Banks ready for Basel II parallel run

With only eight months before Basel II rolls out, the Reserve Bank of Malawi (RBM) is confident that the country’s banks have reached a stage where they can ‘comfortably’ conduct a parallel run of the second of Basel accords.

Basel II are recommendations on banking laws and regulations issued by the Basel Committee on Banking Supervision, and the local banks are expected to be compliant come January 2014.

RBM director for bank supervision Noel Mkuluchi said on Monday in Blantyre the preparedness of the banks show that they have done what is required for the central bank to implement Basel II.

“Although there are still some implementation challenges, we are confident that eight months is enough time to address such challenges. After all, it is the objective of the parallel run to iron out all possible challenges or problems before the implementation date,” he said at the start of a three-day internal audit and pillar III training for banks’ internal auditors facilitated by Rob Wade and Olive Houghton of KPMG South Africa.

Mkulichi noted that it is encouraging that all Basel II guidelines which set minimum standards for complying with the requirements and domesticating the accord to suit the setting of banking industry have formally been issues to all banks.

He urged the internal auditors to use market disclosure guidelines outlining the minimum disclosures that banks are expected to make for the public to make informed decisions when investing or transacting with the banks.

“Let me take this opportunity to remind you that the market disclosures guidelines require each bank to have a market disclosures policy. The purpose of the market disclosures policy is to set out the bank’s approach for determining which disclosures it will make, and to outline the internal controls over the disclosures process,” he said.

The RBM has adopted the Basel II standards for risk and capital management to develop a framework that would further strengthen the soundness and stability of the banking system.

Basel II has benefits to the banking industry and the customers as well.

Through the implementation of Basel II coordinated by at the RBM by Sammy Chilunga and Mkonda Nhlema, the banks’ risk management structures will be enhanced.

The capital adequacy requirements for the country’s banks will be a reflection of the quantification of all material risks; indicating that banks with best risk management practices will be rewarded with lower capital requirements.

According to RBM, enhanced risk management practices will also improve banks’ ability to offer new products to customers and allow for better risk-adjusted pricing.

Further, Basel II will level the playing field since all banks will be subjected to risk differentiated capital adequacy requirement rules, for example, banks moving from traditional banking activities to complex banking activities will see an increase in their capital requirements in line with their changing business strategy and risk profile.

One of the participants, Beatrix Aroni, who is chief financial officer at Nedbank Malawi, said it is a requirement for the banks to comply with the new developments in the international banking industry.

“As the market is getting more complicated and more risky, banks are requested to enhance their risk management practices,” she said, adding that as a bank they have engaged in training, capital adequacy requirement and management process and market disclosure to comply with Basel II.