Iraqi banks …. and the road map to Basel 3
The recent financial crisis in 2008 prompted a thorough and comprehensive review of global financial and banking activities, rules and regulations, revision of prevailing preventive control standards and policies, and comprehensive studies and analysis of the causes of the crisis and imbalances.
In 2010, Which is called the Basel III Banking Supervision Committee, which is the extension and development of the Banking Supervision Standards and Rules for Basel II and Basel II and the addition of some new standards in an effort to avoid previous weaknesses and gaps.
To strengthen and strengthen the global financial system, strengthen the resilience of the banking sector, make it more resilient to risk and withstand potential financial shocks.
The new guidelines require strong capital of financial institutions as well as the creation of capital buffers and hedging lines against volatility Economic development.
In view of the significant impact of these amendments and the new standards on banks, Basel III has allowed for a sufficient period of time over a period of six years and in accordance with the schedules and stages of progressive development from the beginning of 2013 until the end of 2018. The commitment to implement these decisions The most prominent of these criteria can be summarized according to the following main axes:
I. Regulatory capital:
The regulatory capital components (capital base) have been adjusted to be as follows:
The first tranche of ordinary shares (( theCommon the Equity a Tier 1 (CET1) )): It consists mainly of the paid – up capital, reserves and retained earnings, and is a solid nucleus of the bank, which should be increased from 2% currently of the value – weighted assets risk to 3.5% in In 2013 and then to 4% in 2014 and then to 4.5% at the beginning of 2015.
The first tranche add (( . Additional a Tier 1 (AT1) )): It consists of any other proprietary rights Kalaanaattiyat declared and others, which must be increased by 1.5% from 2014 and remain at this level.
The second tranche (( ( the T2) a Tier 2 )): The head of the supporting capital funds called for complementary and includes the revaluation and provisions for loan loss reserves, which will go down gradually to stabilize at 2% , starting from the beginning of the year 2015.
II. Capital adequacy ratio:
The Basel III Committee has gradually adjusted the capital adequacy limits according to the following:
Raising the minimum ratio of the total of the first tranche to the risk weighted assets to 6%, which consists of (4.5% for the first tranche + 1.5% for the first additional tranche), as well as the second tranche of 2%.
In addition capital for the purposes ofhedging ( Conservation a buffer ) , a margin of protection of conservatory is added to the capital adequacy ratio by 2.5% of risk – weighted and gradually from 2016 to 2019 , assets and thus the minimum ratio of capital requirements adequacy becomes 10.5% .
Adding additional capital margin of (Countercyclical a buffer ) regards the stages of the business cycle and to cover the risks of economic cycles, ranging from (zero – 2.5%) of risk – weighted assets, which will be added gradually from 2016 until 2019, according to the local conditions of the state, This margin will only be added when the country in question receives high credit growth, which may result in high risks to the banking and financial system. If this margin is added, the minimum capital adequacy ratio of that country will rise to 13% by the beginning of 2019.
Basel III adopted new standard ratios for monitoring the liquidity of banks as follows:
1. Liquidity Coverage Ratio (LCR )):
The ratio of high quality assets to expected net cash outflows in the short term and within 30 days, and should not be less than 100% at the end. The Basel Committee aims to ensure that the Bank is able to ensure that its obligations and liquidity needs are met and continued For a period of one month in the event of a crisis without recourse to the market or to the banks or financial authorities, the pilot application (period of control) shall commence for this percentage from the beginning of 2011.
The practical application shall commence from 1/1/2015 at a minimum of 60% and a gradual increase of 10% annually during the subsequent years until For the target ratio of 100% in 01.01.2019.
2. Net Stable Funding Ratio (NSFR )):
The ratio of the amount of available financing to the amount of stable financing required (and the concept of stable financing is a portion of shareholders’ equity and liabilities that are expected to be a good source of funding with maturities exceeding one year or maturity of less than one year but are expected to remain for more than one year within (Assets and liabilities), which reflects the Bank’s ability to provide the necessary liquidity to meet its medium-term liabilities and must not be less than 100%, which will be formally applied at the beginning 2018 after an observer period Starting in early 2012.
