Banks urged to maintain sufficient capital levels

| Thursday March 3, 2016 16:19

Speaking on Monday at a workshop organised by the First National Bank of Botswana (FNBB) in Gaborone, capital management analyst, Ikanyeng Segonetso said the Basel Committee on Banking Supervision has established a set of guidelines and frameworks to regulate the international banking industry.

The purpose of the workshop was to enlighten institutional investors on the regulatory changes from Basel I to Basel II.

In Botswana, Basel II took effect from January 1, 2016 as formally communicated by the Bank of Botswana (BoB).

“Through a set of iterations, the banking sector across the globe is required to implement Basel through their respective local jurisdictions,” he said.

According to Segonetso, the understanding of Basel regulatory changes has become even more crucial to ensuring that institutional investors maintain the quality and composition they require for their fixed income allocations.

With this in mind, he said FNBB aims to upskill and capacitate local institutional investors on Basel regulations, which in turn impacts on the development of Botswana’s debt capital markets.

He noted that a key part of bank regulation is to ensure that financial institutions operating in the industry are prudently managed.

“This is done to protect clients’ deposits, the banks themselves and the economy by establishing rules to ensure that these institutions hold an adequate level of capital,” he said.

Segonetso further explained that Basel II Accord came into effect due to the shortcomings of Basel I Accord. He also said the most important task of the Basel Committee is the development of banking regulations that would provide soundness and stability of international banking system.

He stated further that FNBB remains committed to playing a pinnacle role in the sustainable growth and development of Botswana’s investment landscape.

“Bearing in mind that we counsel some of Botswana’s major corporates who continue to excel in local and regional markets, we therefore believe educating our stakeholders o§n changing Basel regulations is essential,” he said.

The analyst also indicated that in many instances, these changes have a direct impact on how institutional investors construct or revise their investment policies and may have further implications on their portfolios.

He added that in a constantly changing regulatory environment, investors in the debt capital markets need to understand features of financial instruments such as subordinated debt.

He said regulators continue to move towards increased coverage of risks and allowance of internal models based on economic capital.

Basel II consists of three pillars; minimum capital requirements, supervisory review process and market discipline.