Hong Kong banks lagging in preparation for Basel II

Hong Kong’s banks are lagging their European counterparts in preparing for Basel II with most still at the early stages of project planning, according to a report by consultants KPMG.

Only half of Hong Kong’s banks have started Basel-related projects for both credit and operational risk, compared with 71% of European institutions and 69% of institutions worldwide, the survey said. Moreover, a quarter of Hong Kong respondents are still in the process of establishing teams to address the new credit risk requirements outlined in Basel II. This compares with just 14% of European institutions.

None of the Special Administrative Region banks surveyed have moved beyond the planning and assessment stages for credit or operational risk. European banks, however, have progressed significantly further, with 19% of institutions designing systems and 9% either implementing or testing credit risk models. Meanwhile, 8% of European banks are designing operational risk processes and systems, with a further 8% either implementing or validating models.

“Implementation [of Basel II] is due in 2006, but work needs to start long before then to achieve implementation on time,” said Martin Wardle, financial sector partner for Basel at KPMG, based in Hong Kong. “Banks seem to have taken on board the benefits of adopting an advanced risk management approach. Those organisations that haven’t started yet will need to work very quickly if they are to meet the deadline and have any chance of reducing their capital requirement.”