Banks Fund and Capital

Banks Fund:

Bank’s Fund means those money based on which a bank operates its business.

it is of two kinds: 1. Capital/ Shareholders Equity (Owners Capital & insider liabilities) 2. Liabilities of Bank (Outsider’s Liability)

Components of core capital/ Tier one  as per BASEL III for more of Capital Adequacy

Constituents of Capital and Minimum Requirement

 Components of Capital For the purpose of calculating capital under capital adequacy framework, the capital of banks shall be classified into two tiers. The total regulatory capital will consist of sum of the following categories:

1) Tier 1 Capital (going-concern capital)   From regulatory capital perspective, going-concern capital is the capital which can absorb losses without triggering bankruptcy of the bank.

a) Common Equity Tier 1
b) Additional Tier 1- 300 crore bond Mudaraba Perpetual Bond of IBBL

2) Tier 2 Capital (gone-concern capital)     Gone-concern capital is the capital which will absorb losses only in a situation of liquidation of the bank

Common Equity Tier 1 Capital ) For the local banks, Common Equity Tier 1 (CET 1) capital shall consist of sum of the following items:
 a) Paid up capital
b) Non-repayable share premium account
c) Statutory reserve
d) General reserve
e) Retained earnings
f) Dividend equalization reserve
G. Minority interest in subsidiaries  
 (Minority Interest (in case of CRAR calculated on a consolidated basis) i.e. common shares issued by consolidated subsidiaries of the bank and held by third parties meeting eligibility criteria)

Additional Tier 1 Capital

For the local banks, Additional Tier 1 (AT1) capital shall consist of the following items:

a)      Instruments issued by the banks that meet the qualifying criteria for AT1 

b)     Minority Interest i.e. AT1 issued by consolidated subsidiaries to third parties (for consolidated reporting only);

Less: Regulatory adjustments applicable on AT1 Capital 

For the foreign banks operating in Bangladesh, Additional Tier 1 (AT1) capital shall consist of the following items:

i.          Head Office borrowings in foreign currency by foreign banks operating in Bangladesh for inclusion in Additional Tier 1 capital which comply with the regulatory requirements 

ii.          Any other item specifically allowed by BB from time to time for inclusion in Additional Tier 1 capital;

Less: Regulatory adjustments regulatory adjustments applicable on AT1 Capital

Tier 2 Capital

Tier 2 capital, also called ‘gone-concern capital’, represents other elements which fall short of some of the characteristics of the core capital but contribute to the overall strength of a bank. For the local banks, Tier 2 capital shall consist of the following items:

a)      General Provisions; ⁸

b)     Subordinated debt / Instruments issued by the banks that meet the qualifying criteria for Tier 2 capital 

c)      Minority Interest i.e. Tier-2 issued by consolidated subsidiaries to third parties 

Less: Regulatory adjustments applicable on Tier-2 capital

For the foreign banks operating in Bangladesh, Tier 2 capital shall consist of the following items:

i.          General Provisions;

ii.          Head Office (HO) borrowings in foreign currency received that meet the criteria of Tier 2 debt capital;

Less: Regulatory adjustments applicable on Tier-2 capital 

 General provisions/general loan-loss reserve eligible for inclusion in Tier 2 will be limited to a maximum 1.25 percentage points of credit risk-weighted assets calculated under the standiardised approach.

Limits (Minima and Maxima)
These instructions will be adopted in a phased manner starting from the January 2015, with full implementation of capital ratios from the beginning of 2019.
 All banks will be required to maintain the following ratios on an ongoing basis:
i. Common Equity Tier 1 of at least 4.5% of the total RWA.
 ii. Tier-1 capital will be at least 6.0% of the total RWA.
iii. Minimum CRAR of 10% of the total RWA.
iv. Additional Tier 1 capital can be admitted maximum up to 1.5% of the total RWA or 33.33% of CET1, whichever is higher.
 v. Tier 2 capital can be admitted maximum up to 4.0% of the total RWA or 88.89% of CET1, whichever is higher.
 vi. In addition to minimum CRAR, Capital Conservation Buffer (CCB) of 2.5% of the total RWA is being introduced which will be maintained in the form of CET1.

There is no tier III capital in Basel III

(preferred stock is as a financial instrument that has characteristics of both debt (fixed dividends) and equity not in use in Bangladesh)

Fund Management of Bank: