BANGLADESH BANK

BANGLADESH BANK



PRUDENTIAL REGULATIONS FOR
BANKS : SELECTED ISSUES




[UPDATED TILL JUNE 2009]

,POLICY ON CAPITAL ADEQUACY OF BANKS ........................................................................ 3
POLICY ON LOAN CLASSIFICATION AND PROVISIONING................................................ 10
CORPORATE GOVERNANCE IN BANK MANAGEMENT ...................................................... 16
RESTRICTION ON LENDING TO DIRECTORS OF PRIVATE BANKS .................................. 21
RULES AND REGULATIONS FOR APPOINTMENT OF CHIEF EXECUTIVE AND
ADVISOR IN BANKS .................................................................................................................... 25
CONSTITUTION OF THE BOARD OF DIRECTORS AND FIT AND PROPER TEST FOR
APPOINTMENT OF BANK DIRECTORS AND DEPOSITOR DIRECTOR .............................. 27
CONSTITUTION OF THE AUDIT COMMITTEE OF BOARD OF DIRECTORS..................... 32
POLICY ON SINGLE BORROWER EXPOSURE …………………………………………….. 34
POLICY FOR RESCHEDULING OF LOANS .............................................................................. 38
POLICY FOR LOAN WRITE OFF ................................................................................................ 41
LARGE LOAN RESTRUCTURING SCHEME (LLRS) ............................................................... 42
REQUIREMENT FOR OBTAINING INFORMATION ON LARGE LOAN FROM CREDIT
INFORMATION BUREAU ............................................................................................................ 44
PAYMENT OF DIVIDEND BY BANK COMPANIES................................................................. 44
LOAN AGAINST SHARES, DEBENTURES ETC ....................................................................... 46
INTEREST RATES ON DEPOSIT AND LENDING .................................................................... 47
BANK CHARGES........................................................................................................................... 48
BANK DEPOSIT INSURANCE SCHEME.................................................................................... 49
GUIDELINES ON MANAGING CORE RISKS IN BANKING ..................................................51
CREDIT RATING ..........................................................................................................................52
PRUDENTIAL GUIDELINES FOR CONSUMER FINANCING AND SMALL ENTERPRISE
FINANCING: ..................................................................................................................... 53
GUIDELINE ON INFORMATION & COMMUNICATION TECHNOLOGY FOR
SCHEDULED BANK..........................................................................................................54
IMPLEMENTATION OF CREDIT RISK GRADING MANUAL................................................55




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,POLICY ON CAPITAL ADEQUACY OF BANKS1

New arrangements for assessing the capital adequacy of banks on the basis of Risk -weighted
Assets replacing the capital-to-liabilities approach were introduced vide BRPD Circular No. 1
dated 08.01.1996 .The revised policy on capital adequacy takes account of different degrees of
credit risk and covers both on-balance sheet and off-balance sheet transactions. The following
broad outlines containing certain amendments made thereto from time to time and a few new
instructions are issued for compliance by banks:

1. Definition of Capital
Capital will be categorized into two tiers: Tier 1 i.e., Core Capital comprises the highest quality
capital elements and Tier 2 i.e., Supplementary Capital represents other elements which fall short
of some of the characteristics of the core capital but contribute to the overall strength of a bank1.
The constituents of core capital and supplementary capital are enclosed at Annexure - I.

Revaluation reserves against held to maturity (HTM) securities (up to 50% of the revaluation
reserves) has been added to the components of supplementary capital. Besides, 'Hedging the price
risk of commodity transactions' has been included in Short-term self liquidating trade related
contingencies.

2. Minimum Capital Standards

With a view to strengthening the capital base of banks and making them prepare for the
implementation of Basel-II accord, banks are required to maintain minimum capital to risk-
weighted assets ratio at 10% of which core capital will not be less than 5% effective from
December 31, 2007. However, minimum capital requirements as required under Article 13 of
Banking Companies Act, 1991 for all banks has been raised to Tk.400 crore of which the paid up
capital shall be minimum Tk.200 crore. Banks having capital shortfall will have to meet the
shortfall by august 11, 2011.


3. Risk-weighted Assets


their relative risk. Presently, there are 4 (four) categories of risk weights ⎯ 0,20,50 and 100
Both balance sheet assets and off- balance sheet exposures are to be weighted according to

percent. For the purpose of assessing capital adequacy, weights for particular items are given in
AnnexureII.

Off -balance sheet transactions to be converted into balance sheet equivalents for the
purpose of assessing capital adequacy before assigning a risk weight are shown in section 10(a) of
Annexure-II. Four categories of credit equivalents of 0,20,50 &100 percent will apply. Details are
shown in Annexure III.

1
Master Circular issued vide BRPD circular No. 10 dated November 25, 2002.
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, 4. Implementation

Banks are advised to assess their capital position on half-yearly basis i.e., on 30 June and 31
December each year and report the same to the Off-site Supervision Department of Bangladesh
Bank within one month from the end of respective half-year. Banks are also advised to contact
Banking Regulation and Policy Department (BRPD) of Bangladesh Bank in case of any
clarification.




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