Abstract
Banking industry is exposed to different type of risks like credit, operational, interest rate risk, liquidity risk, foreign currency risk, compliance risk, reputational risk, and country risk. Banking industry can only become stable and stronger if they have proper tools to mitigate these risks. Due to product innovation and complexity of operations banks are giving more importance to mitigate these types of risks. Regulators (SBP) are emphasizing banks to develop their tools in order to control these risks. BASEL-II is a basic tool which is used internationally in banking sector to mitigate these risks. Our study is focused on the implementation of BASEL-II in Pakistani Banking Industry. Researcher has analyzed that its implementation will bring positive effect in the Pakistani banking industry. Moreover what are the basic challenges banks are facing during its implementation. Data have been collected from fifteen banks a combination of Large, Medium, Small, Islamic and foreign banks operating in Pakistan selected on random basis. Results are analyzed through Pie Charts. This research will be helpful for the banking professional especially associated with risk management division and working towards the implementation of BASEL-II. Basel-II is still in the phase of implementation in the Banking industry in Pakistan. This research will provide the base to those want to study the after implementation effects of Basel-II in the Banking industry.
Highlights
1.1 Background of the StudyBanking sector of any country is the backbone of its economy
These risks stretch from credit risk to interest rate risk, liquidity risk, foreign currency risk, strategic risk, compliance risk, reputational risk, country risk and operational risk
The basic purpose for the implementation of BASEL-II is to cope with different risks associated with the banking industry
Summary
Banking sector of any country is the backbone of its economy. A strong Banking sector of any country represents the strong economy. With growing complexity of operations and product innovations, financial institutions have progressively become more exposed to a diverse set of risks. These risks stretch from credit risk to interest rate risk, liquidity risk, foreign currency risk, strategic risk, compliance risk, reputational risk, country risk (taking international exposure) and operational risk. Basel II Accord, first of all, aims to align banks‟ capital with their basic risk. It exploits effectively the new frontiers of risk management. This is usually called “economic capital.” Pillar 3 (Market Discipline) provides guidelines for the disclosure to the outside world of information about a bank‟s risks and its available capital to offset unexpected losses associated with these risks
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