The impact of Basel III on Bangladeshi commercial banks and their lending towards SMEs.

Basel Committee on Banking Supervision, commonly known as BCBS, introducedBasel III for internationally active banks to directly respond to the last global financialcrisis. Basel III addresses the shortcomings of the pre-crisis regulatory frameworkBasel II. Basel III introduced several essential changes in banks' capital structure,risk management framework, and leverage ratio framework to provide a foundationfor a resilient banking system. Although banking regulation may minimise thepossibility of a future financial crisis, it may also detain future economic growth.Research suggests that an increase in capital requirement negatively affects bankslending and credit provision to those who deemed a high risk to banks. This studyseeks to: (1) examine the effects of Basel III on Bangladeshi commercial bankscapital structure; (2) the impact of Basel III on Bangladeshi commercial banks riskmanagementsystem and its potential impact on SME lending; and (3) examine thefinancial implications of Basel III on different generations of Bangladeshi commercialbanks.This study adopted a mixed-method research design to facilitate the use of bothquantitative and qualitative data. The researcher used the interview technique, twosampling methods, purposeful sampling and snowball sampling, to collect qualitativedata. The quantitative data was collected from 36 Bangladeshi commercial banks'annual reports using a convenience sampling method. The primary data wereanalysed using NVivo 11 software, while secondary data was analysed using Excelsoftware. The result shows that most BCBs are performing well in maintaining BaselIII capital requirements. Still, the majority of the state banks are struggling to raisemoney to maintain the required capital. Although Basel III improved Bangladeshicommercial banks risk management system, the higher risk-weighted capitalrequirement for SME lending may influence banks to lend to high credit-rated SMEscompared to low credit-rated SMEs. SME owners believe risk-weights and SMEcredit rating made SME lending challenging for low credit-rated SMEs compared toBasel II's fixed risk weight. Furthermore, the result indicates that Basel III can reducenon-performing loans (NPL) in the long-term if risk-management principles arefollowed as per guidelines. The ratio analysis suggests that the second and thirdgenerations banks are better than third-generation banks in implementing Baselstandard, which positively impacts both generation banks financially.