Impacts of Basel Ii Requirements on Fis in Malaysia

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  • Topic: Basel II, Capital requirement, Banking
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  • Published : July 7, 2011
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Impact of Basel II Requirements on
Financial Institutions (FIs) in Malaysia

Haida Rozilah Hamzah
Asia e University
MBA - September 2010

The purpose of the study was to examine the impact of Basel II’s Risk-Weighted Capital Adequacy Framework (RWCAF) on financial institutions in Malaysia in order to develop a strong financial capacity and efficient risk management profile. Specifically on the adoption of more advanced approach for quantifying the Risk-Weighted Assets (RWA) on market risk and other factors in general for Risk-Weighted Capital Ratio (RWCR) computation. The study also examined the factors and strategies applied by the financial institutions that will impact the results of the Market RWA. The study involved 6 financial institutions listed as the 10 top and largest banks in Malaysia. The financial institutions’ financial report as at June 2009 and 2010 and the annual report of 2009 and 2010 were the main sources of the data, information and result to conduct the study. The results shows that the RWCR results to comply with the advanced approach has been decreased by 0.32%, high Market RWA charge decreased the RWCR results and portfolio classification, approach adopted to quantify capital charge, types and breakdown of the financial instrument holds by the financial institutions influenced the results of Market RWA charge. This study has shown that the Basel II requirements impact the results of the RWCR computation of most of the financial institutions and influenced the financial institutions’ strategies of quantifying the Market RWA for computing RWCR. Therefore, in view of the growth of the emerging markets and the benefits of Basel II, financial institutions need to adapt and customise Basel II requirements to their own advantages.

I am grateful to Allah S.W.T as I manage to complete the project paper in time and heartily thankful to my supervisor, Professor Dr. Mohd Adam Bakar, for his feedback on the scope of the project paper, guidance and support from the initial to the final level enabled me to develop and finalised the project paper. This project paper would not have been possible without the hold up from my families, colleagues, and friends. Therefore, it is a pleasure to thank those who had shown their encouragements and supports in many ways especially to my beloved hubby, Yasir Arafad and our dear son, Uzayr Zharfan for always are there for me during the good and bad times. I am also grateful that our second baby not giving me much problem throughout my pregnancy, which allows me to conduct my research and finalise the paper. I would like to show my gratitude to my parents and my parents-in-law for their blessings and prayers. Not forgetting, I am indebted to many of my colleagues and friends, especially Siti Rahmah for her guidance and her assistance as an “eye opener” to Basel that help me to understand the documents and the important requirements in short period of time. Lastly, I offer my regards to all of those who supported me directly or indirectly in any respect during the completion of the project paper. Haida Rozilah Hamzah

Table of Contents
Table of Contentsiv
List of Tables1
List of Figure2
List of Abbreviations3
Statement of the Problem9
Purpose of Study9
Research Questions and Hypotheses10
Literature Review10
Definition of Terms22
Data Analysis27
Research Question No 128
Research Question No 234
Discussions, Recommendations and Conclusions40
List of Appendices49

List of Tables
Table 1: List of the 10 Top and Largest Financial Institutions in Malaysia18 Table 2: Approach Adopted by Financial Institutions for Quantifying the RWA22 Table 3 : Summary of RWCR Comparison between June 2009 and June 201023 Table 4 : RWCR Comparison...
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