Session - 3 - FIN 441 Bank Management & Electronic...

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Bank Management & Electronic Banking FIN 441
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2 Session 3 Prudential Regulations For Banks
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3 Session 3 : Prudential Regulations for Banks 1. Policy on capital adequacy of banks: For the purpose of supervision, 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 bank. In this section, we will discuss some of the prudential regulations that the banks in Bangladesh are required to follow.
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4 Session 3 : Prudential Regulations for Banks 1. Policy on capital adequacy of banks: CONSTITUENTS OF CAPITAL CORE CAPITAL (TIER 1) Paid up Capital Non-repayable Share premium account Statutory Reserve General Reserve Retained Earnings Minority interest in Subsidiaries Non-Cumulative irredeemable Preference Shares Dividend Equalization Account SUPPLEMENTARY CAPITAL (TIER 2) General provision maintained against unclassified loans Assets Revaluation Reserves All other Preference Shares Perpetual Subordinated debt Exchange Equalization A/C
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5 Session 3 : Prudential Regulations for Banks 1. Policy on capital adequacy of banks: Minimum Capital Standards Each bank will maintain a ratio of capital to risk weighted assets of not less than 9% with at least 4.5% in core capital. Risk-weighted Assets Both balance sheet assets and off- balance sheet exposures are to be weighted according to their relative risk.
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6 Session 3 : Prudential Regulations for Banks 1. Policy on capital adequacy of banks: Off -balance sheet transactions to be converted into balance sheet equivalents for the purpose of assessing capital adequacy before assigning a risk weight. 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 confusion or ambiguity.
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7 Session 3 : Prudential Regulations for Banks 2. Policy on loan classification and provisioning : Categories of Loans: All loans and advances will be grouped into 4(four) categories for the purpose of classification, namely (a) Continuous Loan (b) Demand Loan (c) Fixed Term Loan and (d) Short-term Agricultural and Micro Credit. Continuous Loan: - The loan Accounts in which transactions may be made within certain limit and have an expiry date for full adjustment will be treated as Continuous Loans. Examples are: CC, OD etc. Demand Loan:
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Session - 3 - FIN 441 Bank Management & Electronic...

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