BB asks banks to consolidate investment in subsidiaries
Tuesday, 30 March 2010
FE Report
The central bank has asked the commercial banks to consolidate investment in subsidiaries in line with the Basel-II requirements, officials said.
"Banks having subsidiary company (ies) are advised to consolidate the subsidiary (ies) in line with the prevailing national accounting standards for the purpose of assessing capital adequacy," the Bangladesh Bank (BB) said in a circular Monday.
If consolidation is not done, investments in subsidiaries will be deducted at 50 per cent from Tier 1 and 50 per cent from Tier 2 capital, generally known as supplementary capital, according to the circular.
The assets representing the investments in subsidiary companies, whose capital had been deducted from that of the parent, would not be included in total assets for computing capital adequacy ratio (CAR).
As per consolidated accounting capital market exposures like claims against investor account for merchant banking will be assigned 125 per cent risk weight for the purpose of computing CAR, and these sort of claims will not be considered for credit risk mitigation (CRM), the central bank said.
"We've issued the directives as part of reviewing the guidelines on Risk Based Capital Adequacy for Banks (RBCA) under the Basel-II accord," a BB senior official told the FE.
The central bank has asked the commercial banks to consolidate investment in subsidiaries in line with the Basel-II requirements, officials said.
"Banks having subsidiary company (ies) are advised to consolidate the subsidiary (ies) in line with the prevailing national accounting standards for the purpose of assessing capital adequacy," the Bangladesh Bank (BB) said in a circular Monday.
If consolidation is not done, investments in subsidiaries will be deducted at 50 per cent from Tier 1 and 50 per cent from Tier 2 capital, generally known as supplementary capital, according to the circular.
The assets representing the investments in subsidiary companies, whose capital had been deducted from that of the parent, would not be included in total assets for computing capital adequacy ratio (CAR).
As per consolidated accounting capital market exposures like claims against investor account for merchant banking will be assigned 125 per cent risk weight for the purpose of computing CAR, and these sort of claims will not be considered for credit risk mitigation (CRM), the central bank said.
"We've issued the directives as part of reviewing the guidelines on Risk Based Capital Adequacy for Banks (RBCA) under the Basel-II accord," a BB senior official told the FE.