Capital Adequacy Ratio

Capital adequacy gives insights of overall financial position of the bank

(Shrivastava.et al). Bank capital is a focal issue of financial soundness and safety of
a bank. In fact the ultimate strength of a bank lies in its capital funds given its
significance as a tool for meeting liabilities in a financial crisis and as a cushion for
absorbing losses(Rose). From the table we see that capital adequacy ratio above
10% i.e. Prime Bank ltd maintained adequate capital in study period. In addition to
capital adequacy ratio there is a high positive correlation of risk weighted asset and
capital fund rxy=0.99.
All amount are in million
Year

Capital fund

2010
2011
2012
2013
2014

7859
12168
21483
24229
25986

Risk weighted
asset
72253
82710
183747
194380
205103

Capital Adequacy
8.67
10.95
8.60
8.60
10.08

Credit risk:
RAROC = One year loan income / Loan risk amount

year
Year loan
income
Loan risk
amount
RORAC

2010
1202.3
1

2011

2012

2013

1673.6

2282.1

2201.1

287.65
4.1797
67

408.62
4.0957
37

321.57
7.0967
44

66.11
33.294
51

2014
1844.5
6
54
34.16

Loan income = revenues expenses expected losses + return on capital

Capital at risk = capital reserved to cover worst-case