Banks adopt new regulatory system

Zimbabwe, which sets new criteria for determining the minimum regulatory capital for banking institutions.
The new system that seeks to strengthen the financial sector and expand the central bank’s supervisory role commences on January 1, 2012.
This means that banks are required to initiate a parallel run of the revised framework.
The action plan will see banks adopting the Modified Standard Approach for credit risk and alternative standardised approach for operational risk.
Under MSA banking institutions are required to develop or revise their internal rating systems to ensure reliable and accurate mapping to the new supervisory rating system.
Adoption of the advanced approach is subject to satisfactory supervision validation by the central bank.
In his monetary policy statement in July, RBZ Governor Dr Gideon Gono said with effect from January 2013, all banks would be required to comply with Basel II. As from that date Basel I will no longer be available to any bank.
“The Reserve Bank will incorporate the changes with respect to minimum tier 1 and capital adequacy ratios, liquidity coverage ration and net stable funding ratio through a revision of Basel II implementation technical guidance,” said Dr Gono.
The framework lays out new criteria for calculating banking institutions’ regulatory capital sets the parameters for bank supervision and stipulates the minimum disclosure requirements.
The eligible elements of the prescribed minimum equity capital include paid-up share capital, share premium, audited retained earnings and current year retained earnings verified by external auditors.
Analysts lauded the implementation of Basel II accord as the country is lagging behind the full implementation of the framework.
However, they said it is likely to be very difficult for some financial institutions to meet the required core capital against the background of serious liquidity challenges.
Some banks are already struggling to meet the minimum capital requirements and it is an indication that more financial institutions will find it difficult to implement.
Banks are also expected to invest into research and human resources development as they implement this accord.
Last year, the RBZ last issued a technical guide on implementation of Basel II, which required that the core capital of banks should exceed 50 percent of the capital base of the institution.
“This is the way to go as implementation of this accord seeks to strengthen the capital base of financial institutions, it’s in line with international standards and it restores confidence in the financial sector,” said one analyst.