Commercial banks preparing for implementation of new credit risk assessment regulations

Commercial banks have begun submitting from the beginning of September letters to the Bank of Greece, notifying it of their intentions regarding the methodologies they will employ in the assessment of credit risk, in line with the requirements of the Basle II Accord for the global banking industry. By the end of the year, they will also have to commit themselves to the methodologies they will use. The new framework includes significant changes in the methods for calculating credit risk and introduces, for the first time, the parameter of operating risk. The Basle II Accord framework gives banks three alternative approaches to credit risk calculation (Credit Equivalent Amount): standardized, fundamental and advanced. The advanced approach is not at all of interest to Greek banks due its high requirements; it is estimated that only 15-20 banks worldwide will adopt it. The five largest Greek banks, National, Alpha, EFG Eurobank Ergasias, Emporiki and Piraeus, have indicated they intend to use the fundamental approach. Smaller banks are expected to follow the standardized approach, which is much closer to the requirements of the Basle I framework currently in force. Large banks are presently dividing their loan portfolios into categories and exploring into which categories to apply the fundamental and into which the standardized approach. The Bank of Greece has not set out which approaches it considers more appropriate for any one type of portfolio, leaving that to each bank’s discretion.