APAC banks won’t be severely hit once Basel III regime implemented: Fitch

Jurisdictions such as Vietnam, Sri Lanka, are lagging behind with adoption.

APAC banks are unlikely to be severely affected once the final Basel III regime is fully adopted, according to Fitch Ratings.

Earlier in February, a report released by the Basel Committee on Banking Supervision estimates that a fully phased-in implementation of Basel III could lower the tier 1 minimum required capital for international active large APAC banks by 5.5% on average. This is in contrast to an increase of 18% and 4.7%, respectively, in Tier 1 requirements for the large European and American banks.

“The impact of the final rules will be much higher in Europe because banks there rely more heavily on internal models, which are affected by the Basel III output floor that ties modelled estimates to a fixed proportion of standardised supervisory risk-weighting,” Fitch said.

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So far, implementation of the final Basel III rules have been inconsistent if not uncertain in many APAC markets. Major systems led by Australia, followed by Japan, Hong Kong and Singapore, have scheduled full implementation, and Fitch expects these jurisdictions–all members of the Basel committee–to continue their progress in 2023 and until 2024 for Japan.

South Korea is also on track with most Koran banks adopting the final Basel III credit risk package during 2020-2021, although some small banks have yet to adjust.

In contrast to these markets, Implementation timescales for remaining APAC banking systems remain unclear, Fitch said.

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“Other Basel member jurisdictions, such as China, India and Indonesia, are likely to be under moral suasion for a timely and full implementation even though clear plans have yet to be publicly disclosed. We expect China to progress its policy formulation during 2023 for capital, liquidity, market risk and CVA, although the timing for finalisation is uncertain,” Fitch added,

Other APAC systems lag behind. Vietnam is only fully transitioning to the Basel II framework in 2023, whilst Sri Lanka’s banking sector is currently beset with stress from the economic crisis, and will likely further delay progress.