Bangladesh Bank on Monday asked the scheduled banks to start implementation of international Basel-III guidelines by raising banks’ capital bases from July 1.
The banks will have to implement the new guidelines on capital arrangement in five and a half years. The BB issued a circular to managing directors and chief executive officers of all banks asking them to complete required preparations between April and June of this year before they (banks) start implementing Basel-III, a global, voluntary regulatory standard on banks’ capital adequacy, stress testing and market liquidity risk.
The BB circular said that the central bank would issue guidelines on Basel-III for the banks within April and they (banks) would have to complete the full-fledged implementation of the guidelines by 2019.
BB officials told New Age that the excess capital required to implement Basel-III would put extra pressure on the scheduled banks as they (banks) had already faced a difficult situation to keep their minimum capital requirement under Basel-II.
The circular said that the banks would have to start maintaining the capital conservation buffer from 2016 under Basel-III.
In 2016, the banks will have to maintain 0.625 per cent capital conservation buffer against their risk-weighted asset, 1.25 per cent in 2017, 1.875 per cent in 2018 and 2.50 per cent in 2019.
A BB official told New Age on Monday that the capital conservation buffer would give the banks more protection against the different types of risks including market risk, operational risk and credit risk.
The BB kept unchanged the 10 per cent minimum capital requirement for the banks against their risk weighted assets for Basel-III.
But, the banks will have to maintain more capital than the minimum capital requirement as the central bank gave instruction them to keep the capital conservation buffer on mandatory basis, the BB official said.
For these reasons, the banks will have to maintain capital 10.625 per cent against their RWA in 2016, 11.25 per cent in 2017, 11.875 per cent in 2018 and 12.50 per cent in 2019.
Under Basel-III, the BB has divided the tier-1 portion or core capital of the banks into two segments, which are common equity tier-1 and additional tier-1.
The banks will have to include their paid-up capital and the other capital of the investors under the common equity tier-1.
The banks will have to preserve at least 4 per cent capital against their risk weighted assets under the common equity tier-1 from the second half of 2014 and they will have to preserve 4.50 per cent capital against RWA from 2015.
The banks will have to maintain between 5 per cent and 6 per cent capital against their RWA under the overall tier-1.
The BB circular said the banks would have to maintain the remaining capital against their RWA under the tier-2.
Revaluation reserve for fixed assets, securities and equity securities will be included under the tier-2.
Another BB official said a number of banks had faced capital deficit in the last few years due to a poor business environment, increasing trend in defaulted loans and weak management of the banks.
Against the backdrop, Basel-III will put an extra burden on the banks as they (banks) will have to maintain more capital, he said.
Basel-III was agreed upon by the members of the Basel Committee on Banking Supervision in 2010–11, and a number of developed countries have already started to introduce the guidelines beginning from 2013.
The third instalment of the Basel Accords after Basel-I and Basel-II was developed in response to the deficiencies in financial regulation revealed by the late-2000s financial crisis.
-With New Age input
