Half of South African banks surveyed recently are using up to 80% of their Basel Accord budgets on systems and interfaces.
However, some local banks are spending less than 40% of their budgets on IT, according to the global survey sponsored by Accenture, Mercer Oliver Wyman and SAP.
The second Basel Capital Accord, or Basel II, determines how much capital banks must set aside to cover unforeseen hazards. This it does by prescribing how to identify, measure, monitor and manage the full range of risks to which the banks are exposed. The greater the risk, the greater the amount of capital needed to cover it.
The survey shows that many of the world`s largest banks see significant challenges remaining in their preparations to implement Basel II.
"Substantial numbers of banks surveyed remain uncertain over budgets, a lack of confidence in risk-management frameworks and economic capital systems, and insufficient progress in implementation of the credit-risk measurement tools required to meet the new regulation," according to the survey.
It also shows that many banks have a lot of work to do to satisfy the requirements of two of the three major elements of Basel II - setting up a risk-based supervisory structure within the bank and increasing market discipline through expanded disclosure.
"Nearly two-thirds (63%) of banks surveyed described their enterprise-wide risk management framework as poor or average. Just over 60% of respondents described their economic capital systems as poor or average."
Uncertainty
There is still considerable uncertainty over the costs involved, with 31% of respondents saying they do not have a cost estimate for Basel II compliance. Uncertainty is highest in the US (59% of respondents there), with Asia (54%) and Europe (20%) following.
Of the banks providing cost estimates, more than 90% of medium-sized banks do not expect costs to be greater than 50 million euros. Almost two-thirds of large banks with multiple business lines expect to spend more than 50 million euros, with 30% of these expecting a cost of more than 100 million euros.
"Many banks surveyed are finding ways to lower their compliance costs. While nearly 60% of banks surveyed plan to implement new solutions to meet the new operational risk requirements, nearly half say they plan to take lower-cost routes by developing solutions internally or modify existing technology."
In addition, centralising credit data storage is on the agenda of 63% of banks.
"Most banks will tell you that data management remains the greatest single Basel II challenge because you have to utilise detailed information from across the enterprise," says Thomas Balgheim, SAP senior VP for financial services.
"Increased centralisation is a way to improve the likelihood of successful project delivery and cost reduction. Seventy percent of banks in North America, Asia and Australia seek centralised data management solutions, which should also boost their businesses in other ways."
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