Basel II unlikely to cause marked cut in emerging markets lending, says Bank of England

The proposed Basel II bank Accord seems unlikely to cause a marked contraction in lending to borrowers in emerging markets, even low quality borrowers, the Bank of England said today.

That is because banks’ loan pricing already reflects the borrower’s creditworthiness, the UK central bank said in a pre-released article that will be published later this week in its December Financial Stability Review.

And the regulatory capital charge against such loans will not rise, but may indeed fall, for lending to several emerging markets.

The complex, risk-based Basel II Accord that global bank regulators want to apply to major banks from late 2006 aims to ensure that banks’ regulatory capital more closely reflects the credit quality of their loans.

The Bank of England noted some commentators have expressed concern that this might provoke a sharp increase in borrowing costs for borrowers in emerging markets.