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Lankan banks to adapt to BASEL III 2014

17 December 2013 03:54 am - 0     - {{hitsCtrl.values.hits}}

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Sri Lanka’s Central Bank (CB) will implement the third and the latest installment of Basel Accords— BASEL III beginning 2014, requiring the banks to further strengthen their capital buffers and also wanting them to decrease bank leverage, according to a CB official.

The CB Assistant Governor C.J.P Siriwardana told a Bank Directors’ Symposium that steps had already been taken to implement BASEL III in line with other countries. Singapore is also set to adapt this third Basel Accord from next year.

“Capital and liquidity measures under BASEL III will be implemented starting from 2014,” he said.

Currently Sri Lanka’s banks maintain adequate capital under the Pillar 2 of BASEL II which was issued only in July this year. As at September 2013, the Core-Capital Adequacy Ratio (CAR) stood at 13.6 percent while the Total CAR was at 15.8 percent against the minimum requirements of 5.0 and 10.0 percent respectively.

However both the ratios were down from end 2012 Core-CAR of 14.0 percent and Total-CAR of 16.0 percent with banking giant Bank of Ceylon in the spotlight for most for their Total-CAR deterioration (11.4 percent) this year.

Though BASEL III was developed by the Basel Committee on Banking Supervision in response to the financial crisis, some argue BASEL III still inherits some of weaknesses in Basel II, as the concept compels banks to hold more capital against risky assets.

It is argued that most of the fundamental problems that were responsible for the global financial crisis, had already been identified with Basel I and Basel II, but Basel III has failed to offer solutions for many of them.

With regard to risk protection in Basel III, the challenge was to reduce unforeseeable risks, whereas Basel II focused mostly on the foreseeable ones.
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