What the implementation of Basel II means for Pakistani banking industry from the perspective of PBA?
Shaukat Tarin: The implementation of Basel II in the local banking system has been initiated by SBP and hence it becomes mandatory for all banks to follow it. SBPs approach to implementing Basel II has been very appropriate, as it has provided the local banks with sufficient time to understand and implement it. The impact of Basel II on the banking system would be in the following areas. Internal Impact Basel II will enhance focus on economic capital management versus regulatory capital management because the new accord drives banks to measure their performance against risk factors other than market share or expected return. Under Basel I most banks were volume driven; Basel II drives them to become risk-return driven. Once banks can attribute risk to a potential transaction, product or process, they can ascribe a portion of economic capital to it (based on the risk it poses), define an expected return on it, consider how best to price it, consider risk mitigating techniques and thereb
