Basel II Basel is a document written in 2004 by the Basel Committee on Banking Supervision, which makes more detailed recommendations

for banks, building on its previous document, Basel I. Basel II includes recommendations on three main areas: risks, supervisory review, and market discipline. By the end of 2005 Parallel calculations with new and existing accord for banks using advanced approaches and end of 2006/2007 Implemented Basel II. Many countries and banks are planning on implementing the guidelines set out in Basel II, although it may take as long as the year 2015 for full implementation. Basel Committee on Banking Supervision is an institution created in 1974 by central bank Governors from the Group of Ten nations. Its committee members come from Argentina, Australia, the United Kingdom, United States, France, Germany, India and other countries. Members meet four times a year at the Bank for International Settlements (BIS) in Basel, Switzerland. The role of the committee is to formulate best practices in banking supervision that are implemented by participating nations in their respective banking systems. Information on natural supervisory issues and banking techniques is exchanged between the members. Three pillar of Basel Accord is: Minimum Capital Requirements Supervisory Review Market Discipline Risks are the quantifiable likelihood of loss or less-than-expected returns. Examples: currency risk, inflation risk, principal risk, country risk, economic risk, mortgage risk, liquidity risk, market risk, opportunity risk. Every bank should have methodologies that enable them to assess the credit risk involved in exposures to individual borrowers or counterparties as well as at the portfolio level. For more sophisticated banks, the credit review assessment of capital adequacy, at a minimum, should cover four areas: risk rating systems, portfolio analysis, securitization credit derivatives, and large exposures and risk concentrations. Internal risk ratings are an important tool in monitoring credit risk. Internal risk ratings should be adequate to support the identification and

measurement of risk from all credit exposures, and should be integrated into an institutions overall analysis of credit risk and capital adequacy. The ratings system should provide detailed ratings for all assets, not only for criticized or problem assets. Loan loss reserves should be included in the credit risk assessment for capital adequacy. The analysis of credit risk should adequately identify any weaknesses at the portfolio level, including any concentrations of risk. It should also adequately take into consideration the risks involved in managing credit concentrations and other portfolio issues through such mechanisms as securitization programs and complex credit derivatives. Further, the analysis of counterparty credit risk should include consideration of public evaluation of the supervisors compliance with the core principles of effective banking supervision.

Supervisory review includes not only the principles identified in this document, but also those that have been identified in other committee documents, including the core principles for effective banking supervision and specific guidance relating to the management of banking risks. This assessment is based largely on the banks own measure of value-at-risk. Emphasis should also be on the institution performing stress testing in evaluating the adequacy of capital to support the trading function. Market discipline refers free market forces which ultimately limit the risks taken in a financial institution's investment and lending practices. There are some ECRA in your country. They are CRAB, CRISL, NCR, Emerging Credit Rating Ltd, ARGUS Credit Rating Services Ltd, WASO Credit Rating Company (BD) Limited, Alpha Credit Rating Limited, The Bangladesh Rating Agency Limited. When a company applies for loan in a bank, according Basel-II regulation they have to earn rating from External Credit Rating Agencies. Then Bangladesh Bank will also evaluate own measure of value-at-risk policy. In BaselII there are 3 evolution processes whereas Basel-I has one and Basel has 2steps. Basel-II is more secured in terms of bankers prospects. In past If any government agencies asked for loan in a bank, bank were bound to sanction loan knowing they are not well capable of returning loans. In Basel-II bank has own measure of value-at-risk of giving loan and they can refuse to give loan.

To get rating from an external credit rating agencies is always expensive. It may not be possible for a small industry like as packaging company. Basel-II has focus in this issue also. This type of company will be considered as high risk project for bank. So they can get loan by paying little bit high premium. Basel-II focuses all areas.