Presentation is loading. Please wait.

Presentation is loading. Please wait.

Slide 1 / October 2006Basel II – Raiffeisen Bank Basel II Introduction to the New Regulation for capital adequacy October 2006.

Similar presentations


Presentation on theme: "Slide 1 / October 2006Basel II – Raiffeisen Bank Basel II Introduction to the New Regulation for capital adequacy October 2006."— Presentation transcript:

1 Slide 1 / October 2006Basel II – Raiffeisen Bank Basel II Introduction to the New Regulation for capital adequacy October 2006

2 Slide 2 / October 2006Basel II – Raiffeisen Bank Summary What is Basel? Basel I vs. Basel II Basel II in Raiffeisen International and Raiffeisen Romania The costs of Basel II implementation Specifics for leasing companies

3 Slide 3 / October 2006Basel II – Raiffeisen Bank Summary What is Basel? Basel I vs. Basel II Basel II in Raiffeisen International and Raiffeisen Romania The costs of Basel II implementation Specifics for leasing companies

4 Slide 4 / October 2006Basel II – Raiffeisen Bank From Basel I to Basel II In 1988, the Basel Committee on Banking Supervision (BCBS), under the auspices of the Bank of International Settlements (BIS), in Basel, Switzerland, published a set of minimal capital requirements for banks. This is known as the Basel I or 1988 Basel Accord. Basel I applies to banks with international presence which are required to hold capital equal to 8 % of the risk-weighted assets. The New Capital Accord or Basel II is addressed to: –Focus on internationally active banks but principles apply to all banks; –Within EU: all credit institutions and securities firms. Basel II introduce a different method of calculating the capital adequacy ratio (solvability ratio) in parallel with new (more strict) requirements regarding supervision and transparency of banks. What is Basel? Basel I vs. Basel II

5 Slide 5 / October 2006Basel II – Raiffeisen Bank Why Basel II ? Rationale for a New Accord –More risk sensitivity. Basel I is credit insensitive with fixed risk percentages applied to certain, pre-defined risk categories: 0%, 20%, 50%, 100%, it does not differentiate creditworthiness of borrowers - one size fits all!; –More emphasis on internal models and supervisory review. Basel I did not permit internal models. Objectives of the New Accord –The level of capital is directly correlated with the risk profile and the risk appetite of a bank –Continue to enhance competitive equality –Greater emphasis on banks own assessment of risk and a comprehensive coverage of various risks; – The framework of 3 complementary pillars will help making the banking system Safer, Sounder, and More Efficient. What is Basel? Basel I vs. Basel II

6 Slide 6 / October 2006Basel II – Raiffeisen Bank Committee / regulatory body Basel Committee for Banking Supervision (Committee of BIS - Bank for International Settlements) Commission of the European Union G-10-countries*, represented by central banks governors EU countries (EU with observatory status in Basel committee) Scope of influence Internationally operating banks Credit institutions of the European Union Legal character Legally non-binding agreements between national regulatory authorities Recommendations on best practices EU directives, diverse directives for implementation of Basel I Implementation into national law * Representative countries: Belgium, Germany, France, Great Britain, Italy, Japan, Canada, Luxemburg, Netherlands, Spain, Sweden, Switzerland, USA, EU with observatory status Representatives Basel I – Basel Capital Accord from 1988 Basel II – International Convergence of Capital Measurements and Capital Standards – A Revised Framework, Comprehensive Version, Updated June 2006 Directive 2006/48/EC of the European Parliament and of the Council of 14 th June 2006 and Directive 2006/49/EC of the European Parliament and of the Council of 14th June 2006 Contents similar to the BIS paper, discrepancies arising from inclusion of local EU specifics Documents / papers Brussels Basel What is Basel? Basel I vs. Basel II Romania adopted the EU Directive instead of Basel II Accord The key differences between Basel Capital Accord and EU Directive are as presented below

7 Slide 7 / October 2006Basel II – Raiffeisen Bank In Europe, all banks and investment companies need to comply with the new rules for capital and risk management, for all component business areas Companies with extensive and well diversified risk portfolios have the opportunity to improve market position The new disclosure rules on capital and risk management will have a direct impact on credit rating and share price The new rules on capital and risk management will have a direct impact on business investment/divestment decisions and market perception of these decisions Regulators are likely to expect the leading and most complex institutions to aspire to the most advanced approaches Although banks are at varying levels of sophistication regarding risk management, data architecture and system infrastructure, Basel II will involve a major change programme at considerable cost There will be far greater regulatory and market focus on effective risk management Risk management Extensive coverage Reporting transparency Business mix Supervision Scope for competitive gains Implementation effort The impact of Basel II is reflected in the following issues What is Basel? Basel I vs. Basel II

8 Slide 8 / October 2006Basel II – Raiffeisen Bank Evolution of Regulatory Capital Capital Ratio = Total Capital Credit Risk (RWA of Banking Book) Capital Ratio = Total Capital Credit Risk + Market Risk (MR RWA for trading book) Capital Ratio = Total Capital Credit Risk + Market Risk (MR RWA for trading book) Capital Ratio = Total Capital Credit Risk + Market Risk + Operational Risk Capital Ratio = Total Capital Credit Risk + Market Risk + Operational Risk 1988 Basel Capital Accord 1996 Market Risk Amendment 2004 New Basel Capital Accord Basel I Basel II 8% minimum unchaned Definition unchanged RWA calculations revised New capital charge No change What is Basel? Basel I vs. Basel II

