Banks must keep more capital against RWA
Bangladesh Bank has formulated draft guidelines on risk-based capital adequacy ratio in a bid to implement Basel-III from the next year by raising scheduled banks’ capital bases.
Banks will have to implement the new guidelines on capital arrangement in five years.
Under the guidelines, banks will have to raise their capital to 12.50 per cent against their risk-weighted assets by 2019 from the existing 10 per cent.
The BB issued a letter to managing directors and chief executive officers of all banks on Thursday asking them to send their opinions on the central bank’s draft guidelines.
A BB official told New Age on Sunday that the central bank would finalise the guidelines by this month.
The BB issued a circular to all banks on March 31 this year 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.
According to the central bank draft guidelines, banks will have to complete the full-fledged implementation of the guidelines by 2019.
The BB official said 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 guidelines said that banks would have to start maintaining the capital conservation buffer from 2016 under Basel-III.
In 2016, banks will have to maintain 0.625 per cent capital conservation buffer against their risk-weighted assets, 1.25 per cent in 2017, 1.875 per cent in 2018 and 2.50 per cent in 2019.
The capital conservation buffer will give banks more protection against different types of risks including market risk, operational risk and credit risk, the official said.
The BB has kept unchanged the 10 per cent minimum capital requirement for banks against their risk weighted assets for Basel-III.
But, 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, banks will have to maintain capital 10.625 per cent against their risk weighted assets 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 — common equity tier-1 and additional tier-1.
Banks will have to include their paid-up capital, non-repayable share premium account, statutory reserve, general reserve and the other capital of the investors under the common equity tier-1.
Banks will have to preserve at least 4.50 per cent capital against their risk weighted assets under the common equity tier-1from 2015.
Banks will have to maintain 5.50 per cent capital against their risk weighed assets between 2015 and 2016 under the overall tier-1.
Banks will have to preserve 6 per cent capital against their risk weighted assets from 2017 under the overall tier-1.
The BB guidelines said banks would have to maintain the remaining capital against their risk weighted assets 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 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.
Banks’ capital decreased by Tk 616.39 crore to Tk 64,574.61 crore in the first quarter of 2014 from that of Tk 65,191 crore as of December 31, 2013 with eight banks failing to manage their minimum capital requirement, the BB data showed.
The eight banks are Sonali Bank, Rupali Bank, Bangladesh Commerce Bank, ICB Islamic Bank, National Bank of Pakistan, BASIC Bank, Bangladesh Krishi Bank and Rajshahi Krishi Unnayan Bank.
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
