Particularităţi ale implementării Acordului Basel II în ţările cu economii în tranziţie

1. Particularităţi ale implementării Acordului Basel II în ţările cu economii în tranziţie Finconet SARL www.finconet.net Februarie 2004

2. Outline Background • Brief History • 1988 Basel Accord New Basel Accord & Its Implementation in the Emerging Markets • Scope of Application & Objectives • Pillar 1 – Minimum Capital Requirements • Pillar 2 – Supervisory Review Process • Pillar 3 – Market Discipline • Quantitative Impact Studies (QIS) Finconet’s Offer

3. Basel Committee on Banking Supervision (BCBS) by the G10 Central Banks End of the transition period Final version of the New Basel Accord Amendment to cover Market Risk (effective in 1997) Second Consultative Package (CP2) 1988 June 1999 Jan 2007 April 2003 1974 1996 Jan 2001 Q2 2004 2010 Proposal for new framework – First Consultative Package (CP1) Original Basel Capital Accord (Basel I) …effective in 1992 New Basel Capital Accord (Basel II) effective Third Consultative Package (CP3) Brief History of Basel Capital Accords

4. Regulatory capital ≥ 8% Cooke ratio = Risk weighted assets (RWA) 1988 Basel Accord- Capital Adequacy Ratio (Cooke ratio) Objective: • Raise capital levels of international active banks • Reduce competitive inequality among banks Focus only on credit risk (market risk added in 1996)

5. 1988 Basel Accord- Regulatory Capital Tier 1 – Core capital • Equity • Retained earnings Tier 2 – Supplementary Capital • Undisclosed reserves • General loan-loss reserves • Hybrid capital • Subordinated term debt Tier 3 – Short term subordinated debt (for market risk) Tier 1 ≥ Tier 2 + Tier 3

6. 1988 Basel Accord- Risk Capital Weights for On-balance Sheet Exposures Off-balance sheet exposures are first transformed in a credit equivalent (replacement cost + add-on amount) and afterwards they are weighted based on the counterparty risk.

7. Outline Background • Brief History • 1988 Basel Accord New Basel Accord & Its Implementation in the Emerging Markets • Scope of Application & Objectives • Pillar 1 – Minimum Capital Requirements • Pillar 2 – Supervisory Review Process • Pillar 3 – Market Discipline • Quantitative Impact Studies (QIS) Finconet’s Offer

8. Basel II The three pillars together are intended to achieve a level of capital commensurate with a bank’s overall risk profile. New Basel Capital Accord • Pillar 1 Minimum Capital Requirements • Credit risk • Operational risk Market risk • Securitisation framework • Risk mitigants • Minimum requirements for each approach • Pillar 2 Supervisory Review Process • Four key principles • Interest rate risk in the banking book, Liquidity & concentration risks • Supervisors monitoring, review, control & validation • Pillar 3 • Market Discipline • Core & supplementary disclosures • Scope of application • Capital structure • Risk assessment • Capital adequacy

9. Scope of Application & Objectives • Objectives • Reaffirms promoting safety & soundness and enhancing competitive equality • Better align regulatory capital to underlying risk and provide incentives for banks to enhance their risk management capabilities • More sensitive measures of the level of risk involved in a bank’s positions & activities • Capital adequacy – more than compliance with required min ratios - also encompasses supervisory review & market discipline • Meaningful min prudential requirements & international consistency Scope of Application • Continues to focus on internationally active banks on a consolidated basis • Explicit application to consolidated banking holding companies (BHC) – parents of banking groups • Securities activities generally considered banking activities – full consolidation • Insurance activities not considered banking activities – general rule to deduct investments and de-consolidate assets

10. Regulatory capital (Tier 1 +2+3) ≥ 8% CAR = RWA for [credit risk + 12.5 * (market risk + operational risk)] Pillar 1: Minimum Capital Requirements- Revised Capital Adequacy Ratio (McDonough ratio) • Definition of regulatory capital remains unchanged • Modifications to the denominator of the risk-based capital ratios • Covers credit, market & operational risks • Increased flexibility & risk-sensitivity: • Menu of approaches for risk measurement • Incentives for improved risk management

11. Pillar 1: Minimum Capital Requirements- Menu of approaches • For measuring Credit Risk: • Standardised Approach • Foundation Internal Ratings-based Approach • Advanced Internal Ratings-based Approach • For measuring Operational Risk: • Basic Indicator Approach • Standardised Approach • Advanced Measurements Approach • For measuring Market Risk: • Standardised Approach • Internal Models Approach

