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Central Bank of Afghanistan Issues Regulation on Capital Adequacy

Kabul, Afghanistan - The Central Bank of Afghanistan (DAB) has issued a regulation on capital adequacy to ensure the stability and safety of the country’s banking system.

Calculating Risk-Weighted Assets (RWA)

The regulation outlines the requirements for calculating risk-weighted assets (RWA), which is used to determine the minimum capital requirement for banks. The RWA calculation takes into account:

  • Credit risk
  • Market risk
  • Operational risk
  • Other factors

Minimum Capital Requirements

Under the regulation, banks are required to maintain a minimum:

  • Tier 1 capital ratio of 4%
  • Total capital ratio of 8%

The Tier 1 capital ratio includes: + Paid-up ordinary share capital + Retained profits + Surplus after tax arising from the sale of fixed and long-term investments

The total capital ratio also includes supplementary capital, which is limited to 100% of Tier 1.

Standardized Approach for Risk Calculation

The regulation outlines a standardized approach for:

  • Credit risk: banks are required to assign exposures to predefined risk weights based on recognized ratings from external credit assessment institutions (ECAIs)
  • Market risk: banks are required to use a standardized approach that addresses benchmark rate risk, equity risk, foreign exchange risk, commodities risk, and inventory risk
  • Operational risk: the regulation requires banks to use the Basic Indicator Approach, which is based on the Islamic Financial Services Board’s guidelines

Responsibilities of Banks and Central Bank

The regulation outlines the responsibilities of banks and the Central Bank in implementing and monitoring the capital adequacy requirements.

Quote from Governor

“The regulation is designed to ensure that our banking system is resilient and able to withstand financial shocks,” said [Name], Governor of the Central Bank of Afghanistan. “We believe that this regulation will help to promote stability and confidence in the banking sector.”

Effective Date

The regulation comes into effect on [Date] and applies to all commercial banks operating in Afghanistan.

About the Central Bank of Afghanistan

The Central Bank of Afghanistan (DAB) is the country’s central bank, responsible for:

  • Maintaining monetary stability
  • Regulating the financial system
  • Promoting economic growth

The DAB was established in 1939 and is headquartered in Kabul, Afghanistan.