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Categories
| Banks should see synergy between Basel II and FRS 139 |
| Business & Market 2009 | |||
| Written by Loong Tse Min | |||
| Thursday, 08 October 2009 22:45 | |||
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KPMG head of Asia-Pacific financial risk management, Dr John Lee, told clients at a briefing on Oct 8 that financial institutions implementing either FRS 139 or the advanced requirements of Basel II should bear in mind the similarities between the two so that the data from one regulation could be used to comply with the other. Basel II was more prescriptive while FRS 139 was more principle-based and the prescriptions in Basel II could be used to comply with FRS 139 requirements, Lee suggested. However, he cautioned: “While financial institutions should leverage the synergies as much as possible, financial institutions have to also realise that there are still many differences between FRS 139 and Basel II.” FRS 139 refers to the accounting regulation titled “Financial Instruments: Recognition and Measurement” that requires the valuation of financial instruments on a fair value basis from the previously used historical cost basis. In identifying similarities and differences between Basel II and FRS 139, Lee gave examples of “bridging points”. One example is that Basel II defines default as the debtor being 90 days past due on the loans, whereas FRS 139 provides examples of factors that the financial institution may use as a trigger event to initiate an impairment test. “I do not see the problem in the existence of a gap between these two perspectives since Basel II default definition could be used to trigger the impairment test. Vice versa, impairment observed under FRS 139 could be a trigger of default under Basel II, if other criteria are not observed,” he said. KPMG partner-in-charge of financial services audits, Alex Khaw, said key challenges under FRS 139 pertained to whether financial institutions could obtain a reliable measure and data such items as rates, prices and benchmarks in a volatile environment or when there were no quoted market prices available -– especially in the aftermath of a market turmoil. Speaking to reporters after the seminar, Khaw said the most important issue for Malaysian financial institutions with the implementation of FRS 139 would likely be changes in loan-loss provisioning.
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