Dhaka, Bangladesh (BBN) – The central bank of Bangladesh has modified its guidelines on risk-based capital adequacy (RBCA) aiming to minimize risk of financing in subsidiaries both in loan and equity forms by the banks, officials said.
Under the revised RBCA, the central bank has applied the highest 125 percent risk weight for financing in subsidiaries both in loan and equity forms.
The central bank issued a circular letter clarifying some portions of the RBCA on Monday and asking the chief executives of all scheduled banks to follow the clarification on calculating risk weighted assets properly.
“The central has clarified the guidelines on risk-based capital adequacy aiming at helping all commercial banks comply with the Basel-II framework,” a senior official of the Bangladesh Bank (BB) said, adding that the revised provisions will come into effect from the July-September quarter of this calendar year for RBCA reporting.
“It has been observed that there is an understanding gap in calculating risk weighted assets against claims of banks (loans and equity investments) on merchant banks, brokerage houses and exchange houses for the purpose of determining the required capital,” the central bank said in the circular letter.
In case of loans/advance to merchant banks, the highest 125 per cent risk weight for determination of the minimum capital requirement (MCR) will be applicable for brokerage houses and exchange houses which are not listed with the stock exchanges, according to the circular.
The rate of the required minimum capital adequacy ratio as determined by the BB will be applicable for investment of banks in the share (equity) of merchant banks, brokerage houses and exchange houses that are listed with stock exchanges, the central bank officials said.
The Basel-II accord came into force in Bangladesh from January 1, 2010 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. Now MCR of risk weight assets is 10 percent.
The 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.
BBN/SSR/AD-24July12-12:05 pm (BST)