Transcript Document

A Fine Balance: The Role of
Regulation in Furthering
MSME Development
Ewald Műller
Director, Financial Analysis
20 June 2013
Qatar Financial Centre Regulatory Authority
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PRESENTATION OVERVIEW
• The Basel Framework
• Credit risk and capital adequacy
– Standardised approach versus Internal Risk Models
– Credit risk mitigation
• Other policy issues
– MSME definitions
– Taxation and other red tape
– Encouraging / facilitating cash flow to MSMEs
• UK, EU and other initiatives
• Capacity building / support
• Conclusion
Qatar Financial Centre Regulatory Authority
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EVOLUTION OF THE WORK OF THE BASEL
COMMITTEE ON BANKING SUPERVISION
Basel I
- Market risk
amendment
Basel II
Basel 2.5
Basel III
- Amendment
Qatar Financial Centre Regulatory Authority
Issued
July 1988
December 1996
Implemented
December 1992
December 1997
June 2004
July 2009
December 2010
December 2007
December 2011
January 2013 –
January 2019
January 2013
June 2011
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THREE PILLARS OF BASEL II / III
Pillar 1
Minimum capital requirements: Requirements based on
market, credit and operational risk to:
(a) reduce risk of failure by cushioning against losses, and
(b) provide continuing access to financial markets to meet
liquidity needs, and
(c) provide incentives for prudent risk management
Pillar 2
Supervisory Review: Qualitative supervision by regulators of
internal bank risk control and capital assessment process,
including ability to require banks to hold more capital than
required under Pillar I
Pillar 3
Market Discipline: Public disclosure and transparency
requirements
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KEY BUILDING BLOCKS OF BASEL III
Increased Quantity / Quality
of Capital
Countercyclical Capital
Buffer
Conservation Capital Buffer
Additional requirements for
Global and Domestic
Systemic Banks
Global Liquidity Standards
Leverage Ratio
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IMPLEMENTATION OF BASEL III
2011
2012
2013
2014
2015
2016
2017
Parallel run 1 January 2013 – 1 January 2017
Leverage ratio
Disclosure starts 1 January 2015
3.5%
4.0%
4.5%
Capital Conservation Buffer
Minimum common equity plus
capital conservation buffer
3.5%
Phase-in deductions from CET1
(including amounts exceeding the
limit for DTAs, MSRs and
financials)
As of
1 Jan 2019
Migration
to Pillar 1
Supervisory monitoring
Minimum Common Equity Capital
Ratio
2018
4.5%
4.5%
4.5%
4.5%
0.625%
1.25%
1.875%
2.5%
4.0%
4.5%
5.125%
5.75%
6.375%
7.0%
20%
40%
60%
80%
100%
100%
Minimum Tier 1 Capital
4.5%
5.5%
6.0%
6.0%
6.0%
6.0%
6.0%
Minimum Total Capital
8.0%
8.0%
8.0%
8.0%
8.0%
8.0%
8.0%
Minimum Total Capital plus
conservation buffer
8.0%
8.0%
8.0%
8.625%
9.25%
9.875%
10.5%
Capital instruments that no
longer qualify as non-core Tier 1
or Tier 2 capital
Phased out over 10 year horizon beginning 2013
Liquidity coverage ratio
Observation period
begins
Net stable funding ratio
Observation period
begins
Qatar
CentreEquity
Regulatory
CET1Financial
= Common
Tier Authority
1; DTAs =
60%
70%
80%
90%
100%
Introduce
minimum
standard
Deferred Tax Assets; MSRs = Mortgage Servicing Rights
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BASEL COMMITTEE ON BANKING
SUPERVISION – CURRENT AGENDA*
Medium term agenda
• Completing the crisis-related overhaul of the policy
framework by end-2014, including:
–
–
–
–
Leverage ratio
Net stable funding ratio (NSFR)
Securitisation framework, and
Fundamental review of the trading book
•
•
•
•
Boundary between banking and trading book
Risk metrics to cover tail risks
Market liquidity risk
Quantitative Impact Study (QIS)
* William Coen, Deputy Secretary General of the Basel Committee – 7th GCC
Regulators’ Summit, Doha, 25 February 2013
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BASEL COMMITTEE ON BANKING
SUPERVISION – CURRENT AGENDA
Other work:
• Simplicity and comparability:
– Internal paper on a refined set of assessment criteria; and
– External paper providing neutral analyses of the balance
between simplicity, comparability and risk sensitivity in the Basel
framework
• Large exposures:
– Definition
– Limits
– Split between domestic and foreign sovereigns
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BASEL COMMITTEE ON BANKING
SUPERVISION – CURRENT AGENDA
New mandates:
• Revising the standardised approaches for:
– Credit risk
– Operational risk
– Interest rate risk in the banking book (IRRBB)
Standards Implementation Group (SIG) workplan:
