This term is used to describe the adequacy of the Bank's aggregate capital in relation to the risks which arise from its assets and its off-balance sheet transactions, its dealing operations and its human activities, technology and natural incidents. Central Bank of Sri Lanka has prescribed the minimum risk sensitive capital, and effective from 1 January 2008 required the Bank to compute the minimum capital in accordance with the ‘International Convergence of Capital Measurement and Capital Standards - a Revised Framework’(Basel II). The aim is to ensure minimum capital, commensurate with risks assumed by the Bank, is maintained as a buffer to absorb foreseeable future credit, market and operational losses.
Basis of Computation
The risks weights assigned to the On and Off-Balance Sheet assets and the composition of capital are prescribed by Central Bank of Sri Lanka.
| BANK | ||
| Capital Base as at 31 December | 2013 LKR ’000 |
2012 LKR ’000 |
| Tier I: Core Capital | ||
| Capital | 1,172,904 | 1,093,095 |
| Statutory reserve fund | 958,527 | 878,718 |
| Investment fund account | 1,706,751 | 924,332 |
| Available-for-sale reserve | 106,669 | – |
| Share based payment reserve | 22,367 | – |
| Retained earnings | 15,653,260 | 12,046,256 |
| Total equity | 19,620,478 | 14,942,401 |
| Less: Available-for-sale reserve and charges to other comprehensive income | 74,598 | – |
| Total equity considered for Tier I capital | 19,545,880 | 14,942,401 |
| Deductions - Tier I | ||
| Intangible assets | 260,425 | 272,314 |
| 50% investments in unconsolidated banking and financial subsidiaries | 904,717 | 1,206,514 |
| 50% investments in capital of other banks and financial institutions | 30,984 | 9,263 |
| Eligible Tier I Capital | 18,349,754 | 13,454,310 |
| Tier II: Supplementary Capital | ||
| General provision | 641,815 | 528,401 |
| Approved subordinated term debt | 9,163,692 | 2,188,350 |
| 9,805,507 | 2,716,751 | |
| Deductions - Tier II | ||
| 50% investments in unconsolidated banking and financial subsidiaries | 904,717 | 1,206,514 |
| 50% investments in capital of other banks and financial institutions | 30,984 | 9,263 |
| 935,701 | 1,215,777 | |
| Eligible Tier II Capital | 8,869,806 | 1,500,974 |
| Capital Base (Tier I + Tier II) | 27,219,560 | 14,955,284 |
| BANK | |||||
| Principal Amount of On-Balance Sheet Items |
Risk Weights | Risk-Weighted Assets |
|||
| 2013 LKR ’000 |
2012 LKR ’000 |
% | 2013 LKR ’000 |
2012 LKR ’000 |
|
Risk-Weighted Assets and Off-Balance Sheet Exposure |
|||||
| Cash, Treasury Bills and other securities with Central Bank | 43,908,753 | 29,542,462 | 0 | – | – |
| Loans against cash deposits, gold and guarantees | 11,091,809 | 11,847,144 | 0 | – | – |
| Claims on banks | 2,002,596 | 6,719,738 | 20 - 100 | 836,820 | 1,673,817 |
| Claims on financial institutions | 9,201,018 | 10,811,311 | 50 - 100 | 4,916,134 | 7,156,750 |
| Loans secured by primary mortgage | 5,360,620 | 5,446,713 | 50 | 2,680,310 | 2,723,356 |
| Other claims | 112,381,172 | 89,027,408 | 20 - 150 | 102,578,786 | 82,465,798 |
| Property, plant & equipment | 872,890 | 856,194 | 100 | 872,890 | 856,194 |
| Other assets | 2,554,940 | 738,471 | 100 | 2,554,940 | 738,471 |
| Total On-Balance Sheet Assets Considered for Credit Risk | 187,373,798 | 154,989,441 | 114,439,880 | 95,614,386 | |
| BANK | |||||
| Principal Amount of Off-Balance Sheet Items |
