KARACHI, June 27: The State Bank on Tuesday issued a roadmap and time frame for adoption of Basel II, which is the banking reform to improve the credit risk management along with a number of other measures to meet the growing banking challenges.

The timeframe suggested that the standardised approach for credit risk management would begin from January 1, 2008 and internal ratings based (IRB) approaches from January 1, 2010. Banks and DFIs interested in adopting any IRB approach before January 1, 2010 may contact the SBP for the purpose.

For operational risk, banks and DFIs can adopt either basic indicator approach or standardised approach from January 1, 2008. However, the advance measurement approach (AMA) is not being offered at present. The SBP told banks and DFIs to prepare themselves to adopt AMA at an early stage.For market risk, internal models approach has also been allowed along with the standardised approach. However, internal models approach will only be available to the banks and DFIs adopting foundation or advanced IRB approaches.

Banks and DFIs were advised to adopt a parallel run of one and a half years for standardised approach and two years for IRB approach starting from July 1, 2006, and January 1, 2008, respectively.

They were also advised to submit a quarterly statement on the calculation of their capital adequacy ratio within 30 days of the end of each calendar quarter.

Adoption of foundation or advanced IRB for credit risk and internal models approach for market risk will be subject to the prior written approval of the State Bank.