Basel II acid test for banks in emerging markets
(Frankfurt) Basel II, the international banking capital regulatory requirements set to be introduced in coming months, is likely to cause banks in emerging markets to undergo dramatic restructuring in order to adhere to the new rules, according to UBS AG.
The Swiss-based bank said "a combination of improved risk management, stronger capital structures and greater disclosure standards under Basel II should greatly reduce the risk premiums of emerging markets and provide substantial valuation upside potential for banks that show the most significant improvements".
Referring to Asia’s financial crisis of 1997/8, UBS said that under Basel II "massive over-lending and mis-pricing of credit, thought to be a major contributing factor to the crisis, will be severely penalised".
On the other hand, banks in emerging markets that successfully embrace the new rules, implement effective risk management processes, and demonstrate greater financial transparency, could benefit greatly from the new regulations, the bank said.
Referring to Asia’s financial crisis of 1997/8, UBS said that under Basel II "massive over-lending and mis-pricing of credit, thought to be a major contributing factor to the crisis, will be severely penalised".
On the other hand, banks in emerging markets that successfully embrace the new rules, implement effective risk management processes, and demonstrate greater financial transparency, could benefit greatly from the new regulations, the bank said.
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