IV. Leverage Ratio (LR )):
Basel III added a new standard of leverage that represents the value of assets within and outside the budget (without taking risks or dilutions into consideration) to the paid up capital, reserves and retained earnings (the first tranche). This ratio should not be less than 3% From the beginning of 2013 until the beginning of 201
Based on the results of this experiment, the final modifications and treatments will be made on the components of this ratio in the first half of 2017, and will be applied definitively and effectively from the beginning of 2018.
V. Emphasis on adherence to the standards of the banking governance system and the methodology of the banking stress tests and the requirements of the second pillar ( ICAAP ).
Our banks and Basel III requirements:
In a decision of the Board of Directors of the Central Bank of Iraq and other circulars issued by the competent departments of the bank during the second half of 2016 confirmed determination to draw the features of a roadmap to enter the banks of the world of Basel 3and the liquidity portal first in order to keep abreast of recent banking developments, especially in the field of banking supervision,
The difficult challenges experienced by the Iraqi banking sector, characterized by internal security and political problems, the decline in international oil prices, the weakness of the liquidity of the Iraqi state and the suspension of the investment platform for several years,which led to the creation of a high operating environment The decline in the level of credit and investment, the rise in the volume of bad debts in banks and the weakness and decline of the financial market in Iraq, which contributed to putting great pressure on the fulfillment of many requirements, including international banking standards and legislation.
Some observers believe that the Iraqi banking sector will not face difficulties in the implementation of Basel III standards, especially with regard to capital adequacy where the data and financial statistics contained in the (Iraq’s annual financial stability report for 2015, (87%), which is higher than the Basel II and Basel 2 rates, or those proposed in Basel 3, due to the early trends of the CBI to capitalize and reserve Which obliged Iraqi banks to raise capital gradually until 30/6/2013 to reach the target capital of a minimum of 250 billion dinarswith the construction of sufficient reserves consistent with international standards,
as well as the proportion of the financial leverage, which indicate the financial statements to
:convergence The arrival of Iraqi banks to
The regulatory authorities shall issue an indicative list containing a clear working manual and an integrated program for the implementation of Basel 3 standards that is transparent and clear and based on harmony and co-operation. Everyone should be fully aware of all the paragraphs and the date of commencement of each application so that the application will not be fast and passive in the language of threat and imposition of fines under the pretext of Time constraints, especially since everyone knows that Iraqi banks are not directly involved in the reasons for delaying the implementation of these standards.
Liquidity criteria ( LCR ratio and net fixedfunding ratio) ), Which guaranteed the circulation of the Central Bank of Iraq and obliged the Iraqi banks to adopt the start of the actual application of both ratios and meet the minimum limits as of 1/1/2017 and considered as the first phase in the table and the application of Basel III standards, where everyone knows that it is not a measure of liquidity banks,
To monitor liquidity under specific stress conditions and that the scenarios prepared to determine the weighting weights corresponding to the types of bank deposits and other items came harshly, even lower than those adopted by neighboring countries for the same purpose and enjoyed a suitable and convenient opportunity of The expected impact of the new liquidity ratios and their current terms will be reflected in a kind of pressure, credit tightening and lack of funding with High cost
That the actual application requires the payment of banks with weak capital (government and private) to the need to resolve their situation or enter into mergers with a comprehensive financial restructuring to comply with the new standards.
ICAAP ) and other requirements requiring vocational training and early training prior to entry into the actual application.
Due to the limited time available to the Iraqi banks or the Central Bank of Iraq, we suggest that the time is invested properly and the 2017 allocation for intensive training with the pilotapplication of all the axes and requirements of Basel 3, with practical application starting from the beginning of 2018
(Article from April 26 2017)
Apmcrx: By the way In CBI you can find plenty articles talking about basel 3 in 2017.
If Basel 3 is international banking compliance then….(fireworks)