Credit Conversion Factor | Credit Equivalent Off-Balance Sheet Items |
|||
| 2013 LKR ’000 |
2012 LKR ’000 |
% | 2013 LKR ’000 |
2012 LKR ’000 |
|
| General guarantees of indebtedness | 11,587,079 | 6,304,827 | 100 | 11,587,079 | 6,304,827 |
| Stand by LCs relating to particular transactions | 35,168 | 36,193 | 50 | 17,584 | 18,096 |
| Performance bonds and bid bonds | 3,909,259 | 2,784,498 | 50 | 1,954,630 | 1,392,249 |
| Trade related acceptances and advance documents endorsed | 8,301,839 | 7,370,072 | 20 | 1,660,368 | 1,474,014 |
| Shipping guarantees | 678,659 | 1,186,614 | 20 | 135,732 | 237,323 |
| Documentary letter of credit | 6,986,428 | 7,124,801 | 20 | 1,397,286 | 1,424,960 |
| Undrawn term loans | 2,882,331 | 1,399,849 | 0, 20 & 50 | 1,385,899 | 693,022 |
| Foreign exchange contracts | 62,235,214 | 64,384,677 | 2 & 5 | 1,244,704 | 1,300,125 |
| Undrawn overdrafts and credit lines | 7,004,968 | 5,838,596 | 0 | – | – |
| Other unutilized facilities | 54,112,275 | 43,473,820 | 0, 20 & 50 | 88,206 | 130,335 |
| Total Off-Balance Sheet Exposure | 157,733,220 | 139,903,947 | 19,471,488 | 12,974,951 | |
| 2013 LKR ’000 |
2012 LKR ’000 |
|
| Capital Charge for Market Risk | ||
| Capital charge for interest rate risk | 85,493 | 12,544 |
| Capital charge for equity securities and unit trusts | 321,015 | – |
| Capital charge for foreign exchange and gold | 131,679 | 158,255 |
| Total capital charge for market risk | 538,187 | 170,799 |
| Total risk-weighted assets equivalent for market risk | 5,381,870 | 1,707,988 |
| Capital Charge for Operational Risk | ||
| Gross Income: | ||
| Year 1 | 7,015,947 | 5,682,271 |
| Year 2 | 8,216,803 | 7,015,947 |
| Year 3 | 10,842,463 | 8,216,803 |
| Average gross income | 8,691,737 | 6,971,674 |
| Total capital charge for operational risk at 15% | 1,303,761 | 1,045,751 |
| Total risk-weighted assets equivalent for operational risk | 13,037,606 | 10,457,510 |
| Total risk-weighted assets and Off-Balance Sheet exposure | 152,330,844 | 120,754,835 |
| Risk-Weighted Capital Ratios | ||
| Tier I (Required statutory minimum ratio is 5%) | 12.05% | 11.14% |
| Tier I & Tier II (Required statutory minimum ratio is 10%) | 17.87% | 12.38% |
| GROUP | ||
| Capital Base as at 31 December | 2013 LKR ’000 |
2012 LKR ’000 |
| Tier I: Core Capital | ||
| Capital | 943,746 | 863,937 |
| Statutory reserve fund | 958,527 | 878,718 |
| Investment fund account | 1,706,751 | 924,332 |
| Available-for-sale reserve | 150,614 | – |
| Share based payment reserve | 22,367 | – |
| Retained earnings | 20,731,801 | 22,216,054 |
| Non-controlling interest | 847,848 | 826,411 |
| Total equity | 25,361,654 | 25,709,452 |
| Less: Available-for-sale reserve and charges to other comprehensive income | 129,169 | 21,784 |
| Total equity considered for Tier I capital | 25,232,485 | 25,687,668 |
| Deductions - Tier I | ||
| Intangible assets | 296,678 | 318,723 |
| 50% investments in the capital of other banks and financial institutions | 199,153 | 88,943 |
| Eligible Tier I Capital | 24,736,654 | 25,280,002 |
| Tier II: Supplementary Capital | ||
| General provision | 641,815 | 528,401 |
| Approved subordinated term debt | 9,163,692 | 2,188,350 |
| 9,805,507 | 2,716,751 | |
| Deductions - Tier II | ||
| 50% investments in the capital of other banks and financial institutions | 199,153 | 88,943 |
| Eligible Tier II Capital | 9,606,354 | 2,627,808 |
