scholarly journals IMPORTANCE OF CAPITAL ADEQUACY REQUIREMENTS IN BASEL III FRAMEWORK FOR COMMERCIAL BANKS IN KENYA

2017 ◽  
Vol 1 (4) ◽  
pp. 26 ◽  
Author(s):  
Kevin N. Kombo ◽  
Dr. Amos Njuguna
Keyword(s):  
Credit Risk ◽  
Commercial Banks ◽  
Financial Stability ◽  
Balance Sheet ◽  
Capital Requirements ◽  
Capital Adequacy ◽  
Primary Data ◽  
Basel Iii ◽  
Management Staff ◽  
Speed Accuracy

Purpose: The purpose of the study was to examine the importance of capital adequacy requirements in Basel III framework for commercial banks in KenyaMethodology: A descriptive survey design was applied to a population of 43 commercial banks operating in Kenya. The target population composed of the 159 management staff currently employed at the head offices of the various commercial banks in Kenya. The population was composed of Senior, Middle and Junior or Entry level Management staff. A sample of 30% was selected from within each group. Primary data was gathered using questionnaires which were dropped off at the bank’s head offices and picked up later when the respondents had filled the questionnaires.Descriptive analysis was used to analyze quantitative data while content analysis was used to analyse qualitative data.Results: The study concludes that capital adequacy requirement is perceived to be important in commercial banks. The study thus deduces that financial stability, credit risk management, reduced vulnerability to liquidity shocks balance sheet structure and deposit insurance affect the capital requirement of the commercial banks in Kenya. In addition, the study concluded that Basel III increases capital requirements for counterparty credit risk arising from derivatives, repurchase agreements and securities financing activities.Unique contribution to theory, practice and policy: The study recommends that banks should ensure a flexible Basel III management expertise that delivers speed, accuracy, and performance to deliver competitive advantage.

scholarly journals Effects of Basel III Framework on Capital Adequacy of Commercial Banks in Kenya

2016 ◽  
Vol 1 (1) ◽  
pp. 61
Author(s):  
Kevin Kombo ◽  
Dr. Amos Njuguna
Keyword(s):  
Risk Management ◽  
Credit Risk ◽  
Commercial Banks ◽  
Financial Stability ◽  
Safety Net ◽  
Capital Requirements ◽  
Capital Adequacy ◽  
Basel Iii ◽  
Credit Risk Management ◽  
Management Staff

Purpose:The purpose of the study was toassess the effects of Basel III framework on capital adequacy requirement in commercial banks in Kenya. The study sought to address the following research questions: why are capital adequacy regulations important in commercial banks in Kenya? What challenges are commercial banks facing in the implementation of capital adequacy requirement? What measures have commercial banks taken to ensure compliance with the capital adequacy requirement?Methodology:A descriptive survey design was applied to a population of 43 commercial banks operating in Kenya. The target population composed of the 159 management staff currently employed at the head offices of the various commercial banks in Kenya. The population was composed of Senior, Middle and Junior or Entry level Management staff. A sample of 30% was selected from within each group.Primary data was gathered using questionnaires which were dropped off at the bank’s head offices and picked up later when the respondents had filled the questionnaires. Descriptive analysis was used to analyze quantitative data while content analysis was used to analyze qualitative data.Results:The findings show that capital adequacy requirement is important in commercial banks because it leads financial stability in the Kenyan economy, improves credit risk management techniques as poor credit risk management requires more capital and leads to reduced vulnerability to liquidity shocks due to the sound capitalization policies being implemented under the Basel III framework. Findings also revealed that capital adequacy affected the balance sheet structure of the commercial banks in Kenya.Unique contribution to theory, practice and policy: The study recommends that banks should continue the pursuit of various strategies to ensure that they are in compliance with Basel III requirements and the Central Bank of Kenya’s Prudential Guidelines. The staff of this committee should be drawn from mainly the finance, legal, compliance and treasury departments. Compliance with the capital requirements will lead to a safety net for all commercial banks as the additional capital will act as a cushion that absorbs losses in case of distress in the commercial banking sector.

scholarly journals CHALLENGES FACING COMMERCIAL BANKS IN THE IMPLEMENTATION OF CAPITAL ADEQUACY REQUIREMENT IN BASEL III FRAMEWORK

