BoN makes banks more risk-proof

NAMIBIA yesterday became the third country in Africa to become Basel II-complaint, making the local banking sector even more resilient.

Basel II, also known as the Capital Adequacy Implementation Project, has only also been implemented in Mauritius and South Africa. It is the second of the international Basel Accords, which are recommendations on banking laws and regulations issued by the International Basel Committee on Banking Supervision.The purpose of Basel II is to create an international standard that banking regulators can use when creating regulations about how much capital banks need to put aside to guard against the types of financial and operational risks banks face worldwide.In practice, Basel II attempts to accomplish this by setting up rigorous risk and capital management requirements, designed to ensure that a bank holds capital reserves appropriate to the risk the bank exposes itself to through its lending and investment practices.’These rules mean that the greater risk to which the bank is exposed, the greater the amount of capital the bank needs to hold to safeguard its solvency and overall economic stability,’ Bank of Namibia Assistant Governor Ipumbu Shiimi said when he launched Basel II.He said there is no doubt that the implementation of Basel II comes with various challenges.Among the challenges include the application of the principles of new capital standards, whereby supervisors as part of their supervisory responsibilities may direct banks to hold capital in excess of the minimum.The other challenge is that Basel II introduces complications for access to finance.’This is the area where we need to work together with the industry to enable credit flow to the specific vulnerable sectors, such as SMEs, that are currently excluded from greater access to credit,’ Shiimi said.Speaking at the same occasion, Standard Bank Namibia Managing Director Mpumzi Pupuma welcomed the stance taken by BoN in introducing Basel II to safeguard the interests of the general public, and to keep the confidence that the banks are well regulated within acceptable levels of risk tolerance.’We, as the banking sector, know that a strong and resilient banking system is the foundation for sustainable economic growth,’ he said, adding that banks are at the centre of the credit intermediation process between savers and investors, mainly providing critical services to consumers, small and medium enterprises, corporate entities and governments alike, who all rely on them to conduct their daily businesses.Thus, he said, it is important that banks subscribe to international best practices. – Nampa