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Afghanistan’s Central Bank Issues New Capital Adequacy Regulations

Kabul, Afghanistan - The Central Bank of Afghanistan (DAB) has released its new regulation on capital adequacy, aimed at strengthening the country’s banking sector and ensuring financial stability.

New Regulation Outlines Minimum Capital Requirements

The regulation outlines the minimum capital requirements for banks operating in Afghanistan, including:

  • Tier 1 and Tier 2 capital
  • Risk-weighted assets (RWAs)
  • Standardized approaches for credit, market, and operational risks

Tier 1 and Tier 2 Capital Requirements

Under the new regulation, banks must maintain a minimum of $X million in Tier 1 capital, which includes:

  • Common Equity Tier 1 (CET1) capital
  • Additional Tier 1 (AT1) capital

The regulation also sets out requirements for Tier 2 capital, including:

  • Property revaluation reserves
  • Cumulative perpetual preference shares
  • Approved hybrid debt capital securities

Risk-Weighted Assets (RWAs) Framework

The regulation introduces a risk-weighted assets (RWA) framework, which assigns different weights to various types of exposures based on their credit risk. Banks will be required to hold sufficient capital against these risks to ensure they can absorb potential losses.

Standardized Approaches for Credit Risk and Market Risk

For Credit Risk, the regulation adopts a standardized approach that requires banks to assign predefined risk weights to different classes of assets, such as:

  • Residential real estate
  • Regulatory retail portfolios

The regulation also recognizes a wider range of credit risk mitigation techniques.

For Market Risk, the regulation adopts a standardized approach that addresses benchmark rate risk, equity risk, foreign exchange risk, commodities risk, and inventory risk.

Basic Indicator Approach for Operational Risk

The Basic Indicator Approach for Operational Risk measures capital requirements based on a fixed percentage of positive annual gross income.

Effective Date and Annual Review

The regulation will come into effect on [insert date] and will be reviewed annually to ensure its effectiveness in promoting financial stability and ensuring the safety and soundness of Afghanistan’s banking sector.

Governor’s Statement

“We believe that this new regulation will help to strengthen our banking sector and promote economic growth,” said [insert name], Governor of the Central Bank of Afghanistan. “We are committed to working with banks to ensure they have the necessary capital and risk management practices in place to support financial stability.”