The overall objective of this study was to determine the effect of Basel ll on the South African banking system through possible changes in the way in which a bank conducts its business. This purpose arose from the publication of the new Basel ll Framework on 26 June 2004, which has been adopted for implementation by the South African Reserve Bank. South Africa has set January 1, 2008 as the implementation date for Basel ll. The South African banks have mainly been focussing their efforts on becoming Basel ll compliant. Business line management and marketers have up until now not paid much attention to the likely impact of Basel ll on their markets and product offerings. A literature study was undertaken which included a review of the Basel ll Framework, impact studies and a review of the relevant literature on the topic. The Framework was analysed in order to determine the major impact themes. Once these impact themes were identified, the literature on those areas of impact was researched. The analysis of the Basel ll Framework identified three important themes that will have a significant impact on banks. There will firstly be an impact on market segments and product offerings. Secondly, there will be an internal impact on the banks in the form of increased costs, decision-making and capital management. The final theme identified was the global impact on the banks, especially regarding procyclicality and mergers and acquisitions. vii The research indicates that there will be both winners and losers. Banks that have large retail and mortgage exposures will benefit the most from Basel ll, whereas banks that have large exposures to sovereigns, banks and specialised lending portfolios will be negatively impacted. A capital charge for operational risk will mean that some areas such as corporate finance and asset management will be allocated capital, which was not the case under Basel l. Studies indicate that this new operational risk capital requirement more than outweighs any reduction in credit risk capital requirements. Customers that have high credit ratings are more likely to benefit from lower credit spreads. Similarly customers that have poor credit ratings can expect an increase in their pricing due to the higher capital requirements for these customers, unless they can provide a bank with ancillary revenues. Competition in the retail and mortgage markets will intensify due to the favourable capital requirements for these portfolios. The large South African banks will become takeover targets because of their large exposures to these markets. Basel ll will have a major impact on the way in which banks will do business in the future and as a result banks should view the implementation of the Framework as an opportunity to gain strategic advantages rather than just a compliance obligation. / Prof. A. Boessenkool

Thesis (M.A.) - Carleton University, 2007. / Includes bibliographical references (p. 103-113). Also available in electronic format on the Internet.

Thesis (MBA)--Stellenbosch University, 2002. / ENGLISH ABSTRACT: The new Basel Capital Accord is intended to align capital adequacy of banks more closely with the key components of banking risk and to provide incentives for banks to improve their risk measurement and management capabilities. This has important implications for banks, particularly in the area of credit risk management. The purpose of this study is to take an in-depth look at the implications for banks in the area of credit risk management and the choice of approach (i.e. standardised versus internal ratings based approach) to be adopted. These changes in approach to credit risk will have broader economic implications and the study will in its final analysis explore these in the context of South Africa, as an emerging market. The study is split into three sections: Section A • Introduction and background to the New Basel Capital Accord; • Detailed overview on the New Basel Capital Accord with a particular emphasis on the internal ratings based approach to calculating minimum capital. Section B An in-depth discussion of credit risk management and the practical implications of moving towards an internal ratings based approach, which will eventually allow banks to take on a full portfolio approach to credit risk management. This will enable banks to manage credit risk across sub-portfolios and set economic capital based on the portfolio loss distribution of the banks entire lending book. This is an extremely important development in credit risk management and as a consequence is covered in some detail. The adoption of an internal ratings based approach offers significant rewards in the form of lower statutory capital. A profile of the current capitalisation of SA banks is provided followed by the likely effect of the standardised versus the internal ratings based approach to credit risk management, on the minimum level of statutory capital of banks. Section C The final section covers the envisaged macro effects of the New Accord on emerging markets (procyclical trends, lending concentrations, foreign capital flows and bank failures) with specific comment provided on the implications for the SA banking environment and economy. In conclusion, South African banks should as a priority move towards an internal ratings based approach to credit risk management in order to benefit from the lower statutory requirements, which accrue in the advanced phase. While the accord is likely to impact significantly on emerging markets, South Africa fortunately has a sophisticated banking system by international standards, making the adoption of an internal ratings based approach by the larger SA banks inevitable. The benefits for smaller banks are questionable and at this stage they are unlikely to move beyond the standardised approach, unless compelled to do so. / AFRIKAANSE OPSOMMING: Die "New Basel Capital Accord" het ten doel om die kapitaal vereistes neergelê vir banke meer in lyn te bring met die risiko komponent gekoppel bankwese. Dit hou 'n belangrike implikasie vir banke in en verskaf voorts ook 'n dryfveer vir banke om die bestuur van krediet risiko en algehele bestuursvaardighede te verbeter. In hierdie studie word 'n indiepte ondersoek onderneem aangaande die implikasie op banke van krediet risiko-bestuur en die keuse van die benadering wat gevolg word. Hierdie veranderings in die benadering (dws.standard teenoor interne-graderings benadering) tot krediet risiko hou breër ekonomiese implikasies vir banke in. Hierdie ekonomiese implikasies op SA as 'n ontwikkelende mark word in die finale analise ondersoek. Die studie kan in drie afdelings verdeel word: Afdeling A: • Inleiding en agtergrond tot die "New Basel Capital Accord" en • 'n Gedetaileerde oorsig van die "New Basel Capital Accord" met spesifieke verwysing na die interne-graderings benadering om die minimum vereiste kapitaal te bepaal. Afdeling B: Hierdie afdeling ondersoek krediet risiko bestuur en die praktiese implikasies van die aanvaarding/instelling van 'n interne graderings benadering, en die effek wat dit sal hê op 'n totale portefeulje benadering tot krediet risiko. Die gevolg is dat banke krediet risiko oor sub-portefeuljes sal kan bestuur en kapitaal vlakke vasstel gebaseer op verwagte portefeulje verliese. Hierdie is 'n belangrike ontwikkeling in krediet risiko bestuur en word vervolgens in diepte behandel. Die aanvaarding van 'n interne-graderings benadering tot gradering hou voordele in vir banke in die vorm van laer statutêre kapitaal vereistes. 'n Profiel van die kapitalisasie van SA banke word verskaf, gevolg deur die verskil in die effek van die standaard benadering tot die interne graderings benadering op krediet risiko bestuur en die vereiste minimum statutêre kapitaal. Afdeling C: Die finale afdeling ondersoek die beoogde makro ekonomiese effek van die "New basel capital Accord" op ontwikkelende marke (pro-sikliese neiging, lenings konsentrasies en bank mislukkings) met spesifieke verwysing na die implikasies op SA bankwese en ekonomie. Ter afsluiting moet SA banke so spoedig moontlik die interne-graderings benadering tot krediet risiko aanvaar om voordeel te trek uit die laer kapitaal vereistes wat "ophoop in die gevorderde stadium." Daar word verwag dat die "New Basel Capital Accord" 'n wesenlike invloed op die ontwikkelende mark sal hê. SA het egter 'n gesofistikeerde en gevestigde bankstelsel wat goed vergelyk met internasionale standaarde. Die aanvaarding van 'n interne-graderings benadering deur die die groter SA banke is onafwendbaar. Die voordele wat dit vir kleiner banke inhou kan bevraagteken word en is op hierdie stadium onwaarskynlik dat so 'n benadering deur hulle geïmplimenteer sal word.