Basel II:

In the past banks used to follow Basel-I to maintain minimum capital

requirement. But there were some limitations of it. Such as, it considered only
credit risk. Due to its limitations the Basel committee decided to draft a new
version of the accord in 1999. The Basel II accord is accepted to be finalized
and published by the end of 2003 and implemented by the year-end 2006.

The Basel II has three pillars, they are:

Basel II Structure

Pillar 1 Pillar 2 Pillar 3

Minimum Capital Supervisory Market

Requirement Review Discipline

Capital Requirement Risk weighted assets

Core Capital Supplementary Credit Risk Operational Market Risk

Capital Risk
 Compliance with Basel II
Pillar 1 Tk. in
million
Features Particulars Prime Bank Dutch Brac Bank
Ltd Bangla Bank Ltd
Ltd
Minimum Tier 1:
capital  Paid-up capital 3555 1500 2059
requirement  Statutory Reserve 3284 2000 1337
 Retained 2218 12.55 1272
Earnings
 Share Premium - 11.07 1406
 Dividend - 25.27 -
Equalization
Account
- 500 -
 Proposed
Dividend
Tier 2:
1763 824.06 927.47
 General Provision - - 500
 Preference Share 4 2.91 .045
 Exchange
Equalization
Fund 126 29 788
 Revaluation
Reserves of
Securities - 122.45 -
 Asset Revaluation
Reserve 1219 - -
 Revaluation gain
or loss on
Investment
Risk Weighted • Credit Risk 109357.30 - 5802.52
Asset • Market Risk 7743 - 14.95
• Operational Risk 6913 - 840.98
Pillar 2
Features Description Prime DBBL BRAC
Bank Ltd Bank
Supervisory • Standard rules and powers Complied Complied Complied
Review for the regulators for
policing the new, more
complex framework
• Standardization across
countries for set of Complied Complied Complied
minimum requirements

Pillar 3:
Features Description Prime DBBL BRAC
Bank Ltd Bank
Market Discipline • Standardized Complied Complied Complied
requirements for
the banks to
disclose
allocation and
risk information
to the markets
beyond current
accounting
guidelines

Capital Prime Bank Ltd DBBL BRAC

Requirement Required Held Required Held Required Held
Tier 1 5% 10.95% 5% 7.95% 5% 9.12%
Tier 2 5% 3.76% 5% 3.64% 5% 3.33%
Total 10% 14.71% 10% 11.59% 10% 12.45%

Comment on Basel II
Almost all the banks have tried to follow the Basel II, except DBBL. It did not
disclose risk weighted asset properly.

Compliance Status of IAS 30 of the Banks:

Issues Paragraphs BRAC Dutch Prime

Bank Bangla bank
Bank
1) Income & 8&9 Complied Complied Complied
expenditure
recognition
2) Valuation of S(b),24,25 Complied Complied Complied
investment &
dealing
securities
3) Depreciation 10 Complied Complied Complied
methods
4) Interest rates 17 Not Not Not
Complied Complied Complied
5)Grouping of 18-23 Complied Complied Complied
assets &
liabilities
6)Contingencies 26-29 Complied Complied Complied
& commitments
including off
balance sheet
items
7) Maturity 30-39 Complied Complied Complied
grouping of
assets &
liabilities
8)Concentration 40-42 Complied Complied Complied
to assets ,
liabilities & off
balance sheet
items
9) Loans & 43-49 Complied Complied Complied
advances
10) General 50-52 Complied Complied Complied
banking risks
11) Assets 53-54 Complied Complied Complied
pledged as
securities
12) Trust 55 Not Not Not
activities Complied Complied Complied
13) Related 56-58 Complied Complied Complied
party
transactions

Comments on Compliance with IAS 30

All the banks have provided sufficient and relevant data according to IAS
30.But the banks did not disclose the interest rate. They should disclose their
interest rate with their source of income.

Compliance with Instructions for Preparation of Financial Statements

According to Bangladesh Bank:

Items Particulars BRAC Dutch Prime

Bank Bangla Bank
Bank
 a) Local currency & Complied Complied
1) Cash Foreign currency in
hand
b) Balance with
Bangladesh Bank

2) Balance with Complied Complied

other Banks &
Financial
Institution
3) Money at call a) Bank Complied Complied
on short notice b)Financial
Institutions
4) Investments a) Government Complied Complied
Securities:
• Treasury bill
• Bangladesh
• Bank bill
• Govt. Bonds
b) Other
Investments:
Shares
Debenture &
Bonds
5) loans & a) Loans Complied Complied
Advances b) Cash credit
c) Over drafts
d) Advances to
Directors
e)Advances to
Executive
f)Classifications:
Unclassified
Sub-standard
Doubtful
Bad/loss
6) Bills purchased Complied Complied
& discounted
7) Fixed assets Complied Complied
including
premises &
furniture
8) Other assets a) Invest in shares of Complied Complied
subsidiary company
b) Stationary,
stamps, printing
materials in stock
c)Advance rent &
advertisement
d) Interest on
investment,
commission on
shares & debenture
receivable
e)Prepaid expenses
9) Non-banking Complied Complied
assets
10)Borrowings Complied Complied
from other banks
& financial
institutions
11) Deposits & Complied Complied
other accounts
12) Other a) Provision loans & Complied Complied
liabilities advances
b) Interest suspense
account
13) Paid up a) Fully paid up Complied Complied
capital b) Issued &
subscribed capital
14) Statutory Complied Complied
reserve
15) Other reserve Complied Complied
16) Surplus in Complied Complied
profit & loss
account
17) Contingent Complied Complied
liabilities
18) Instructions a) Income: Complied Complied
on Notes to profit interest, discount
& loss A/C dividend income
fee, commission
income from non-
banking assets
other operating
income
b) Expenses:
interest, fee
losses on loans &
advances
administrative
expenses
depreciation on
banking assets
19) Interest Complied Complied
income
20) Interest paid Complied Complied
on deposits
borrowings
21) Investment Complied Complied
income
22)Commission, Complied Complied
exchange &
brokerage
23) Other Complied Complied
operating income
24)Director’s fees a) total fees paid Complied Complied
b) other financial
benefits
25)Provision for a)classified Complied Complied
loan b) unclassified I
26) Provision for
diminution in
value of
investments
27) Other Complied Complied
provision
28)Appropriations Complied Complied