Degree

Master of Business Administration Executive

Faculty / School

Faculty of Business Administration (FBA)

Year of Award

2012

Project Type

MBA Executive Research Project

Access Type

Restricted Access

Executive Summary

Adaptation of an international regulatory and supervisory architecture such as BASEL is by no means easy task particularly for countries where Risk Management in banks is at its infancy stage. There several challenges associated with implementation of such a risk framework. One of the most difficult aspects of implementing an international agreement is the need to accommodate different cultures, varying structural models and complexities of public policy and existing regulations. Another generic challenge is the need to balance the interests of businesses against the needs of regulator. There are impediments and implication of different countries taking different approaches to BASEL, the issues surrounding managing data quality and stress testing, the issues of auditing regulatory data, and the challenges of integrating disparate bank office back system into a cohesive BASEL management framework. The banking system of Pakistan is a well regulated system with less sophisticated intermediation products as compared to developed countries. The banking system consists of 38 scheduled banks and 6 foreign banks with deposits of PKR 5,489 BN and advances of PKR 3,311 BN. With the growing complexity of operations and product innovation, financial institutions in Pakistan have become more exposed to a diverse set of risks; therefore the need of a an are vigilant international regulatory framework is inevitable. BASEL II was launched in Pakistan in March 31, 2005 vide BSD circular No. 3. BASEL I was already in place and banks in Pakistan were required to report under BAESL I formats to the State Bank of Pakistan (SBP). Reports under BASEL-1 were submitted on quarterly basis to - under Basic Approach to the SBP. BASEL I and II were on parallel run and banks were reporting on both formats till 2007 which was the last year of parallel run. From January 2008 all banks are porting under BASEL II. BASEL II was implemented in 2008 in Pakistan; however there are still a Pakistan which have not yet been able to move to advanced approaches. the SBP. After launch of BASEL li in 2005 banks started reporting re number of banks in National Bank of Pakistan is among those banks which are still lagging behind in advancement in BASEL II. The migration to advanced approaches was expected to commence in January 2012 at NBP but due to several reasons it has been delayed till September 2012. Major reasons for delay can be attributed to poor risk management policies, absence of core and non-core centralized automated banking system, issues in historical loss data collection and lack of expertise. NBP is among the big five banks in Pakistan. The other members of the peer group such as Habib Bank Limited (HBL) and Bank Alfalah Limited (BAL) have successfully ensured framework for promotion of advanced stages of BASEL II. The system and controls for foundation are already in place for foundation approaches and banks are ready to move to the advanced approach. However there are currently reservations from SBP regarding application of advanced approach. At the same time there is a cap on the minimum amount of capital from the State Bank of Pakistan that the banks in Pakistan are required to maintain which will not allow full advantage of implementing advanced approach to the banks. BASEL II offers a systematic and transparent risk management framework for the banking system and the regulator. It serves as an impetus towards the development of a sound risk management system which promotes a more efficient, equitable and prudent allocation of resources with in the financial system and at the same time provides safety net to the deposit holders and the banks themselves Implementation of BASEL is a challenge as well as an opportunity for banks. It solid foundation for the next developments in the banking sector and it can ensure that can provide a past excesses are avoided.

Pages

59

Download

Available for download on Tuesday, December 31, 2030

The full text of this document is only accessible to authorized users.

Share

COinS