Published with the efforts of Basel Committee on Banking Supervision, BASEL II is an agreed text to measure and evaluate capital adequacy of internationally active banks.
It is expected with the beginning of 2007, BASEL II will come into effect in many countries including Turkey. With the new arrangements, it is aimed to promote safety and soundness in financial system by giving more importance to bank’s own internal audit and risk management processes. Therefore Basel II, to be adhered to all significant banks, is basically established to provide secure and trustworthy financial systems. In parallel with this aim, Basel II increases competitive equality by providing the market discipline with accounting statements which are transparently arranged and international generally accepted principles of accounting. With this perspective, objectives of Basel II are summarized as follows; 

• To provide secure and trustworthy financial systems
• To enhance competitive equality
• Constitute a more comprehensive and more sensitive approach to addressing risks
• To measure the risk of banks and to associate this with the minimum capital level
• To strengthen national and international auditing applications
• To be adhered to by “all significant banks”.

With BASEL II the risk concept is examined on large framework: with BASEL II, risk concept extensively includes credit risk, operational risk and market risk together.
The purposes of BASEL II standards highlight the importance of bank’s own credit risk management criteria. Within this perspective,

• In conjunction with BASEL II risk-oriented credit pricing will be applied instead of risk-oriented credit management.
• Credit prices will be determined according to risk carried by firms that uses credits and firm’s collateral types.
• Risks will be evaluated as:
  • firm’s own risk level
  • credit transaction risk level.

In the current system (Basel I), regardless of credit risk structure of private sector, collateral structure receives attention and100 % risk weights are taken. However, with Basel II firm’s risk weights will depend on their credit notes. Therefore with the application of Basel II standards, credit costs will be determined by firms’ usable credit risk levels. At this stage, credit rating notes will be given by independent auditing authorities and banks.