Hong Kong banks set to struggle with Basel II
Many of Hong Kong’s banks could struggle to implement the new proposals for capital adequacy by the Basel Committee on Banking Supervision, due to their lack of sophisticated risk management systems, claimed consultants Deloitte Touche Tohmatsu at a press briefing in Hong Kong yesterday.
The new Basel Accord, by addressing the shortcomings of the original 1988 Accord, has adopted a more ‘risk-sensitive’ methodology to credit risk capital adequacy. Most Hong Kong banks, said Xuereb, would implement the standardised approach. Risk weights under this approach are to be determined by reference to external credit ratings agencies such as Moody’s and Standard & Poor’s. An area of contention for Hong Kong banks, pointed out Xuereb, is that a large number of corporates in emerging countries have a credit rating under ‘B’ or are un-rated. The external risk weightings for such corporates will remain at 100% or rise to 150%, leading to an increase in capital charges for the banks.
Additionally, a risk management benchmark survey, also conducted by Deloitte Touche Tohmatsu, found the lack of sophisticated risk management systems at Hong Kong banks has caused severe deficiencies in offsetting risk exposures. The over-capitalisation of banks has provided little incentive to integrate risk management on an enterprise-wide scale, which has led to inefficient allocation of capital, the report said.
In spite of these issues, Basel II should act as a catalyst for change in the risk management processes of Hong Kong banks. The banks will be obliged to perform a thorough review of the their risk management frameworks, and upgrade where necessary, said Xuereb.
Only users who have a paid subscription or are part of a corporate subscription are able to print or copy content.
To access these options, along with all other subscription benefits, please contact info@risk.net or view our subscription options here: http://subscriptions.risk.net/subscribe
You are currently unable to print this content. Please contact info@risk.net to find out more.
You are currently unable to copy this content. Please contact info@risk.net to find out more.
Copyright Infopro Digital Limited. All rights reserved.
You may share this content using our article tools. Printing this content is for the sole use of the Authorised User (named subscriber), as outlined in our terms and conditions - https://www.infopro-insight.com/terms-conditions/insight-subscriptions/
If you would like to purchase additional rights please email info@risk.net
Copyright Infopro Digital Limited. All rights reserved.
You may share this content using our article tools. Copying this content is for the sole use of the Authorised User (named subscriber), as outlined in our terms and conditions - https://www.infopro-insight.com/terms-conditions/insight-subscriptions/
If you would like to purchase additional rights please email info@risk.net
More on Regulation
One year on, regulators still want a cure for bank runs
Broad support for higher outflow assumptions on uninsured deposits, but that won’t save insolvent banks
Watchlist and adverse media monitoring solutions 2024: market update and vendor landscape
This Chartis report updates Watchlist monitoring solutions 2022 and focuses on solutions for sanctions (name and transaction) screening and monitoring adverse media and its related elements
Basel Committee reviewing design of liquidity ratios
Focus on LCR and NSFR after Silicon Valley Bank and Credit Suisse, but assumptions may not change
Risk, portfolio margin, regulation: regtech to the rescue
A white paper outlining the complexity of setting the course for risk, margin and regulation
Prop shops recoil from EU’s ‘ill-fitting’ capital regime
Large proprietary trading firms complain they are subject to hand-me-down rules originally designed for banks
Revealed: the three EU banks applying for IMA approval
BNP Paribas, Deutsche Bank and Intesa Sanpaolo ask ECB to use internal models for FRTB
FCA presses UK non-banks to put their affairs in order
Greater scrutiny of wind-down plans by regulator could alter capital and liquidity requirements
Industry calls for major rethink of Basel III rules
Isda AGM: Divergence on implementation suggests rules could be flawed, bankers say
Most read
- Basel Committee reviewing design of liquidity ratios
- SG trader dismissals shine spotlight on intraday limit controls
- Too soon to say good riddance to banks’ public enemy number one