With effect from January 2014, banks in the country will begin the implementation of a parallel run of both Basel I and II under the Regulatory Capital Measurement and Management for the Nigerian Banking System, while the minimum capital adequacy computation under Basel II will be implemented in June next year.
According to a circular issued by the Central Bank of Nigeria at the weekend, banks and banking groups are expected to adopt basic approaches for the computation of capital requirements for credit risk, market risk and operational risk.
The guideline issued by the CBN on regulatory capital measurement and management for the Nigerian banking system for the implementation of Basel I and II in the country specify approaches for quantifying the risk weighted for credit risk, market risk and operational risk for the purpose of determining regulatory capital.
The computations are consistent with the requirements of Pillar I and Basel II Accord of the international convergence of capital measurement and capital standards.
The circular signed by the CBN Director of Banking Supervision, Mrs. Tokunbo Martins, stated that although the guidelines comply significantly with the requirements of Basel I and II accords, “certain sections were adjusted to reflect the peculiarities of our environment.
“From time to time, the CBN will issue capital implementation notes to clarify its expectations on compliance with the technical provisions of the regulation. With the implementation of Basel I and II, the standardised approach will be adopted for credit risk computation, although all forms of corporate claims will be treated as unrated.”
The standardised approach will also be adopted for market risk while the basic indicator approach is to be adopted for operational risk.
The apex bank in the circular said it hopes that an effective rating system would have developed in the country within the first two years of the adoption of the approaches under Pillar I. Banks as well as banking groups are expected to have gathered more reliable data and gained more experience that would prepare them to consider the adoption of more sophisticated approaches.
The CBN circular however, noted that the adoption of the standardised approach for operational risk and other sophisticated approaches will be subject to its approval.