New Bank Standards to Favor Indonesia

Jakarta Globe, Bloomberg, Reuters & JG | September 13, 2010

Jakarta. Banks in Asia, and especially in Indonesia, have high capital ratios and would be able to avoid the degree of fund-raising needed elsewhere to meet a new international standard, analysts said on Monday.

Bank Indonesia, seen in this file photo, is one of the
 many Indonesian banks which have found themselves
 in a favorable position following new banking
regulations  known as Basel III requirements.
 (Bloomberg Photo/Dimas Ardian)

Purbaya Yudhi Sadewa, an analyst at Indonesia’s state-run Danareksa Research Institute, said the country’s banks would have no problem complying with the Basel III requirements.

“Our banks’ capital ratio is high right now with Tier 1 capital slightly above 7 percent,” he said.

Most banks in the rest of Asia have capital levels well above the minimum levels under Basel III. That presents some banks with an opportunity for further growth by releasing some of their surplus capital, some analysts have said.

Ismael Pili, Macquarie’s head of Asian financial research, said Indonesian banks had the most to benefit from the new requirements because of their cash reserves.

“From here in Asia, the trick is to find the well-capitalized banks and match them with markets ripe for a further expansion in lending,” Pili said.

The new capital requirements agreed by global regulators on Sunday brought relief to Asia’s financial sector on Monday as fears that lenders might be forced into fresh capital raising were put to rest.

The new rules, known as Basel III, will require banks to hold top-quality capital totaling 7 percent of their risk-bearing assets.

This is a substantial increase from the current requirement of 2 percent, but is significantly lower than what banks had feared earlier this year, and comes with a phase-in period extending in some cases to January 2019 or later.

“It’s no big bang for banks, not with a phase-in arrangement of five years,” said Craig James, from Commonwealth Securities.

An official from Japan’s regulator, the Financial Services Agency, said its top banks could meet the new capital requirements “within their usual business efforts,” adding he did not think the banks would be forced to raise fresh capital or drastically reduce their assets.

For China, it might take some time before the new measures hit the rule books, one of the country’s top bankers said.

“It will take a long time to implement Basel III rules,” Xiao Gang, chairman of the state-owned Bank of China, said on the sidelines of the World Economic Forum’s summer meeting in Tianjin, China.

“It’s also difficult to say when China will implement this rule because we haven’t exercised Basel II yet,” he added.

However, Zhu Min, deputy governor of the country’s central bank, signaled he was keen for the rules to be adopted in a coordinated manner.

“The concern is that if everybody in the world applies different levels at the same time, it may cause international arbitrage in the regulatory framework,” he told reporters in Tianjin.

For Europe, the pain is likely to be more immediate. Top German lender Deutsche Bank is seeking a head start on its rivals by announcing plans to raise almost 10 billion euros ($12.8 billion) to bolster its capital.

Other banks in Germany, Spain, France and elsewhere are likely to follow suit to meet the new standards.

In the United States, Bank of America and Citigroup are among large lenders falling short of the new limits, according to Frederick Cannon, an analyst at Keefe, Bruyette & Woods in New York.