Dhaka, Bangladesh (BBN) – The central bank of Bangladesh has revised guidelines allowing the capital market investments as supplementary capital of the banks to meet overall capital requirement under Basel-II framework.
Under the revised guidelines, 10 percent of revaluation reserves for equity instruments is eligible for tier-2 capital, generally known as supplementary capital.
The revaluation reserves for equity instruments will be calculated on the basis of ‘marking to market’ system to know the actual market prices of the listed companies’ shares, which will be held under banking book account.
‘Marking to market or mark to market’ system is a process of calculation to determine the market value of an asset.
“The banks will be allowed to show their capital market investments, particularly in banking book account, as a supplementary capital,” a senior official of the Bangladesh Bank (BB) told BBN in Dhaka.
He also said the central bank has taken the move to facilitate the banks to meet capital requirement under the Basel-II accord.
The BB has already issued a circular in this connection and asked chief executives of all scheduled banks to follow the revised guidelines on risk-based capital adequacy properly.
“Report on capital adequacy of banks in line with the revised guidelines should be submitted to the Department of Off-site Supervision on quarterly basis within the following month of the relevant quarter,” the circular said.
The central bank earlier amended 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 percent from January 1, 2010 to June 30, 2010 while a rate of 9.0 percent will be maintained from July 1, 2010 to June 30, 2011.
The banks, however, must comply with the MCR at 10 percent from July 1 next year and onwards, the central bank officials added.
The MCR had been set at 9.0 percent with the risk-weighted assets of the banks or BDT 4.0 billion of total capital, whichever is higher, that would be treated as MCR of the banks under the Basel-II accord.
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.
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.
BBN/SSR/SI/AD-09Aug10-10:58 am (BST)