T

F
F
F

F
F

T
EX 1 :

APY = 100 [(1 + Interest Earned (365/pays in Period

-
17
Average Account Balance
5 , 000 150 200 215
Average Account Balance =
x + x
= 2 ,
172 .
6
365
APy 1005 (1 +
40
57365, 365
13
=
.

= 1 88
2 , 172 6 .
.

EX2 :

NIM
Interest Income Interest Expense
100 %
& >
-

=
x

Total Earning Assets

* Interest Income :

3-month Bills %

3
550 5 5
Treasury 1
·

x
mil
:
798
= .

5-year Government Bonds : 450 x 3% = 13 5

.
=

12-month corporate loans 2950 12 %

·

:
x = 354
10-year mortgage loans %
·

: 2500 x 17 = 425
# Interest Expense
Demand deposit 1500 1 %: 15

3
x
·

3-month deposits bank

800x5 % 589 5 mil
·

:
= 40 =
6-month corporate
.

deposits 2750 11 %
·

: x
= 302 5
Non-deposit borrowings 1450 x 16
.

:
% = 232
* Total Earning Assets = 550 + 450 + 2950 2508 6450
+ =

798 589 5
NIM =
-
.

= 3 23 %
.

6450

ROE Net income

=
X 100 %
Total
Equity
Pre-tax income = (Interest Income Fees and
+
Commissions + Securities Gain (
(Interest Expense + Overhead cost
Provision)
-

+ Loan loss
 1790 20) 1589
&
+ 550 + -
5 + 258 + 958
= .

(will
-
= 528 .
49905 1 000 000
. .

Net income = 528 .

49905 x (1-18 %) = 433 .
37
RUE 433 37
=
100 66 67 %
.

X =
.

658

Total Capital
CAR =
X 100 %

Risk-Weighted Assets

Tier 1
Capital =
35 % xEquity =
35 % x 650 = 227 5 .

Tier a Capital = 10 % x Non-deposit borrowings = 10% x 1950 = 145

Total Capital + Tier Capital Deduction
Capital = Tier 1 2 -

= 227 5 .
+ 145 - 15 = 357 5 .

RWA = /Asset x Risk Weight)

= (150 x 0% + 550x10% + 450x0 % + 2950x 100% + 250x50 %
+ 550x100 % )
= 5300
357 5
CAR =
.

X 100 = 6 75 %
.

5300
For **Question (b)**, we need to assess the bank's capital adequacy level if the minimum CAR should
be 8%, and then suggest ways to improve it if the current CAR is below this threshold.

### Assessing Capital Adequacy Level

From the previous calculation steps, if the **CAR** is **below 8%**, the bank is not meeting the
minimum regulatory requirement and needs to take actions to strengthen its capital base.

Recommendations to Improve Capital Adequacy Ratio (CAR)

If the bank's CAR is below the required 8%, it can take the following steps:

1. Increase Tier 1 Capital

- Raise additional equity by issuing new shares. This will directly increase Tier 1 capital.
- Retain more earnings instead of distributing dividends to shareholders. Retained earnings contribute
to Tier 1 capital.

2. Reduce Risk-Weighted Assets (RWA)

- Rebalance the asset portfolio by reducing high-risk-weighted assets, such as loans, and investing
more in lower-risk assets like government securities.
- Tighten lending criteria, focusing on lower-risk clients to decrease the overall risk weighting.

3. Increase Tier 2 Capital

- Issue subordinated debt or other hybrid instruments that qualify as Tier 2 capital, thus increasing the
total capital.

4. Improve Asset Quality

- Reduce non-performing loans to lower loan loss provisions, as this would increase net income and
subsequently boost retained earnings (which contribute to Tier 1 capital).