Dhaka, Bangladesh (BBN) – The central bank of Bangladesh is likely to allow commercial banks to include their investments in the corporate bonds as high-quality liquid asset under liquidity coverage ratio (LCR) of Basel-III framework.
Bangladesh Bank (BB) made such observations on Tuesday at a coordination meeting of major watchdog bodies, namely the Bangladesh Securities and Exchange Commission (BSEC), the Office of the Registrar of Joint Stock Companies and Firms, the Insurance Development and Regulatory Authority (IDRA), the Micro-credit Regulatory Authority (MRA), the Department of Cooperatives (DoC) and Bangladesh Telecommunication Regulatory Commission (BTRC).
The meeting was held at the central bank headquarters in the capital Dhaka with BB Governor Fazle Kabir in the chair.
At the meeting, the BSEC requested the central bank to allow the banks to comply with the BB’s statutory liquidity ratio (SLR) requirement with their investment in the corporate bonds.
The central bank didn’t agree with the proposal, according to officials.
To justify the refusal, the central bank said only the approved securities are eligible for meeting the SLR obligation to the BB.
The approved securities are usually treasury bills (T-bills), bonds and other securities whose principal and interest are guaranteed by the government and also include BB’a own securities.
Rather, the central bank expressed its willingness to consider such bonds as high- quality liquid asset but their eligibility will be positively examined by the departments concerned of the BB, they added.
Currently, around BDT 72 billion was invested in the corporate bonds while only three bonds are listed with the stock exchanges, according to the officials.
“The central bank may allow the corporate bonds as high-quality liquid asset under LCR of Basel-III framework after examining its different aspects,” SK Sur Chowdhury, deputy governor of the BB, told BBN in Dhaka.
Basel-III is a new global regulatory standard on banks’ capital adequacy and liquidity as agreed by the members of the Basel Committee on Banking Supervision.
The third of the Basel Accords was developed in response to the deficiencies in financial regulation exposed by the late-2000s financial crisis.
The Basel-III matrix is set to strengthen bank-capital requirements and introduce new regulatory requirements on bank liquidity and bank leverage.