The banking system of the Russian Federation operates in unstable conditions. Therefore, control over the sustainability of commercial structures is being strengthened. For these purposes, the Central Bank has developed capital adequacy standards.
The essence
The bank's own capital is the most important source of resources, which is initially formed from the funds of the owners and is irrevocable. The money is used to maintain the stability of the bank's financial condition.
Own capital performs a number of important functions:
- protects the interests of depositors, acting as a source of covering unforeseen expenses;
- is a source of financing for the bank’s operational activities;
- serves to support the growth of assets and liabilities.
Therefore, assessing equity capital adequacy (ECA) is an important stage in the bank’s work. The analysis process examines the availability of sufficient funds in the bank, identifies trends in changes in the capital structure, calculates “net” capital and determines the reserve for growth.
Techniques
The bank's capital adequacy standards are determined by the scale of its activities. But there are several methods for calculating them. For example, according to the methodology developed by the Bank of Russia, equity includes the amount of a subordinated loan, which can increase or decrease capital, but these items are not taken into account in the balance sheet.
Unreasonably overestimating the amount of capital leads to false information about the state of the bank and misleads depositors and shareholders. The credit institution itself is forced to expand active operations, exposing itself to even greater risks. If calculations showed an artificially low value of the capital cost, then in the future there will be a decrease in income
It is necessary not only to calculate capital adequacy standards, but also to study the structure of equity capital and compare these data over time. To analyze the financial condition of the bank, forms No. 1 and 2 are used. The first contains information about economic standards and the reasons for their violations. The second provides a breakdown of individual accounts.
"Basel"
The Basel Committee regulates the activities of banks at the international level. Back in 1998, the first capital adequacy standards were drawn up, which were then used by regulators around the world, including on a voluntary basis. The methodology is developed on three components: capital requirements, supervision and market discipline. Basel I is the link between the supervisory system and credit institutions.
Global crises have contributed to the tightening of requirements for the level of stability of credit institutions, including the adequacy of the bank's own capital. In December 2010, Basel III was adopted with new requirements and standards. Particular attention was paid to the quality of management. New rules came into force in 2014.
The changes affected the level of transparency of capital sources. Preferred shares and the associated share premium are transferred to additional assets. In this regard, the insurance company must be supported by profit.
The requirements for subordinated loans have also become more stringent. Loans raised before 03/01/2013 are amortized at a 10% rate. New loans become perpetual. If the bank's condition worsens, they are converted into ordinary shares. In Russia, new capital adequacy standards were introduced gradually. The last stage took place in 2015.
Classification
According to Basel, all bank assets are grouped by risk level.
| Group | Assets | Coefficient, % |
| 1 | Cash register | 0,5 |
| Funds in correspondent accounts with the Central Bank of Russia | 0,0 | |
| Government short-term bonds | 0,0 | |
| 2 | Central Bank of the Government of Russia | 10 |
| Loans with state guarantee | 15 | |
| Capital investments, operating system | 25 | |
| Correspondent accounts in banks of other countries | 20 | |
| 3 | Loans to other banks | 25 |
| Short-term loans less government guaranteed | 30 | |
| Factoring operations | 50 | |
| 4 | Long-term loans less government guaranteed | 50 |
| Leasing operations | 60 | |
| 5 | Acquired Central Bank OJSC | 70 |
| Eligibility | 80 |
Despite the classification, the degree of the same risk may vary depending on the availability of guarantees, insurance and other indicators. For example, long-term loans have a risk level of 80%, but if there is a guarantee from State Insurance, then this figure is reduced to 50%.
Own funds
According to the considered methodology, the bank’s capital is divided into two categories – the first and second levels:
1. Equity capital (SC) = fixed capital (OC) + additional capital (Additional capital).
2. Fixed capital = basic capital (BC) + additional capital (AC).
The cost of ordinary shares, the amount of share premium on them and the amount of retained earnings are included in the book book. Preferred shares, the amount of share premium on them and undisputed subordinated loans constitute the DC. In turn, DoC includes subordinated loans issued for 5 years and the increase in value after revaluation of fixed assets.
Capital adequacy ratio (N1), maximum risks on loans - the calculation of all these indicators includes the value of the capital ratio. 
Liquidity
The credit institution must fulfill all its obligations in full and on time. For these purposes, separate capital adequacy standards are calculated. The value of the coefficients is compared with the normative ones. If significant deviations are detected, the bank faces fines, a ban on operations, and even revocation of its license.
Odds
Instant liquidity (H2) shows the risks of loss of solvency in one business day. The indicator is calculated by dividing the assets that a financial institution can sell in a day and the bank’s obligations, which clients can demand to be fulfilled at any time (customer current accounts, deposits, overnight loans). The amount of liabilities is preliminarily adjusted to the amount of the total minimum balance of funds on demand accounts. The minimum value of the indicator is 15%.
