The Reserve Bank of Malawi (RBM) says the implementation of Basel II in January 2014 will help the country in boosting investor confidence.
RBM director of bank supervision Noel Mkulichi was speaking in Blantyre last week when he opened an Internal Capital Adequacy Assessment Process (Icaap) meeting for senior officials and directors of commercial banks.
Basel II is the second of the Basel Accords, which are recommendations on banking laws and regulations issued by the Basel Committee on Banking Supervision, according to Wikipedia.
The purpose of Basel II, which was initially published in June 2004, is to create an international standard that banking regulators can use when creating regulations about how much capital banks need to put aside to guard against the types of financial and operational risks they face.
Advocates of Basel II believe that such an international standard can help protect the international financial system from problems that might arise should a major bank or a series of banks collapse as was the case with Wall Street in the US during the 2008 global financial crisis.
In theory, Basel II attempted to accomplish this by setting up risk and capital management requirements to ensure that a bank holds capital reserves appropriate to the risk the bank exposes itself through its lending and investment practices.
Nkulichi said the implementation of Basel II will send a message across the globe that banks in Malawi are resilient to possible shocks.
â€œThe credit rating of the country is also going to improve. At the same time, the banks are going to extend relatively more loans than they are doing at the moment,â€ he said.
The objective of the meeting is to enable banks carry out their assessment on the way they are prepared to go Basel II.
â€œThis is what is called Internal Capital Adequacy Assessment Process where banks are supposed to asses all the risks that they have so that they know how much of their risk need to be taken into account or even increase the amount of capital that they would want to come up.
â€œThe other issue is that we want the board to be fully involved in issues related to Basel II because there are certain issues that would want their decision to be made,â€ said Nkulichi.
He said so far RBM has received positive feedback from the banks to move to Basel II.
The implementation of Basel II is being coordinated by a national steering committee which has three pillars namely minimum capital standards, supervisory review process and market discipline.
One of the course facilitators, Ina De Vry, underscored the need for depositors and investors funds to be protected all the time.
Said De Vry: â€œImplementing the Basel II will open up the country to the world as investors would freely deal with local banks as they know that risks are covered and it is not just a matter of adhering to regulation, but boost operations of the banks, which is why it is very beneficialâ€.