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Roadmap laid out for Basel III

Rejaul Karim Byron
Bangladesh Bank has issued a roadmap to elevate the capital base of banks in line with Basel III requirements, the global regulatory standard set to take effect from January 1.
As per the roadmap, the banks' minimum capital adequacy ratio will have to be raised to 12.5 percent of their risk-weighted assets by December 2019 from the existing 10 percent.
The central bank plans to raise the CAR (capital adequacy ratio) to 10 percent by 2015, 10.625 percent by 2016,11.25 percent by 2017 and 11.875 percent by 2018. Finally in 2019, it will hit the desired 12.50 percent.
"I hope we will be able to ensure complete implementation of Basel III from the first day of2020," BB Governor Atiur Rahman earlier said at a bankers' meeting on December 15.
To date, there has been no internationally harmonised standard on bank capital adequacy ratio, stress testing and market liquidity risk, which the Basel III
would provide.
The roadmap comes at a time when banks' capital base has been shrinking on the back of mounting bad Ioans.
In December last year, the sector's CAR stood at 11.52 percent of their risk-weighted assets, but it slipped to 10.57 percent at the end of September.
Furthermore, the capital shortfall of eight banks was found to be more than Tk 8,000 crore.
Save for a few, all private banks' CAR was found to be above 11 percent at September's end. But it was the capital position of state banks that was a matter of grave concern.
Meanwhile, there will be a penalty for any bank that fails to raise its capital base in line with the roadmap, according to a notice from the central bank.
If banks' employees are found to furnish false information of their capital standing, they will be punishable in line with the Bank Companies Act, it also said. While a strong capital base is a necessary condition for the stability of the banking sector, by itself it is not substantial: a strong liquidity base reinforced through robust supervisory standards is also needed, according to BB.
As with the global capital standards, the liquidity standards will establish minimum requirements and will promote an international level playing field to help prevent a competitive race to the bottom, itsaid.
The difficulties experienced by some banks during the financial crisis of2007-08 were due to lapses in basic principles of liquidity risk management.