Dhaka, Bangladesh (BBN)- Non-banking financial institutions (NBFIs) have come under Basel-II framework on a test-run basis from January 1 this year as part of the central bank’s move to consolidate their capital base and minimise inherent risk.
The central bank of Bangladesh has already introduced draft guidelines on ‘Basel Accord for Financial Institutions (BAFI), which will come into force from January 01, 2012 with its subsequent supplements and revisions.
“The central bank has taken the move to boost financial base of the NBFIs and ensure their management efficiency in the long run through using the best global best practices," a senior official of the Bangladesh Bank (BB) told BBN in Dhaka.
He also said the BB has introduced the draft BAFI on a pilot basis from January this year in line with its action plan for implementation of Basel-II in the NBFIs, which are popularly known as leasing companies.
Under the action plan, one-to-one meeting with all of the country’s 29 NBFIs will be held from April to August this year for analysing their feedback to finalise the guideline.
According to the BB guidelines, the business of financial institutions has become more complex and the risks inherent with the activities of the NBFIs are required to address properly for the smooth functioning of the industry.
“With a view to identifying and managing these risks, a robust risk management as a strong capital base is a vital requirement,” it said.
The Basel-II framework, the most widely used accord which sets the benchmarks for banks and other financials institutions across the globe – has come into effect for all Bangladeshi commercial banks from January 2010.
The framework is based on three mutually reinforcing pillars: ensuring minimum capital requirement (MCR), supervisory review process (SRP) and market discipline.
The accord outlines the level of capital required by a NBFI against credit, market and operational risk based on the risk profile of the organisation.
“The primary objective is neither to raise nor to reduce regulatory capital for the financial institutions. However, the capital requirements for a specific financial institution may increase or decrease depending upon its own risk profile,” the central bank said.
An NBFI”s capital ratio will be calculated by dividing the total capital by the sum of risk-weighted assets of credit risk, market risk and operational risk under MCR, adequate capital will be calculated under the SRP and transparency of the activities of financial institutions towards stakeholders will be ensured through market discipline.
BBN/SI/AD-03Jan11-5:58 pm (BST)
