Question One Njenge Bank has the following balance sheet (in millions) with the risk weights in parentheses. Assets Liabilities and Equity Cash K20 Deposits K175 OECD Interbank deposits K25 Subordinated debt (2.5 years) K3 Mortgage loans K70 Cumulative preferred stock K5 Consumer loans K70 Equity K2 Total Assets K185 Total Liabilities & Equity 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 50% 1-5 year foreign exchange contracts 5% 1-5 year interest rate swaps 0.5% 5-10 year interest rate swaps 1.5% Required What are the risk-adjusted on-balance-sheet assets of the bank as defined under the Basle Accord? What is the total capital required for both off- and on-balance-sheet assets? 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? Discuss the major shortcomings of the Basle I accord.
Question One
Njenge Bank has the following
Assets Liabilities and Equity
Cash K20 Deposits K175
OECD Interbank deposits K25 Subordinated debt (2.5 years) K3
Mortgage loans K70 Cumulative
Consumer loans K70 Equity K2
Total Assets K185 Total Liabilities & Equity 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 50%
1-5 year foreign exchange contracts 5%
1-5 year interest rate swaps 0.5%
5-10 year interest rate swaps 1.5%
Required
- What are the risk-adjusted on-balance-sheet assets of the bank as defined under the Basle Accord?
- What is the total capital required for both off- and on-balance-sheet assets?
- 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?
- Discuss the major shortcomings of the Basle I accord.
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