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Fitch advises going beyond Basel II

Fitch Ratings has advised Asian bank supervisors to go beyond the requirements of the Basel II recommendations where appropriate.

In its report on the implementation of Basel II in Asia, Fitch claims that many recommendations have not been implemented consistently and calls for higher capital requirements than set.

The firm recommends that supervisors in Asia set higher capital requirements than laid out in Basel II, either for individual banks or systems as a whole. However, Fitch said it expects many Asian supervisors to be reluctant to do so and may use "national ratings" to make CARs less comparable against other countries.

Questioning of Basel II's application to Asian markets by Fitch is an update of similar concerns in January 2005, when it queried whether risk weightings were as appropriate for developing markets as fully-developed ones.

For banks using the simpler, "standardized" approach, Fitch questioned whether the 35 per cent risk weight for residential mortgage loans was appropriate for emerging Asian markets with high delinquency rates.

It feared that the 75 per cent risk weighting for retail lending and credit cards with only a six per cent risk capital charge was too low, as was the case in Korea in 2003.

A special, in-depth report on the matter, entitled "Basel II In Asia: An Update", will be released to Fitch subscribers soon.