CHALLENGES FACING COMMERCIAL BANKS IN THE IMPLEMENTATION OF CAPITAL ADEQUACY REQUIREMENT IN BASEL III FRAMEWORK

Kevin N Kombo,Dr Amos Njuguna

doi:10.47672/ajf.162

Abstract

Purpose: The purpose of the study was to identify challenges facing commercial banks in the implementation of capital adequacy requirement in Basel III framework.Methodology: A descriptive survey design was applied to a population of 43 commercial banks operating in Kenya. The target population composed of the 159 management staff currently employed at the head offices of the various commercial banks in Kenya. The population was composed of Senior, Middle and Junior or Entry level Management staff. A sample of 30% was selected from within each group. Primary data was gathered using questionnaires which were dropped off at the bank's head offices and picked up later when the respondents had filled the questionnaires. Descriptive analysis was used to analyze quantitative data while content analysis was used to analyze qualitative data.Results: The study concludes that the implementation of Basel III requirement has been faced by various challenges like growth barrier, regulatory constraints, risk and finance management culture and additional capital challenges. In addition, the study concluded that commercial banks face challenges in deciding how best to implement a solution that will allow them to comply with Basel III, how to operate the systems and processes for improved operational effectiveness, and how to understand and ultimately reduce their capital requirements.Unique contribution to theory, practice and policy: The study recommends that Banks should manage their risks more closely and avoid a build-up of unintended risk, reducing the opportunities for regulatory capital arbitrage. This would go a long way in eliminating growth barriers, regulatory constraints, capital adequacy requirement, risk and finance management culture and additional capital challenges.

Highlights

IntroductionThe global financial crisis of 2009-2010 spurred the need to review the regulatory framework of banks across the globe
1.1 Background of the StudyThe global financial crisis of 2009-2010 spurred the need to review the regulatory framework of banks across the globe
The study concludes that the implementation of Basel III requirement has been faced by various challenges like growth barrier, regulatory constraints, risk and finance management culture and additional capital challenges

Summary

Introduction

The global financial crisis of 2009-2010 spurred the need to review the regulatory framework of banks across the globe. Reforms were necessary to rectify flaws in the regulatory framework. The Basel Committee on Banking Supervision (BCBS) is leading efforts to reform the global banking regulatory framework (BCBS, 2010a). In December 2010, BCBS announced Basel III proposals which national regulators and regional supervisory organisations are reviewing to evaluate its suitability to conditions in their own financial systems. According to Bean (2009), the banks were undercapitalised which is one of the reasons behind the 2007-2010 financial crises. The financial crisis 2007-2009 still has effects on international financial markets and the real economy

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Conclusion