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Capital Adequacy Requirements for Banks in Afghanistan

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Capital Structure

The Central Bank of Afghanistan has outlined the capital structure requirements for banks in the country. The regulation consists of two main components: Tier 1 Capital (Core Capital) and Tier 2 Capital.

Tier 1 Capital (Core Capital)

  • Paid-up ordinary shares
  • Retained earnings
  • Minority interest
  • Other reserves

Tier 2 Capital

  • Property revaluation reserve
  • Cumulative perpetual preference shares
  • Approved hybrid debt capital securities issued
  • Maximum allowable subordinated debt/Sukuk capital

Risk-Weighted Assets (RWA)

The regulation defines RWA as the sum of risk-weighted assets for credit risk, market risk, and operational risk.

Credit Risk

  1. On-balance sheet exposures are assigned to relevant RWA buckets and multiplied by the appropriate risk weight.
  2. Off-balance sheet exposures are also assigned to relevant RWA buckets and multiplied by the appropriate risk weight.

Market Risk

  • The standardised approach for market risk addresses:
    • Benchmark rate risk
    • Equity risk
    • Foreign exchange risk
    • Commodities risk
    • Inventory risk

Operational Risk

  • The basic indicator approach is used to measure operational risk capital charge, which is equal to the average over three years of a fixed percentage (0.15) of positive annual gross income.

Effective Date

The effective date of this regulation is not specified in the provided text.

Custodian and Updates

  • The regulation is under the safe custody of the Legal and Regulatory Section (LRS) of DAB.
  • Any changes to the regulation will be made by LRS, reviewed by the DAB Executive Board, and approved by the DAB Supreme Council.