Non-banking financial institutions (NBFIs) will come under the Basel-II accord from January 2012 aiming at consolidating capital base of the country's financial institutions, officials have said.
"The Bangladesh Bank has taken the move to strengthen financial base of the NBFIs and ensure management efficiency in the long run through maintaining the global practice," a senior official at the Bangladesh Bank (BB) told the FE.
He also said the NBFIs would calculate minimum capital requirement under the Basel-II on test basis from January 1, 2011 using the draft guideline.
"Now it has become obvious for the financial institutions to implement the advices as prescribed in the Basel accord, which will act as a guide to develop a risk-adjusted asset and liability portfolio and capital structure," the central bank said in a circular released recently.
Earlier, the central bank asked the NBFIs to raise their paid-up capital to a minimum of Tk 500 million by the end of 2010. (TK.50 CR)
The BB circular also said risk is the vital issue that the financial institutions need to address properly to ensure sustainable growth in the financial market.
"We're now working to implement the Basel-II framework in line with the BB's advice," Mafizuddin Sarker, chairman of Bangladesh Leasing and Finance Companies Association (BLFCA), told the FE.
The central bank has also prepared an action plan for implementation of the Basel-II framework properly.
The Basel-II will be implemented with three specific approaches -standardised approach, standardised rule-based approach and basic indicator approach - as initial steps
The standardised approach will be used for calculating risk-weighted amount against credit risk supported by external credit assessment institutions.
The standardised rule-based approach will measure market risk and the basic indicator approach for the operational risk.
Under the action plan, one-to-one meeting with all NBFIs will be held from April to August next year for analysing their feedback to finalise the guideline.
Currently, 29 NBFIs are running their business across the country.
The Basel-II accord came into effect in Bangladesh for the commercial banks from January this year to consolidate their capital base.
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.
Source: The Financial Express, August 06, 2010
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