Some South African banks are on the leading edge globally when it comes to aspects of Basel II implementation, but data issues remain a key concern.
This is the message from IBM Consulting Services, which this week briefed local bankers on the issues facing the global banking industry as it approaches the 2006 Basel II deadline.
The second Basel Capital Accord is a framework to make banks more accountable for ensuring provision of capital to cover default and risk.
The quality of data has been a concern for some time, since banks will have to have a rolling five-year history of documented exposures to a client. Current information is generally accepted to be inadequate.
Christian Terp, a German-based partner within the Financial Services Sector of IBM Consulting Services, says banks should not expect any further major changes to Basel II and need to act now.
He says the third consultative paper on the accord has increased complexity for data issues since it demands a wider differentiation of risk categories when applying internal ratings-based approaches.
Given the unlikelihood of any further major changes to the accord, Terp says banks need to decide now on an IT architecture based on the third consultative paper.
"If they don`t decide on a blueprint early on, taking into account what is in place already, what needs upgrades and so forth, it can become costly."
Mike Emmett, IBM SA Business Consulting Services Financial Service Sector leader, says Basel II is still not high on the agenda of business executives and is seen as a risk issue rather than a business one.
Terp says this is also true for Europe, where most banks viewed it as a cost issue. Only recently have they begun to look for the business benefits that the accord can bring.
However, Terp and Emmett say there have been positive developments locally.
"Certain South African banks are in some respects on the leading edge globally," says Emmett. "There are laggers, but some are world-class and understand some of the issues better than their European counterparts, for example the CFO and chief risk officer working together."
Terp says South African banks are well advanced in some aspects of Basel II implementation.
"One bank says it has already implemented IAS (international accounting standards). Basel is just a sidestep from that, so Basel implementation will not be as costly."
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