12. Standardised Approach Foundation IRB Approach Advanced IRB Approach • 5 exposures categories: corporates, sovereigns, retail, banks & equity • Bank’s own estimate of probability of default (PD) • Supervisors provide: the loss given default (LGD), exposure at default (EAD), maturity (M) • 5 exposures categories • Bank’s own estimate for all credit risk parameters (PD, LGD, EAD & M) • Reflects more accurately a bank’s individual risk profile • Similar to 1988 Accord • Use of external ratings to determine the risk weights • Risk weights 0-150% • Lower minimum requirements due to simple approach Pillar 1: Minimum Capital Requirements- Credit Risk Measurement Increasing risk sensitivity & increasing internal data requirements Potential reduction agents Credit risk mitigants (collateral, guarantees, credit derivatives, netting) & Securitisation

13. Basic Indicator Approach Standardised Approach Advanced Measurement Approach • β factor Є [12 % - 18 %] • Capital charges based on sum of 7 lines of business risks each calculated by industry standards • Different fixed percentage for each business line, reflecting the size or volume of the activity • γ factor • Capital charges by business line but internally calculated • Different % respective to differentiation of parameters: exposure indicator (EI - the supervisor), probability of loss event (PE), loss given that event (LGE) • α factor = 15% • Fixed percentage for the entire entity • Capital charges based on a single risk indicator: gross income Pillar 1: Minimum Capital Requirements- Operational Risk Measurement Increasing risk sensitivity & increasing internal data requirements Potential reduction agents Credit risk mitigants – Insurance (recognised only under AMA approach)

14. Standardised Approach Internal Model Approach • “Building block” approach • Interest rate risk • Equity risk • Foreign exchange risk • Commodity risk • Specific & general risks separately calculated • Uses proprietary models • Qualitative standards to assure banks have sound risk management systems • Quantitative conditions: • VaR computed daily • 99% confidence level • Min holding period: 10 days • Min sample period: 1 year • Subject to approval of national supervisors Pillar 1: Minimum Capital Requirements- Market Risk Measurement Increasing risk sensitivity & increasing internal data requirements

15. Pillar 1: Minimum Capital Requirements- Implementation & Transition requirements • Adoption of the IRB approach across asset classes • BCBS allows banks to adopt a phased rollout of the IRB approach across the banking group • Implementation plan needed • Non-significant business units & immaterial asset classes (in terms of size and perceived risk profile) may be exempt from the previous requirements • Transition arrangements – three-year period • In 2006: Parallel calculation for banks adopting the advanced approach • Minimum requirements can be relaxed, subject to discretion of the national supervisor (i.e. data history, rating system in place – “use test”)

16. Pillar 2: Supervisory Review Process- Overview Objectives: • Ensure adequate capital to support all risks in a bank • Encourage development/use of better risk management techniques • Foster an active dialogue between banks & their supervisors => when deficiencies are identified, prompt action can be taken to reduce risk or restore capital Areas particularly suited for treatment under Pillar2: • Risks not fully captured by Pillar 1 (e.g. Operational risk, concentration & residual risks) • Risks not taken into account under Pillar 1 (e.g. interest rate & liquidity risks) • External factors (e.g. business cycle effects)

17. Principle 1 Principle 2 Principle 3 Principle 4 Banks should have a process to assess their overall capital adequacy in relation to their risk profile & a strategy to maintain their overall capital levels. Supervisors should review internal assessments and take appropriate supervisory action if they are not satisfied with the result of this process. Supervisors should expect banks to hold capital above the minimum regulatory ratios. Supervisors should seek to intervene at an early stage to prevent capital from falling below the minimum levels required. Pillar 2: Supervisory Review Process- Four Key Principles

18. Pillar 2: Supervisory Review Process- Other Specific Issues • Interest rate risk in the banking book • Operational risk (i.e. gross income) • Credit risk issues: • Stress tests under the IRB approach • Definition of default • Residual & concentration risks • Securitisation • National supervisors are required to act in a highly transparent & accountable manner

19. Pillar 3: Market Discipline Objective: Promote market discipline through greater transparency & significant volume of quantitative & qualitative disclosure requirements => allow market participants to assess the capital adequacy of the institution Disclosure requirements: • Scope of application • Capital structure (Tier 1, 2 & 3) • Capital adequacy (capital requirements for credit, operational & market risk; risk based capital ratios) • Risk exposures and assessment

20. QIS3: Overall changes in capital requirements (incl. operational risk) Source: BCBS Quantitative Impact Studies (QIS) Objective • Comprehensive assessment of the proposed capital requirements for the standardised and IRB-approaches under the New Accord for credit risk & operational risk • Results are used for final calibration of the capital requirements

21. Particularităţi ale acordului în ţările cu economie în tranziţie Principiul I (Pillar1) • Basel II este destinat băncilor active pe plan internaţional şi ţărilor industrializate • Principala problema a economiilor în tranziţie nu este implementarea ultimelor prevederi ale ABII, ci decizia de a implementa sau nu ABII în toată complexitatea sa • Analiza fundamentală a implicaţiilor şi consecinţelor implementării ABII • Simulări şi scenarii ale situaţiilor generate ca urmare a implementării

