confidence - Investing In Africa

Management Discussions & AnalysisFinancial Review (cont’d)except for retail banking and commercial banking is calculated by multiplyinggross income by a beta factor which varies from 12% to 18%. For retail andcommercial banking lines of business, the gross income is replaced by theoutstanding balance of loans and advances, multiplied by a fixed factor of0.035 and multiplied by the beta factor. The total capital charge is calculatedas the three year average of the simple summation of the regulatory capitalcharges across each of the business lines in each year. The risk weighted assetsfor operational risk are derived by multiplying the capital charge by ten.Pillar 2 is based on a series of guiding principles, all of which point to the needfor banks to assess their capital adequacy positions relative to their overall risks,and for supervisors to review and take appropriate actions in response to theseassessments. In addition to ensuring that banks have adequate capital tosupport all the risks in their business, the Supervisory review process of Basel IIaims at encouraging them to develop and use better risk managementtechniques. The forward looking approach to capital adequacy supervisionadvocated by Basel II would facilitate adjustments to the framework to reflectmarket developments and advances in risk management practices.Pillar 3 – Market discipline consists of a set of disclosures that will allow marketparticipants to assess key information about a bank’s risk profile and level ofcapitalisation. Public disclosure is particularly important with respect to the newAccord where reliance on internal methodology will provide banks withgreater discretion in determining their capital needs.The Bank has been working on the implementation of the Basel II accord forover 2 years and is today totally Basel II compliant.109