Current liquidity (H3) shows the risk of a decrease in solvency within a month. Assets to be sold in the next 30 days are compared with the amount of liabilities that can be called for in the same period, and then adjusted to the minimum balance of funds on demand accounts and those for which the settlement period occurs in the next 30 days. The calculated value of the indicator must exceed 50%.
Violation of the levels of H2 and H3 indicates an insufficient liquidity reserve of the bank.
The long-term liquidity indicator (N4) reflects the maximum level of risk of reducing the bank's insolvency after placing funds in long-term assets (for example, mortgages, car loans). In this case, the amount of assets with a sales period of more than a year, minus the formed reserves, is compared with the volume of capital and long-term liabilities. In turn, liabilities are adjusted to the minimum balance of funds on accounts with a maturity period of more than one year. This figure should not exceed 120%. If the bank invests funds received from short-term liabilities in long-term assets, then the value of H4 will exceed the norm. This situation may arise if a lending institution issues a 25-year mortgage using funds borrowed for 30 days.
N1 – main capital adequacy standard
The indicator is calculated by dividing the insurance capital and the total volume of assets, taking into account the risk group. Coefficients N1.1, N1.2 and N1.0 are mandatory for all banks to comply with. According to BR Instruction No. 139, these indicators regulate the risk of insolvency of a credit institution and determine the required minimum amount of insurance necessary to cover all types of risks.
- Basic capital adequacy ratio (N1.1) = BC / amount of deposits x 100% (minimum value - 5%).
- Adequacy ratio OK (N1.2) = OK: Amount of deposits x 100% (minimum value - 6%).
- SC sufficiency (N1.0) = SC: amount of deposits x 100% (minimum value - 10%).
N1 determines the bank’s ability to independently level out financial losses. A decrease in the indicator most often occurs due to deterioration in the quality of the loan portfolio and strong growth of assets. If the capital adequacy ratio N1 reaches the limit value, the regulator may require the bank to increase the size of the capital account or reduce the volume of transactions with risky assets.
Limits
The ability of a credit institution to make timely and full payments on obligations depends, in particular, on the financial situation of the borrowers. Therefore, before issuing a loan, the solvency of organizations, including the possibility of bankruptcy of several borrowers, should be taken into account. If a client cannot repay the debt on time, it is very important that this does not in any way affect the work of the bank itself. Therefore, you should calculate the maximum loan amount. For this purpose, separate capital adequacy standards have been developed.
Maximum loan per client (H6)
This indicator is set as a percentage of the SC. The calculation is carried out as follows: the total amount of loans issued to one is correlated with the volume of guarantees and guarantees. Formula:
N6 = KR: Bank capital x 100%, where KR is the total amount of the bank’s claims on loans, bills, deposits in precious metals, taking into account uncollected guarantees, off-balance sheet claims against this borrower in cash.
N6 is calculated based on the total amount of claims in rubles, currency or precious metals for an organization acting as a borrower in interbank loans or as a guarantor in any transaction.
Size of major risks (H7)
This standard is determined as the ratio of the total amount of large loans and the capital account. The first category includes loans for which the amount of claims, taking into account the risk, exceeds 5%. The decision to issue such loans is made based on the results of a detailed analysis of the transaction and is documented in a separate document. The value of this indicator cannot exceed the sum of the SC by more than 8 times.
Maximum risk per borrower (N8) and shareholder (N9)
The equity capital adequacy ratio N8 is established as a percentage of the amount of the deposit, loan, guarantees received, account balances of one client and the bank's insurance company. For N9 in the numerator, all the same indicators are calculated, but in relation to one shareholder of the bank.
Risks related to insiders (N10)
This indicator is calculated by dividing the total amount of claims (loans, deposits, account balances) in relation to the person associated with the bank and the credit institution's insurance company. In international practice, insiders include the following individuals: shareholders owning more than 25% of the Central Bank, directors (president, chairmen, their deputies), members of the board, committee, heads of subsidiaries and other persons who can influence the decision to issue a loan.
Risk on accepted securities (N13)
To calculate this indicator, bills issued by the bank, as well as 50% of off-balance sheet obligations under endorsement and avals, are correlated with the insurance system.
Other coefficients
The maximum size of the insurance company that can be used to purchase shares of other enterprises (N12) is calculated by the ratio of the amounts invested in the securities of other institutions and in your own. The regulator allows no more than 25% of the capital stock to be transferred to other enterprises.
The ratio of the amount of liquid assets with a maturity of 30 days and assumed liabilities (N15) must be more than 100%.
The maximum amount of loans from clients participating in settlements, minus those provided by RNKO for completed transactions (N16), should not exceed the total amount of loans provided.
