Annual Report 2007 - Investing In Africa

Accordingly, the capital requirement for market
risk under the standard approach was estimated
at US$111 million, of which US$92 million for
interest rate risk, US$15 million for foreign
exchange risk and US$4 million for equity risk.
The equivalent risk-weighted assets amounted
to US$1.4 billion.
4.4 Capital Adequacy
In all the countries where Ecobank operates,
banks are required to hold a minimum capital
level determined by the regulators in line with
the recommendations of the Basel Committee
on Banking Supervision. Under the original
Basel accord, banks were to maintain a ratio of
regulatory capital to risk-weighted assets of 8%.
This ratio has been increased in some countries
to 10%. With risk-weighted assets of US$4.0 billion
and regulatory capital of US$628 million, the
group reported a capital adequacy ratio of
15.7% as of 31 December 2007, largely exceeding
the international standard set under Basel I.
Using the above Basel II methodologies, the
minimum capital that the group needs to set
aside for credit risk, operational risk, and market
risk amounted to US$520 million, broken down
as follows:
Type of Minimum Risk Weighted
Risk Capital Assets
US$m
US$m
Credit 353 4,408
Operational 56 700
Market 111 1,385
Total 520 6,493
The capital adequacy ratio was 9.7% under
Basel II, which indicates the need for further
capital mobilization to support the planned
growth of the group.
However, under the new Basel capital (“Basel
II”) accord, banks are required to estimate to
hold sufficient capital to cover not only credit
risk, but also operational risk and market risk.
While Ecobank is not required by regulators to
adopt Basel II standards, the Board of Directors
has mandated their early adoption by the
group as they represent the best international
practice. Ecobank has therefore adopted the
standard approach for credit risk, the basic indicator
approach for operational risk, and the
standard approach for market risk, with a view
to adopting the more advanced approaches
within a two to three-year horizon.
Antoine Kayembe Nzongola
Head, Audit Compliance
and Risk Management
49
... The Pan African Bank