Time is ripe for BASEL II implementation: Experts

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Implementation of the Basel II accord, the latest version of capital standards for banks worldwide, is needed to face the challenges that lies ahead against the backdrop of a global financial meltdown, speakers said in a seminar on Monday.

They pointed out that this was the perfect time for adopting the new capital adequacy norms for maintaining risk management capabilities commensurate with the risks of their business.

Such initiative would help promote successful development of country's capital market and prepare the local financial institutions to safely navigate through to future, they opined.

They were speaking at a seminar titled 'BASEL II and its Implications for Bank Capital Raising' organised jointly by the World Bank and the Citibank NA Bangladesh.

Speaking as chief guest, adviser to the prime minister (economic affairs) Dr. Mashiur Rahman said, "This is the right moment to implement the Basel II accord considering the severity of the ongoing global financial downturn."

Reforms in the banking sector are imperative in dealing with the external shocks, he added.

"We have to be prepared to face the challenges in the years to come and adaptation of Basel II will help the banks to manage their risks," he said adding that the local banks were doing well even in the global financial crisis.

The standard of the country's banking sector is now not less than what is required under the Basel II, Mashiur argued.

Securities and Exchange Commission (SEC) chairman Faruq Ahmad Siddiqi, World Bank Country Director Xian Zhu, Citi's Asia Pacific head of Investment Banking Dan McNamara and Citi Country Officer Mamun Rashid attended the seminar.

Faruq Ahmad said, "The challenge for the smaller banks is to raise their capital base by aligning their banking services to international standards amid the global financial crisis," he said adding that however, the banks can raise capital through declaring stock dividends and issuing rights shares for their shareholders.

Basel II will encourage the banks to use modern risk management techniques as well as to enrich their risk management capabilities, he said.

Xian Zhu said, "I would like to emphasize that the challenges of implementing Basel II are heightened in turbulent financial markets, and its transition must be managed carefully to mitigate any unintended effects."

To manage the risks of transition to Basel II, advanced approaches are to be phased over one to two years, during which time Basel I continues to be applicable, he added.

"Lots of debates surround the role of Basel II in the context of ongoing global crisis. Experts argue that the framework was not fully implemented in many of the jurisdictions in the summer of 2007 when the turmoil started unfolding the weakness of the financial markets," Zhu said.

For bank's capital adequacy requirement, the Bangladesh Bank has already introduced the Basel II from January this year.

The new Basel accord has been prepared on the basis of three pillars: minimum capital requirement, supervisory review process and market discipline.

Three-types of risks - credit risk, market risk and operational risk-have to be considered under the minimum capital requirement.

For credit risk measurement, new framework provides two different methods- standardised approach and internal ratings-based approach.

More than 100 countries have so far announced intentions to implement Basel-II during the stipulated timeframe. Neighbouring countries like Pakistan and India are in the process of adopting the Base II accord.