• Enhancing the effectiveness of micro and macroprudential supervision
Review of Basel III implementation:
• The rationale, approach and next steps with regard to
the three levels of the Regulatory Consistency
Assessment Programme (RCAP)
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CREDIT RISK
Purpose
• The purpose of these returns is to:
– assess the quality and credit and counterparty risk associated with assets
and off-balance sheet activities;
– establish the level of provisioning against classified assets, including
restructured credit;
– analyse the nature and impact of credit risk mitigation techniques used;
and
– identify the concentration and distribution of credit risk assumed
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CREDIT RISK
Key issues
• Use of credit ratings
• Prescribed classification of loans and advances and resultant
suspension of interest and raising of provisions
– Special mention
˗̶ Sub-standard
– Doubtful
˗̶ Loss
• Provisions for reclassification of restructured credit (never better than
Special Mention)
• No prescribed general provision
• Detailed provisions in respect of credit risk mitigation, including haircuts
for security
• Credit concentration reported in respect of large exposures,
geographies and sectors
• Capital “proxy” for branches – 15% of total assets
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CAPITAL ADEQUACY
Purpose
To provide a summary and overview of the reporting bank’s exposure to
and capital requirements in respect of credit risk, market risk and
operational risk
To provide a detailed analysis of the reporting bank’s exposure to credit
risk, market and operational risk
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CAPITAL ADEQUACY – SUMMARY INFORMATION
– BR 600
• Capital requirements arising from credit, market and operational risk
• Definitions of what constitutes common equity tier 1, additional tier 1
and Tier 2 capital
• Base minimum required capital and reserve funds
Common Equity Tier 1 Capital and
Reserve Funds (CET1)
Total Tier 1 Capital and Reserve Funds
Total Capital and Reserve Funds
4.5%
6.0%
8.0%
• Capital Conservation Buffer – proposed at 2.5% comprising of CET 1
Capital and Reserve Funds
• Systemically important bank (SIB) capital charge, idiosyncratic bankspecific requirement and countercyclical buffer all at 0% currently
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CAPITAL ADEQUACY - PRUDENTIAL NORMS
Deductions and impairments:
• Significant minority investments in banking, securities and other
financial entities
• Significant investments in commercial entities – Investments higher
than 15% of the bank’s capital and reserves for individual significant
investments in commercial entities and 60% of the bank’s capital for the
aggregate of such investments. The amount to be deducted is the
portion of the investment that exceeds the materiality level.
Risk weightings:
• Equity exposures that are not deducted from capital and are listed on a
recognised exchange – risk weighted at 300%
• Equity exposures that are not deducted from capital and are not listed
on a recognised exchange – risk weighted at 400%
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CAPITAL ADEQUACY - CREDIT RISK (BR 610)
Standardised Approach/Simplified Standardised Approaches adopted
Risk Weight Framework – broadly aligned to Basel Capital Framework.
Items of national discretion aligned to QCB framework
Recognised credit rating agencies – Moody’s; S&P; Fitch
For corporates, where credit ratings are unavailable, banks are allowed to
use 100% Risk Weighting
Preferential treatment for claims on banks – Option 2 of Basel adopted
subject to a floor of 20%
Commercial Public Sector Entities (PSEs) treated as corporates, i.e. 100%
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OTHER POLICY ISSUES
• MSME definitions
– South Africa has at least four
– Enterprise Qatar developing definition for Qatar
• Taxation and other red tape
• Encouraging / facilitating cash flow to MSMEs
– UK, EU and other initiatives
– Capacity building / support
Qatar Financial Centre Regulatory Authority
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CONCLUSION
• Constraints
– Risk weighting and CRM constraints
– Liquidity: LCR & NSFR
• Policy coordination required
• Clear and consistent definitions needed
• Liquidity and operational support mechanisms essential
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THANK YOU
Qatar Financial Centre Regulatory Authority
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