عدد الرسائل : 2822
تاريخ التسجيل : 23/12/2007
|موضوع: ISLAMIC FINANCE :THE road to basel2 الخميس 27 مارس - 0:26|| |
Islamic finance :the road to basel 2Guendouz12/09/07The new Basel capital Accord is creating headaches for banks around the globe. However, Middle Eastern institutions that offer Islamic banking products have even more hurdles to jump
Europe is in the final stages of preparing for Basel II, set for implementation in January next year, while US regulators are still deciding how they want to apply the Accord to their financial institutions. For banks in the Middle East, however, particularly those engaged in Islamic finance, applying Basel II is a different story altogether.
The majority of Middle Eastern banks engage in both conventional and Islamic banking, so applying Basel II requires not only compliance with the core principals of the Accord, but also means working out how the concepts outlined in the framework fit in with Islamic law.
Different countries in the Middle East are at different stages of implementation. Bahrain, for example, wants its banks to comply with Basel II by 2008, as does Saudi Arabia. At a seminar held in Riyadh in May, Hamad Al-Sayari, governor of the Saudi Arabian Monetary Authority (Sama), said the country's banks are well on their way to implementation.
"We expect all banks operating in Saudi Arabia to implement the standardised approach for credit risk by January 1, 2008, and then continue to move towards more sophisticated internal ratings-based (IRB) approaches. For operational risk, all banks are likely to move to the standardised approach, with one or two banks experimenting with the advanced measurement approaches," he said.
Banks in Qatar, however, were set a deadline of this year to begin reporting under Basel II's most basic risk assessment approaches. Ahmed Abdi Sheikh, executive manager in risk management at Doha-based Qatar National Bank, says his institution has been complying with Basel II for almost a year, having worked closely with the monetary authority, the Qatar Central Bank, and the country's other banks to meet the deadline.
"The central bank put together a team of risk managers from the different banks in Qatar, along with a couple of people from the central bank itself, and in the past couple of years we've had frequent meetings to develop a strategy for Basel II implementation for the country," says Abdi Sheikh. "For almost a year now, we have been meeting our capital adequacy ratios in accordance with Basel II guidelines." He adds that the bank is, for now, sticking with the basic indicator approach for operational risk and the standardised approach for measuring credit risk.
Qatar National Bank now reports capital adequacy ratios to the central bank on a monthly basis. "The information is extracted from our banking systems and other applications, and it gets disseminated through the internet to the central bank," says Abdi Sheikh. The firm uses JP Morgan's Horizon system for managing operational risk, which lets its risk managers conduct self-assessment exercises and perform risk-event analysis. However, the bank has not yet purchased a system to manage credit risk. Abdi Sheikh argues that the firm does not need a sophisticated credit risk measurement system at the moment because it uses the standardised approach - where capital weightings for sovereigns, corporates and banks are based on ratings from external rating agencies such as Moody's Investors Service and Standard & Poor's. In future, though, it may need to buy a sophisticated model from a third-party vendor. "Even though the central bank doesn't require us to go to the foundation or the advanced IRB approach, we expect it to come to us in a couple of years and ask us to move to the next level. It is in our plan to prepare for that, and we have done a lot of work already internally," he says.
However, moving to the more advanced approaches could prove difficult for many banks in the Middle East, primarily because of the shortage of detailed historical default data. "The major issue in moving to the next level is the availability of quality data in order to produce the probability of default (PD) and the loss given default estimates," says Abdi Sheikh.
"PD data is the biggest stumbling block," agrees Riyadh-based Sam Tereblanche, a consultant employed by Saudi Arabia's Riyad Bank to implement its Basel II systems. "The pure concept of PD is not understood 100% here, although people are moving towards that." Banks in the region are so well capitalised and the deals so heavily collateralised that when defaults do occur, they have a negligible economic impact, he says. "And the economy here has been exceptionally good for the past five years, so there haven't really been any defaults."
As in other regions, steps are being taken to address the data issue. Saudi banks are working to create a national data pooling system for credit risk. In Qatar, there is a scheme to create a national database, and banks are also working on collecting their own historical data, says Abdi Sheikh.
Meanwhile, there has been some talk about creating a pooled data system at the multi-national level, specifically in relation to Islamic countries - although this is at an early stage. For smaller countries, such as Bahrain, a shared database would be especially helpful. "You need at least 2,000 corporate names for any database to work properly and generate adequate PDs, and in Bahrain we do not have that minimum," says Khalid Hamad, executive director of banking supervision at the Bahrain Monetary Authority (BMA). "We determined that a bank alone cannot generate realistic PD data on a stand-alone basis."
However, a number of issues must be resolved before a regional pooled database can emerge. "It is an idea, but it needs a lot of work and approval," adds Hamad. "To combine data, for example, from the GCC (the states that form the