2017 ◽  
Vol 1 (4) ◽  
pp. 45
Author(s):  
Kevin N. Kombo ◽  
Dr. Amos Njuguna
Keyword(s):  
Commercial Banks ◽  
Survey Design ◽  
Descriptive Analysis ◽  
Capital Adequacy ◽  
Primary Data ◽  
Basel Iii ◽  
Management Culture ◽  
Finance Management ◽  
Regulatory Constraints ◽  
Management Staff

Purpose: The purpose of the study was to identify challenges facing commercial banks in the implementation of capital adequacy requirement in Basel III framework.Methodology: A descriptive survey design was applied to a population of 43 commercial banks operating in Kenya. The target population composed of the 159 management staff currently employed at the head offices of the various commercial banks in Kenya. The population was composed of Senior, Middle and Junior or Entry level Management staff. A sample of 30% was selected from within each group. Primary data was gathered using questionnaires which were dropped off at the bank’s head offices and picked up later when the respondents had filled the questionnaires. Descriptive analysis was used to analyze quantitative data while content analysis was used to analyze qualitative data.Results: The study concludes that the implementation of Basel III requirement has been faced by various challenges like growth barrier, regulatory constraints, risk and finance management culture and additional capital challenges. In addition, the study concluded that commercial banks face challenges in deciding how best to implement a solution that will allow them to comply with Basel III, how to operate the systems and processes for improved operational effectiveness, and how to understand and ultimately reduce their capital requirements.Unique contribution to theory, practice and policy: The study recommends that Banks should manage their risks more closely and avoid a build-up of unintended risk, reducing the opportunities for regulatory capital arbitrage. This would go a long way in eliminating growth barriers, regulatory constraints, capital adequacy requirement, risk and finance management culture and additional capital challenges.

scholarly journals MEASURES COMMERCIAL BANKS HAVE TAKEN TO ENSURE COMPLIANCE WITH THE CAPITAL ADEQUACY REQUIREMENT IN BASEL III FRAMEWORK

2017 ◽  
Vol 1 (4) ◽  
pp. 64
Author(s):  
Kevin N. Kombo ◽  
Dr. Amos Njuguna
Keyword(s):  
Commercial Banks ◽  
Survey Design ◽  
Descriptive Analysis ◽  
Target Population ◽  
Capital Adequacy ◽  
Primary Data ◽  
Basel Iii ◽  
Entry Level ◽  
Revenue Growth ◽  
Management Staff

Purpose: The purpose of the study was to establish measures commercial banks have taken to ensure compliance with the capital adequacy requirement in Basel III framework.Methodology: A descriptive survey design was applied to a population of 43 commercial banks operating in Kenya. The target population composed of the 159 management staff currently employed at the head offices of the various commercial banks in Kenya. The population was composed of Senior, Middle and Junior or Entry level Management staff. A sample of 30% was selected from within each group. Primary data was gathered using questionnaires which were dropped off at the bank’s head offices and picked up later when the respondents had filled the questionnaires. Descriptive analysis was used to analyze quantitative data while content analysis was used to analyze qualitative data.Results: Based on the findings the study concluded that the commercial banks in Kenya have taken various measures to ensure compliance with capital adequacy requirement such as cutting back on lending, market rights issue/bonds, increasing revenue growth/cutting costs and withholding dividend payment. In addition, the study concluded that commercial banks, in a bid to reduce the challenges experienced in the implementation of capital adequacy requirement, they opt to purchase high quality liquid assets, increasing their maturity profile and increasing retail deposits.Unique contribution to theory, practice and policy: The study recommends that it is vital to understand the forces behind the increasing sophistication and efficiency of risk management systems, before adopting them more widely for regulatory purposes

U. S. Investment Banks in the Context of the Post-Crisis International Banking Regulation Reform

2020 ◽  
Vol 2020 (1) ◽  
pp. 21-40
Author(s):  
Eduard Dzhagityan ◽  
Anastasiya Podrugina ◽  
Sofya Streltsova
Keyword(s):  
Financial Stability ◽  
Banking Regulation ◽  
Capital Requirements ◽  
Capital Adequacy ◽  
Investment Banks ◽  
Basel Iii ◽  
International Banking ◽  
Minimum Capital ◽  
Negative Effect

