Resources for Basel II Capital Accord (Basel II)

New rules tighten safety nets

www.bangkokpost.com

Thailand's commercial banks will adopt the Basel II financial standard at the end of the year, a move aimed at improving risk-management practices, more efficiently matching capital requirements to risk and strengthening the overall stability of the financial system. The existing capital standard, known as Basel I, was adopted decades ago as a rough guide to determine the amount of capital banks must reserve to cover credit and market risks. For instance, the best-known principle of the standard calls for Thai banks to maintain capital funds _ equity and subordinated debt _ of at least 8.5% of their risk assets, which are primarily loans.

The Basel II standard, initially published in 2004, aims to improve on the existing framework by forcing banks to look at other types of risks, such as operational risk. Analysts estimate that the new standard will increase capital requirements by a full percentage point, although this will vary depending on the composition of each bank's loan portfolio and the readiness and comprehensiveness of its risk management practices.

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