22 April 2008
BEIRUT: Lebanon is still determined to implement the Basel II accord because it wants to protect Lebanese banks against all types of financial risks despite all the political and security developments in the country, the central bank vice governor said on Monday. "Banque du Liban has decided to implement Basel II despite the political and security incidents that engulfed the country over the past three years," Marwan Nsouli told participants in a two-day conference on Basel II that was organized by First Protocol Company.
The purpose of Basel II, which was initially published in June 2004, is to create an international standard that banking regulators can use when creating regulations about how much capital banks need to put aside to guard against the types of financial and operational risks banks face. The central bank had pledged earlier to start the gradual implementation of Basel II as of 2008 and urged all commercial banks to strengthen supervision and allocate more funds to conduct a thorough research on all their clients that borrowed money from the banks.
Some observers believe not all small banks can afford to meet the tough Basel II terms and may eventually be forced to merge with bigger banks.
Nsouli, who was speaking on behalf of central bank Governor Riad Salameh, urged banks and financial companies to be on high alert amid the growing risks in other markets abroad.
"It is vitally important to focus on the qualitative side of Basel II such as type of administration and the quality of the human resources in the banks," Nsouli said.
He stressed that banks should determine the ceilings of loans to nonresidents, organize relations between banks and analyze the credit risks.
Nsouli added that banks have gradually abided by the directives of the central bank concerning the implementation of Basel II accord.
He warned that the disturbances in the world economy should prompt the Lebanese banks to be extra careful and alert in dealing with future risks.
Francois Bassil, the president of the Association of Banks in Lebanon, also underlined the importance of full implementation of Basel II conditions.
"The importance of Basel II does not lie in aligning capital adequacy more closely with the way banks measure their risks. The real reward will almost certainly be the positive impact on the risk-management practices, which will in turn enhance the competitiveness and financial success of the banks," he said.
He added that the new accord's risk-management requirements are likely to prompt significant changes in the core business of banks as well as in their organizational structure.
"Aside from new or altered methods that must be employed, the new capital requirement will also drive change in the resource needs, processes and IT system architecture," Bassil said.
Adel Satel from Moody's international rating agency said the implementation of Basel II does not represent a challenge to the banks alone but also affect legislations and the performance of the markets.
Satel added that those who would be assigned to handle risk management in the banks should enjoy a level of risk management which should be higher than the levels of the bankers themselves. - The Daily Star
Copyright The Daily Star 2008.
