Impact of Basel II & III Implementation to Mitigate Bank Risk: A Study on Al-Arafah Islami Bank Limited
This study has examined the implementation process, effects, outcomes, of Basel II & reforms of Basel III within the Al-Arafah Islami Bank Limited. The purpose of Basel II is to create regulation about how many capital banks need to put away to guard against the financial and operational risk. Basel III newly introduced accord provides stricter approach toward managing risk with capital in order to strengthen capital & liquidity structure of international banking system. The purpose & aim of this study is to analyze capital adequacy framework whether it is complied with the regulatory supervisions under the prescription of Bangladesh bank as well as its capability to absorb shocks arising from financial and economic stress. Published disclosures & financial statements of last five years are used to collect data. OLS regression model is used to find out the relationship between profitability and capital adequacy requirement in terms of relevant influencing variables (e.g. asset turnover, size of the firm, capital adequacy ratios).capital adequacy ratio of this bank is higher than minimum standard level. The average capital adequacy ratio (CAR) is about 13.78%. The result of regression analysis is statistically significant and there is a positive relationship between capital and return on asset (ROA).If the capital adequacy requirement is increased the return on asset (ROA) will be increased. Islamic Banking sector has some uniqueness compared to the conventional Banking sector. Products are linked with real economic activities that are why financial crisis of 2008 did not create any extreme pressure on this sector.
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