Bangladesh: BRPD Circular No. 10 - Master Circular on Capital Adequacy of Banks

This Master Circular No.10, issued by the Bangladesh Bank (BB) sets out arrangements for assessing the capital adequacy of banks on the basis of risk-weighted assets rather than the capital-liabilities approach. In order to enable the banks to have all existing instructions on the subject in one place, this circular incorporates all past instructions, while also including a few new instructions.

The circular:

• Categorizes capital into two tiers:
  • Core capital that comprises the highest quality capital elements;
  • Supplementary capital that contribute to the overall strength of a bank.
• States that:
  • Each bank will maintain a ratio of capital to risk-weighted assets of not less than 9% with at least 4.5% in core capital;
  • Banks should weigh both balance sheet and off-balance sheet exposures according to their relative risk.
• Identifies four categories of risk weights - 0, 20, 50 and 100 percent.
• Seeks the conversion of off-balance sheet transactions into balance sheet equivalents for the purpose of assessing capital adequacy before assigning a risk weight.

The circular concludes with the following advice for banks on implementation:

• Banks should assess their capital positions on a half-yearly basis;
• They should report the same to the Department of Banking Operation and Development of BB;
• Banks should contact the Banking Regulation and Policy Department of BB in case of any confusion or ambiguity.