Basel trouble brewing in Europe's accession countries

Domestic banks and corporate banking customers in central and eastern Europe could have trouble adapting to the changes the revised Basel Accord would have on their economies.

Dr. Hubert Figl, head of the credit risk management divison at Raiffeisen Zentralbank Osterreich, in Vienna, warned the European Parliament’s Committee on Economic and Monetary Affairs in mid-February of the effects of Basel II adoption on countries in that region.

Figl says that awareness of the Basel II proposals in the accession countries—those nations applying to become members of the European Union over the next few years—has risen during the past few months thanks in part to publicity efforts by the central banks and because a large number of the region’s banks have participated in the Bank for International Settlements’ third Quantitative Impact Study, completed at the end of 2002.

Figl says that accounting standards and the legal environment in these nations will have to be evolved very quickly to accommodate the Basel II changes. He also requested that the EU develop one major approval process valid for all EU countries for the internal ratings-based approach to credit risk measurement and management. He also requested a longer transition period for banks in those countries, or a permanent right for partial use of back-testing because of the lack of historical data.

Figl also mentioned the impact that the Basel II standards would have on corporate customers, who are not used to the strict “90-days past due to default” rules and often do not understand collateral arrangements or have the levels of financial transparency that companies in the rest of Europe are used to.BaselAlert.com