    increases procyclicality
  • Some concerns over systemic risks (home-host
    boost to already high household debt)

13
Special issues in emerging Europe
  • In many countries where main banks are
    foreign-owned, the Basel II process is parent
    bank-controlled
  • Non-foreign owned, local banks face huge
    challenges in complying with Basel II
  • Supervisory preparedness is an additional
    challenge

14
The Home-Host Supervisory Issue
  • Basel IIs approach supervision is based on
    consolidated banking group
  • Thus, home supervisor takes the lead in
    supervision and monitoring, and in coordinating
    with host supervisor
  • Problem if a countrys banking system is
    dominated by foreign-owned banks/their
    subsidiaries, host supervisors lose power while
    still are responsible by law for financial sector
    stability
  • There should information-sharing but also
    perhaps cost-burden sharing

15
Special Issue Basel II provides for more
mitigation higher level of protection
Level of protection
Basel II
Higher Capital Relief
Basel I
Range of CRM instruments
16
What are these CRMs? Well- known in advanced
economies but not yet in Emerging Europe
  • Credit Risk Mitigation instruments
  • Guarantees
  • Credit derivatives
  • Securitization
  • Netting operations
  • Collateralization
  • For many of these, banks will need high- quality
    credit enhancers such as the EBRD
  • For many of these, some legal and regulatory
    adjustments may be needed

17
Why is the EBRD interested in all this?
  • EBRD has a mandate to promote financial sector
    development and Basel II is the new industry
    standard
  • Basel II essentially leverages the regulatory
    system to improve risk management in banks and
    EBRD supports this
  • Basel II gives incentives for developing capital
    market products exactly what is missing to
    complete transition in the financial sector

18
What can the EBRD do?
  • Help develop better risk management practices
  • As part of this, work with banks to introduce
    properly designed risk mitigation instruments
    (primarily securitization, some simple credit
    derivatives)
  • Provide credit enhancement
  • Help address potential need for higher regulatory
    capital
  • Work with regulators to modify the legal and tax
    framework.

19
????????? ????
?????? ??????? ???? ??????? ?????? ? ???????? ??. ????? nagyp_at_ebrd.com ???. (44 207) 338 7861 ?????? ??? ????????? ????????? ?????? ?????????? ??????????? , ?????? ??. ????? tesseymn_at_mos.ebrd.com ???. (7 495) 787 1111
Write a Comment
User Comments (0)
About PowerShow.com