Answer to Question #168288 in Finance for BISHEM

Question #168288


Bank A


Notes and Coins 69

Balances with Bank of Zambia 30

Balance with Banks and other financial institutions in Zambia 0

Balance with Banks and other financial institutions abroad 24

Investments in securities 22

Loans and advances 57

Fixed Asset 78

Other Assets 17

Total Assets 297

Deposits 50

Balances due to Banks and other financial institutions in Zambia 88

Balances due to Banks and other financial institutions abroad 14

Other liabilities 58

Bills of Exchange 0

Other borrowed funds (including Subordinated Debt) 71

Shareholders’ equity 35

Total Liabilities 316

Off Balance Sheet items

Contingent liabilities

Assets pledged as collateral other than a house

Allowance for losses on acceptances and off balance sheet items in other liabilities

Calculate for Banks A: Total Primary Capital, Total Secondary Capital, Eligible Total Capital, current Minimum Total Capital Requirements, and Capital Excess or Deficiency assuming:

a).a foreign majority owned bank b). a Zambian majority owned bank.

Expert's answer

Total Primary Capital means, with respect to any Subsidiary, (a) equity plus (b) loan loss reserves minus (c) intangible assets (as set forth on Schedule RC of the call report for such Subsidiary) including mortgage servicing rights.

Total Primary Capital=35+58-0=93

Secondary capital of the bank: term subordinated borrowings and perpetual debt not included in primary capital

Total Secondary Capital=71

Regulatory capital consists of three categories, each governed by a single set of criteria that instruments are required to meet before inclusion in the relevant category.

(1)Common Equity Tier 1 (going-concern capital)

(2)Additional Tier 1 (going-concern capital)

(3)Tier 2 Capital (gone-concern capital)

Eligible Total Capital=93+71=164

The capital ratio is calculated using the definition of regulatory

capital and risk-weighted assets. The total capital ratio must be no lower than 8%. Tier 2

capital is limited to 100% of Tier 1 capital.

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