Dhaka, Bangladesh (BBN) – The central bank of Bangladesh issued an instruction on risk factors relating to Islamic mode of investment Monday aiming to bring the country’s Islamic banking under Basel-II framework.
“We’ve issued the instruction under the guideline on risk based capital adequacy for banks to identify credit risks of the Islamic banks.” a senior official of the Bangladesh Bank (BB) told BBN.
The Islamic banks along with the traditional banks, which have Islamic branches and wings, will have to calculate their risk weighted assets and capital adequacy requirement for implementation of the Basel-II framework, the BB official added.
Currently, seven private commercial banks (PCBs) out of 30 and a foreign bank are operating under the Islamic shariah, the BB officials said, adding that banks have their own shariah councils to dictate terms of banking under the Islamic rules and regulations.
Besides, 13 local and foreign commercial banks have opened Islamic banking branches and windows for operating Islamic shariah-based banking.
All Islamic banks and Islamic branches of conventional banks are required to measure and apply capital charges against credit, market and operational risk, the central bank said in its instruction, issued on Monday.
Islamic modes of investments are asset-based. Gross return of these investments is the spread between the cost of the asset to the bank and the amount that can be recovered from selling or leasing it, the instruction added.
The Basel-II accord has come into effect in Bangladesh since January 1 this year alongside the Basel-I to consolidate capital base of the banks.
The banks are now allowed to follow both Basel-II and Basel-I frameworks for 2009 to calculate their capital adequacy, the BB officials said, adding the banks will have to implement the Basel-II framework from January 2010.
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/SS/SI/AD-29July09-12:57 pm (BST)