NBFIs to come under Basel-II provisions by 2010-end

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Siddique Islam
Bangladesh is expected to implement the Basel-II framework for non-banking financial institutions (NBFIs) by the end of 2010 in keeping with the global standard, officials said.
A seven-member committee, headed by senior Deputy Governor of the Bangladesh Bank (BB) Nazrul Huda, has already been formed to implement Basel-II framework for the NBFIs.
The central bank took the move to strengthen financial base of the country's financial institutions and ensure management efficiency in the long run through maintenance of the global standard of practices.
"The committee has started its work by setting up a cell to implement the Basel-II provisions for the NBFIs," a BB senior official told the FE Sunday, adding that the first meeting of the newly formed committee will be held in the central bank the next month.
He also said the committee will also form a sub- committee to prepare a draft report on the Basel-II considering the country's overall economic performance.
"We may conduct a quantitative impact study (QIS) to assess probable impact on the sector for implementation of the new framework," another BB official said.
Under the Basel-II, the minimum capital requirement and the risk weighted assets for the NBFIs will be fixed considering the overall performance of the sector.
"The paid up capital of the NBFIs will certainly go up for implementation of the Basel-II," another BB official said, adding that the NBFIs should start taking necessary preparation from now to face the challenges.
On June 2003, the BB raised the minimum ceiling of the paid-up capital of the NBFIs to Tk 250 million from the previous amount of Tk 100 million in order to make the leasing companies operationally sound.
Currently, 29 NBFIs are running their business across the country.
The Basel-II accord came into effect in Bangladesh for the commercial banks from January this year alongside the Basel-I to consolidate capital base of the banks.
The new Basel 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.
The central bank has already increased the amount of the required minimum capital for commercial banks to 10 per cent of their risk-weighted assets from 9.0 per cent to consolidate its capital base.
Bangladesh is now following Basel-I for the banks' capital adequacy requirement. Risk-based capital ratio was 8.0 per cent when it was first adopted in 1996. Later in 2002, the ratio was increased to 9.0 per cent.