Sanchia Temkin
24 July 2008
Johannesburg — AS THE global recession tightens its grip on the economy, South Africans can take comfort in the increased stability of the banking system, say specialists in banking law.
"Because of the recent measures taken to improve banks' capital and risk management, it is extremely unlikely that we will see a South African bank going under because of insufficient capital or risky credit provision," Ina Meiring, a director at Werksmans Advisory Services who specialises in banking law, said yesterday.
"SA did well by coming in early and strictly implementing Basel 2, ensuring that banks have enough capital to cover their commitments and that they calculate their risk accurately," Meiring said.
The new international banking rules, known as Basel 2, were officially adopted on January 1, when the Banks Amendments Act and the related regulations came into effect.
"Given the current credit crunch, the implementation has come at an opportune time," Meiring said.
"It should be a huge boost to the confidence of consumers, depositors, shareholders, and investors to know that the country's banks are using world best practices to deal with risk."
Basel 2 is a framework developed by the Basel committee on banking supervision to further the safety, soundness, and stability of the international banking system.
The rules require banks to adopt stronger risk management practices and to adopt a minimum standard for capital adequacy.
"Basel 2 also promotes a more forward-looking approach to capital supervision, which encourages banks to identify the current and future risks they may face, so as to develop or improve their ability to manage those risks," Meiring said.
SA was one of the early adopters of Basel 2, which replaces the previous set of rules, Basel 1.
"The old rules were published 10 years ago and had a very simplified manner of calculating credit risk.
"Banking has evolved and become much more complex, necessitating a new best-practice model."
The new rules go much further than before by, among other things, compelling banks to use highly sophisticated methods to calculate their risk and capital requirements.
"In addition to calculating credit risk, banks now also have to calculate their market and operating risk, and meet much more stringent reporting requirements," Meiring said.
Be the first to Write a Comment!
Copyright © 2008 Business Day. All rights reserved. Distributed by AllAfrica Global Media (allAfrica.com). To contact the copyright holder directly for corrections — or for permission to republish or make other authorized use of this material, click here.
AllAfrica aggregates and indexes content from over 125 African news organizations, plus more than 200 other sources, who are responsible for their own reporting and views. Articles and commentaries that identify allAfrica.com as the publisher are produced or commissioned by AllAfrica.
