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.
As outlined in our terms and conditions, https://www.infopro-digital.com/terms-and-conditions/subscriptions/ (point 2.4), printing is limited to a single copy.
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. As outlined in our terms and conditions, https://www.infopro-digital.com/terms-and-conditions/subscriptions/ (clause 2.4), an Authorised User may only make one copy of the materials for their own personal use. You must also comply with the restrictions in clause 2.5.
If you would like to purchase additional rights please email info@risk.net
More on Regulation
Iosco pre-hedging review: more RFQs than answers
Latest proposals leave observers weighing new clampdown on pre-hedging
FCMs welcome CFTC margin rule ring-fencing clarification
Final rule on separate accounts replicates no-action relief as Republicans strip out gold plate
Stuck in the middle with EU: dealers clash over FRTB timing
Largest banks want Commission to delay implementation, but it’s not the legislator’s only option
Treasury clearing timeline ‘too aggressive’ says BofA rates head
Sifma gears up for extension talks with incoming SEC and Treasury officials
Rostin Behnam’s unfinished business
Next CFTC chair must finish the work Behnam started on crypto regulation and conflicts of interest
European Commission in ‘listening mode’ on potential FRTB changes
Delay or relief measures on the table after UK postpones start of Basel III to 2027
Australian FRTB projects slow down amid scheduling uncertainty
Market risk experts think Apra might soften NMRF regime to spur internal model adoption
EBA to address double-counting caused by new capital floor
Existing EU capital add-ons for model risk would duplicate new Basel floor on internal models