The propagation of financial crises has made Basel III and stress testing a central focus across ASEAN-5. The primary objective of the thesis was twofold; to assess the cost impact of Basel III on bank capital, lending spreads, and steady state output across ASEAN-5; and to construct a macro stress testing framework to test the resilience of Malaysia’s banking sector to extreme but plausible scenarios. Even though the capital impact analysis used a substantially high benchmark CAR of 10.5%, the main results demonstrated that ASEAN-5 banking sectors were comfortably capitalized and needed no recapitalization by 2019 when all the Basel III rules become fully effective. Higher capital and liquidity requirements put pressure on ASEAN-5 banks to increase lending spreads to pass down a portion of the relevant costs to bank customers. The impact of 1 pp rise in TCE ratio on lending spreads was analyzed; to meet the minimum capital requirement of 7% as of 2015, ASEAN-5 banks would have to increase their lending rates by 30.26 bps on average; to meet 10.5% fully effective as of 2019, ASEAN-5 banks would have to increase their lending rates by 68.22 bps on average. In the steady state output impact analysis, the results indicated that the estimated economic benefits outweighed economic costs across ASEAN-5. The main results of the macro stress testing exercise revealed only a modest change in capital ratios and bank profitability in the baseline scenario. The impact of all fundamental shocks under the adverse scenario reduced the average CAR by -3.40% and Tier 1 ratio by 3.64% from the baseline (no bank failed, or faced suspension of license).

TITLE - The Cost Impact of Basel III across Banking Sectors of ASEAN-5 and Macro Stress Testing of Malaysia’s Banking Sector
AUTHOR - John Taskinsoy
••••••IJSER Edition - April 2018

UNIVERSITY - UNIVERSITI MALAYSIA SARAWAK
GUIDE NAME -
Prof. Dr. Abu Hassan Md bin Isa