--By TC Correspondent

 

Nepal Rastra Bank (NRB) has asked commercial banks to get ready for Basel III framework. The central bank last week directed commercial banks via a circular that it will enforce the regulatory standard from next month. NRB has decided to introduce the framework a year after the expiration of Basel II which was administered for Nepali commercial banks in 2004. When Basel III comes in full implementation, most of the Nepali banks will be required to increase their paid up capital by up to Rs 5 billion depending on their exposure on risky assets. As per the Basel II framework, the paid up capital requirement for the commercial banks in Nepal is currently capped at Rs 2 billion. After the implementation new provision, banks are required to increase their minimum capital, equity capital ratio and buffer capital. 

 

Bankers Say the Framework Won't Hurt Their Profits 

While the central bank is in last minute preparations to implement the Basel III, commercial bankers are looking more confident on the new regulatory framework. They are expecting Nepali banking sector to be more effective, strong and competitive. Currently, NBR is gathering suggestions from the banking sector regarding the new regulatory standard. "NRB's decision and preparation to enforce Basel III is very timely and appropriate," said Bhuwan Dahal, CEO of the Sanima Bank. "It won't hurt the profit of banks, the framework will further strengthen Nepal's entire financial system."  According to him, many of the Nepali banking system's current provisions will remain intact even after the implementation of new framework, due to which the chances of decline in banks profit is minimum. Another CEO of a commercial bank also agreed with Dahal's view. "Short-term profits of banks may come down after the enforcement of Basel III but it is likely to rise on the long-term," he said under the condition of anonymity adding," Distribution of dividend and profit may be affected for some time, however, these impacts will gradually lessen after the full implement of the regulatory framework."  

 

However, some bankers are also voicing their concerns. Upendra Paudel, Vice-President of Nepal Bankers Association (NBA) said that if the new standard is enforced in the current scenario it may reduce the commercial capabilities of Nepali banks. "It is good to introduce the global framework in our country, however, some practical problems may persist," he said. Paudel informed that NBA will submit its suggestions to NRB to solve such problems. 

 

What is Basel III Framework?

Basel III (or the Third Basel Accord) is a global, voluntary regulatory standard on capital adequacy, stress testing and market liquidity risk of banks. It is a set of standards and practices created to ensure that banks across the world maintain adequate capital to sustain themselves during periods of economic strain.

 

It was agreed upon by the members of the Basel Committee on Banking Supervision in 2010-11, and was scheduled to be introduced from 2013 until 2015; however, changes from April 1, 2013 extended implementation until March 31, 2018. Basel III was developed in response to the deficiencies in financial regulation revealed by the global financial crisis of 2008-09 followed by the sovereign debt crisis of Eurozone. The name for the accord is derived from Basel, Switzerland, where the committee, that maintains the accord, meets.