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The Balance Sheet of Njenge bank as at 31 December 2017 is as follows: Assets K...

The Balance Sheet of Njenge bank as at 31 December 2017 is as follows:

Assets

K ’million

Liabilities

K’ million

Cash in hand

923

Issued & Paid-up Capital

200

Balances with Central Banks (1)

8,986

Reserves & Surplus (5)

54,464

Balances with Banks Abroad (2)

80,526

Deposits

110,568

Investment in Govt Securities (3)

35,428

Borrowings from Banks

66,084

Loans & Overdrafts (4)

104,362

Other Liabilities

532

Fixed Assets

942

Other Assets

681

Total assets

231,848

Total Liabilities

231,848

Memorandum Item:                                                                                        K ‘million

Inward Bills held for Collection                                                                     8,231

(1) Balances with Central Banks comprise:

Rating                    K ‘million

Banque de France                                                       AAA                           3,212

Bank of England                                                         AAA                           4,921

Central Bank of

Madagascar                                                                 B-                                534

Bank of Uganda                                                          BB+                             319

(2) Balances with Banks Abroad comprise:

Rating                         K’ million

HSBC London                                                            AAA                           30,241

Credit Lyonnais, Paris                                                A+                               20,212

ABSA, Johannesburg                                                 BBB-                           3,424

Other Banks                                                                Unrated                       26,649

(3) Investments in Government Securities comprise:

Rating             K ‘million

Government of Kenya Bills                                                    BB+                 25,231

Government of India Bonds                                                   BBB-               5,683

Other                                                                                       Unrated           4,514

(4) Twenty per cent of the loans and overdrafts are claims collateralized by cash deposits placed with Njenge bank. Other Claims are:

Rating             K ‘million

Company X                                                                             AAA               13,421

Company Y                                                                             BB-                 3,211

Company Z                                                                             A+                   11,345

Other Corporates                                                                    Unrated           10,218

Residential Loan                                                                                             15,000

Regulatory Retail Portfolio                                                                            30,294.6

(5) Reserves and Surplus include:

K ‘million

Retained Profits                                                                                              34,281

Statutory Reserves                                                                                          200

General Provisions                                                                                          4,521

Revaluations Reserves                                                                                    3,210

Undisclosed Reserves                                                                                     12,252

Additional Notes:

Risk Weights

AAA to AA-

A+ to A-

BBB+ to BBB-

BB+ to B-

Below B-

Unrated

Claims on sovereigns and central banks

0%

20%

50%

100%

150%

100%

Claims on banks

20%

50%

50%

100%

150%

50%

AAA to AA-

A+ to A-

BBB+ to BB-

Below BB-

Unrated

Claims on corporates

20%

50%

100%

150%

100%

- Claims included in the regulatory retail portfolios have a risk-weight of 75%.

- Claims secured by residential property have a risk weight of 35%.

- Other assets are risk weighted at 100%.

- Cash in hand and claims collateralized by cash in the same currency have a supervisory risk weight of 0%.

You are required to:

(i) Prepare a statement showing the computation of the capital adequacy ratio of Njenge bank as at 31 December 2017 using the Standardised Approach of Credit Risk of Basel II.

(ii) Comment on your result.                                                             

(iii) Differentiate between Supervisory Review (Pillar 2) and Market Discipline (Pillar 3) of Basel II.

Solutions

Expert Solution

Item Detailed Item Rating Risk Weight Exposure Risk Weighted Exposure
Claims on Soveriegns & Central Banks Banque De France AAA 0% 3212                    -  
Bank of England AAA 0% 4921                    -  
Madagaskar B- 100% 534           534.00
Uganda BB+ 100% 319           319.00
Claims on Banks HSBC London AAA 20% 30241        6,048.20
Credit Lyonnais, Paris A+ 50% 20212     10,106.00
ABSA, Johannesburg BBB- 50% 3424        1,712.00
Other Banks Unrated 50% 26649     13,324.50
Investment in Govt Securities Kenya Bills BB+ 100% 25231     25,231.00
India Bonds BBB- 50% 5683        2,841.50
Others Unrated 100% 4514        4,514.00
Loan & Overdrafts Company X AAA 20% 13421        2,684.20
Company Y BB- 100% 3211        3,211.00
Company Z A+ 50% 11345        5,672.50
Other Corporates Unrated 100% 10218     10,218.00
Collateralized by Cash Dep 0% 20872.4                    -  
Residential Loan 35% 15000        5,250.00
Regulatory Retail Portfolio 75% 30294.6     22,720.95
Others Assets Other Assets 100% 1623        1,623.00
Total Riske Weighted Assets 116,009.85
Regulatory Capital Tier 1
Item Class Amount
Issued & Paid-up Capital Tier 1 Capital 200
Retained Profits Tier 1 Capital 34281
Statutory Reserves Tier 1 Capital 200
Total Tier I capital 34681
Regulatory Capital Tier 2
Tier 1 Capital 34681
General Provisions Tier 2 Capital 4521
Revaluation Reserve Tier 2 Capital 3210
Undisclosed Reserves Tier 2 Capital 12252
54664
Capital Adequacy Ratio
Tier I Capital                     34,681.00
Risk Weighetd Assets                   116,009.85
CAR 30%
Tier 2 Capital                     54,664.00
Risk Weighetd Assets                   116,009.85
CAR 47%

jeff jeffy answered 2 years ago
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