TEXT-S&P Report: Asia-Pacific Banks Well-Positioned For Basel III

Last Updated: Mon, Jan 21, 2013 06:40 hrs

(The following was released by the rating agency)

TOKYO (Standard & Poor's) Jan. 21, 2013--Standard & Poor's Ratings Services said in a report released today that it expects most of the Asia-Pacific banks it rates to be able to comply with the new requirements of the Basel III capital reforms without significant difficulty, due to primarily to their relatively strong core capital.

"Asia-Pacific banks are poised to take the global lead in implementing Basel III in 2013. Among members of the Basel Committee on Banking Supervision (BCBS), most countries in Asia-Pacific have published their final set of Basel III capital reform regulations effective from January 2013. As a result, Asia-Pacific banks will adopt the new capital regulations ahead of their global peers: the U.S. has delayed the implementation and timetable of the Basel III capital reforms, and a final draft remains under discussion in the EU. Furthermore, the new Basel III capital requirements that national regulators in Asia-Pacific have implemented are more stringent than those in many countries," said Standard & Poor's credit analyst Naoko Nemoto.

"However," Nemoto notes, "we expect banks in high-growth systems such as India and China to face challenges in maintaining or raising capital ratios to keep pace with growth in risk assets. Based on certain assumptions, we estimate that the total capital shortfall of major banks in both countries could reach about US$100 billion in 2019.In addition, some banks in mature and low-margin markets, such as Japan and Taiwan, will need to enhance earnings capacity and their ability to generate capital to meet Basel III's minimum standards for the Common Equity Tier 1 capital ratio."

The Basel III capital reforms will encourage banks to strengthen capitalization, which is a positive rating factor. In addition, higher capital requirements will protect banking systems from risks associated with excess credit growth and asset inflation, which are risk factors in the Asia-Pacific region. On the other hand, the capital reforms could force banks to focus on optimizing their use of capital and setting adequate price premiums, with potential knock-on effects on various sectors. For instance, a higher capital charge could lead to higher funding costs and lower availability of longer-term credit for corporate borrowers.

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