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?
