Basel III to spur secondary loan activity

Thursday October 18, 2012

KUALA LUMPUR: The implementation of Basel III next year will encourage secondary loan market activity, said CIMB Group deputy executive officer of corporate banking Datuk Lee Kok Kwan at the Asia Pacific Loan Market Association’s Malaysia conference.

Basel III, a global regulatory standard imposed by the Basel Committee on Banking Supervision, which includes representatives from 20 major world economies, requires banks to hold an increased 4.5% of common equity and 6% of Tier-1 capital of risk-weighted assets, according to the Bank for International Settlements.

Lee explained that under the proposed guidelines on Single Counterparty Exposure Limit in the region, banks will be required to observe prudential limits including a maximum 25% exposure to a single counterpart from a bank’s capital base, and a total exposure (set at 10% of a bank’s capital base) not exceeding six times the capital base.

Also, credit concentration risk will be re-examined by national regulators.

Basel III would result in higher capital requirements for longer tenor loan and bonds, in addition to more punitive liquidity requirements, he said.

“Under Basel III, banks will need to distribute and sell down loans in order to free up capital and liquidity to pursue new lending opportunities, thus leading to increased secondary loan market activity,” Lee said. — Reuters