The New Basel Capital Accord ("Basel II")
"Basel II" is an international project within the business world of banks and companies, which will be come into force at the end of 2006.
Under this keyword the "New Basel Capital Accord for banks" is meant, which was developed by the "Bank for International Settlement" (BIS).
The basis statement of this paper is thatbanks have to fulfill a risk assessment when granting credits to companies. This assessment can on the one hand
be fulfilled by an external rating or on the other hand by an bank internal rating. As the resultat of the risk assessment the bank has to keep a risk specific
percentage rate of the credit sum as their equity.
The factors which will be assessed at a company within the transaction of loaning credits are the following:
- previous and forecasted ability to generate earnings in order to repay credits and to cover the finacial requirements,
- the structure of the capital and the feasibility that unforeseen circumstances waste the capital cover and therefore lead to a illiquidity,
- the quality of the earnings, i.e. the grade of the earnings and the cash flow of the borrower which come from the core business and not from single
and not circular resources,
- the quality and the opportune availability of information over the borrower, including the availability of testified annual reports,
the executed accounting standards and the compliance with these standards,
- the grade of borrowing and the effects of fluctuation of the demand to profitability and cashflow,
- finacial flexibility in accordance to access markets of borrowed capital and equity, so that additional means can be obtained,
- strength and ability of the management to react to changing conditions effectivly and to utilise ressources,
- the company's position within the industry and its future prospect and
- the risk characteristics of the country in which the company operates its businesses and their effects to the ability of the borrower to repay liabilities
For public limited companies the stated aspects of the risk are already covered by the KonTraG since the 1. May 1998. "Basel II" affects, however,
borrowing of credits to all companies. Therefore, the term "risk management" will become important for Small and Medium Sized Companies (SMEs) in the next years,
due to the fact that banks will already orientate its borrowing to the expected guidelines of "Basel II".
On the 10.July 2002 the BIS published a press release of the stus quo of the current Basel II - consultations:
- 1.: Basel II will come into force at the 4th quarter 2006. Banks have to develop systems and provide data as of the 4th quarter 2003 (3 years transient period).
- 2.: Basel II will affect in its entirety first companies with a turnover of more than 50 Mio Euro. SMEs with a turnover of less than 50 Mio. Euro will
taken into account depending on their company's size with a lower deposit of equity up to 20 percent (and in average 90 instead of 100 percent).
At borrowings up to 1 Mio Euro to companies the bank has to proceed its credit rating as used with the rating of privat customers.
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