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Year 2012 will likely be remembered as a watershed moment for global banking, with banks pressured to completely overhaul their business models and structures, says KPMG.

Historic rates of return on equity have been affected by current market realities. Banks are already making radical adjustments in a bid to create value for their shareholders and meet regulatory challenges. Consequently, simpler banking models and further moves by banks to move parts of the business to Asia are likely.

“The regulatory debate and policy developments of the past three years have just been a warm up," says Giles Williams, head of KPMG’s Financial Services Regulatory Center of Excellence.

Williams adds that 2012 is the year of action and a long and difficult road of implementation lies ahead. "We are witnessing the next wave of regulatory reform and rapid implementation that will be required from senior management at banks.

According to Williams, the key challenges facing banks can be summed up in two words—liquidity and capital—and 2012 will likely be dominated by refinancing.

As banks have been tasked with additional capital requirements, there will likely be continued focus on higher retention of earnings (rather than paying out as bonuses or dividends), cost reduction and reducing on- and off-balance sheet exposures.

The report notes that despite the fact that banks in the Asia Pacific region generally fared well during the crisis, Basel III implementation is still moving forward.

Analysis of capital requirements under Basel, and current requirements in some Asian jurisdictions, suggests that some Asian regulators will be treating all their major banks as if they are systemically important.

With all the focus on Basel III, according to the report, it is easy to lose sight of the fact that there are numerous other issues facing banks in Asia notably how the macro-economic environment will develop.

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