In the total volume of the loan portfolio, the share of mortgage loans should be more than 10% (N17). That is, only those banks that specialize in this market segment can refinance a loan to purchase a home.
The Basel methodology provides for a number of similar indicators that are calculated in relation to the banking group. But the maximum coefficients for such consortia exceed those listed above. However, capital adequacy standards are the same as for an individual financial institution.
Reserved own funds - gross - reserve fund, insurance funds and other special purpose funds.
Gross own funds used in circulation:
a) capital and funds of the bank;
b) bank income, including operating and miscellaneous income, collection fees subject to transfer to the collection department, received fines, penalties, penalties;
c) bank profit for the reporting year and before the reporting year.
Part diverted funds includes:
Investment assets:
a) capitalized assets accounted for at residual value - tangible and intangible investments;
b) financial investments - direct financial investments, i.e. participation of a commercial bank in the activities of other legal entities, portfolio financial investments, which include investments in securities and deposits of a commercial bank in other financial institutions (bank deposits).Banking expenses.
Own funds (capital) of a credit institution used in the calculation of mandatory economic standards, in accordance with Instruction No. 1 of the Central Bank of Russia, are defined as the sum of authorized and additional capital, bank funds and retained earnings, adjusted by the amount of the reserve for possible losses on loans of risk group I, balance revaluation of funds in foreign currency, securities, precious metals, as well as received (paid) advance of accumulated coupon income, reduced by the amount of own shares purchased by the bank, uncreated mandatory reserve for losses on loans, securities, excess costs for the acquisition of tangible assets, revaluation fixed assets. The result obtained is reduced by the amount of overdue interest, excess receivables overdue for more than 5 days, as well as settlements with bank organizations for allocated funds. Bank capital (K) can be calculated as follows:
K=sch. 102+103+104-105+106+107-60319+(61305+61306+61307+ +61308-61405-61406-61407-61408)+(701-702+703-704-705)-code 8948-code 8949 - code 8965 - code 8966 - code 8967+ (code 8968 - code 8969) - code 8970 - code 8971 - code 8985.
If a bank has negative (or zero) capital, a territorial branch of the Bank of Russia must submit an analytical note to the Department of Prudential Banking Supervision, which reports the measures taken to overcome the bank’s critical situation and the prospects for its future activities.
The bank may not have its own net funds, the investment of which generates income. This happens if the amount of diverted own funds exceeds the amount of gross own funds. In such a situation, it is necessary to identify and eliminate the reasons for the lack of funds, since it is obvious that borrowed funds are used to cover the bank’s own costs, and this is a symptom of the bank’s ineffective operation.
To ensure the liquidity and solvency of the bank, the ability to manage its own funds is necessary. With the expansion of active operations and an increase in the volume of deposits, the task of increasing the bank's equity capital arises. An effective tool for managing equity capital is the dividend policy on shares issued by the bank. For example, an increase in dividends entails an increase in the price per share, and therefore the possibility of selling additional shares and, as a result, an increase in the bank's equity capital. Another task of the bank is the ability to effectively use its own resources, while increasing the profitability and liquidity of banking operations.
1.3. Assessing the capital adequacy of a commercial bank
Assessing the adequacy of a bank's equity capital assumes:
determination of capital adequacy criteria, selection of indicators,
characterizing capital adequacy, and assessing the actual level
relevant indicators 3. There are many ways to calculate
capital adequacy indicators: from simple capital ratio
bank and the amount of all assets or liabilities, calculating the ratio
“free” capital to the ratio of bank capital to assets,
weighted taking into account the risk of losing part of their value. All these
indicators, based on the methodology for their calculation, can be combined into two
main groups: ratio of capital to total deposits (contributions);
ratio of capital to assets (various groupings and valuations) 4. But on
practice, in order to correctly assess capital adequacy, it is not
The earliest method is the Basel method. She
developed in 1988 and various additions and changes are still being made to it. The basis of the concept of assessing capital adequacy was the following principles: dividing capital into two levels - capital of the first (main) level and capital of the second (additional) level; taking into account the quality of assets by weighing assets and off-balance sheet transactions by risk, and therefore assessing capital taking into account the risk accepted by the bank; emphasis on the quality of the loan portfolio and prudent credit policy; establishing restrictions on the ratio between first and second level capital; determination of the regulatory requirement for capital adequacy (adequacy standard or Cook's ratio) at the level of 8% for the total amount of equity and 4% for first-tier capital.
Calculation of the capital adequacy ratio is proposed
produce according to the following formula (Cook's coefficient) 5:
where K is the bank’s own funds (capital), thousand rubles; TFR -
total amount of credit risk, thousand rubles; COP - total
amount of operational risk, thousand rubles; CPP - cumulative value
market risk, thousand rubles
The Basel Committee's proposed approach to defining
capital adequacy has the following main advantages:
characterizes “real” capital; promotes strategy review
banks and refusal to excessively increase loans with minimal
capital, giving preference not to the volume of the loan portfolio, but to its
quality; helps to increase the bank's risk-free activities;
encourages the government to reduce regulation of banks,
because it exhibits more elements of self-regulation; gives
the ability to take into account risks associated with off-balance sheet obligations; allows
compare banks from different countries.
