Basel II is a new banking standard with a focus on risk management, which will be implemented in 2008.

Thai banks must also improve staff efficiency in addition to information technology (IT) system improvements. This is likely to require a large budget, he said.

"I think banks need to spend more on improving their staffs' skills, rather than their IT systems," he said. Chai added that banks had already develop their staff efficiency in preparation for the implementation of Basel II. The new international banking standard will be more complicated, particularly the international ratings-based (IRB) approach to it.

Under Basel II, banks need to meet a minimum capital requirement for credit risks, market risks and operational risks. In terms of credit risks, it covers two approaches - the standard approach (SA) and the IRB.

SA is a simpler method than IRB as the former calculates the likely outcome and risk-weighting of debtors based on their credit ratings. IRB requires a more complicated method of risk analysis. Banks can use either method and the central bank has said banks are free to choose which one to use.

Local banks are ready to comply with the SA, which requires banks to maintain a capital-adequacy ratio of 8.5-to-1. However, local banks, particularly big banks, are putting together IRB implementation plans because they have large commercial loan portfolios, Chai said.

 He said the company is ready to sell Basel II consulting and IT services. The company's services start from refining the old database to comply with the new standard. While the time needed depends on the integrity of the original database, the company's experience suggests around six to nine months for the credit risk module and at least nine months for the operational risk module.

Somruedi Banchongduang

The Nation