Basel II

Basel II is recommendatory framework for banking supervision, issued by the Basel Committee on Banking Supervision in June 2004. The objective of Basel II is to bring about international convergence of capital measurement and standards in the banking system. The Basel Committee members who finalised the provisions are primarily representatives from the G10 countries, but several countries that are not represented on the committee have also stated their intent to adopt this framework.

Bangladesh Bank in December 2008, issued guidelines on the New Capital Adequacy Framework (BRPD Circular 09, dated 31.12.08) to banks operating in Bangladesh, based on the Basel II framework. These guidelines inform that BB suggests implementation of Basel II with the following approaches:

i)     Standardised approach for calculating RWA against credit risk;

ii)    Standardised approach for calculating RWA against Market Risk; and

iii)   Basic indicator approach for calculating RWA against Operational Risk.

Under the standardised approach for measuring credit risks, the risk grades are determined on the basis of ratings assigned by the ECAIs.