At the same time, this method of calculating capital adequacy is inherent
a number of significant shortcomings: lack of sufficient clarity in
determining the constituent elements of capital by level, which allows
relax capital requirements from central banks;
insufficiently detailed differentiation of assets by risk level and
underestimation of reserve requirements for certain types of operations.
Despite some shortcomings of the Basel methodology, it is precisely this
Almost all central banks rely on when compiling
own methodology for assessing capital and its adequacy.
United States in 19784 Estimates of bank capital adequacy by
The CAMEL system also builds on the established Basel
agreement on standards for assessing bank equity capital. For calculation
capital adequacy ratios, the amount of assets is weighted with
taking into account the possible risk, which is determined based on recommendations
Basel Agreement.
The main indicators of sufficiency are as follows:
Additional indicators include, first of all,
leverage indicator characterizing the share of fixed capital in
assets. The leverage ratio is calculated as the ratio
fixed capital to the average amount of assets on the bank's balance sheet.
The leverage ratio is set at 3% for all banks 6 .
To additional indicators that specify and complement
the state of the main indicators also include:
Tangible fixed capital adequacy ratio
(ratio of fixed capital minus intangible assets to
average amount of assets);
Risk assets ratio;
Volume and dynamics of critical and low-quality assets.
The final conclusion about capital adequacy is made on the basis
first, comparing the actual levels of the coefficients of the main
indicators with criteria levels accepted in the country and, secondly, assessment of the results of the analysis of asset quality. The assessment of asset quality is carried out on the basis of determining the degree of risk of individual groups of assets and calculating a number of basic and additional indicators. In the CAMEL rating system, bank capital is considered as the most important element and is assessed based on the volume of risky assets, the volume of critical and low-quality assets, the expected growth of the bank, the quality of management of the assets and the growth of the bank.
Methodology of the Central Bank of the Russian Federation, adopted in Russian banking practice for
control over the maintenance by commercial banks of their own capital sufficient to compensate for losses in critical situations, the method for calculating the adequacy ratio largely complies with international standards 7 .
To analyze the sufficiency of the Central Bank of the Russian Federation’s own funds
recommends analyzing: capital adequacy ratio, capital surplus (shortage), capital composition of a credit institution, structure of sources of fixed capital, structure of sources of additional capital and assets weighted taking into account the accepted risk.
Indicators for assessing capital adequacy in accordance with
By Directive of the Bank of Russia dated January 16, 2004 No. 1379-U “On the assessment of financial
bank stability to recognize it as sufficient to participate in the system
deposit insurance" consist of an indicator of the sufficiency of own
funds (capital) and overall capital adequacy indicator.
Therefore, despite the variety of assessment methods
capital adequacy, all of which are based on Basel standards
committee and today almost all banks use
as the main indicator for assessing capital adequacy
ratio of the bank's own funds to assets.
Consequently, although a fundamental agreement has been reached between developed countries in determining the amount of bank capital, many issues for both foreign and domestic specialists are not controversial. Thus, the presence of “sufficient” capital is not a strict indicator of a bank’s reliability. The value of this indicator has real meaning only in a systematic analysis of the bank’s activities, i.e. only in conjunction with other analytical indicators.
Several methods have been tried to assess capital adequacy
approaches. Accordingly, there are various ways to calculate
asset-based adequacy ratio: leverage ratio
– shows the share of the bank’s capital in its assets; coefficient
“free” bank capital - the ratio of bank capital and
the amount of all assets and off-balance sheet liabilities; capital matching
with assets weighted by risk ratios.
The concept of regulatory capital adequacy is associated with the performance by the bank’s capital of its main functions, primarily protective, as it reflects the sufficiency of the bank’s own funds to cover losses and losses in the event of the realization of banking risks. Regulatory capital adequacy indicators express its ability to absorb losses and ensure the stability of the bank.
When calculating the adequacy of regulatory capital, the latter, calculated according to the established methodology, is correlated with the bank’s assets and its off-balance sheet liabilities, weighted by risk.
The level of risk – credit, market and operational – plays an important role in asset valuation.
Assessing assets based on the level of credit risk involves determining possible losses from active transactions with banks and legal entities of different countries, depending on the external assessment of the rating of these counterparties, the type of assets, and the method of collateral. All assets, taking into account various criteria, are divided into seven groups, each of which corresponds to a certain amount of risk.