22. Particularităţi ale Acordului Principiul I - Consecinţe ale implementării • Diminuare a volumului împrumuturilor făcute de băncile ce implementează IRB către ţările în tranziţie sau băncile situate în aceste regiuni • Creşterea ratei dobânzii pt. împrumuturile acordate ţărilor in tranziţie (rating scăzut). Prin renunţarea la clasificarea OECD/non-OECD Comitetul de la Basel încearcă să diminueze această discrepanţă • Favorizarea împrumuturilor pe termen scurt (redus de la 3 luni de la 1 an) • Accentuarea pro-ciclităţii sistemului bancar (creşterea riscului volatilităţii si amplitudinii ciclurilor din afaceri). • Contramăsuri: – anti – pro – ciclicitate • Creşterea avantajului competitiv al băncilor ce au implementat metoda IRB. • Tratare diferenţiată a împrumuturilor

23. Particularităţi ale Acordului

24. Particularităţi ale Acordului • IRB – dificil de implementat în economiile în tranziţie. Metoda Standard ar putea fi o solutie intermediara • IRB – Permite un portofoliu de împrumuturi de calitate • IRB – Nu trebuie implementat deodată. Instituţiile financiare pot amâna implementarea lui sau pot implementa parţial metoda IRB în funcţie de jurisdicţie şi de condiţiile pieţii • Rating: Comitetul Basel recomandă utilizarea ratingului agenţiilor străine şi ratingul agenţiei / instituţiei naţionale de credit de export.

25. Particularităţi ale Acordului Principiul II ( Pillar 2) • Pregătirea şi numărul supraveghetorilor implicaţi în implementare • Lipsa fondurilor de finanţare a implementării, costurile ridicate, lipsa de experienţa şi a datelor necesare în implementare • Diferenţe ale evoluţiei şi comportării pieţelor financiare, rezultă în diferenţe ale implementării. Basel II presupune soluţii unice, strict adaptate la tipul instituţiei

26. Particularităţi ale Acordului

27. Particularităţi ale Acordului Principiul III ( Pillar 3) • Simetria şi “transparenţa” informaţiei pt. toţi participanţii implicaţi. Se presupune că toate părţile au acces şi utilizează egal exact aceleaşi surse de informaţie • Pieţele financiare în tranziţie sunt caracterizate de asimetria informaţiei (pt. părţile implicate) care este generatoare de volatilitate. • Presiunea pieţei, prestigiul instituţiilor financiare şi obiectivele lor pe termen lung (e.g. integrarea in UE)

28. Particularităţi ale Acordului • P1 poate fi adaptat. P2 si P3 diferenţe majore faţă de cerinţele ABII. Ţin cont de maturitatea pieţii. • Set de reguli diferit al economiilor în tranziţie faţă de cel al ţărilor industrializate (CP3) (IRB,SA) • Imposibilitatea de a decide. Numai de a alege. • Costuri: Mai uşor de implementat principiile de bază ale ABII decât întregul Acord în detaliu. Chestiune de maturizare a pieţei. • Extinderea datei implementării IRB după 2006 pt. ţările cu economii în tranziţie. • Împrumuturi IMF/WB acordate pt. implementare • Aducerea la un standard comun al sistemului bancar românesc cu cel al ţărilor membre UE • CAD3 – adaptarea ABII pentru ţările UE

29. Outline Background • Brief History • 1988 Basel Accord New Basel Accord & Its Implementation in the Emerging Markets • Scope of Application & Objectives • Pillar 1 – Minimum Capital Requirements • Pillar 2 – Supervisory Review Process • Pillar 3 – Market Discipline • Quantitative Impact Studies (QIS) Finconet’s Offer

30. FINCONET- profesionalism şi succes • Consultanţă cu privire la renegocierea datoriilor externe vis-à-vis de Clubul creditorilor Paris/Londra pe bază de meniu de opţiuni. • Analiza de datoriilor externe, riscului de ţară, riscului de credit şi operaţional, modelări, previziuni macro-economice, rating • Cursuri profesionale de finanţe, Basel II, datorii, managementul riscului ş.a.m.d. • Implementare Basel II. Colaborare cu Experian-Scorex (www.experian-scorex.com)

31. Finconet’s Offer- Overview Soluţie Completă Basel II

32. Finconet’s Offer- Complete Basel II Solution • Consultancy & Gap analysis services • Data collection • Pillar 1 - Risk assessment methods & internal rating system implementation fully integrated into the bank’s risk management processes: • IRB approach for credit risk (PD, LGD, EAD & M) • AMA for operational risk (PE. LGE) • Internal models for market risk (VaR models) • Reporting (Pillar 3 - quantitative & qualitative disclosure requirements) • Beyond Basel II compliance (i.e. IAS requirements, RAMPs - Risk Adjusted Performance Measurements)

33. Particularităţi ale implementării Acordului Basel II în ţările cu economii în tranziţie Finconet SARL www.finconet.net Februarie 2004