The Balance Sheet of Njenge bank as at 31 December 2017 is as follows: Assets K
ID: 2818456 • Letter: T
Question
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.
(16 marks)
(ii) Comment on your result. (4 marks)
(iii) Differentiate between Supervisory Review (Pillar 2) and Market Discipline (Pillar 3) of Basel II.
(10 marks)
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
Explanation / Answer
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%
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