confidence - Investing In Africa

Management Discussions & AnalysisFinancial Review (cont’d)Table 13 - Risk Weighted On-Balance Sheet Assets2005 2004 2003Balance Risk Risk Balance Risk Risk Balance Risk RiskWeight Weighted Weight Weighted Weight WeightedMRs Million % Amount % Amount % AmountCash in hand &with Central Bank 1,895 0 0 2,040 0 - 1,924 0 -Balance with local Banks 87 20 17 144 20 29 145 20 29Balances &Placement withOffshore Banks andBanks abroad 6,758 20 1,352 1,987 20 397 2,261 20 452Gilt-edged Securities 9,397 0-100 287 11,089 0-20 138 9,184 0 -Equity Investments 1,653 100 1,653 1,515 100 1,515 298 100 298Fixed/Other Assets 3,467 100 3,467 2,069 100 2,069 2,202 100 2,202Balance due in Clearing 173 20 35 116 20 23 271 20 54Advances 24,718 0-100 19,206 22,887 0-100 19,077 21,768 0-100 18,469TOTAL 48,148 26,017 41,847 23,248 38,053 21,504Basel II Capital AccordWhereas Basel I focuses on the capital base of banks, Basel II emphasises themeasurement and management of key banking risks including credit, marketand operational risks. Basel II is founded on three pillars.108Pillar 1 is essentially an upgrade of Basel I with emphasis on risk sensitivecapital requirements depending on borrower profiles rather than the existingflat treatment of credit risk. Besides credit risk and market risk, Pillar 1introduces a capital charge for operational risk. Operational risk is defined bythe Basel Committee as the risk of loss resulting from inadequate or failedinternal processes, people and systems or from external events. The Bank isimplementing Basel II in a phased manner as directed by the Central Bank.Central Bank issued a guideline on operational risk management and capitaladequacy determination which came into effect on April 01, 2005. Theguideline prescribes 3 methods as identified by the Basel Committee forcalculating operational risk capital charge based on a continuum of increasingcomplexity and risk sensitivity of a bank’s operations. These are (1) BasicIndicator Approach (2) Standardised Approach/Alternative StandardisedApproach (3) Advanced Measurement Approach.Banks are required to implement as a minimum, the Basel IndicatorApproach. The Bank has implemented the Alternative Standardised Approach.Under the Alternative Standardised Approach, a bank’s activities are dividedinto eight business lines: Corporate finance, trading and sales, retail banking,commercial banking, payment and settlement, agency services, assetmanagement and retail brokerage. The capital charge for each business line