Opportunities, Incentives and Challenges of Implementing International Supervisory Standards on the Sudanese Banking System

Abstract

This study investigates, analyzes and assesses the Opportunities, Incentives and Challenges of implementing the International Prudential Supervisory Standards on the Sudanese Banking System (SBS), in general, and Omdurman National Bank (ONB), in particular. The focus will be on Capital Adequacy, Disclosures to Promote Transparency, Corporate Governance and Risk Management Standards, during the period (1997- 2008). The importance of this study stems from the importance and role of banks in the economic life plus the importance of capital to banks’ soundness and solvency. Also application of these standards on the (SBS) is a necessary condition to facilitate their entrance and strengthen their degree of competitiveness at local, regional and international levels, on one hand, and to avoid penalties and costs of not applying these standards on the other hand. The Problem of this study lies in that , the peculiar and special nature of the Sudanese Islamic banking system (assets-based, profit and loss sharing system, no interest, no derivatives and other Sharī'ah compliance requirements) requires international standards special treatment when implementing the on them specially Capital Adequacy Standard (CAS). This being the case, some of Basel Accords’ contents need to be amended or sometimes where mere amendment is not enough, radical change will be inevitable. The most important objectives of this study are to, investigate, analyze and assess the implications (e.g. Opportunities, Incentives and Challenges) of implementing the International Prudential Supervisory Banking Standards for the Sudanese Islamic Banks (SIBs) in general, and (ONB) in particular. VII As for the methodology, this study adopted a comparative approach to compare between different banks on two Phases (1997-2002) and (2003-2008) of the Sudanese Banking System's (SBS) according to Basel Accords requirements. Analytical, descriptive, historical and case study approaches were mainly used to handle the research problem. In this regard financial accounting ratio analysis plus descriptive analysis to describe the performance of the SBS main indicators using measures of central tendency such as; the means and dispersion such as standard deviation and coefficient of variation were used . Testing of hypotheses using T-Test and Binomial- Test were also adopted. The study concluded that the Sudanese Banks are well- capitalized (11.9%on average), while ONB is adequately capitalized (9.39%on average) according to the Basel I Capital Adequacy Minimum Required Rate. The application of the International Supervisory Standards has positively contributed to the main indicators. The performance of the Sudanese Banks outperformed that of both Islamic as well as conventional banks at regional and international levels. Despite the major achievements recorded by the Sudanese Banks over the past period ( 997-2008), the study highlighted the challenges down the road of the Basel 11 Accords, Basel3 and the (IFSB) requirements including; the needs for more new capital, internal models development ,internal controls improvement, effective risk management systems, full disclosure practices, relevant corporate governance, modern management information system, well trained staff and over and above all of what was mentioned above the( SBS) have to reap the fruits of implementing the International Standards without contradicting the Shari'ah principles.