Basel II compliance is a top priority agenda for the UAE banks

• Financial Technologies roundtable conference highlights challenges faced by UAE Banks in implementing Basel II norms and the steps being taken to become compliant

The biggest challenge faced by the banks is the quantification of operational risk - the risk of failure of systems, processes and people. This challenge is magnified due to the lack of credible, quality and granular data.

Feedback from senior Risk Managers of UAE banks revealed that the majority of the banks may need more than six months to be compliant with the guidelines of the Basel II accord.

Commenting on the progress of the compliance effort, Arshad Khan, Director, FTME, said: "Banks in UAE are very well conversed with the benefits that Basel 2 compliance will bring for them. That's the reason that even though they are facing several challenges still sincere efforts are being put-in to become compliant in the near future. Compliance with these norms helps banks in emerging economies to prepare themselves for global competition and adopt best international practices, particularly in risk management.

'Basel II compliance program should be viewed by UAE banks as a source of competitive advantage rather than as just another regulatory issue."

Speaking at the conference, Dr. A K Nag, Chief Consultancy Officer of Riskraft, a knowledge initiative of Financial Technologies, said: "Basel II compliance mitigates various kinds of risks that any bank is exposed to. Mitigation of such kind of risks is an important part of their overall risk assessment program. In the absence of proper information management framework, banks in emerging economies do not have the required risk profile of their borrowers. Availability of detailed data can be used to price various banking products differentially for different types of customers.

The roundtable conference was concluded with a summation that Globalization of UAE's financial sector is a reality and its banks must subject themselves to global standards and disciplines to remain competitive.

Adoption of the risk intelligence system provided under the Basel II norms not only leads to better and prompt compliance but increases efficiency and productivity of the banks. It becomes a source of competitive advantage in the international financial market.

Its implementation is seen as essential for domestic banks in emerging market economies to maintain their independence.