Capital Adequacy Framework

·         Before 1988 there was no uniform standard for setting bank capital requirement

·         1988 BASEL Committee on Banking Supervision (BSBS) Develop capital accord which is known as Basel-1

·         First, it defined what banks could hold as capital, as well as designating capital as Tier 1 or Tier 2 according to its loss-absorbing or creditor-protecting characteristics.

·         The second key concept introduced in Basel I was that capital should be held by banks in relation to the risks that they face.

·         The BCBS released the "International Convergence of Capital Measurements and Capital Standards: Revised Framework", popularly known as Basel II, on June 26, 2004, updated in November 2005 and a comprehensive version of the framework was issued in June 2006.

OBJECTIVE:

 (i) Is adequate to protect its depositors and creditors.

(ii) Is commensurate with the risk associated activities and profile of the banks.

(iii) Promotes public confidence in the banking system.

BASEL III in Nepal
Transition Period
( Mid July)
	2015	2016		2017	2018	2019
Minimum Common Equity Capital Ratio	4.00%	4.50%	4.50%		4.50%	4.50%
Capital Conservation Buffer	1.00%	1.25%	1.50%		2.00%	2.50%
Minimum common equity plus capital conservation buffer	5.00%	5.75%	6.00%		6.50%	7.00%
Minimum Tier 1 Capital (Excluding conservation buffer)	6.00%	6.00%	6.00%		6.00%	6.00%
Minimum Total Capital Excluding conservation buffer)	10.00%	9.75%	9.50%		9.00%	8.50%
Minimum Total Capital (including conservation buffer )	11.00%	11.00%	11.00%		11.00%	11.00%
Counter Cyclical Buffers	Introduce minimum standard	0-2.5%	0-2.5%		0-2.5%	0-2.5%
Leverage Ratio	Introduce minimum standard	Offsite Monitoring 4.00%				Migration to Pillar 1
Liquidity coverage ratio	Review Existing Framework			LCR 100%	LCR 100%	LCR 100%
Net stable funding ratio	Observation and Parallel Run			Introduce minimum standard	Implemented
SIFI Measures				NRB shall issue the regulation.

DEFINITION OF CAPITAL:

The qualifying regulatory capital shall consist of the sum of the following components:

a. Tier 1 Capital (Core Capital)

A. Common Equity Tier 1 (CET1)

B. Additional Tier 1 (AT1)

b. Tier 2 Capital (Supplementary Capital)