The announcement that China will adopt Basel II for banks with global exposures has removed one of the major potential stumbling blocks for the global adoption of the Accord and has also opened up a significant new market for the suppliers of risk management and reporting products and services.
Originally the Chinese authorities had stated that the new Basel Accord was not relevant to developing countries. However last week, China Banking Regulatory Commission chairman, Liu Mingkang, confirmed that banks with "relatively large numbers of overseas branches" would be required to show improvement in their internal control mechanisms by adopting Basel II in the period 2010 to 2012. This is 3 years later than the early adopters in the rest of the world. These words will have been welcomed by Nick Le Pan and his colleagues at the Basel Accord Implementation Group.
China has over one billion bank customers, cumulative household savings of £1 trillion, an annual GDP growth of 9 percent and a growing middle class with a savings habit. These deposits have massive impact on investment instruments in the rest of the world. Currently, bad debts, lack of transparency, corruption and fraud are major problems in the Chinese banking sector. Sound risk management practices in China are key if Basel II is going to succeed in its objective of increasing global banking stability. This will fuel the market for enterprise, credit and operational risk management products which are simple to use and can be installed in a limited technology infrastructure. Prescriptive, well written (in Mandarin) products will open up what will soon be the world’s largest market.
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