Stakeholders harp on compliance with rules as Basel IV kicks off in 2019
While many African financial institutions continue to struggle with the implementation of Basel II and III, there are indications that Basel IV will kick off from January 1, 2019.
According to insights from the advanced structured trade finance seminar on the Island of Sal in Cape Verde, yesterday, January 2019 has been set as the deadline for Basel III as changes are being implemented for the kick off of the latest Basel rule.
To become very relevant in global trade, financial institutions have been tasked on the need to adapt and comply with emerging regulations.Some of the proposed changes in the Basel rules include, CCF charges for uncommitted facilities, risk weighting of multilateral/development banks, risk weighting of bank counter party risk, IRB banks to be subject to capital floor based standardised approach and many others.
Basel III, released in 2010 in the wake of the global financial crisis, sets out to accomplish three major goals by 2019. First, it seeks to strengthen banks in order to reduce the risk of a 2008 repeat, and, in the event of a new banking crisis, reduce knock-on effects to other sectors and countries.
Second, Basel III puts in place measures to improve risk management techniques within the financial industry. Lastly, the accords aim to strengthen the industry’s governance, transparency, as well as disclosure rules and practices.
The Central Bank of Nigeria (CBN) had made it clear that while the two accords as a whole have merit, it views some aspects of the recommendations as out of step with the realities of the Nigerian economy.
“The CBN will therefore exercise discretion regarding which aspects of the accords will be implemented. One instance in which this policy of discretion has played out in practice involves the capitalisation of domestic systemically important banks (SIBs) as stipulated by Basel,” It said.
Faced with the recession in mid-2016, the CBN delayed the implementation of new capital rules for SIBs in the hopes of boosting lending in the economy.
Speaking on Bank Capital management and structured finance under Basel III, Simon Cook of Sullivan and Worcester, United Kingdom, said there was a need for banks to develop risk mitigants to be able to play effectively in global trade.
He emphasised the need for development of structured guarantees with high documentary standards, adding that beyond having strong offtakers for commodities, risk mitigants need to be put in place.
President of Afreximbank, Dr Benedict Oramah, reinforced that the international banks usually assumed the performance risks of African commodity exporters, while transferring the payment risks to Organisation for Economic Cooperation and Development (OECD) countries.According to him, this approach contributed in entrenching commodity dependence in Africa as items other than commodities could not be financed.
“It also contributed to the low levels of intra-African trade given that African buyers rarely qualified as acceptable off-takers under such arrangements. While these
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