Determining the credit risk for a bank's off-balance sheet obligations involves their assessment depending on the deadline for fulfilling these obligations and the bank's ability to terminate them unilaterally. All off-balance sheet liabilities are divided into four groups according to the level of credit risk - high, medium, low and no risk. They correspond to credit risk equivalent coefficients: 1.0; 0.5; 0.2 and 0.
The amount of operational risk is calculated in accordance with the basic indicative approach or a standardized approach.
When using the basic indicative approach, the amount of operational risk (OR) is calculated using the formula:
OR = VD x a / n,
Where VD is the total value of positive annual gross income for the previous three years; a – fixed value equal to 0.15; n is the number of years in the previous three years in which annual gross income was positive.
When using a standardized approach, which is possible after obtaining the consent of the National Bank, all bank activities are classified into eight areas, defined as business lines. Business lines include: corporate finance, trading and sales, retail banking, commercial banking, payments and settlements, agency services, asset management, retail brokerage services.
The value of market risk (MR) is calculated using the formula:
RR = PR + FR + VR + TR,
Where PR is interest rate risk; FR – stock risk; VR – currency risk; TR – commodity risk.
For each risk, factors are identified whose changes affect its size. For example, for interest rate risk, the influencing factors are interest rates, the cost of debt obligations; stock risk – the cost of stock values, stock indices; currency risk – foreign currency exchange rates; commodity risk – the cost of goods. The size of each type of market risk is calculated only in relation to those positions of the bank that may bring it a loss if the established factors change.
Regulatory capital adequacy (RC) is determined by the formula
DK = NK(OK) / (KR + A x (OR + ZZ)) x 100
Where NK is the amount of regulatory capital; OK – size of fixed capital; KR – the total amount of assets and off-balance sheet liabilities, taking into account the amount of created reserves, weighted by the level of credit risk; РР – the total amount of assets and off-balance sheet liabilities minus created reserves, assessed according to the level of market risk; OR – the amount of operational risk; A is a number that is the reciprocal of the value of the sufficiency standard.
For banks that have operated for two years after registration, when calculating the adequacy of equity capital, A = 8.3 is taken, and fixed capital A = 16.7. For banks that have operated for more than two years after registration, this number is 12.5 and 25, respectively.
The standard value of the regulatory capital adequacy indicator for a bank operating less than two years after registration is 12%, more than two years - 8%; adequacy of fixed regulatory capital – 6 and 4%, respectively.
The first indicator of bank stability, not only in order of priority, but also in importance, is capital adequacy. Sufficient capital, as is known, forms a kind of “cushion” that allows the bank to remain solvent and continue operations, despite any events. An undercapitalized bank, on the contrary, is exposed to a disproportionately higher risk of bankruptcy in the event of a deterioration in macroeconomic or other business conditions. At the same time, an overcapitalized bank is usually low-maneuverable and non-competitive in the capital and credit markets. Banks have traditionally sought to maintain capital at lower levels to improve efficiency through economies of scale and to increase returns for investors. Supervisory authorities, on the contrary, prefer a higher level to increase the stability of the banking system.
What is meant by capital adequacy? The most common definition is capital adequacy as a relative indicator that characterizes the bank’s activities in terms of its stability in the event of various risks arising from the bank’s active operations. IN AND. Tarasov believes that capital adequacy is “the ratio of a bank’s equity capital to its assets, weighted by the degree of risk.” By definition O.Yu. Sviridov, the term “capital adequacy” reflects the overall assessment of the bank’s reliability, which determines the relationship between the amount of capital and the bank’s exposure to risk.
In foreign practice, a different interpretation of capital adequacy (paid-in capital) is used, which represents the capital necessary to adequately cover the risks taken by a particular bank.
From these definitions it is easy to identify the factors that determine how capitalized a particular bank is. Firstly, capital adequacy depends on the volume of deposit operations carried out by the bank, or on the volume of the bank’s operations to attract temporarily free financial resources of legal entities and individuals; secondly, on the size of the risks that the bank assumes when conducting active operations. The optimal banking policy in the field of capitalization consists precisely in maintaining an acceptable level of risk unchanged by increasing equity capital.
The bank's own capital is one of the key regulatory factors, with the help of which not only the current activities of individual commercial banks are regulated, but also the entire banking system as a whole. The increased attention paid to this indicator indicates its importance for credit institutions.
Assessing the adequacy of a bank's equity capital involves: determining capital adequacy criteria, selecting indicators characterizing capital adequacy, and assessing the actual level of relevant indicators. There are many ways to calculate capital adequacy indicators: from a simple ratio of the bank's capital and the sum of all assets or liabilities, calculating the "free" capital ratio to the ratio of the bank's capital to assets, weighted taking into account the risk of losing part of their value. All these indicators, based on the calculation methodology, can be combined into two main groups: the ratio of capital to total deposits (contributions); ratio of capital to assets (various groupings and valuations). But in practice, in order to correctly assess capital adequacy, it is not enough to just calculate indicators.
