Proposed Reforms to Impact Asia's Banking Models

Proposed reforms to the Basel Accord are expected to have a significant impact on banks in Asia-Pacific, according to a recent joint KPMG and Oracle survey of executives from financial institutions across the region.


Seventy-six percent of respondents said regulatory reforms would affect their business. Over half said they expect their banks' business models would need to change to address regulatory reforms and 48% expect their banks would need to raise additional capital.


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," says Dr. John Lee, KPMG Asia Pacific leader for financial risk management.


Meanwhile, 72.5% say they 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 capitalised.


The top three important areas of regulation that are of priority to respondents are capital management, including the Internal Capital Adequacy Assessment Process (ICAAP), liquidity risk management and enterprise wide stress testing, across risk categories.Most respondents thought their banks would require additional risk management infrastructure.


Over 96% say they considered that an integrated approach to risk, performance, compliance and capital was either critical or important/very important to "Future Proof" themselves. In terms of challenges, 88% of respondents highlighted data related issues while 75% pointed to not having the right IT systems infrastructure in place.


"A 'pooling of tools' approach falls short in delivering the flexibility and integrated enterprise view that banks need to meet emerging regulatory requirements," said Ms. Saloni Ramakrishna, Principal Architect (Risk & Compliance solutions) Oracle Financial Services, Asia Pacific & Japan. "We see data and data architecture mastery, an integrated and flexible technology infrastructure, interactive and transparent reporting, and functional risk, compliance and performance solutions as essential requirements for not only managing, but thriving, in the 'new normal'."


Banks were also asked to consider what key operating areas would be affected as a result of reforms. Seventy-eight percent cited lending and risk pricing, 59% indicated performance management systems; 57% said trading counterparty transactions while 35% highlighted executive compensation.


Respondents indicated a number of constraints when implementing new regulatory obligations. These include lack of internal expertise and availability, complexity and lack of clarity, information technology capabilities, data availability and reliability.


The regulatory changes are also affecting governance structures and practices. More than 70% said they have had to refine the terms of references of their risk management committees, while 46% indicated that the board needed a more integrated view of risk management.


Meanwhile, 35% said they had appointed a steering committee to oversee the introduction of the new regulatory requirements.


In terms of the overall impact, 40% thought it would improve the economic environment, while 20% said they feared reforms would have an adverse affect.




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