CB to publish BASEL III rules by November: Moody’s

7 July 2014 05:08 am Views - 2518

ri Lanka’s banking sector which is already entangled in a complex consolidation drive, will soon have to gear itself up to embrace wide ranging capital and liquidity coverage requirements to be implemented under the third and latest instalment of BASEL Accords – BASEL III.

While BASEL III rules were in the offing from last year, the regulator did not give a specific time frame as to when the new rules would be implemented, requiring the banks to rev up their exiting capital and liquidity coverage ratios.

However the United States (US) headquartered rating agency last week said, Sri Lanka’s Central Bank (CB) plans publishing the new rules under BASEL III as early as this November and made effective from January 2015.

BASEL III rules will demand additional capital buffers, minimum leverage ratio and two new liquidity ratios to be maintained by the banks.

Banking sector regulators in several South and Southeast Asian countries such as India, Indonesia, Malaysia, the Philippines, Singapore and Thailand have already published final capital rules but Moody’s said this timeline would make Sri Lanka an early mover on Basel III among so-called frontier markets.

Last December, CB Assistant Governor C.J.P Siriwardana told a Bank Directors’ Symposium that steps have already been taken to implement BASEL III in line with other countries.

“Capital and liquidity measures under BASEL III will be implemented beginning 2014,” he said. BASEL III rules will demand additional capital buffers, minimum leverage ratio and two new liquidity ratios to be maintained by the banks.

Currently Sri Lanka’s banks maintain adequate capital under the Pillar 2 of BASEL II which was issued in July last year, and Moody’s expects most Sri Lankan banks to be relatively well positioned to meet the relevant capital requirements even under BASEL III as the Tier 1 capital mainly consists of core equity.

However Moody’s also highlighted the variances in the capitalization levels among individual banks particularly Bank of Ceylon which had a Tier I capital adequacy ratio (CAR) of only 8.9 percent as of March 2014 while the requirement is 5.0 percent. Under BASEL III, the regulatory minimum CAR is expected to move up to 6.0 percent reducing the margin of safety for banks such as Bank of Ceylon unless they raise their capital forthwith.

Sri Lanka’s banking sector’s core-CAR and the total-CAR came under pressure last year against 2012 levels, despite being above the regulatory minimums of 5.0 percent and 10.0 percent respectively.