Middle East Banks Basel lll Capital requirements

December 1st, 2014 by Stephen Jones Leave a reply »

A recent study analysed the ability of a sample of 22 banks in the GCC and the Levant to meet Basel III capital requirements, and outlines the long-term opportunities for the banking sector and identifies potential roadblocks in the process of full compliance with Basel III requirements, starting by capital shortfall.

Dubai: The Basel III regulations present an opportunity for Middle East banks and regulators to embrace new rules and improve the sector’s asset quality and risk-return profiles, according to a study by management consultancy Strategy&.

The Strategy& study, (renamed from the former brand Booz & Company following its acquisition by PwC) analyses the ability of a sample of 22 banks in the GCC and the Levant to meet Basel III capital requirements, and it outlines the long-term opportunities for the banking sector and identifies potential roadblocks in the process of full compliance with Basel III requirements, starting by capital shortfall.

Complying with Basel III regulations will encourage Middle East banks to take acalculated and strategic approach to decisions about businesses, asset choices, and growth, while allocating capital toward opportunities that fit the bank’s actual risk and return profiles. This should strengthen investor and client confidence in Middle East banks and lead to profitable and well-managed growth in the financial services sector going forward.

“…. the Basel III requirements can be much more than a technical burden and a drag on growth and said Jihad K. Khalil, senior associate with Strategy&.

The new regulations force regional banks to take a closer look at their capital allocation and to deploy their capital more strategically. The study shows that the sample of 22 of the largest players in the Middle East banking sector will experience an average capital shortfall of around 25 per cent of total regulatory capital required by 2019 as per Basel III rules, assuming current growth rates.

The study encourages bank executives to develop a clear understanding of the new requirements that cover six areas of reform, to be able to support the compliance with Basel III regulations. These areas include the definition of capital; countercyclical buffers; enhanced risk coverage; new leverage ratio; new liquidity standards; and other general risk guidelines.

Liquidity standards are new to the Basel guidelines and place . greater emphasis on banks to hold high-quality liquid assets such as government debt.

A recent digital banking forum REGIONAL DIGITAL BANKING CHALLENGES indicated that Banks in the UAE and wider Middle East region have a long way to go in adopting digital and customer-centric strategies. At the same time, smartphone penetration across the GCC region continues to grow, proving a strong business case for banks to make the switch now. Within ten years time, a majority of bankers expect mobile banking to play a much bigger role in the customer experience than branches.

Modern technology will be major strategic and competitive factor for banks and will also underpin stringent compliance reporting, and internal analysis e.g. of risk and liquidity. The majority of banks in the six GCC countries are upgrading core technology not only to improve operating efficiency and customer satisfaction but also to meet more-stringent regulatory requirements and risk management. They are using the technology to enter new areas, offer new products and services, and expand market share with the provision of new distribution channels.

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