confidence - Investing In Africa

Management Discussions & AnalysisFinancial Review (cont’d)The net asset value per share increased from Rs18.87 at June 30, 2004 toRs25.17 at June 30, 2005. The Group’s capital adequacy ratio at June 30, 2005stood at 21.78%, up from 17.79% at June 30, 2004. Return on Average Tier 1Capital decreased from 24.13% at June 30, 2004 to 22.41% at June 30, 2005.Capital StructureCentral Bank Guidance Notes on Risk Weighted Capital Adequacy Ratio which isbased on the 1988 Basel Capital Accord sets out the regulatory requirements withrespect to Banks’ capital structure. For the purpose of assessing capital adequacy,capital is divided into 2 tiers: Core capital also known as Tier 1 capital andSupplementary capital also known as Tier 2 capital. Tier 1 capital includes paid upcapital, share premium, statutory reserve and revenue reserve. Tier 2 capitalincludes revaluation reserve and subordinated debt including portfolio reserve, ifany. Only 75% of the property revaluation reserve and 50% of the investmentrevaluation reserve are included under Tier 2 capital.Capital adequacy of a bank is gauged by the ratio of the sum of the risk weightedassets, risk assessed off-balance sheet exposures and weighted risk assets foroperational risk to its capital base. Capital base is the total of Tier 1 and Tier 2 capitalless investments in subsidiaries and associates and holdings of other banks’ capitalinstruments. Table 12 shows the calculation of the capital adequacy ratio. CentralBank has set a higher minimum capital adequacy ratio of 10% compared to theBasel Committee minimum level of 8%.Table 12 - Group Capital StructureMRs Million June 05 June 04 June 03I. Capital BasePaid up Capital 382.4 382.4 382.5Share Premium 570.0 570.0 570.0Statutory Reserve 480.3 465.8 455.9Revenue Reserve 5,015.9 4,234.4 4,224.4Less Treasury Shares (912.7) (912.7) (726.1)Total Tier 1 Capital (A) 5,535.9 4,739.9 4,906.7Reserves arising from revaluation of properties 721.5 - -Reserves arising from fair valuation ofequity investments 728.3 626.9 -Translation & Other Reserve 224.4 147.9 230.3Portfolio provision for credit losses 216.5 214.9 202.7Total Tier 2 Capital (B) 1,890.7 989.7 433.0Less Investments in Associates (C) (675.8) (625.2) (568.3)Total Capital Base [(A+(B-C)] 6,750.8 5,104.4 4,771.4II. Weighted Risk AssetsRisk Weighted on Balance Sheet Assets 26,017 23,248 21,504Risk weighted off Balance Sheet Exposure 2,043 1,865 1,523Aggregate net open Foreign Exchange position 52 482 244III. Weighted Risk Assets for Operational Risk 2,887 3,099 3,005Total Weighted Risk Assets 30,999 28,694 26,276IV. Risk Assets Ratio (%) 21.78 17.79 18.16107