jenge Bank has the followin parentheses. Assets Cash OECD Interbank deposit

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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b & c
Question One
Njenge Bank has the following balance sheet (in millions) with the risk weights in
parentheses.
Assets
Cash
OECD Interbank deposits (20%) K25
Liabilities and Equity
Deposits
Subordinated debt (2.5 years)
(0%) K20
K175
K3
Mortgage loans
K5
(50%) K70
Cumulative preferred stock
Consumer loans
Total Assets
(100%) K70
K185
Equity
Total Liabilities & Equity
K2
K185
In addition, the bank has K30 million in performance-related standby letters of
credit (SLCS), and K300 million in six-year interest rate swaps. Credit conversion
factors follow:
Performance-related standby LCs
1-5 year foreign exchange contracts
1-5 year interest rate swaps
5-10 year interest rate swaps
50%
5%
0.5%
1.5%
Required
a. What are the risk-adjusted on-balance-sheet assets of the bank as defined
under the Basle Accord?
b. What is the total capital required for both off- and on-balance-sheet assets?
1
c. Does the bank have enough capital to meet the Basle requirements? If not,
what minimum Tier 1 or total capital does it need to meet the requirement?
d. Discuss the major shortcomings of the Basle I accord.
Transcribed Image Text:Question One Njenge Bank has the following balance sheet (in millions) with the risk weights in parentheses. Assets Cash OECD Interbank deposits (20%) K25 Liabilities and Equity Deposits Subordinated debt (2.5 years) (0%) K20 K175 K3 Mortgage loans K5 (50%) K70 Cumulative preferred stock Consumer loans Total Assets (100%) K70 K185 Equity Total Liabilities & Equity K2 K185 In addition, the bank has K30 million in performance-related standby letters of credit (SLCS), and K300 million in six-year interest rate swaps. Credit conversion factors follow: Performance-related standby LCs 1-5 year foreign exchange contracts 1-5 year interest rate swaps 5-10 year interest rate swaps 50% 5% 0.5% 1.5% Required a. What are the risk-adjusted on-balance-sheet assets of the bank as defined under the Basle Accord? b. What is the total capital required for both off- and on-balance-sheet assets? 1 c. Does the bank have enough capital to meet the Basle requirements? If not, what minimum Tier 1 or total capital does it need to meet the requirement? d. Discuss the major shortcomings of the Basle I accord.
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