The question of the level of capital adequacy, which would ensure confidence in the bank on the part of depositors, investors, creditors and supervisory authorities, is one of the most important in the theory of banking. In the economic literature, this issue is called the capital adequacy problem. The term “capital adequacy” reflects the level of reliability and riskiness of the bank and provides an idea of bank capital as a source of covering losses.
The objective need to increase the bank's capital is due to inflationary processes, the expansion of the scale of banking activities and an increase in the level of risk associated with the volatility of financial markets. Therefore, investors are placing increasingly stringent requirements on the amount of capital. Given the important role that banks play in any society, regulators in many countries have set minimum capital adequacy standards for decades. Bank capital has been and continues to be one of the main indicators that are strictly regulated in each country, and since 1988 - at the international level. To register a bank, it is necessary to ensure the minimum required amount of authorized capital and maintain established capital adequacy standards throughout the entire period of activity. In banking practice, there are various methods for determining capital adequacy.
The methodology for calculating capital adequacy indicators of commercial banks of the Republic of Belarus, adopted in domestic banking practice, largely corresponds to international standards.
In accordance with the legislation of the Republic of Belarus, the National Bank has developed Instruction No. 137 “On safe operation standards for banks and non-bank financial institutions,” which regulates capital adequacy and liquidity standards of the bank.
The capital adequacy ratio is the established maximum ratio of the size (part) of the bank's own funds (capital of the bank) and the total amount of assets and off-balance sheet liabilities, assessed by the level of risk minus the amount of created reserves. The need to determine capital adequacy is due to the fact that modern commercial banks have in their liabilities not only their own capital, but also a significant share of borrowed funds. This means that, while managing assets, the bank must constantly monitor and ensure the necessary level of its liquidity so that in the event of a critical situation, its own funds (capital) ensure the timely repayment of debt obligations.
In accordance with Chapter 9 of Instruction No. 137 “On safe operation standards for banks and non-bank financial institutions,” capital adequacy standards are the established maximum percentage ratio of the size (part) of the regulatory capital of a bank, non-bank financial institution and the risks taken on itself as a bank, non-banking financial institution.
In accordance with the methodology of the National Bank of the Republic of Belarus, the adequacy of the regulatory (fixed) capital of a commercial bank is defined as the ratio of the bank's regulatory (fixed) capital to risk-weighted assets (7 risk groups). The amount of assets exposed to credit risk is taken into account in calculating the regulatory capital adequacy, with the exception of assets of the trading portfolio and goods taken into account in calculating the value of market risks (if it is calculated), as well as assets deducted from the calculation of the regulatory capital of a bank, non-bank credit and financial organizations.
Regulatory (fixed) capital adequacy is calculated using the following formula:
where DC is capital adequacy; NK - the amount of regulatory capital; OK -- size of fixed capital; CR - the amount of credit risk, defined as the sum of assets exposed to credit risk, weighted by the level of credit risk; РР - the amount of market risk; OR - the amount of operational risk; A is a number that is the reciprocal of the value of the adequacy standard (for banks that have operated for 2 years after registration, it is equal to 8.3 for calculating the adequacy of equity capital, it is equal to 16.7 when calculating the adequacy of fixed capital; for banks that have operated for more than 2 years, it is equal to 12 .5 and 25 respectively).
In order to supervise the adequacy of regulatory capital, the following standards are established:
- - regulatory capital adequacy ratio of 8%;
- - fixed capital adequacy ratio of 4%.
The regulatory capital of a bank, non-banking financial institution consists of fixed capital (tier I capital) and additional capital (tier II and III capital) minus immobilization, under-created special reserves to cover possible losses, property transferred by the bank to trust management, loans issued , as well as the provided subordinated loan (loan). Funds transferred into trust management, issued loans and subordinated credits (loans) deducted from the calculation are reduced by the amount of the estimated amount of special reserves calculated for them to cover possible losses, the amount of other reserves created for them for possible losses in accordance with the law and local regulations acts of a bank, non-banking financial institution. Subordinated credit (loan) provided to banks and non-bank financial institutions - residents, is excluded from the calculation in the part that the latter take into account as sources of additional capital.
To analyze the adequacy of regulatory capital, the National Bank of the Republic of Belarus recommends analyzing:
- - capital adequacy indicator;
- - surplus (lack) of capital;
- - composition of the capital of the credit organization;
- - structure of sources of fixed capital;
- - structure of sources of additional capital;
- - assets weighted taking into account the accepted risk.
Thus, despite the variety of methods for assessing capital adequacy, they are all based on the standards of the Basel Committee and today almost all banks use the ratio of the bank’s own funds to assets as the main indicator for assessing capital adequacy.