The article looks into the reasons underlying the outspread of the full-scale mechanism of banking regulation over U. S. investment banks. We analyze the effect of the Basel III standards on stress-resilience of investment banks and examine the role of U. S. investment banks in ensuring financial stability. Based on regression analysis we found that minimum capital adequacy standards of Basel III do not have negative effect on ROE of the U. S. investment banks that are G-SIB category-designate; however, additional capital requirements (Higher Loss Absorbency (HLA) surcharge) that depend on G-SIB’s systemic significance according to their bucket as per Financial Stability Board classification do have significant and negative effect on ROE in the post crisis period. Besides, leverage requirements that also depend on G-SIB’s systemic significance have a statistically significant effect on ROE.

scholarly journals The New Rules of Capital Adequacy Basel III from the Perspective of Leasing Companies in Europe and Czech Republic

2019 ◽  
Vol 10 (2) ◽  
pp. 21-41
Author(s):  
Martin Svítil
Keyword(s):  
Czech Republic ◽  
Stress Test ◽  
Balance Sheet ◽  
Capital Requirements ◽  
Capital Adequacy ◽  
European Federation ◽  
Basel Iii ◽  
The Czech Republic ◽  
Share Capital ◽  
Leasing Company

Some significant changes to the Basel III regulatory framework (called Basel IV) will come into effect during the 2022 to 2027 period. In its first part, this article shows the opinion of the European Federation of Leasing Company Associations Leaseurope on Basel IV. In its second part, this paper evaluates the situation of the largest leasing companies on the Czech market using methods of financial analysis.The results of several studies published by Leaseurope clearly show that the risk associated with the provision of liabilities through leasing is significantly lower than the risk calculated by the capital adequacy calculation for Basel rules. For this reason, the Leaseurope federation prepared concrete proposals for changes in the rules so that the regulation better corresponds to the actual risks taken.The second part of the article analyzes the situation of leasing companies in the Czech Republic in terms of capital, capital adequacy and compliance with Basel rules. It shows the state of the capital adequacy of the largest leasing companies operating on the Czech market using simplified indicators of the ratio of Equity / Balance sheet total and Equity / Receivables. As a complementary indicator, the ratio of Share capital / Balance sheet total is also used. Furthermore, a simplified stress test based on 5% and 10% decline in net receivables and coverage of this decline from equity, respectively, was performed.The results show that leasing companies operating on the Czech market would probably have no problem meeting the considered tightening of capital requirements. Several exceptions are mentioned in the text.

scholarly journals King’s Model on Capitalization under Basel III: The Case of Lebanese Banks

2018 ◽  
Vol 4 (1) ◽  
pp. 77-94
Author(s):  
Nabil Georges Badr ◽  
Somaya Nasif El Ahmadieh
Keyword(s):  
Financial Crisis ◽  
Financial Crises ◽  
Commercial Banks ◽  
Capital Requirements ◽  
Capital Adequacy ◽  
Capital Inflows ◽  
Basel Iii ◽  
Spread Ratio ◽  
The 2008 Financial Crisis ◽  
The Impact

Objective: Lebanese banks have shown immunity towards the 2008 financial crisis that was attributed to many factors including a strong regulatory and supervisory system of conservative practices and structural economic factors such as the recurrence and non-speculative nature of capital inflows towards Lebanon supported by a large pool of offshore savings from diaspora and investors around the globe. The purpose of this study is to investigate the relation between capital adequacy ratios (CARs) and lending spread ratio (LSR). This paper presents the first assessment of the Basel III capital requirements on lending spread ratio before, during and after the financial crisis among commercial banks operated in Lebanon. Methodology: We consider King’s approach and assess his model’s applicability in the Lebanese context. Findings indicate some deviations, specifically related to the practices and financial performance of commercial banks in Lebanon. Results: We found no indication of impact of the change in CAR on LSR among Lebanese commercial banks in years prior to the recent financial crises; Nevertheless, the impact of changing CAR by 1 pp on LSR has a modest effect on Lebanese commercial banks during the years of financial crises; this effect is lowered to become modest after the crisis. Implication: The results of the current study reveal significant implications for managers in commercial banks in particular and all banks in general. Given that Lebanese commercial banks are well-capitalized and their Capital Adequacy Ratios are above international benchmarks, bank managers must carefully monitor the cost of the implementation of Basel III requirements

