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BASEL III GUIDELINES FOR CAPITAL ADEQUACY IN ALGERIA: PROPOSALS UNVEILED

Algeria’s banking sector is set to undergo significant changes as the country’s regulatory bodies unveil proposed guidelines for capital adequacy in line with the Basel III framework. The new rules aim to enhance risk management, transparency, and comparability among banks, ensuring a stable financial system.

Key Changes in the Proposals

The proposals introduce several key changes aimed at strengthening the banking sector:

  • Credit Risk: A revised risk-based approach will be adopted for setting regulatory capital requirements for credit risk. This includes expanded criteria and metrics to differentiate credit risk within exposure categories.
  • Market Risk: The proposal seeks to improve ‘risk-sensitivity’, calibration, and consistency of internal models used for market risk capital requirements. A standardized approach will replace the VaR-based measure.
  • Operational Risk: A new standardized approach for measuring operational risk will be introduced, increasing transparency, comparability, and certainty.
  • Adjusted Credit Valuation Adjustment (CVA) Requirements: Organizations subject to CVA risk-based requirements will need to reflect potential losses resulting from increases in CVA for most OTC derivative contract counterparties.

Alignment and Compliance

The proposals aim to align the definition of capital and calculation of regulatory capital across Categories I, II, III, and IV. Banking organizations in Category III and Category IV will be required to recognize most elements of AOCI (accumulated other comprehensive income) in regulatory capital.

Comment Period and Proposed Compliance Date

The regulatory bodies are soliciting public comment on the proposed rulemaking with a submission deadline of November 30, 2023. The proposal also includes a three-year transition period for compliance, with a proposed compliance date for the final rule of July 1, 2025.

Strengthening the Banking Sector

The proposals are designed to enhance risk management, transparency, and comparability among banks in Algeria, ensuring a stable financial system. The implementation of these guidelines is expected to contribute to the country’s economic growth and development.