Basel Accord reforms to impact banks in Asia-Pacific

KUALA LUMPUR: Proposed reforms to the Basel Accord are expected to have a significant impact on banks in Asia-Pacific, including Malaysia, according to a recent joint KPMG and Oracle survey.

In a survey of executives from financial institutions across the region, 76% of the respondents said regulatory reforms would affect their business, over half said they their banks’ business models would need to change to address regulatory reforms and 48% expect their banks would need to raise additional capital.

KPMG and Oracle said in a joint statement on Wednesday, June 8, that areas of concern included high compliance costs, reduction in the banks’ competitiveness and higher cost of capital, which may become more difficult to access.

KPMG executive director, advisory, financial risk management services in Malaysia, Eckart Koerner said the new regulations would hit banks' top and bottom lines, and more costs will be transferred to customers.

Meanwhile, 72.5% of the respondents said new regulations such as Basel III should be applied to financial institutions in the Asia-Pacific region, according to the survey.

However, only one-third of respondents thought the reforms would create a “level playing field” of global banks relative to Asian banks, since the latter are relatively more capitalised.

The top three important areas of regulation that are of priority to respondents were capital management, including the Internal Capital Adequacy Assessment Process (ICAAP), liquidity risk management and enterprise wide stress testing, across risk categories.

KPMG and Oracle said most respondents thought their banks would require additional risk management infrastructure.

Over 96% considered that an integrated approach to risk, performance, compliance and capital was either critical or important/very important to “Future Proof” themselves.

In terms of challenges, 88% of respondents highlighted data related issues while 75% pointed to not having the right IT systems infrastructure in place, according to the survey.

Oracle Financial Services, Asia Pacific & Japan principal architect (risk & compliance solutions) Oracle Financial Services Saloni Ramakrishna said a ‘pooling of tools’ approach falls short in delivering the flexibility and integrated enterprise view that banks need to meet emerging regulatory requirements.

“We see data and data architecture mastery, an integrated and flexible TECHNOLOGY [] infrastructure, interactive and transparent reporting, and functional risk, compliance and performance solutions as essential requirements for not only managing, but thriving, in the ‘new normal’”, she said.

KPMG and Oracle said banks were also asked to consider what key operating areas would be affected as a result of reforms.

“78% cited lending and risk pricing, 59% indicated performance management systems; 57% said trading counterparty transactions while 35% highlighted executive compensation.

“Respondents indicated a number of constraints when implementing new regulatory obligations. These include lack of internal expertise and availability, complexity and lack of clarity, information technology capabilities, data availability and reliability,” they said.