Business, Emerging Markets, Malaysia - Thu October 11, 2012

Asian bank threat to Basel III

Asian banks are meeting informally, seeking to decide whether to adjust the Basel III rules

Many of Asia’s leading banks are expected to meet today in Tokyo behind closed doors to decide whether to accept – or potentially reject – controversial financial regulations set to come into effect on the first day of 2013.

The heads of several leading Asian lenders, including Nazir Razak, group chief executive at Kuala Lumpur-based CIMB Group, are set to convene today in an informal closed-door session to discuss the Basel III rules, chaired by Andrew Sheng, president of Hong Kong-based, Asia-focused consultancy, the Fung Global Institute.

Although it is an informal meeting designed to gauge opinion among Asian leaders and regional financial regulators about the new rules, all the major Asian banks will be there, Razak said. “The subject is whether to agree to form a consensus view on Basel III, and whether to draw up recommendations to present to our regulators back home. We have to decide whether to adjust Basel III rules, or just tweak them.”

Razak’s comments mark the first time a senior financial figure has expressed public disquiet over the incoming regulations, drawn up in the wake of the 2008-2009 financial crisis in an effort to create minimum standards of bank liquidity and place a cap on liquidity levels.

He said it was too early to describe the meeting as concrete evidence of a rift between emerging and developed markets, but said all of the lenders meeting today in Tokyo were “growing increasingly and collectively concerned” over the rules, adding: “It makes sense to act collectively rather than individually over this matter.”

Among the banks meeting in Tokyo on Friday are believed to be Sumitomo Mitsui and Mizuho Bank of Japan, CIMB’s Malaysia peer Maybank, KB Kookmin Bank of Korea, and Singapore-based DBS.

Today’s meeting had its roots in an informal chat that took place in Singapore on 23 September during the Formula One motor race. “Lots of bankers got together then and there and decided to do something,” Razak says. “We all agreed to take the matter further in Tokyo this week.”

News of the meeting quietly spread throughout southeast and northeast Asia. Iwan Azis, head of the Office of Regional Economic Integration at the Asian Development Bank, heard about the gossip in Jakarta, where the news gained quiet but firm approval, he says, among smaller Indonesian lenders, along with the country’s financial regulators.

“The smaller Indonesian banks for instance are not happy about [Basel III] at all,” Azis said. “You didn’t hear them complain before, but the time is fast approaching where they have to impose these rules, and they are worried. If you are a bank with a lower rating, somewhere in the ‘Bs’, you are going to have to raise your capital adequacy levels considerably.”

Even the International Monetary Fund in September warned that new regulations were skewed toward the interests of developed-world lenders. The fund noted that big banking groups would be “better able” than smaller banks to absorb the cost of regulations, driving more business in direction of market leaders.

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