MANAMA - Islamic banks and financial institutions are adequately adaptive to the latest Basel II Accord new framework including supervisory review process and market discipline, said a senior Basel Committee member.
In an interview with Khaleej Times on the sidelines of the World Islamic Banking Conference which concluded here yesterday, Elizabeth Roberts, director, Financial Stability Institute of the Bank for International Settlements (BIS) and member of the Secretariat of the Basel Committee on Banking Supervision in Basel, said, "The Basel Committee develops general principles that can be applied to a wide range of banks. The committee does not have the necessary expertise to determine how best to apply Basel II to banks following Shari'a principles," she said.
"The structure of the Islamic banks and the highly regulated operations indicate the possibility of its ability to adapt to the two main pillars of Basel II Accord including supervisory and market discipline. Basel II is so flexible in application with many options easily applicable to banks in different jurisdictions and banks of all sizes and levels of sophistication and hence by the Islamic financial institutions," asserted Mrs Roberts.
She said, " We should have no doubt if the Islamic banking system can absorb the new agendas, since these institutions managed to prove themselves in reality and performance.
"I may not say how these institutions would implement the accord yet the assisting factors including risk management are in place," she said. Elizabeth pointed out that it is essential to address the question of minimum capital requirements when it comes to these banks. I guess it is the high time for the Islamic financial institutions to increase their size and seriously address the issue of consolidation and merger, added Elizabeth. She said," The structure of the Basel new framework includes three important pillars, minimum capital requirements which deal with credit and operational risks, supervisory review process which tackle banks review own capital adequacy and finally market discipline which focus on increased disclosure."
"The goal of Basel II is to encourage improvements in risk management and better align regulatory capital to underlying risks and provide options for banks. There is a wide menu of options including approaches for credit with standardised approach, approaches for operational risk and approaches for market risk," she added.
"It is essential for the national authorities to review legislations and request any necessary amendments if they have to implement Basel II Accord. They also need to form Basel II teams internally and determine staff development needs. Without doing this it will be very hard to implement the accord, " she said.
FROM SALAH ELDIN ELTAYEB
© Khaleej Times 2004