| Capital base (Tier I + Tier II) | 34,343,008 | 27,907,810 |
| Risk-Weighted Assets and Off-Balance Sheet Exposure | GROUP | ||||
| Principal Amount of On-Balance Sheet Items |
Risk Weights | Risk-Weighted Assets |
|||
| 2013 LKR ’000 |
2012 LKR ’000 |
% | 2013 LKR ’000 |
2012 LKR ’000 |
|
| Cash, Treasury Bills & other securities with Central Bank | 43,916,468 | 29,542,538 | 0 | – | – |
| Loans against cash deposits and gold | 11,091,809 | 11,847,144 | 0 | – | – |
| Claims on banks | 2,175,349 | 6,874,251 | 20 - 100 | 909,136 | 1,722,775 |
| Claims on financial institutions | 10,131,860 | 11,171,411 | 20 - 100 | 5,281,526 | 7,370,650 |
| Loans secured by primary mortgage | 5,360,620 | 5,446,713 | 50 | 2,680,310 | 2,723,356 |
| Other claims | 113,056,556 | 99,252,404 | 20 - 150 | 102,889,804 | 92,690,794 |
| Property, plant & equipment | 2,612,330 | 2,515,678 | 100 | 2,612,330 | 2,515,678 |
| Other assets | 2,812,925 | 1,086,268 | 100 | 2,812,925 | 1,086,268 |
| Total On-Balance Sheet Assets Considered for Credit Risk | 191,157,917 | 167,736,407 | 117,186,031 | 108,109,521 | |
| GROUP | |||||
| Principal Amount of Off-Balance Sheet Items |
Credit Conversion Factor | Credit Equivalent Off-Balance Sheet Items |
|||
| 2013 LKR ’000 |
2012 LKR ’000 |
% | 2013 LKR ’000 |
2012 LKR ’000 |
|
| General guarantees of indebtedness | 11,587,079 | 6,304,827 | 100 | 11,587,079 | 6,304,827 |
| Stand by LCs relating to particular transactions | 35,168 | 36,193 | 50 | 17,584 | 18,096 |
| Performance bonds and bid bonds | 3,909,259 | 2,784,498 | 50 | 1,954,630 | 1,392,249 |
| Trade related acceptances and advance documents endorsed | 8,301,839 | 7,370,072 | 20 | 1,660,368 | 1,474,014 |
| Shipping guarantees | 678,659 | 1,186,614 | 20 | 135,732 | 237,323 |
| Documentary letter of credit | 6,986,428 | 7,124,801 | 20 | 1,397,286 | 1,424,960 |
| Undrawn term loans | 2,882,331 | 1,399,849 | 0, 20 & 50 | 1,385,899 | 693,022 |
| Foreign exchange contracts | 62,235,214 | 64,384,677 | 2 & 5 | 1,244,704 | 1,300,125 |
| Undrawn overdrafts and credit lines | 7,004,968 | 5,838,596 | 0 | – | – |
| Other unutilized facilities | 54,112,275 | 43,473,820 | 0, 20 & 50 | 88,206 | 130,335 |
| Total Off-Balance Sheet Exposure | 157,733,220 | 139,903,947 | 19,471,488 | 12,974,951 | |
| 2013 LKR ’000 |
2012 LKR ’000 |
|
| Capital Charge for Market Risk | ||
| Capital charge for interest rate risk | 85,493 | 12,544 |
| Capital charge for equity securities and unit trusts | 969,583 | 13,268 |
| Capital charge for foreign exchange and gold | 131,679 | 158,255 |
| Total capital charge for market risk | 1,186,755 | 184,067 |
| Total risk-weighted assets equivalent for market risk | 11,867,554 | 1,840,666 |
| Capital Charge for Operational Risk | ||
| Gross Income: | ||
| Year 1 | 8,264,211 | 6,773,117 |
| Year 2 | 9,255,352 | 8,264,211 |
| Year 3 | 11,917,874 | 9,255,352 |
| Average gross income | 9,812,479 | 8,097,560 |
| Total capital charge for operational risk at 15% | 1,471,872 | 1,214,634 |
| Total risk-weighted assets equivalent for operational risk | 14,718,719 | 12,146,340 |
| Total risk-weighted assets and Off-Balance Sheet exposure | 163,243,792 | 135,071,478 |
| Risk-Weighted Capital Ratios | ||
| Tier I (Required statutory minimum ratio is 5%) | 15.15% | 18.72% |
| Tier I & Tier II (Required statutory minimum ratio is 10%) | 21.04% | 20.66% |
