Oct 15, 2012

Malaysia - Call for more time to 'tweak' Basel III

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Malaysia's top two banks, Malayan Banking Bhd (Maybank) and CIMB Group Holdings Bhd, say the Basel III package of measures to strengthen the global financial system needs more scrutiny and are calling for more time to "tweak" the new regulations.

One of the deepest concerns is that the banking sector could lose investor appeal, Maybank said at the Institute of International Finance annual meeting here.

The Basel III package of measures will see a gradual phase-in of the standards from next year until 2019.

"The consultative papers have been placed with the central banks," said Maybank president and chief executive officer Datuk Seri Abdul Wahid Omar.

Overall, while there are some elements like trade finance and small and medium enterprises (SMEs) that can be tweaked, the banking sector must be prepared for Basel III.

"We saw it as an eventuality and that was why we raised US$1.2 billion (RM3.66 billion) blanket capital to make sure we are prepared," he said in reference to last week's successful completion of a bookbuilding exercise in relation to its private placement.

He called for a level playing field, arguing that the risk weighted assets of European banks are between 20 per cent and 30 per cent, one third that of Asian banks, which measure at between 50 per cent and 60 per cent.

CIMB Group chief executive Datuk Seri Nazir Razak said there are details that need to be looked into as well as Basel III's implications on the banking landscape.

Basel III, he said, is crafted in the context of problems in the West, which is heavily reliant on a global ratings framework that is biased against developing countries.

Nazir said further scrutiny shows that the new regulations will be disadvantageous to Asian banks.

"It places excessive liquidity requirements on Asian banks when there is so much of liquidity in the region and likewise, there is too much emphasis on government bonds when there is enough in Asia."

Smaller banks also stand to suffer as Basel III means heavy compliance costs.

"The West wants to deleverage but Asia has a huge appetite for funds and we need to intermediate that or, otherwise, it will be counter-productive," said Nazir.

Asian banks will need to boost their cooperation and make sure Basel III does not impact their capacity to give out funds.

Australia and New Zealand Banking Group Ltd CEO Michael Smith suggested providing degrees of flexibility (to adopt Basel III), according to the various nations.

Most Asian banks can meet all the targets under Basel III, unlike their European counterparts, some of which will find it difficult to impose the capital requirement.

A more pragmatic approach is needed, he said, adding that the economic structure of Asia is different.

"The sheer amount of liquidity moving around the world due to the monetary easing of central banks in Europe or the United States creates an issue in Asia as investors chase the yields," said Smith.

The shift from Basel 1 to Basel II took 20 years while the shift from Basel II to Basel III took 18 months.

Wahid said Asean, which has set a target to become the Asean Economic Community by 2015, needs to be served by well-capitalised and well-distributed regional banks.

Apart from Maybank, CIMB and Public Bank of Malaysia, there are the DBS Bank, OCBC Bank and UOB Bank from Singapore and the Bangkok Bank of Thailand.

He is looking to Indonesian banks next to expand their reach to other Asean countries.

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