scholarly journals The Impact of Credit Risk on Bank Profitability in Nigeria

2020 ◽  
Vol 1/2020 (13) ◽  
pp. 5-22
Author(s):  
Onyeiwu Charles ◽  
◽  
Gideon Ajayi ◽  
Obumneke Muoneke B. ◽  
Keyword(s):  
Risk Management ◽  
Regression Analysis ◽  
Credit Risk ◽  
Commercial Banks ◽  
Capital Requirements ◽  
Capital Adequacy ◽  
Strong Impact ◽  
Credit Risk Management ◽  
Risk Parameters ◽  
The Impact

This study examines the impact credit risk management has on the profitability of commercial banks in Nigeria. The main objective of this material is to show how credit risk parameters are related to the expected performance of commercial banks in Nigeria. Using the regression analysis, relationship was drawn between credit risk parameters (which include capital adequacy ratio and non-performing loan ratio) and the profitability ratio (return on average asset, in particular) of five big Nigerian banks. Mixed research methodology was adopted in that primary data were sourced via questionnaires and secondary data were used via annual report of selected banks. Regression analysis was used to analyse the data. The conclusion drawn from the data analysis shows that there is a strong relationship between credit risk parameters and returns of the bank implying that credit risk management has a strong impact on the profitability of commercial banks in Nigeria. The study recommends that banks’ capital should be matched with their total risk exposure and if there is an imbalance, new capital requirements are necessary. Insider-related interests in loan applications should be closely monitored by the regulators to ensure continuous performance of the loan facility. Also, there should be an extant profiling of loan defaulters whether individuals or corporate entities.

scholarly journals The Effect of Capital Adequacy on Credit Risk Management among Commercial Banks in Nigeria; Within the Basel Capital Adequacy Framework

2019 ◽  
Vol 10 (07) ◽  
Author(s):  
Dr. S.L.C. Adamgbo ◽  
Prof. A. J. Toby ◽  
Dr. A.A. Momodu ◽  
Prof. J.C. Imegi
Keyword(s):  
Risk Management ◽  
Credit Risk ◽  
Commercial Banks ◽  
Management Practices ◽  
Time Series Data ◽  
Capital Adequacy ◽  
Series Data ◽  
Basel Iii ◽  
Credit Risk Management ◽  
Tier I

This study analyses the effects of capital adequacy measures on credit risk management practices in Nigeria. The study applies the quasi experimental research design. The secondary time series data were obtained from annual report of the fifteen (15) quoted commercial banks in Nigeria as compiled in the Nigeria Stock Exchange Fact book for the period 1989 to 2015. The dependent variable; credit risk was modelled with the five (5) variants of capital adequacy measures as prescribed in Basel III provisions as our dependent variables. The independent variables were categorized under Tier I, Tier II, capital to total assets, capital conservation Buffer (CCB), Minimum Total capital Ratio (MTC) and counter cyclical capital Buffer (CCyB). The multivariate regression technique was specified and results obtained based on E-views version 9.0. The unit root result shows that the variables were stationary at levels in all except MTC which was stationary at first difference. The conintegration result shows existence of a long run equilibrium relationship between credit risk and capital adequacy. The VAR result shows that changes in credit risk were statistically and significantly influenced by capital adequacy measures. The bi-variate causality test unveils that credit risk granger-causes Tier I, capital to total risk assets, hence there exist a bidirectional link between credit risk and capital adequacy (CCB) though credit risk granger-cause more. The Impulse Response Function result shows that credit risk responded normally and negatively to the selected capital adequacy measures except for MTC ratio. The variance decomposition result unveils that credit risk accounted for own shocks up to 79.30%, this points to the critical nature of credit risk to bank survival and growth. This study concludes that transition from Basel II to Basel III will further mitigate risk management under Basel III capital framework and will also avert systemic failure in banks in Nigeria. It is recommended that risk management should be a matter of policy focus and priority among regulators and operators of bank in Nigeria.

