The disclosure of capital requirements ratios by Maltese commercial banks : a qualitative approach

Abstract

The Capital Requirements Ratio is one of the most important ratios out of all those calculated within the banking industry. However, until the Basel II requirements came into force in 2008, its disclosure was not given that much importance. This also led to a drastic change in the Banking Rules that banks are to follow when preparing their annual financial statements. Prior to this change in the regulatory regime, banks were only provided with the minimum requirements they were to abide to; with the extent of disclosures over and above such minimum requirements being left to their discretion. The new banking regulations as initiated by the MFSA are Basel II compliant, and have led to a substantial increase in the level of disclosures by banks in their financial statements. This also applies with respect to the Capital Requirements Ratio; where further disclosures regarding the Credit, Operational and Market Risk are nowadays provided. Yet, despite this increase in disclosures, there is still a lack of understandability, comparability and verifiability from the users? end and perhaps such an increase was not the ultimate solution. The research delves in the importance that such information plays in today?s market, the role of the auditor and the relevance of this particular disclosure. It also analyses the applicable aspects of the Third Pillar of the Basel II requirements and the respective accounting disclosures vis-à-vis the Maltese competitive market. The regulator plays an important role in this issue, and should ensure that this ratio is in fact correct and Basel II compliant, and is providing sufficient information to the majority of the stakeholders.