CA Traning Session_Final

8/2/2019 CA Traning Session_Final

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Confidential Not for Redistribution

Capital Adequacy

Prepared By:-

Sarang Bhatt

Dharmesh Patel


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Agenda

General overview of Capital adequacy

Capital adequacy from Template perspective

Cases of Capital adequacy


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What is CAR?

Capital adequacy ratio (CAR), also called Capital to Risk (Weighted)Assets Ratio (CRAR), is a ratio of a banks capital to its risk.

Capital adequacy ratios ("CAR") are a measure of the amount of a

bank's core capital expressed as a percentage of its risk-weightedasset.

Capital adequacy ratio is defined as

Total Regulatory CapitalCAR= --------------------------------

Risk weighted assets


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Use

Capital adequacy ratio is the ratio which determines the bank's

capacity to meet the time liabilities and other risks such

as Credit risk, Market risk, Operational risk, etc.

In the most simple formulation, a bank's capital is the "cushion" forpotential losses, and protects the bank's depositors and other

lenders.

Banking Regulators in most countries define and monitor CAR toprotect depositors, thereby maintaining confidence in the banking

system.


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Tier-I capital is thought to be more stable and more aligned with

the concept of capital as the funds that owners have invested in the

banks (i.e. equity capital, perpetual preferred stock and retained

earnings)

Tier-II capital are funds that protect depositors but may bewithdrawn (Long Term subordinated debt) or is already somewhat

committed to other purposes (Undisclosed Reserves, Revaluation

Reserves, General Provisions, Hybrid Debt Capital).

Tier-III capital is the Tertiary capital held by banks to meet part of

their market risks, that includes a greater variety of debt than tier 1

and tier 2 capitals. Tier 3 capital debts may include a greater

number of subordinated issues, undisclosed reserves and general.

Types of Capital


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Limits of Capital

Tier-I Capital:- No Limits

Tier-II Capital:- Limited to 100% of Tier-1 Capital

Tier-III Capital:- Limited to 250% of a banks tier-1 capital


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Depends on risk appetite of the bank, regulatory requirements,

maintaining a good debt rating, limits of internal growth, relative

cost of debt and equity financing.

Use statistical ratios to describe the risk appetite of banks.

How much Capital?



Template



General Terms

Transitional Floor:-

EBA ( European Banking Authority):- EBA acts as a hub and spoke

network of EU and national bodies safeguarding public values such

as the stability of the financial system, the transparency of markets

and financial products and the protection of depositors and

investors.



Komercni Banka AS (KI-4145081)



Volksbank International AG



EFG Eurobank Ergasias SA


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All examples related to CA section

can be found at below link

http://snlspoint1/Content_Management/Financial_Content_

Mgmt/Euro_FIG/Audit%20Catch%20Examples_CA.aspx
http://snlspoint1/Content_Management/Financial_Content_Mgmt/Euro_FIG/Audit%20Catch%20Examples_CA.aspxhttp://snlspoint1/Content_Management/Financial_Content_Mgmt/Euro_FIG/Audit%20Catch%20Examples_CA.aspxhttp://snlspoint1/Content_Management/Financial_Content_Mgmt/Euro_FIG/Audit%20Catch%20Examples_CA.aspxhttp://snlspoint1/Content_Management/Financial_Content_Mgmt/Euro_FIG/Audit%20Catch%20Examples_CA.aspx

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CA Traning Session_Final