Question

You are given the following information with respect to the asset categories of the NBK bank in Kuwait.

• Cash with the central bank = 100,000

• Cash with the Gulf Bank = 150,000

• Cash with the Alahli Bank = 95,000

• Mortgages = 1,700,000

• Medium term corporate loans = 3,500,000

• Long term corporate loans = 1,980,000

• Standby letters of credit = 2,650,000

You need to calculate the minimum capital required for NBK based on Basle I rules.

Answer 1

As per the Norms of Basel-I, all banks needs to maintain the Capital Adequacy ratio of 8%.

Capital Adeqyacy ratio =

Capital or Minimum capital. = Tire 1 capital +Tire 2 Capital

Calculation of Risk Weighted Assets-

	A	B	A*B
	Amount	Risk weight	Risk Weighted assets
Cash with the central bank	100000	0%	0
Cash with the Gulf Bank	150000	0%	0
Cash with the Alahli Bank	95000	0%	0
Mortgages	1700000	50%	850000
Medium term corporate loans	3500000	100%	3500000
Long term corporate loans	1980000	100%	1980000
Standby letters of credit	2650000	100%	2650000
		total	8980000

hence ,

8% = Capital / 8980000

=>0.08= Capital/ 8980000

=> Capital Requirement = 718400