Regulatory Alerts2010-03-29
Added · Updated
BRPD Circular No. 12: Consolidation for investment in subsidiaries and implication of other Capital Market Exposures for the purpose of computing eligible Regulatory Capital
Banks must consolidate subsidiary companies in line with prevailing national accounting standards when computing Capital Adequacy Ratio; failure to do so requires deducting 50% of the investment from Tier 1 and 50% from Tier 2 capital, with those assets excluded from total assets. Capital Market Exposures, including claims against investor and margin account holders, are assigned a 125% risk weight and are ineligible for Credit Risk Mitigation. Investments exceeding the approved limit under Section 26(2) of the Bank Company Act, 1991 result in a 50% deduction from both Tier 1 and Tier 2 capital for the excess amount.
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