Transcript Mr. S Venkat Raman - CEO & Chief Rating Officer

Caribbean Banks:
Are we ready to Basel ?
2006 CAIB Conference
November 16, 2006, Trinidad & Tobago
S. Venkat Raman
CEO & Chief Rating Officer
CariCRIS
Agenda
Basel II – Background & Prerequisites
Regional preparedness
Challenges & Suggested Approaches
CariCRIS & Basel II
2
Basel –II Accord
The
New Basel
Capital Accord

Ensure the safety and soundness

Market Discipline
Supervisory Review Process
Minimum Capital Requirements
of the financial system
Motivate all banks to improve their
management of risk

Better inform the market about a
bank‘s financial position

Possible capital benefits on account
of advanced risk measurement
approaches
Three Pillars
3
Basel Pre-requisites
 Basel Core Principles (BCPs)
 Framework of minimum standards for sound supervisory
practices; universally applicable
 25 BCPs
 All important, but a few could be considered crucial
 Basel Preconditions – (5)
 Macro economic Stability/ Sound economic policies
 Proper credit culture, adequate accounting laws
 Market Discipline- financial transparency & Corp. Governance
 Efficient problem resolution- Sound legal & judicial systems
 Financial infrastructure- financial safety nets
4
Implementation :
Expectation of Timelines
 Basel II – akin to an international non-binding treaty Implementation up to national regulators
 G-10/BCBS countries : 2007/ 2008
 Non-G 10/ BCBS Countries
 At the discretion of national regulators
 Typical target timelines : 2009- 2015
 However, desire for early implementation may be
encouraged by:
 Need to be keeping up with global best practices
 Perceived or assumed benefits of “signalling”
 Staying competitive w.r.t attracting international banking
business
5
Regional Preparedness
 Caribbean falls behind several other emerging market territories
w.r.t signalling of implementation intentions (Basel Report Sep 06)
 Weighted (asset) average of 25% as compared to average of over
85% in Asia, Africa, LatAm, and Middle East
 Some jurisdictions have articulated implementations intentions
and are taking concerted measures, including:
 Bahamas
 Barbados
 Jamaica
 T&T
 Indicative Timeline : 2009- 2015
 Preparedness: Generally low compared to even other emerging
markets
 Significant disparity in size, skill levels and profile of banks
 Significant paces to be covered – at bank and regulatory level
6
Significant Challenges
 Increasing concept acceptance/ buy-in
 Need for institutions to drastically improve on capabilities,
tools and techniques (for Pillar 1)
 Data related issues (Pillar 1)
 Need for regulators and banks to ramp-up on
preparedness, skill levels, resources, training etc (Pillar 2)
 Strengthening regulation & legislation/ corporate
governance, transparency & disclosure standards (Pillar 3)
 Tackling Home-host country regulation issues
 Cost of implementation
 Meeting additional capital, if required
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Suggested ApproachRegulators
 Focus on compliance with BCPs
 Identify appropriate approach/ transition path
 Leverage interest in Basel-II to initiate reforms in supervision,
risk management and disclosure
 Focus on Consolidated supervision
 Tightening related party transaction regulations
 Application of credit ratings
 Build supervisory capacity
 Take steps to strengthen capital markets
 Legislation
 Disclosure practices
 Rating linked investment regulations for pension funds and
insurance companies
8
Suggested Approach- Banks
 Start strengthening risk management systems with
immediate effect
 Policies & Procedures
 Tools
 Usage of ratings - internal or external
 Data Mining
 Enhance skill levels
 Estimate likely impact on capital - prepare for meeting any
additional requirement
 Anticipate competitive shifts in the industry
 Explore shared initiatives at industry level for minimising
costs
 Voluntarily enhance disclosure and corporate governance
standards
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Regional credit ratings and
Basel-II preparedness
 Ratings / Credit assessments for borrowers of banks
 Region’s first and only rating agency
 Promoted by regional regulators and financial institutions
 For standardised approach, CariCRIS regional ratings will provide
more granularity, relevance and penetration as compared to global
ratings
 For IRB, the ratings provide calibration standards for banks and
regulators
 Diagnostics & Road-map assistance for regional banks and
regulators seeking to move to Basel-II
 Credit Training with focused ratings perspective
 For IRB, design and implementation of customised risk models and
risk solutions – with user friendly software models specially
designed for emerging market and regional business environment
10
CariCRIS-CRISL Credit Risk
Assessment Model (RAM)
BASEL II
Best
Practices
Internal Rating
Model (if existing)
Expert
Judgment
Approach
Workflow
Features
Software
Two
dimensional
Rating
system
Centralised
database
Revamped Risk
Assessment
Model
Generates
Transition Matrix
Modules for
different
Borrower segments
Centralised Industry scoring
& Business risk parameters
Expected Loss
Probability
of default
Loss Given
default
Exposure at default
Multi-user
Capability,
Audit trail
Open
architecture
The RAM Software
enable banks to
implement an internal
rating system and
move towards Basle II
IRB approaches.
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THANK YOU !
Contact: [email protected]
Tel: +1 - 868 - 6278879
Fax: +1- 868 - 6258871
www.caricris.com