Financial Sector Development in Africa: Opportunities ... - World Bank

166 Fuchs, Losse-Mueller, and Witte
participants are able and willing to exercise appropriate control and it
requires a renewed focus on strengthening both data quality and accounting
and external auditing practices, as well as increasing financial literacy
and creating a culture of an active and critical financial community. Last
but not least, disclosure should be targeted and selective because a flood
of irrelevant information may only contribute to a lack of transparency.
Basel III: Applying Lessons Learned from the International Crisis
to Africa
The concerns about supervisory readiness apply to a much lesser extent
to the latest revisions under the new Basel III framework, which is scheduled
to be adopted in BCBS member states by 2019. Basel III focuses on
increasing capital requirements rather than leveraging existing capital and
broadens the supervisory scope at the same time. Applying specific
elements of Basel III might be beneficial in safeguarding African financial
systems, without demanding huge additional supervisory capacity. Key
elements of the reforms include:
• Raising the quality, consistency, and transparency of the capital base
• Strengthening the risk coverage of the capital framework
• Introducing a leverage ratio as a supplementary measure to the Basel II
risk-based framework
• Introducing a series of measures to promote the buildup of capital
buffers in good times that can be drawn upon in periods of stress
• Introducing a global minimum liquidity standard for internationally
active banks.
However, most of the measures proposed under Basel III are of limited
immediate relevance to African banking sectors, since the weaknesses
they address are largely a result of regulatory philosophies and market
practice in developed markets. This is not to say that they are irrelevant
for enhancing regulatory frameworks in the future, but that they are of
limited practical application today:
• Basel III outlines various measures to raise the quality, consistency, and
transparency of the regulatory capital base, focusing largely on the
definition of Tier 1 capital. In most African states, bank capital structures
are a relatively straightforward composition of common shares
and retained earnings and thus already fulfill Basel III quality
requirements.