The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Some 40 per cent of bank and trust companies surveyed by the Central Bank of the Bahamas have yet to study how their capital requirements will be impacted by the regulator’s preferred credit risk measurement.

The Central Bank’s survey of industry readiness for the Basel II and III capital requirements, which received responses from 67 Bahamian bank and trust companies, also found that 67 per cent of respondents currently have no internal capital adequacy assessment process (ICAAP).

The Central Bank, in its survey, said it had chosen the Standardised Approach for Credit Risk as the “more appropriate” method for the Bahamas, which relies on external rating agencies to quantify the amount of capital needed to match credit risk.

Yet, while 45 per cent of Bahamian financial institutions surveyed said they had read the documents on this approach, and 36 per cent had staff with “detailed knowledge”, the remaining 19 per cent - one in five - “have very little knowledge and no knowledge”.

“Meanwhile, 27 licensees, which accounts for 40 per cent of the respondents, indicated that neither they nor their parent had done an impact study to assess the implications the Standardised Approach for credit risk will have on their capital requirement,” the Central Bank said.

And some 40 responding banks and trust companies, some 60 per cent of the total, currently do not use credit rating agencies to determine their exposures and claims - the very method the Central Bank wants to employ.

And, when it came to the ICAAP process, the Central Bank survey found that while 22 or 33 per cent of respondents had such a process in place, the remaining 45 or 67 per cent did not.

Some 58 per cent of responding banks and trust companies had also yet to allocate a budget for the implementation of Basel II and III.

“Overall, while licensees appear to be supportive of the new Basel II and III frameworks, they have observed and delineated key challenges posed by its implementation,” the Central Bank.

“The most prevalent challenges raised being: IT costs (relative to new internal models, procedures and new reporting requirements) and training for staff.”