Question

Comment on the major challenges to Basel II implementation in the Caribbean in relation to credit risk management.

Answer 1

Basel II offers methodologies that

• Are data-intensive
• Are based on data analytics
• Requires data on credit risk, market risk and operational risk
• Require granular level of data

Major challenges to Basel II implementation in the Caribbean in relation to credit risk management stems from three abgles:

• Availability of data
• Granularity of data
• Quality of data

Hence, major challenges foreseen are:

• Lack of infrastructure to build, store and retrieve long and reliable data base that will be required to run sophisticated risk assessment models,
• Lack of capacity to assess, validate and monitor the use of sophisticated risk assessment models prescribed under Basel II.
• Lack of competitiveness of national and foreign banks in the Caribbean
• No access to credit by Small and medium enterprises
• Expected increase in pro-cyclicality of bank lending which may be an outcome from Basel II and their macroeconomic impacts.