scholarly journals RISK MANAGEMENT DISCLOSURE IN LITHUANIAN COMMERCIAL BANKS FINANCIAL STATEMENTS

2014 ◽  
Vol 9 (1) ◽  
pp. 44-51 ◽  
Author(s):  
Dalia Kaupelytė ◽  
Mantas Seilius ◽  
Rūta Zinkevičiūtė
Keyword(s):  
Risk Management ◽  
Credit Risk ◽  
Financial Institutions ◽  
Financial Reporting ◽  
Commercial Banks ◽  
Financial Statements ◽  
Capital Adequacy ◽  
Annual Reports ◽  
Basel Iii ◽  
Regulatory Requirements

Financial institutions have to follow International regulatory requirements and national regulations for risk management disclosure. International regulations are developed by Basel Committee of Banking Supervision (known as Basel II and Basel III) and International Financial Reporting Standards (IFRS 7) introduced by International Accounting Standards Board. National requirements in Lithuanian are developed by Lithuanian central bank. Financial institutions, banks, are expected to provide timely and transparent information about risk exposures, correspondence to minimum regulatory requirements, risk computation methods etc. Still there are some questions raised how these de facto regulations are implemented in practice. The goal of empirical research was to investigate the extent of risk management disclosure in Lithuanian commercial banks financial statements. Data sample constituted of 7 commercial banks that are legally registered in Lithuania: AB “Swedbank”, AB “SEB”, AB “DNB”, AB “Citadele”, AB “Medicinos Bankas”, AB “Šiaulių bankas”, AB “Finasta”. The period of 2009 – 2013 was analysed. The content analysis as analytical tool was employed. Research criteria were divided into 5 major groups: general policy, capital adequacy, credit risk, market risk, and operational risk. In total 34 criterions were developed. Coding of text was performed by counting words for each criterion. Our evidence supports the conjecture that Lithuanian commercial banks provide more and more risk reporting. Also, we find that the extent of risk management disclosure is greater with the bigger size of reporting bank. Meanwhile, the extent for different risk management disclosure varies significantly: credit risk management is most reported risk. Further investigations on risk management disclosure in commercial banks should be focused on other reports first, such as annual reports or additional reports, which are provided by banks. Second, the sample of research is limited and in order to obtain more accurate results it is necessary to expand it. Moreover, authors did not examine liquidity risk, which could be relevant to the results, especially when Basel III accord is in the implementation stage. Third, counting unit can be changed from words to sentences, because sometimes separate words are meaningless and finally, future researches could be focused not only on extent of disclosed information, but also concentrate on the quality of provided information.

scholarly journals Credit Risk Management of Property Investments through Multi-Criteria Indicators

Risks ◽  
2021 ◽  
Vol 9 (6) ◽  
pp. 106
Author(s):  
Marco Locurcio ◽  
Francesco Tajani ◽  
Pierluigi Morano ◽  
Debora Anelli ◽  
Benedetto Manganelli
Keyword(s):  
Real Estate ◽  
Credit Risk ◽  
Risk Index ◽  
Capital Requirements ◽  
Basel Iii ◽  
Participatory Process ◽  
Regulatory Capital ◽  
The Real Estate ◽  
Financial Variables ◽  
Synthetic Index

The economic crisis of 2008 has highlighted the ineffectiveness of the banks in their disbursement of mortgages which caused the spread of Non-Performing Loans (NPLs) with underlying real estate. With the methods stated by the Basel III agreements, aimed at improving the capital requirements of banks and determining an adequate regulatory capital, the banks without the skills required have difficulties in applying the rigid weighting coefficients structures. The aim of the work is to identify a synthetic risk index through the participatory process, in order to support the restructuring debt operations to benefit smaller banks and small and medium-sized enterprises (SME), by analyzing the real estate credit risk. The proposed synthetic risk index aims at overcoming the complexity of Basel III methodologies through the implementation of three different multi-criteria techniques. In particular, the integration of objective financial variables with subjective expert judgments into a participatory process is not that common in the reference literature and brings its benefits for reaching more approved and shared results in the debt restructuring operations procedure. Moreover, the main findings derived by the application to a real case study have demonstrated how important it is for the credit manager to have an adequate synthetic index that could lead to the avoidance of risky scenarios where several modalities to repair the credit debt occur.

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