The effect of the Basel III capital guidelines on banks and the Maltese financial system

Abstract

The main aim of this study is to determine the effects of the new capital adequacy guidelines set out in Basel III. Through thorough research and a questionnaire the researcher aims to view how banks in Malta are preparing for this major change and also to study the effects Basel III will have on loan finance and the Maltese financial system as a whole. Both a quantitative and a qualitative method are used in the study, namely Likert scales, interviews and the thematic approach. The banks that are analysed are BOV, HSBC, Banif, Volksbank, Fimbank and two other banks that requested to remain anonymous. The results show that the overall effect of Basel III capital guidelines on bank lending and the economy will not be very significant. However, the researcher found that Basel III guidelines are proving to be more demanding for most small banks than for the larger banks in Malta. Smaller banks may find themselves having to temporarily tighten credit availability especially to the commercial sector. Moreover, there is need for more training and better risk management in most banks.