Banks must minimise financial risks to meet Basel regulations - Central Bank Governor

BY RAMANI Kangaraarachchi

LOCAL banks must make best use of the existing resources to minimise the cost of full compliance in meeting the regulatory challenges of the Basel II.

It is important that the banks do not lose sight of the long term benefits of Basel II of better capital allocation and consequently, better pricing, because they are embroiled in the details necessary to meet the deadline.

The ultimate objective is financial stability, Governor of the Central Bank Sri Lanka Sunil Mendis said addressing the SEACEN (South East Asian Central Banks Research Centre) Seminar on Basel II Preparation of Implementation in the Asia Pacific Region held at the Central Bank International Auditorium on Thursday.

He said that the Basel II has been the major preoccupation of bank regulators all over the world for the last seven years.

The seminar brought together regulators and industry participants to a common arena to share experiences and challenges in the operational and policy issues involved in the implementation of this new capital accord.

It's implementation is seen as one of the most significant challenges facing the banking industry the world over, in recent times.

He pointed out that the Basel Committee has rightly advised that regulators and banks should approach it with caution even with regard to the simplest approach to Basel II due its complexity.

Mendis said that as in most countries, the banking sector in Sri Lanka enjoys predominance in its financial system and the financial environment is becoming more innovative and competitive to meet the sophistication of peer foreign banks and needs of investors and consumers leading to increase their risk profile.

Therefore, regulators must ensure an efficient risk management framework and the adequacy of resources to mitigate risk.

Referring to the importance of promoting international best practices and capacity building he said however it is wise to take one step at a time.

He warned that emerging market economies are vulnerable to the reputational risk of non compliance and the infrastructure for compliance -legal, accounting and market must be established and is an essential pre-requisite.

Forty five participants representing seven countries including Sri Lanka and nine resource persons presented their papers at the three day SEACEN seminar.