Guideline eased for banks' minimum capital need
Thursday, 11 March 2010
Siddique Islam
The Bangladesh Bank (BB) has relaxed guidelines on risk-based capital adequacy for banks under Basel-II framework considering the overall financial position in the country's banking sector.
Under the amended guidelines, the banks will have to comply with the minimum capital required (MCR) at 8.0 per cent from January 1, 2010 to June 30, 2010 while a rate of 9.0 per cent will be maintained from July 1, 2010 to June 30, 2011.
The banks, however, must comply with the MCR at 10 per cent from July 1 next year and onwards, according to a circular issued by Bangladesh Bank Wednesday.
The MCR had been set at 10 per cent with the risk-weighted assets of the banks or Tk 4.0 billion of total capital, whichever is higher, that would be treated as MCR of the banks under the Basel-II accord.
"We've relaxed the capital adequacy requirement in line with the Basel-II original document, published by the Bank for International Settlements (BIS), an organisation of central banks across the world," a BB senior official told the FE.
He also said the central bank took the latest move after reviving documents of Basel-II accord keeping in view the bankers' recommendations.
The central bank earlier found that only 22 commercial banks have been able to comply with the MCR at 10 per cent out of 47 banks, the BB official added.
Bankers have welcomed the BB's latest move, saying that the central bank revised its guideline on risk-based capital adequacy for banks in line with their recommendations.
The Association of Bankers, Bangladesh (ABB) earlier recommended to the central bank to bring down the MCR to 9.0 per cent from 10 per cent in terms of the risk-weighted assets of the banks.
"The banks are now able to comply with the MCR properly," vice-chairman of the ABB Nurual Amin told the FE Wednesday, adding that the amended guidelines would also help the banks in maintaining capital adequacy requirement in a better way.
The Basel-II accord came into force in Bangladesh from January 1 this year to consolidate capital base of the banks in line with the international standard.
Bangladesh is now following Basel-II 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.
The banks will have to submit the Basel-II implementation report on quarterly basis to the Department of Off-site Supervision of the BB by the end of the month following the end of each quarters, the BB official said.
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 Bangladesh Bank (BB) has relaxed guidelines on risk-based capital adequacy for banks under Basel-II framework considering the overall financial position in the country's banking sector.
Under the amended guidelines, the banks will have to comply with the minimum capital required (MCR) at 8.0 per cent from January 1, 2010 to June 30, 2010 while a rate of 9.0 per cent will be maintained from July 1, 2010 to June 30, 2011.
The banks, however, must comply with the MCR at 10 per cent from July 1 next year and onwards, according to a circular issued by Bangladesh Bank Wednesday.
The MCR had been set at 10 per cent with the risk-weighted assets of the banks or Tk 4.0 billion of total capital, whichever is higher, that would be treated as MCR of the banks under the Basel-II accord.
"We've relaxed the capital adequacy requirement in line with the Basel-II original document, published by the Bank for International Settlements (BIS), an organisation of central banks across the world," a BB senior official told the FE.
He also said the central bank took the latest move after reviving documents of Basel-II accord keeping in view the bankers' recommendations.
The central bank earlier found that only 22 commercial banks have been able to comply with the MCR at 10 per cent out of 47 banks, the BB official added.
Bankers have welcomed the BB's latest move, saying that the central bank revised its guideline on risk-based capital adequacy for banks in line with their recommendations.
The Association of Bankers, Bangladesh (ABB) earlier recommended to the central bank to bring down the MCR to 9.0 per cent from 10 per cent in terms of the risk-weighted assets of the banks.
"The banks are now able to comply with the MCR properly," vice-chairman of the ABB Nurual Amin told the FE Wednesday, adding that the amended guidelines would also help the banks in maintaining capital adequacy requirement in a better way.
The Basel-II accord came into force in Bangladesh from January 1 this year to consolidate capital base of the banks in line with the international standard.
Bangladesh is now following Basel-II 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.
The banks will have to submit the Basel-II implementation report on quarterly basis to the Department of Off-site Supervision of the BB by the end of the month following the end of each quarters, the BB official said.
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.