How relevant are the Basel capital reforms for sub-Saharan Africa?

Abstract

The paper examines the implementation of the Basel I Capital Accord in Africa and evaluates the efficacy and feasibility of adopting the Basel II Accord. It also analyses the relevance of the new Basel III Capital Accord for Africa. Most African countries have implemented Basel I, which has become a valuable component of the prudential regulatory framework. Adopting pillar 1 of Basel II will prove much more challenging because of its complexity and this may not be feasible for most African countries. Basel III raises minimum capital ratios. Although most banks in Africa already hold more capital than the minimum required under Basel III, raising the minimum capital adequacy requirements might still benefit African countries over the long term if it helps to ensure that their banking systems continue to hold high levels of capital to safeguard against the risks they face, which are generally larger than the risks faced by banks in advanced economies.