The Bank of Botswana (BoB) will start implementing Basel II and III framework in the second half of the year, a senior banker with intimate knowledge of the central bank’s plans has disclosed.
After two years of consulting the industry, BoB will start subjecting commercial banks to Basel II and III requirements on July 1.
The Basel Accords require commercial banks to hold a portion of their funds to prepare for future financial and operational risks that they may face. The 2008/9 global recession, which led to some major international banks collapsing, is cited as one risk that banks need to guard against. “The central bank has informed us (the banks) it will implement the framework as, in its view, the industry is ready,” says the source who has attended meetings which discussed the ‘Basel readiness’ of local banks.
In previous annual reports, BoB announced it would implement some aspects of Basel 2/3 this year but it never revealed a specific time. Responding to a question from Botswana Guardian last week, deputy central governor Moses Pelaelo said they have been piloting the implementation of the accords.
“The implementation (of the Basel Accords), that is its timing and scope, is a matter of national discretion,” said the central banker. He disclosed that they would soon meet with stakeholders to discuss progress made (in piloting the Basel Accords). By implementing the accords, Botswana will be joining other countries. In January 2013, South Africa, the continent’s second largest economy, amended its banking regulations in line with Basel 3.
As things stand, Botswana will implement Basel II and III side by side.
A senior banker holds the view that “time has passed” because other countries have already moved forward with the accords. BoB will implement the accords in the wake of a liquidity crisis that has affected banks’ ability to generate fresh loans to consumers. But with the tight liquidity situation on the ground, are local banks ready for more funds to be set aside for the future?
BoB executives did not specifically answer the question but said each individual bank had a duty to prepare itself adequately. First National Bank Botswana’s treasurer Olebile Makhupe has revealed the bank might issue notes to beef up its capital because its requirements are much stricter. Botswana Guardian understands that Barclays Botswana has already issued medium-term notes through a private placement. It was not clear whether the cash raising exercise was done to prepare for Basel II/III.
Ahead of implementation of the accords, banks have just been given a ‘lifeline’ of P2,3 billion in the form of relaxation of primary reserve requirements. Last week, governor Linah Mohohlo told journalists that primary reserve requirements for banks have been halved to 5 percent from 10 percent. The decision was put into use on Wednesday this week.