The banks will have to increase their paid up capital within next six years
as the central bank is planning to implement the Basel III to minimise the
market risk.
The paid up capital for the new commercial banks will be Rs 5 billion,
under the Basel III requirement as they have to increase minimum capital,
equity capital ratio and buffer capital. Currently, they have to have Rs 2
billion paid up capital. They have to gradually increase the paid upto capital
like in the next two years, they have to increase their paid up capital to Rs 3
billion, in five years Rs 4 billion and six years, Rs 5 billion. "It is
expected to make the banks stronger," the central bank said, adding that
the development banks also have to be ready to implement Basel III, though it's
implemented for the commercial banks only in the beginning.
After the successful six years of the Basel II in commercial banks, the new
challenges have called for the Basel III that is going to bring changes in the
capital adequacy framework, the central bank said.
There were three pillars – minimum capital requirement, supervisory review
and disclosure – under the capital adequacy framework of Basel II, but after
the global financial crisis, there has been significant addition.
There were challenges towards managing risk within the banking system as
well as reducing the spillover risk from the financial sector to the real
economy. Basel Committee on Banking Supervision (BCBS) issued 'Basel III: A global
regulatory framework for more resilient banks and banking systems' in December
2010. Basel III has set its objectives to improve the shock absorbing capacity
of each and every individual bank as the first order of defense. In addition to
the measures, the efforts were directed to ensure that banking
system as a whole does not weaken and its spillover impact on the real
economy is minimised.
Thus central bank has also planned to implement the Basel III – after consultation
with the banks and financial institutions – in s month to safeguard the
financial system, the Nepal Rastra Bank (NRB) said.
Basel III has included some micro-prudential elements – like definition
of capital, better risk coverage, leverage ratio and international liquidity
framework – so that risk is managed in each individual institution and
macro-prudential elements will take care of issues relating to the systemic
risk.
Likewise, the leverage ratio has been proposed at three per cent and
capital conservation buffer 2.5 per cent of risk weighted average to strengthen
the banks and financial institutions.
Similarly, counter cyclical capital buffer has also been proposed to 2.5
per cent apart from a forward looking and dynamic provisioning, and addressing
systemic risk and interconnectedness. "The capital requirement has also
been doubled," it said, adding that Tier 1 and Tier 2 capital has also
been increased.
The new arrangements calls for an increase in
paid up capital, according to the central bank.
1 comment:
I'm glad they did not increased it infrequently. Now the people can prepare for it during the timespan given to them.
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