GCC banks behind on Basel II requirements

Daily news headlines

A software vendor has warned that banks in the Gulf Cooperation Council area (GCC) are likely to miss the January deadline for compliance with Basel II due to inadequate systems for measuring operational risk.

Naresh Kothari, president and managing director of Intertec Systems, which offers a Basel II solution FlexFinance, says banks that choose not to adopt the advanced measurement approach will be at a considerable competitive disadvantage to those that do, as international banks will be more amenable to working with them.

Most GCC banks have procedures in place to measure credit risk but few have systems to deal with op risks, says Kothari. Many are relying on spreadsheets, which are not feasible to measure op risks, he adds.

Of course, Intertec Systems has an agenda to market its Basel II-compliant system but Kothari is right. Most small and mid-sized banks are only aiming for the standardised approach and are disadvantaged by a shortage of experienced op risk personnel in the region. Many internal audit managers have been sequestered by banks to set up op risk departments, and simply do not have the experience or techniques to create the most effective or cost-efficient op risk framework. Look out for the next issue of OpRisk & Compliance, which includes a feature article on op risk in the Middle East.