Njenge Bank has the following balance sheet (in millions) with the risk weights in parentheses. Assets Liabilities and Equity Cash (0%) K20 Deposits K175 OECD Interbank deposits (20%) K25 Subordinated debt (2.5 years) K3 Mortgage loans (50%) K70 Cumulative preferred stock K5 Consumer loans (100%) 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?
Njenge Bank has the following
Assets Liabilities and Equity
Cash (0%) K20 Deposits K175
OECD Interbank deposits (20%) K25 Subordinated debt (2.5 years) K3
Mortgage loans (50%) K70 Cumulative
Consumer loans (100%) 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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