New regulatory reforms to impact banking models in Asia

Bangalore: Proposed reforms to the Basel Accord are expected to have a significant impact on banks in Asia-Pacific.

In a joint survey by KPMG and Oracle, 76 percent of respondents said regulatory reforms would affect their business. Over 50 percent expect their banks' business models would need to change to address regulatory reforms and 48 percent expect their banks would need to raise additional capital. 

The study conducted mainly among the executives from financial institutions across the region found that areas of concern include high compliance costs, reduction in the banks' competitiveness and higher cost of capital, which may become more difficult to access.

"If there is an underlying theme from these regulatory reforms, it is that the new regulations will hit banks' top and bottom lines, and more costs will be transferred to customers," said John Lee, KPMG Asia Pacific Leader for financial risk management.

At the same time, 72.5 percent are of the view that new regulations such as Basel III should be applied to financial institutions in the Asia-Pacific region. However, only one-third of respondents thought the reforms would create a 'level playing field' of global banks relative to Asian banks, since the latter are relatively more capitalized.

Capital management including the Internal Capital Adequacy Assessment Process (ICAAP), liquidity risk management and enterprise wide stress testing are the major areas of regulation that are of priority to respondents.

A vast majority of respondents thought their banks would require additional risk management infrastructure. Nearly 96 percent said an integrated approach to risk, performance, compliance and capital was either critical or important/very important to 'Future Proof' themselves. 88 percent feels data related issues are the main challenge while 75 percent says that not having the right IT systems infrastructure in place is the real problem.

Saloni Ramakrishna, Principal Architect (Risk & Compliance solutions), Oracle Financial Services, Asia Pacific & Japan said, "A 'pooling of tools' approach falls short in delivering the flexibility and integrated enterprise view that banks need to meet emerging regulatory requirements."

The key operating areas that would be affected as a result of reforms vary from people as 78 percent cited lending and risk pricing, 59 percent indicated performance management systems; 57 percent said trading counterparty transactions while 35 percent highlighted executive compensation.

The results outline lack of internal expertise and availability, complexity and lack of clarity, information technology capabilities, data availability and reliability are a few constraints when implementing new regulatory obligations.

As an overall impact, 40 percent thought it would improve the economic environment while an identical number thought the effect would be neutral. The remaining 20 percent said they feared reforms would have an adverse affect. 

Resource Silicon India