9 Slide 9 / October 2006Basel II – Raiffeisen Bank For each of the 3 categories of risks - credit risk, market risk and operational risk, there are several measurement options (approaches). Credit Risk »Standardised Approach »Internal Rating Based Foundation Approach – available only for non-retail clients »Advanced Measurement Approach Market Risk »Standardised Approach »Internal Approach Operational Risk »Basic Indicator Approach »Standardised Approach »Advanced Measurement Approach (AMA) Pillar 1 - Minimum Capital Requirement What is Basel? Basel I vs. Basel II

10 Slide 10 / October 2006Basel II – Raiffeisen Bank Pillar 1: Credit Risk What is Basel? Basel I vs. Basel II

11 Slide 11 / October 2006Basel II – Raiffeisen Bank Pillar 1 - Operational Risk Operational risk is defined as the risk of loss resulting from inadequate or failed internal processes, people and systems or from external events »includes legal risk »excludes strategic and reputation risk What is Basel? Basel I vs. Basel II

12 Slide 12 / October 2006Basel II – Raiffeisen Bank Market Risk / Trading Book Basel I was concentrated purely on Interest Rate Risk and was based upon either maturity or duration bands. Later on it was amended to include FX and Equity Risks. Value-at-Risk (VaR) is the most popular internal model. What is Basel? Basel I vs. Basel II

13 Slide 13 / October 2006Basel II – Raiffeisen Bank Pillar 2 – Supervisory Review The key principle of the supervisory review Banks should have a process for assessing their overall capital adequacy in relation to their risk profile and a strategy for maintaining their capital levels The key premise: Supervisors are empowered to require and penalize banks to hold capital above the minimum. Supervisors will conduct regular review to ensure adequate capital; if review fails, supervisor should increase capital charge. Responsibility for adequate capital rests with the banks management What is Basel? Basel I vs. Basel II

14 Slide 14 / October 2006Basel II – Raiffeisen Bank Pillar 3 – Market Discipline Extensive disclosure requirements: By disclosing detailed information about all risk types, a bank enables other participants in the market to assess its risk position and the adequacy of its capital. »Mandatory disclosures Way in which the accord is applied within the group; Amount and quality of the groups capital; Qualitative and quantitative information on the methods used and measurement of all three forms of risk in the banking book, including strategies for managing future risk; An analysis of the capital adequacy of the group, including contingency plans for times of stress. »Supplementary disclosures, at request of regulator What is Basel? Basel I vs. Basel II

15 Slide 15 / October 2006Basel II – Raiffeisen Bank Summary What is Basel? Basel I vs. Basel II Basel II in Raiffeisen International and Raiffeisen Romania The costs of Basel II implementation Specifics for leasing companies

16 Slide 16 / October 2006Basel II – Raiffeisen Bank RZB Group aims to implement starting : –Internal Rating Based Foundation Approach for Credit Risk and –Standardized Approach for Market and Operational Risks Raiffeisen Bank Romania and Raiffeisen Leasing Romania will implement starting : –Standardised Approach for Credit, Market and Operational Risks RZB Group approaches for Pillar 1 Basel II in Raiffeisen International and Raiffeisen Romania

17 Slide 17 / October 2006Basel II – Raiffeisen Bank Summary What is Basel? Basel I vs. Basel II Basel II in Raiffeisen International and Raiffeisen Romania The costs of Basel II implementation Specifics for leasing companies

18 Slide 18 / October 2006Basel II – Raiffeisen Bank Basel II is a business issue and an IT issue and is a major change programme at considerable cost Basel II implementation doesnt mean only implementation of IT system and software programs but also implementation of best practices in risk management Basel II requires substantial work and effort as well as significant investments, as major changes can occur at the level of the organization Basel II is an opportunity to reduce costs and improve efficiency to gain competitive advantage. Reducing risks means it is reduced the amount of money to be put aside for covering the risks. The cost and availability of capital for all banks in future are closely related to the efficient and effective implementation of IFRS and Basel II. This is the most important issue for any bank for the next three to five years, with massive impacts on margins, business strategy, and internal project execution. The costs of Basel II implementation

19 Slide 19 / October 2006Basel II – Raiffeisen Bank In July 2006 NBR requested a quantitative impact study (QIS), based on 31 December 2005 figures, in order to evaluate the impact of new capital accord - Basel II implementation; the study was focused on for credit & operational risk only; 28 banks, representing 90% of the entire banking system, participated to this study; For credit risk all the 28 banks used the standardized approach and the result on the capital adequacy ratio (CAD) is a 1.5 percentage points reduction, from 20.99% based on current regulations to19.47%; For operational risk different approaches were used: 18 banks used base approach and 10 banks, including Raiffeisen bank, used standardized approach; operational risk will put a supplementary pressure on CAD ratio, reducing it with another 1.6 percentage points; In conclusion, for both credit and operational risks, the reduction in CAD ratio for the 28 banks, will be 3.1 percentage points Even with this negative impact, the CAD ratio at Romanian banking system is still well above the new minimum level of 8% proposed by NBR, following the implementation of Basel II requirement starting 1st of January The costs of Basel II implementation


Download ppt "Slide 1 / October 2006Basel II – Raiffeisen Bank Basel II Introduction to the New Regulation for capital adequacy October 2006."

Similar presentations


Ads by Google