S. M.

Mahruf Billah

Questions on Capital Adequacy Ratio (96th AIBB May-June 2023)

8. Based on the given information of `A’ bank, answer the following questions:
Paid up Capital : Tk 1,392 Crore
Statutory Reserve : Tk 1,000 Crore
Retained Earnings : Tk 420 Crore
Perpetual Bond : Tk 300 Crore
General Provisions : Tk 650 Crore
Subordinated Bond : Tk 360 Crore
Total Risk-Weighted Assets (RWA) : Tk 30,200 Crore
(a) Calculate `A’ bank’s minimum capital requirements.
(b) Calculate CET-I and Tier-I capital ratios of the bank.
(c) Calculate Tier-II capital ratio of the bank.
(d) Calculate total capital to Risk-Weighted Assets Ratio (CRAR) of the bank.
(e) Interpret the results above against minimum regulatory requirements of Bangladesh Bank.
Solution:
Particulars Amount Capital Class
Paid up Capital : Tk 1,392 Crore CET-I
Statutory Reserve : Tk 1,000 Crore CET-I
Retained Earnings : Tk 420 Crore CET-I
Perpetual Bond : Tk 300 Crore Additional Tier-1
General Provisions : Tk 650 Crore Tier-II
Subordinated Bond : Tk 360 Crore Tier-II
Total Risk-Weighted Assets (RWA) : Tk 30,200 Crore
(a) `A’ bank’s minimum capital requirement:
10% 𝑜𝑓 𝑇𝑜𝑡𝑎𝑙 𝑅𝑖𝑠𝑘 𝑊𝑒𝑖𝑔ℎ𝑡𝑒𝑑 𝐴𝑠𝑠𝑒𝑡𝑠 = 𝑇𝑘 30,200 × .10 = 𝑇𝑘 3,020.00
`A’ bank’s minimum capital requirement plus capital conservation buffer =
12.5% 𝑜𝑓 𝑅𝑖𝑠𝑘 𝑤𝑒𝑖𝑔ℎ𝑡𝑒𝑑 𝐴𝑠𝑠𝑒𝑡𝑠 = 30,200 × 0.125 = 𝑇𝑘 3,775
(b)
(1,392 + 1,000 + 420) 2,812
𝐶𝐸𝑇 𝐼 𝐶𝑎𝑝𝑖𝑡𝑎𝑙 𝑅𝑎𝑡𝑖𝑜 = = = 9.31%
30,200 30,200

(𝐶𝐸𝑇 𝐼 𝑐𝑎𝑝𝑖𝑡𝑎𝑙 + 𝐴𝑑𝑑𝑖𝑡𝑖𝑜𝑛𝑎𝑙 𝑇𝑖𝑒𝑟 𝐼 𝑐𝑎𝑝𝑖𝑡𝑎𝑙)

𝑇𝑖𝑒𝑟 𝐼 𝐶𝑎𝑝𝑖𝑡𝑎𝑙 𝑅𝑎𝑡𝑖𝑜 =
𝑇𝑜𝑡𝑎𝑙 𝑅𝑊𝐴
(2,812 + 300) 3,112
= = = 10.30%
30,200 30,200
(C)
(650 + 350) 1,000
𝑇𝑖𝑒𝑟 𝐼𝐼 𝑐𝑎𝑝𝑖𝑡𝑎𝑙 𝑅𝑎𝑡𝑖𝑜 = = = 3.31%
30,200 30,200
 S. M. Mahruf Billah

(d)
𝑇𝑜𝑡𝑎𝑙 𝐸𝑙𝑖𝑔𝑖𝑏𝑙𝑒 𝐶𝑎𝑝𝑖𝑡𝑎𝑙
𝐶𝑅𝐴𝑅 =
𝑇𝑜𝑡𝑎𝑙 𝑅𝑊𝐴

(1,392 + 1,000 + 420 + 300 + 650 + 360) 4,122

𝐶𝑅𝐴𝑅 = = = 13.64%
30,200 30,200
(e)
To be adequately capitalized, the minimum CET1 risk-based capital ratio is 4.5 percent, the minimum
Tier I capital ratio is 6 percent, and the minimum total risk- based capital ratio required is 10 percent.
Thus, the bank in our example has more than adequate capital under all three capital requirement
formulas.