APAC banks ready for Basel III

Transition is not expected to have a substantial impact on capital requirements.

Majority of banking jurisdictions in most Asia Pacific markets should be able to absorb the moderate increases in capital requirements required under the final Basel III standards, reports Fitch Ratings.

Their conservative regulatory approaches, and less extensive use of internal models, will be to their advantage, the ratings agency said in a report.

“Few have implemented the rules in full so far, but we expect the transition will not have a substantial impact on capital requirements over the next two years–by which time adoption should be complete in most major APAC jurisdictions,” Fitch said.

This would mean that they will likely fare better than their US banking counterparts. US bank regulators estimate that adoption would cause a 16% increase in common equity requirements for large US banks, noted Fitch, as suggested by the Federal Reserve Chair in March 2024.

ALSO READ: Are ATM cash withdrawals making a comeback?

Amongst markets, Australia and Indonesia have notedly made strides in Basel III adoption. Australia have already adopted the final Basel III packaged beginning 1 January 2023, which resulted in reported domestic bank common equity Tier 1 ratios improving by up to 100bp for the major banks. 

Indonesia’s pilot application of revised standardised approaches from January 2023 improved Tier 1 capital ratios initially by up to 300bp, Fitch noted.

China has already launched its domestic implementation of final Basel III at the start of 2024, and will be followed by Japanese internationally active banks from end-March. Japanese megabanks are not expected to report a significant impact in the first year of implementation, with the exception of Mitsubishi UFJ Financial Group where removal of capital floor-related buffers will reduce its overall RWAs. 

Singaporean banks will go live under the new regime from July, and then Hong Kong and Malaysian banks from January 2025. 

“We believe they will do so largely faithfully, since authorities in these major systems are Basel Committee members, and so committed to applying the final Basel III framework,” Fitch Ratings said.

South Korea, another Basel Committee member, has already implemented the revised credit risk, market risk, and credit-valuation adjustment measurements required under the final Basel standards in 2023. 

ALSO READ: Game changer: Gen AI can transform how banks tackle regulation and risk

India has yet to publicly disclose its implementation timescales, although as a Basel member jurisdiction it will be under moral suasion for a timely and full implementation. 

Estimates from the Basel Committee on Banking Supervision’s March 2024 monitoring report posits that the final Basel III framework could lower tier-1 minimum required capital for internationally active large APAC banks by an average of 0.8%.

This compares with its estimated tier-1 requirements being 18.3% and 1.3% higher for the large European and Americas banks.