NBFIs to come under Basel-II from January

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FE Report Non-banking financial institutions (NBFIs) will come under the Basel-II accord, particularly on matters relating to capital adequacy requirement, from January 1, 2012, in line with the international standard, the central bank officials said. The Bangladesh Bank (BB) issued on Thursday the prudential guidelines on capital adequacy and market discipline (CAMD) for financial institutions for implementing properly the Basel-II formwork by the NBFIs. "We've issued the CAMD to make the financial institution's capital more risk-sensitive as well as to enable the industry to absorb various risk-related shocks and to become more stable," a senior official of the Bangladesh Bank (BB) told the FE. He also said the central bank has taken the move to strengthen financial base of the NBFIs and ensure management efficiency in the long run through maintaining the global practices. "The instructions regarding minimum capital requirement, supervisory review process and disclosure requirements, as are stated in the CAMD guidelines, have to be followed by all financial institutions for the purpose of statutory compliance," the central bank said in a circular. The NBFIs have been directed to submit the CAMD reports on a quarterly basis to the Department of Financial Institutions and Markets (DFIM) of the BB by the end of every month at the close of each quarter. The first quarterly report based on the CAMD guidelines will be submitted to the DFIM within April 30, 2012, the circular added. "The central bank has decided to implement Basel-II framework for the NBFIs to address risks in a more prudent way," the BB official said, adding that business of the NBFIs has become more complex and risk-prone, requiring their activities to be addressed properly for smooth functioning of the industry. Currently, 31 NBFIs are running their businesses across the country. The Basel-II accord came into effect in Bangladesh for the commercial banks from January 1, 2010 to help strengthen and consolidate their capital base. The Basel-II accord has been prepared on the basis of three pillars: minimum capital requirement, supervisory review process and market discipline. Three types of risks - credit risk, market risk and operational risk - have to be considered under the minimum capital requirement.