(MENAFN- The Peninsula) The Peninsula
Banks in Qatar need to prepare now for the introduction of revised standards recently released by the Basel Committee. Given the Qatar Central Bank's (QCB) proactive adoption of Basel III, it is likely that Basel IV will be adopted over time. Basel IV will have a significant impact on capital ratios, strategy, pricing, processes and disclosure.
According to Steve Punch (pictured), KPMG's Director and Head of Financial Risk Management across MESA, 'These new Basel IV rules will redefine how banks manage risk, particularly credit risk. This is significant and relevant in countries like Qatar, where the QCB requires them to calculate regulatory capital using the Basel standardised approaches.
Punch was in Qatar to address senior Finance and Risk professionals from the financial services industry at the latest of KPMG in Qatar's ‘Freshly brewed' seminar series.
In his keynote speech, Punch noted that the Basel IV standardized approaches will require banks to review their lending portfolios to identify higher risk customers and that generally, higher risk usually contributes to higher interest rates and capital charges.
'The way that banks calculate regulatory capital is expected to change completely under Basel IV and they will need to collect specific customer information regularly to asses and mitigate risks. There is an increased focus on enhanced due diligence across all lending portfolios, and additional data requirements are needed more frequently, which will be a further burden on banks. For example, banks will be required to undertaken regular valuations for collateral to determine the loan-to-value (LTV) ratio to calculate risk weights. If you have a low LTV, the capital required to be held against that loan is now lower than exposures with high LTV.
Omar Mahmood, partner at KPMG in Qatar and head of Financial Services in the Middle East and South Asia commented, 'The financial sector is a driver of Qatar's economy and, by keeping up with the latest global developments, the government and regulators are demonstrating their commitment to ensuring that the country's banks continue to grow in a safe and sustainable way.
Punch believes that there is value for the QCB to carry out an impact assessment study, particularly to assess the impact of Basel IV on capital adequacy ratios. 'In response to the first draft of Basel IV, the Basel Committee's conducted a Quantitative Impact Study, which estimated that banks may have to increase their capital base by 50-70 percent. In the second draft, the requirement seemed to indicate a 25-30 percent increase. This means we can deduce that Qatar's banks may need to increase their capital by similar amounts once Basel IV is rolled out.
'Given that Basel IV will significantly increase risk-weights and therefore lower the Capital Adequacy Ratio (CAR), it's important for banks to plan in advance and avoid operating below the minimum capital requirements set by the Central Bank. An impact assessment will determine the capital implications and allow the QCB and banking sector to better determine their additional capital needs, Punch added.
KPMG in Qatar's ‘Freshly brewed' seminar series brings together CFOs, and other relevant audiences, from the country's leading banks and financial institutions to discuss industry news and trends.
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