Basel III widely applied in APAC; state support remains

The implementation of the Basel III regulatory framework across most of the banking systems in Asia Pacific (APAC) should help to strengthen the banks’ financial profiles and support their viability ratings, says Fitch Ratings. 

Fitch assessed the changing regulatory frameworks - including comparing the key features of Basel III implementation such as CET1 requirements, counter-cyclical capital buffers, resolution frameworks and liquidity regulations - in the ‘APAC Banks Regulatory Compendium’ published yesterday. Of the 17 banking sectors that were assessed, 13 are adopting the latest Basel standards.

The work of the Basel Committee on Banking Supervision (BCBS) has influenced regulators in both member and non-member countries in a number of ways. The most significant changes are the requirements for higher levels of common equity due to the introduction of various capital buffers. In addition, the approach to risk-weighted assets (RWAs) assessment has been under revision, while some regulators have been increasing the risk weights on their own initiative.

Hong Kong leads the way in the region with a minimum core equity Tier I requirement for larger banks in the 10 percent - 12 percent range, being the only APAC jurisdiction to introduce a counter-cyclical buffer above zero. All APAC Basel III countries are adopting the recommended 2.5 percent capital conservation buffer and frameworks for counter-cyclical capital buffers have also been introduced across a number of jurisdictions. Multiple jurisdictions are demanding additional capital for their largest institutions, with Japan and China being the only jurisdictions with banks of global systemic importance.

The international discussion around improving the resolvability of banks has also gained traction in APAC, with some jurisdictions overhauling their frameworks. A few countries such as New Zealand and Japan have already established bank resolution regimes and certain resolution powers were already available in other jurisdictions including Singapore, Korea, Malaysia and the Philippines. Powers to write-down and convert claims of creditors into equity (bail-in) remain the least well established.

That said there is still an overwhelming bias in the region towards authorities being more supportive of banks than in Europe or the US. Only in Hong Kong and New Zealand does Fitch not expect sovereign support to be provided in APAC.