Consequently, although a fundamental agreement has been reached between developed countries in determining the amount of bank capital, many issues for foreign and domestic specialists are not controversial. Having “sufficient” capital is not a strict indicator of a bank’s reliability. The value of this indicator has real significance only in a systematic analysis of the bank’s activities, that is, only in conjunction with other analytical indicators.
Federal Law No. 28-FZ dated 28.02.2009 “On Amendments to the Federal Law “On Banks and Banking Activities” established new requirements for the size of the authorized capital of newly created credit institutions and equity (capital) of existing credit institutions : - the minimum amount of the authorized capital of a newly registered bank is established in the amount of 180 million rubles;
The minimum amount of the bank's own funds (capital) is set at 180 million rubles;
The minimum amount of equity (capital) of a bank applying for a General License is set at 900 million rubles;
A newly registered bank or a bank, from the date of state registration of which less than two years have passed, in order to obtain the right to attract funds from individuals as deposits, must have an authorized capital (own funds (capital) of at least 3 billion 600 million rubles.
Equity net (SK net) is considered as own funds, which can be used as a resource for lending or conducting other active operations that generate income for the bank. Concept equity - gross (SK gross) wider, because includes net funds and immobilized (distracted) own funds. Net equity capital is calculated using the formula:
Immobilized funds include funds diverted from turnover that brings real income to the bank.
Most of the methods used in practice for analyzing the financial condition of a bank are based on CAMEL, a method used in international practice.
Let's consider the essence of this method used for rating US banks. The name of the method comes from the initial letters of the names of five groups of coefficients:
"C" (capital adequacy)- capital adequacy indicators that determine the size of the bank’s equity capital (which serves as a guarantee of the bank’s reliability for depositors) and the correspondence of the actual amount of capital to the required one;
"A" (asset quality)- asset quality indicators that determine the degree of “recovery” of assets and off-balance sheet items, as well as the financial impact of problem loans;
"M" (management)- indicators for assessing the quality of management (management) of the bank’s work, policies pursued, compliance with laws and instructions;
"E" (earnings)- indicators of profitability (profitability) from the standpoint of its sufficiency for the future growth of the bank;
"L" (liquidity)- liquidity indicators that assess the bank’s ability to timely fulfill requirements for payment of obligations and its readiness to satisfy the need for a loan without losses.
Coefficients for assessing capital adequacy ("C" - capital adequacy)
The capital adequacy ratio K1 determines the level of equity in the structure of all liabilities. Its recommended values are in the range of 0.15-0.2. At the same time, it is considered normal if the funds raised amount to 80-85% of the bank’s balance sheet currency.
Own funds
K 1 = ──────────────────────.
Total liabilities
The capital adequacy ratio K2 indicates the maximum amount of losses of one kind or another at which the remaining capital is sufficient to ensure the reliability of the funds of depositors and other creditors of the bank. It is assumed that the bank's capital should cover its liabilities by 25-30%.
Own funds
K2 = ──────────────────────.
Involved funds
Capital adequacy ratio K3 is the ratio of the bank's own funds to those assets that contain the possibility of losses (income-generating assets). Recommended values of K3 coefficients are in the range of 0.25-0.3, i.e. It is considered normal if the bank’s risks in placing resources are covered by 25-30% with its own funds. The recommended values of coefficients K2 and K3 are the same, since it is assumed that the risk of attracting and allocating resources is adequate.
Own funds
K3 = ────────────────────────.
Income generating assets
The capital adequacy ratio K4 characterizes the bank's dependence on its founders. The amount of funds invested in the development of the bank must be at least twice the contributions of the founders.
The minimum value is 0.15.
The maximum value is 0.5.
Authorized capital
K4 = ─────────────────────.
Own funds
The capital adequacy ratio K5 is the ratio of the bank's own funds to the borrowed funds of citizens. Citizens' funds raised by the bank must be fully backed by its capital.
The minimum value is 1.
Own funds
K 5 = ────────────────────.
Citizens' funds
At the end of the analysis of equity capital, a number of coefficients characterizing its quality can be calculated (Table 3).
