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Asian Tribune is published by World Institute For Asian Studies|Powered by WIAS Vol. 12 No. 2673

Bangladesh to adopt Basel II by 2009

Dhaka, 17 May. (INS +’s banking sector is likely to adopt the Basel II accord, the latest version of risk-based capital standards set for banks worldwide, by early 2009.

The Bangladesh Bank, at a high-level meeting last month, set the deadline after seven months of spadework for the implementation process since September 2005.

The central bank will also go for a quantitative impact study to assess the possible impacts of the implementation of the Basel II accord in the country’s banking sector, sources said.

The Basel committee on banking supervision, an international body for setting capital standard for global banking, in June 2004 released the new framework, setting January 2007 as implementation timeframe for developed countries.

Developing countries like India and least developed countries like Bangladesh have also been advised to adopt the accord gradually in order to raise their banking services to the international standards.

The commercial banks in India are likely to start implementing Basel II from March 31, 2007. But the Reserve Bank of India has already indicated that the deadline may be shifted for few months as preparedness of the Indian banking industry is yet to be satisfactory.

The Bangladesh Bank has advised the commercial banks to create awareness among the officials and arrange regular training on the issue.

Two high-powered committees are now working for formulating policy and supervising the Basel II implementation process.

The central bank deputy governor, Muhammad A (Rumee) Ali, heads the nine-member steering committee while the executive director, Asaduzzaman Khan, chairs the 21-member coordination committee.

‘Basel II aims at encouraging the banks to use modern risk management techniques as well as to make their risk management capabilities commensurate with the risks of their business,’ said a senior official of the central bank.

Bangladesh is, at present, following Basel-I for bank’s capital adequacy requirement and risk-based capital adequacy ratio is now 9 per cent.

The private and foreign commercial banks maintained capital adequacy ratio of 9.5 per cent and 24.6 per cent respectively, as on December 2005. The raio was 9.2 per cent for the development financial institutions while negative 0.4 per cent for the nationalized commercial banks during the period under review.

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.

For credit risk measurement, new framework provides two different methods- standardized approach and internal ratings-based approach.

More than 100 countries have so far announced intentions to implement Basel-II during the stipulated timeframe.

In the Asia-Pacific region, countries like Australia, Korea, Singapore and New Zealand look for both the simplest and most advanced approaches for implementation.

Hong Kong, Japan, Indonesia and Thailand look to graduate from simplest to advanced, while China, India, Malaysia and Philippines prefer the simplest approaches initially.

- INS + Asian Tribune -

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