Understanding Basel III: The Global Rulebook for Banks

 

Figure 1 : People’s Bank Logo

As we all know People’s Bank is one of the top five commercial banks in Sri Lanka. It is the second largest state-owned commercial bank right after Bank of Ceylon (BOC). Recently, People’s Bank reported an astonishing mid-year Profit Before Tax (PBT) of LKR 28 Bn, recording it as the all-time high of the bank’s history. According to the mid-year financial statement, the bank has made a significant improvement in their financial performance. Following are some Key Performance Indicators (KPI) of People’s Bank as of 30th June 2025.

Indicator	30th June 2025	31st December 2024	Change (%)
Profit Before Tax (PBT)	LKR 27.98 Bn	LKR 2.61 Bn	970.2
Profit After Tax (PAT)	LKR 18.21 Bn	LKR 1.53 Bn	1088.5
Total Deposits	LKR 3.12 Tn	LKR 2.85 Tn	9.48
Basel III Leverage Ratio (Min. requirement - 3%)	3.81%	3.65%	0.16
Common Equity Tier 1 Capital (%) (Min. requirement - 8.0%)	11.55%	10.43%	1.12
Tier 1 Capital Ratio (%) (Min. requirement - 9.5%)	11.98%	10.88%	1.10
Total Capital Ratio (%) (Min. requirement - 13.5%)	16.94%	16.53%	0.41

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Table 1: KPI of People’s Bank

It can be noticed that PBT and PAT have improved by around 1000% compared to last year. Significant rise of net interest income and net fees and commissions are the factors for this improvement. The total deposits of the bank have also increased by 9.48% compared to previous period, indicating public trust towards the bank. The bank has able to maintain as well as improve Basel III minimum requirements.

PBT and PAT are common terms that almost every individual has heard of, but what about Basel III? In this blog I will be covering what is meant by Basel III and why it is so important in the banking sector.

What are the Basel Accords?

Figure 2: Basel Accords Image from https://www.investopedia.com/terms/b/basel_accord.asp

Basel III is a globally recognized regulatory framework introduced by the Basel Committee on Bank Supervision (BCBS) after the 2008 financial crisis to strengthen the stability of banks. Simply, it is a safety net designed for banks to control and mitigate capital risk, market risk and operational risk.

Evolution of the Basel Accords

Since 1988 Basel Accord has evolved and adopted new standards to combat economic uncertainties.

Figure 3: Evolution of Basel Accord from https://www.researchgate.net/figure/The-chronological-evolution-of-Basels-regulations_fig1_343725474

 

Basel I

Basel I mainly focused on credit risk, and it introduced the concept of minimum capital requirement. Banks are told to keep 8% of risk weighted assets as the minimum capital requirement.

Basel II

Integrated operational risk and market risk counter measures to Basel I, however, it had some major limitations which led to global financial crisis in 2008

Basel III

After the 2008 global financial crisis, the Basel Committee implemented new standards for banks, indicating that the quality of the capital is essential as well. To increase the quality of the capital held by banks, the committee introduced leverage and liquidity requirements while adding buffers during financial stress.

Basel III Endgame

Agreed in 2017 it is said to be continued until around 2028, Basel III Endgame is a redefined version of Basel III, designed to include more transparency.

Basel III Indicators

Each indicator of Basel III defines a different aspect of a bank's financial health.Some indicators along with their description are as follows.

Indicator	Description
Leverage Ratio	Indicates whether the bank has high borrowing regardless of the risk of the assets
CET 1 Ratio	Indicates whether the bank has adequate capital to absorb losses
Tier 1 Capital	Indicates the ability to absorb losses while operations are carried out
Total Capital Ratio	Indicates overall capital strength of the banks against losses

Table 02: Basel III Indicators along with their description

Importance of the Basel Accord

Survival is the primary objective of any business and Basel Accord plays a crucial role for banks to maintain that objective. The Banking System around the globe are interconnected, meaning that the local banking system has the potential to affect the global banking system. Another objective of this framework is to safeguard customers while establishing a stable relationship between profitability and liquidity of the banks.

Indicator	People’s Bank (June 2025)	Basel III Minimum Requirement
Leverage Ratio	3.81%	3.0%
CET1 Capital Ratio	11.55%	8.0%
Tier 1 Capital Ratio	11.98%	9.5%
Total Capital Ratio	16.94%	13.5%

Table 03: Comparison between People’s Bank and Basel III Minimum Requirement 

Based on the performance of People’s Bank, they have met the minimum requirement according to the Basel III accords. CET 1 and Tier 1 Capital ratios shows that the bank has maintained high quality capital. Total Capital Ratio indicates that they have an adequate buffer to absorb unexpected shocks.

Bottom Line

In the case of People’s Bank, they have maintained above the minimum requirement while improving the risk control. They have improved their financial performance and wish to continue in the coming years. This is an indication that the financial system of Sri Lanka is reviving and a step towards public trust. It is a statement made by the bank that trust is something beyond profitability. 

 References 

https://www.ft.lk/front-page/People-s-Bank-reports-all-time-high-1H-Rs-28-b-PBT/44-780888

https://www.peoplesbank.lk/roastoth/2025/08/JUNE-2025-WEB.pdf

https://www.investopedia.com/terms/b/basel_accord.asp