Which banks have the strongest financial footholds? Which have the weakest? Which banks follow stipulated guidelines? Which are the most reckless? Which should you trust with your money? All these questions will have their answers on the websites of commercial banks in the future. Bangladesh Bank (BB) has prepared a manual called the Market Discipline Guideline to facilitate this, according to sources at BB.
Commercial banks will have to provide 35 kinds of information on their website once the Market Discipline Guideline is in full effect, sources said.
A BB official associated with the guideline said, “Once these policies are implemented, general clients as well as the public will be able to know the financial states of each bank as well as their resistance to market falls. This way, depositors will easily be able to determine which banks to trust.”
This guideline, part of a policy known as Basel – III, will require banks to publish information on bank capital adequacy, stress testing, risk assets, defaulted loans, write offs, profit and loss, number of clients, amounts deposited, number of shareholders, number of shares, number of loans, amount loaned, income and expenditures, credit risk, operational risk, and market liquidity risk on quarterly, bi-annual and annual bases. This will enable people to be fully aware of a bank’s financial situation, and they will be able to decide on which bank to put their money in accordingly.
The Basel Committee on Bank Supervision (BCBS) is a global organization that has been monitoring banks and protecting bank clients since 1974. Under directions from this body, international banking guidelines Basel – I and Basel – II have already been incorporated into Bangladeshi banks. Keeping in line, the implementation of Basel – III was started in 2016, and is slated to be completed by 2020.
Sources said that Basel – III has 3 “pillars”; the first two of which are Minimum Capital Requirement and Supervisory Review Process, and have already been implemented. The final pillar is Market Discipline. The aim of Basel – III is to provide clarity regarding the financial health of banks and make sure that the banks maintain a healthy capital. It also protects risk-based capital and banks’ dependency on temporary funds.
Basel – III’s Pillar I stipulates what kind of capital a bank needs to handle market risks, while under Pillar II, the Central Bank reviews if the capital is enough to handle the identified risks. Meanwhile, Pillar III informs the general population of the bank’s risk reduction capabilities.
Bangladesh Institute of Bank Management’s (BIBM) Supernumerary Professor and former Managing Director of Pubali Bank Helal Ahmad Chowdhury said, “There are quite a few criteria which determine a bank’s quality. The Basel policies are accepted internationally, and are being incorporated locally for the betterment of banks as well as clients.”
“Bangladesh Bank’s guidelines will improve clarity and accountability, because the realization of this process will reveal to the people the true situation of banks regarding defaulted loans, net profits, provisions, capital, and taxes paid. In order to make sure that Basel – III’s Pillar III is executed well, it is important to make sure that the boards and management of banks are kept under supervision with no exceptions,” he continued.
Under these policies, banks will need to gradually increase their current capital by 2.5% before the end of 2019. In order to achieve this, banks need to secure capital at rates of 11.875% in 2018 and 12.50% in 2019.
In Bangladesh Bank’s latest circular, Basel – III’s implementation deadline has been extended by a year to January 2020. The circular further stated that bank officials would have to increase their proficiency by December 2019, as Basel – III would be in effect starting the following January.
Managing Director of Al-Arafah Islami Bank Md Habibur Rahman said, “Basel – III puts more importance on clients than the bank. In order to protect clients along with the investment of banks, maintaining a buffer capital has been mandated. Basel – III also aims to avail a plethora of information regarding the bank to clients and stakeholders.”
He further stated that if Bangladesh Bank imposes such a policy, banks are bound to follow it.
This article was first published on Bangla Tribune