Table 3. Indicators characterizing the bank’s equity capital
|
Indicator name and code |
Formula for calculating the indicator |
Interpretation of the indicator |
|
Equity utilization ratio |
SK/Back, Back - loan debt, SK - bank's equity capital |
Shows how much equity capital is used in operating operations |
|
Capital protection ratio |
Kz/SK, where Kz is protected capital Kz = Fixed assets + Active balances of capital investments |
Shows how much the bank's capital is protected from inflation through investments in real estate |
|
Excess (shortage) of sources of own funds |
SK/Ia, where Ia is immobilized. assets |
The optimal value is more than 1, the growth of the indicator in dynamics indicates the bank’s purposeful activities towards improving the financial position |
|
Profit share ratio in capital |
(SK-Uf)/SK, where Uf is the authorized capital |
Shows what part of bank capital is formed from profits |
|
Ratio of attracted deposits from the population |
SK/Vn, where Vn is the population’s deposits |
Characterizes the level of protection of bank deposits by the bank’s own capital |
|
Return on equity (ROE) |
Pr/SK, where Pr is the bank’s profit (accepted for calculation from form 102 “Profit and Loss Statement”) |
Shows the efficiency of using equity capital |
Appendix to the Regulation of the Bank of Russia dated February 10, 2003 No. 215-P “On the methodology for determining the own funds (capital) of credit institutions”
CALCULATION OF OWN FUNDS (CAPITAL)
as of “__”___________ 20__
Name of credit institution
Location
Form No. 134 Menstrual thousand roubles.
|
Line no. |
Indicator name |
Clause (subclause) of the Regulations defining the calculation procedure (or another calculation procedure) |
Balance at the reporting date (“__” ____ 20__) |
|
OWN FUNDS (CAPITAL) TOTAL: including: |
line 400 minus the sum of lines 501, 502, 503 | ||
|
FIXED CAPITAL | |||
|
Authorized capital of a credit organization in the form of a joint-stock company | |||
|
Authorized capital of a credit institution in the form of a limited (or additional) liability company | |||
|
Share premium of a credit organization in the form of a joint stock company | |||
|
Share premium of a credit organization in the form of a limited (or additional) liability company | |||
|
Part of the credit institution's funds | |||
|
Part of the current year's profit | |||
|
Part of the credit institution’s funds formed from the current year’s profit | |||
|
The difference between the authorized capital of a credit organization in the form of a joint stock company and its own funds (capital) | |||
|
The difference between the authorized capital of a credit organization in the form of a limited (or additional) liability company and its own funds (capital) | |||
|
Additional own funds - part of account 10704 | |||
|
Profit of previous years (or part thereof) | |||
|
SOURCES OF FIXED CAPITAL TOTAL: |
sum of lines from 101 to 111 | ||
|
Intangible assets | |||
|
Own repurchased shares | |||
|
Shares of participants transferred to the credit organization | |||
|
Uncovered losses from previous years | |||
|
Current year loss | |||
|
Investments of a credit institution in shares (participatory interests) | |||
|
The estimated reserve that should have been created for securities alienated with the obligation to reacquire them | |||
|
Authorized capital (part thereof) and other sources of equity (share premium, profit, income, funds) (part thereof), for the formation of which investors used inappropriate assets | |||
|
FIXED CAPITAL TOTAL: |
line 112 minus the sum of lines 113 to 120 | ||
|
ADDITIONAL CAPITAL | |||
|
Increase in property value due to revaluation | |||
|
Part of reserves for possible loan losses (general reserves) | |||
|
Funds formed in the current year (or part thereof) | |||
|
Current year profit (or part thereof) | |||
|
Subordinated loan (at residual value) | |||
|
Part of the authorized capital formed by capitalizing the increase in property value during revaluation | |||
|
Part of preferred (including cumulative) shares | |||
|
The difference between the authorized capital of a credit organization in the form of a joint-stock company and its own funds in the event of a decrease in the authorized capital due to a decrease in the par value of a portion of preferred (including cumulative) shares | |||
|
Profit of the previous year | |||
|
Sources (part of the sources) of additional capital (authorized capital, profit, income, funds, subordinated loan), for the formation of which investors (shareholders, participants and other persons) used inappropriate assets | |||
|
SOURCES OF ADDITIONAL CAPITAL TOTAL: |
sum of lines 201 to 209 minus line 210 | ||
|
ADDITIONAL CAPITAL TOTAL (subject to the restrictions imposed by clause 3.11) | |||
|
INDICATORS THAT DECREASE THE AMOUNT OF FIXED AND ADDITIONAL CAPITAL | |||
|
The amount of under-created reserve for possible losses on loans of risk groups 2-4 | |||
|
The amount of under-created reserve for possible losses | |||
|
The amount of under-created reserves for transactions with residents of offshore zones | |||
|
Overdue receivables over 30 days | |||
|
Subordinated loans provided to resident credit institutions | |||
|
SUBTOTAL: |
the sum of lines 121 and 212 minus the sum of lines 301 to 305 | ||
|
The amount of excess of the total amount of loans, bank guarantees and guarantees provided by a credit institution to its participants (shareholders) and insiders over its maximum amount provided for by federal laws and regulations of the Bank of Russia | |||
|
Exceeding the sum of sources of fixed and additional capital, investments in the construction (construction), creation (manufacturing) and acquisition of fixed assets, the cost of fixed assets, as well as inventories | |||
|
The difference between the actual value of the share due to the participants who left the company and the value at which the share was sold to another participant |