State Bank (SBP) governor Dr Shamshad Akhtar has said the central bank has chalked out a roadmap for smooth implementation of Basel-II accord in a phased manner.
"The transitional period is expected to provide banks the requisite time to fine-tune their systems and hone their technical and human resource capabilities," Dr Shamshad added.
She said it was not just banks which would change in the Basel-II scenario, this accord would also affect rating agencies, external auditors, banks' customers and regulators alike. Addressing the 56th annual general meeting of the Institute of Bankers of Pakistan (IBP) here on Tuesday, she termed Basel-II a 'revolution' in regulation and risk management.
Dr Akhtar said the main element underlying the Basel-II framework was the recognition and management of risk. "One cannot dispute the inevitability of effective recognition and proper risk capital weightage of different types of risks in banking operations in the current financial architecture," she observed.
The SBP chief laid great emphasis on the access of finance to all sections of the society, keeping in view the fact that the new accord would require banks to hold higher capital allocation for assuming higher credit risk.
Presently, financial and banking institutions were exposed to a diverse set of risks and the count was increasing with each passing day. These risks, which might be unmanageable, could undermine the viability of the sector.
Dr Shamshad said the 'uncalculated risks' might arise due to various reasons: due to inadequate internal control, inadequate IT management, due to weak professional management, etc. Given such a scenario, there was a dire requirement for a holistic approach to deal with the same. She said Basel-II was a far superior architecture that recognised and addressed shortcomings of Basel-I.
She highlighted the potential concern that small businesses and poor segments of the society might receive negligible or very costly credit under the new regime.
She said policies should be made to bring more segments within the ambit of financial services without seriously compromising banks' risk profile.
As a regulator, the SBP may need to look into the possibility of designing a modified risk assessment system for the development of finance activities of banks, she observed. She elaborated the entire framework was based on reliability of good quality data to assess risks accurately.
"Banks have to rely on external credit rating institutions (ECRIs) which in turn have considerable reliance on external auditors of the borrowing entity. The State Bank has taken various measures to ensure that quality to ECRIs and external auditors. Earlier, IBP chief executive Mohammad Salim Umer explained activities and achievements of the institute.
He said the entire examination system of the institute had been revamped to bring it in line with the international standards. Besides usual business of the annual general meeting, prizes and certificates of IBP courses on 'Effective Branch Management' were also distributed on the occasion.
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