By Kazi Mahmood
Basel III, which replaces Basel II is intended to plug the loopholes where its predecessors failed, will demand more dedication from all stake players for it to be practical, an industry expert said.
The global regulatory reform under Basel III refers to guidance issued by Bank of International Settlements as a comprehensive response to the global credit crisis, but what is of importance is to ease its application within the Islamic finance sector.
“More dedication from both stake players, from the regulators and the market players are needed to make things more simplified because one of the key issues for the implementation of the regulations is making it practically possible,” Deloite & Touche Islamic finance group director Dr Hatim El-Tahir said to The Malaysian Reserve (TMR).
The Basel III regulations will bring up the importance of capital adequacy and liquidity management, which will be the base for sound industry, though they will affect to a certain extent the day to day business capabilities of the Islamic finance institutions, he said on the sideline of the forum entitled Basel III: Its Impact on Islamic finance.
“You can’t bend the arms of these institutions in order to fulfill the benchmarks of international regulations thus affecting the lending and financing capacity of the Islamic institutions. These are the key issues we have been hearing from industry players,” he said.
“Limiting the capital adequacy of the institutions is not going to make it better for them to do their business and this is with regards to the sustainability of smaller banks, not only that of Islamic banks. I think the Basel regulators need to think in terms of the specific requirements and capacities of the banks and markets to make things more realistically possible,” he said.
He said preparations for Basel III should be considered in different stages whereas strategic actions for balance sheet composition, funding, capital management, and business planning necessitate a solid understanding of issues and robust action plan.
Execution of business strategies and changes to funding mix, liquidity profile, or capital structure can also depend on macro variables, competitive environment, market conditions, and business opportunities; as such, some may take several years to accomplish, he said during his presentation.
“The ideas about the safe capital base or high liquid assets and good risk management, these are all good from theory. How will smaller banks for example implement all these, without having the right expertise and technology and most importantly the capital to implement Basel III?” he asked.
The Basel III guidelines, he said, will definitely help smaller banks since the regulators are working towards helping these institutions to be more consolidated within, to ensure that they are more competitive and more capitalised.
‘Yet there are signs that the global regulatory reforms are gearing towards more stronger financial institutions,” he said.
“There is no room for smaller capitalising institutions simply because they do not fit the criteria that will fit the regulations that protects their investors. I think the smaller banks need to consolidate and bring more capital into the play,” he said.
The straightforward answer to the glut in the western financial system, he said when asked for his views on the issue, is that it resulted from the global financial crisis, which have very much impacted on the performance of western financial institutions.
“The financial institutions are the key drivers of the economy and when financial institutions fail, this will have implications in many other industries,” he told TMR.
THE MALAYSIAN RESERVE, 09 September 2013
Basel III, which replaces Basel II is intended to plug the loopholes where its predecessors failed, will demand more dedication from all stake players for it to be practical, an industry expert said.
The global regulatory reform under Basel III refers to guidance issued by Bank of International Settlements as a comprehensive response to the global credit crisis, but what is of importance is to ease its application within the Islamic finance sector.
“More dedication from both stake players, from the regulators and the market players are needed to make things more simplified because one of the key issues for the implementation of the regulations is making it practically possible,” Deloite & Touche Islamic finance group director Dr Hatim El-Tahir said to The Malaysian Reserve (TMR).
The Basel III regulations will bring up the importance of capital adequacy and liquidity management, which will be the base for sound industry, though they will affect to a certain extent the day to day business capabilities of the Islamic finance institutions, he said on the sideline of the forum entitled Basel III: Its Impact on Islamic finance.
“You can’t bend the arms of these institutions in order to fulfill the benchmarks of international regulations thus affecting the lending and financing capacity of the Islamic institutions. These are the key issues we have been hearing from industry players,” he said.
“Limiting the capital adequacy of the institutions is not going to make it better for them to do their business and this is with regards to the sustainability of smaller banks, not only that of Islamic banks. I think the Basel regulators need to think in terms of the specific requirements and capacities of the banks and markets to make things more realistically possible,” he said.
He said preparations for Basel III should be considered in different stages whereas strategic actions for balance sheet composition, funding, capital management, and business planning necessitate a solid understanding of issues and robust action plan.
Execution of business strategies and changes to funding mix, liquidity profile, or capital structure can also depend on macro variables, competitive environment, market conditions, and business opportunities; as such, some may take several years to accomplish, he said during his presentation.
“The ideas about the safe capital base or high liquid assets and good risk management, these are all good from theory. How will smaller banks for example implement all these, without having the right expertise and technology and most importantly the capital to implement Basel III?” he asked.
The Basel III guidelines, he said, will definitely help smaller banks since the regulators are working towards helping these institutions to be more consolidated within, to ensure that they are more competitive and more capitalised.
‘Yet there are signs that the global regulatory reforms are gearing towards more stronger financial institutions,” he said.
“There is no room for smaller capitalising institutions simply because they do not fit the criteria that will fit the regulations that protects their investors. I think the smaller banks need to consolidate and bring more capital into the play,” he said.
The straightforward answer to the glut in the western financial system, he said when asked for his views on the issue, is that it resulted from the global financial crisis, which have very much impacted on the performance of western financial institutions.
“The financial institutions are the key drivers of the economy and when financial institutions fail, this will have implications in many other industries,” he told TMR.
THE MALAYSIAN RESERVE, 09 September 2013
