Consider the following elements of core and supplementary capital of ABC Bank Ltd. (Rs in millions):

Paid up Capital	Rs 2,400	General reserve	40
Retained earning	120	Capital adjustment funds	220
Fictitious assets	120	Godwill	70
Fictitious assets	24	Cumulative preference shares	550
Subordinated term Loans	600	General loan loss provision	240
Exchange equalization reserves	120	Hybrid Capital instruments	260
Investment adjustment reserve	110	Asset revaluation reserve	220

Suppose the followings are the balance sheet items and off balance sheet items and off balance sheet items and risk weights to corresponding items of ABC Bank Ltd.

Balance sheet items	Book Value (in millions)	Risk weight (in %)
Cash balance	480	0
Government securities	1,200	0
Claims on foreign government and central bank	450	50
Claims on domestic companies	17,500	100
Staff loans and advances	150	60
Claims secured by residential properties	25,200	60
Off-balance sheet items
L/C commitment	1500	50
Bid bond	120	50
Advance payment guarantee	550	100

Suppose the followings are the balance sheet items and off-balance sheet items, and risk weights to corresponding items of ABC Bank Ltd.

a. Estimate the core capital, the supplementary capital and the total capital fund of ABC Bank?

b. What are the on-balance sheet, the off-balance sheet and total risk-weighted assets of ABC Bank?

c. What is the core capital ratio and the capital adequacy ratio of ABC Bank?

d. Calculate the minimum required capital fund if required capital is 11 percent of the total risk-weighted assets?

e. Do you think that ABC Bank has adequate capital to support its assets?

Management of Financial Institutions

Chapter 1: Introduction 8 Questions

Chapter 2: Determinants of Interest Rates10 Questions

Chapter 3: The Central Bank and Monetary Policy8 Questions

Chapter 4: Commercial Banks15 Questions

Chapter 5: Microfinance2 Questions

Chapter 6: Saving and Credit Cooperatives5 Questions

Chapter 7: Insurance Companies6 Questions

Chapter 8: Investment Companies and Hedge Fund8 Questions

Chapter 9: Pension Funds5 Questions

Chapter 10: Investment Banks and Securities Firms9 Questions