A New Barrier for the Future of Energy Market in Turkey: Internal Capital Adequacy Assessment Process (ICAAP)

A New Barrier for the Future of Energy Market in Turkey: Internal Capital Adequacy Assessment Process (ICAAP)

Esin Okay (Istanbul Commerce University, Turkey)
DOI: 10.4018/978-1-5225-3817-2.ch070
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Abstract

The Banking Regulation and Supervision Agency (BRSA) in Turkey has implemented a risk based framework since 2006, making bold moves of resulted in a stellar increase of capital adequacy in Turkish Banking System. But the enactment of the new law for the Internal capital adequacy assessment process (ICAAP) is evaluated as being quite an early adoption. The Bank for International Settlements (BIS) points that Turkey has early-adopted the implementation recommending further discussions for a reconsideration of the target capital adequacy ratio. The banks have already found it difficult to follow up high capital adequacy especially while financing energy projects, as the Turkish Banking system is preparing for the requirements of Basel III framework. Under the new regulation, the ICAAP is expected to decrease the capital adequacy of banks in Turkey. Meanwhile, the challenge in adopting ICAAP can be an additional barrier standing in the way to the development of energy market.
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Background

The banking sector is a highly sensitized system and has learned to its cost the risk of attracting adverse publicity through failings in governance. Banking is clearly a very special sub-set of corporate governance with much of its management obligations enshrined in law or regulatory codes. These factors put banks considerably into a more complex world than in other sectors. Banks attempt to comply with the same codes of board governance as other companies but, in addition, factors like risk management, capital adequacy and funding, internal control and compliance all have an impact (Okay, 2005). As a matter of fact, banks must be surrounded with risk management principles as a firewall. Capital adequacy and related issues of funding and internal control are all going along with risk management principles.

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