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under the Basel II framework that is to be implemented from January
next year. They placed the demand at a meeting with Bangladesh Bank
Governor Dr Atiur Rahman on Sunday. Under the Basel II agreement of
the Basel Committee on Banking Supervision, the central bank as the
regulator has allowed banks to use credit ratings from External
Credit Assessment Institutions to calculate their net capital reserve
requirements. BB believes rating corporate clients would be the
biggest challenge for banks, in the absence of an adequate number of
rating firms. "The number of credit rating agencies in Bangladesh is
not sufficient. It is difficult for them to rate all corporate
borrowers in time," said Nazrul Huda, deputy governor of the central
bank. There are only two rating firms -- CRAB and CRISL -- in
Bangladesh. Bankers said it would not be possible for them to rate
thousands of corporate clients. "Two firms alone will not be able to
rate all corporate clients. More rating firms are needed, " said
Muhammad A Rumee Ali, chairman of BRAC Bank. The BB governor said it
is vital for all corporate clients to be rated. "Ensuring credit
rating of corporate clients is a matter of utmost importance," Rahman
told the chief executives of all commercial banks at the meeting.
The central bank has stressed the need for more credit agencies.
Eleven firms turned in applications to the Securities and Exchange
Commission for licences. Meanwhile, BB also found that most local
banks are not ready to implement Basel II from the stipulated time
frame of January 2010. Only seven private banks are fully compliant,
with five others partially compliant. However, no state-owned bank is
ready to adopt Basel II, said Huda. All nine foreign banks operating
in Bangladesh are fully prepared to implement the requirements of
Basel II, Huda added. Basel II is an internationally agreed deal
signed by the central banks of several countries. Implementation of
Basel II is essential to Bangladeshi banks, as BB has agreed upon it.
Under the deal, banks here will have to comply with international
standards that include capital adequacy, risk management and greater
disclosure of bank business data. "We have been working on the matter
for the past three years. Now we see most banks are ill-prepared to
adopt the accord," said the deputy governor. Risk-weighted asset for
state-owned banks will reach Tk 18 ,000 crore, while it will be Tk 4
,000 crore for private banks in January 2010 , if they adopt Basel
II, he added. According to the deal, the ratio of capital to
risk-weighted asset for a bank will be 10 percent. Banks will require
additional capital worth Tk 2 , 300 crore, as a bank has to raise its
paid-up capital to Tk 400 crore from Tk 200 crore now to adopt
Basel II. There are 48 banks: 30 private, nine foreign and nine
state-owned, including five specialised banks.
