Warm Up

Banks have to do dummy runs in calculating their credit and operational risk according to a roadmap on the implementation of new minimum capital rules agreed to with the financial sector regulator.







Banks have to do dummy runs in calculating their credit and operational risk according to a roadmap on the implementation of new minimum capital rules agreed to with the financial sector regulator. Global banks are getting ready to implement a new complicated set of minimum capital rules called BASEL II starting in 2007.

To make the transition easy, bank regulators in most countries, including Sri Lanka, have set up a road map after talking to banks on phased implementation.

Sri Lankan banks have agreed to do dummy runs on operational and credit risk in line with BASEL II requirements by end this year.

Although the current BASEL I rules cover credit risk, the risk weight attached to all cash loans for instance is the same although the credit rating of the borrower may be different.

A bank lending to a corporate with good repayment capacity with AAA rating will have to provide a 100 percent risk weighting while a corporate with weak repayment capacity with a CCC rating is also assigned