Regulation on Bank Capital Adequacy

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Article 4Capital Adequacy Ratio1. Banks are required to maintain a minimum ratio of 12% (twelve percent) of risk assets andother risks, in total capital and 8% (eight percent) in Tier 1 capital. This minimum applies toall banks. Under its powers in paragraph 2 of Article 16 of the Law on Banks, the CBK mayrequire individual banks to maintain higher ratios.2. CBK also applies a minimum leverage ratio provided with Article 9 of this <strong>Regulation</strong>.Article 5Risk Weighted Assets and Off-balance Sheet Claims1. The following are the risk weights assigned to risk assets of banks to measure banks’compliance with this Rule.Category 1 - 0 % (Zero Percent) Risk Weight(a) Cash in Euro and in foreign readily convertible currencies.(b) Balances due from CBK, and claims on Central Banks of countries rated from theRating Agencies, as described in Annex I.(c) Holding of securities issued by the Government and Municipalities of theRepublic of Kosovo(d) Direct claims on or claims unconditionally guaranteed by central governments ofcountries rated the Rating Agencies, as described in Annex I.(e) Precious metals and precious stones appraised at values approved by the CBK on acase by case basis held in a bank’s own vault or if in the vaults of a depository, clearlyappropriated to such bank.(f) Loans or the portions thereof supported by cash collateral in the form of Euro orother readily convertible currency maintained at current value, deposited with thebank and pledged and blocked for the purpose.Category 2 - 20 % (twenty percent) Risk Weight(a) Direct claims on or claims unconditionally guaranteed by banks with short-term 1credit ratings from the Rating Agencies, as described in Annex I.(b) Loans or the portions thereof supported by collateral in the form of securitiesissued or unconditionally guaranteed by Central Banks or central governments ofcountries rated the Rating Agencies, as described in Annex I.(c) Securities issued by or unconditionally guaranteed by Central Banks or CentralGovernments of countries rated the Rating Agencies, as described in Annex I.(d) Loans or the portions thereof supported by collateral issued by or guaranteed bymultilateral lending institutions or global or regional development institutions subjectto the prior approval of the CBK.(e) Claims from banks, with residual maturity of up to one year and claims withresidual maturity of up to one year, covered by irrevocable, unconditional guaranteesand securities issued by these banks, licensed by CBK. Claims on banks shall notinclude bank's claims serving as collateral in other banks, claims included as a1 In cases when short term rating is missing, banks shall use equivalent long term rating, as describedin annex I table.
component of the own funds of those banks, as well as claims on banks in courtprocedure.(f) Cash items in process of collections.Category 3 – 50 % (fifty percent) Risk Weight(a) Direct claims having maturities of one year or less or claims unconditionallyguaranteed by banks, subject to prior approval of the CBK, that has short-term creditratings from the Rating Agencies, as described in Annex I.Category 4 – 75 % (Seventy-five percent) Risk Weight(a) Loans or the portions thereof supported by collateral in the form of first lienresidential mortgages whose underlying indebtedness is not more than 30 days pastdue (if a loan is more than 30 day past due, than whole exposure of the same customershould be weighted same as the loan with the exception for cash covered loans and ifthe source of payment for other exposures are different from the one for the loan),subject to the following conditions:(i) Ownership of residential property must be verified and documented;(ii) Maximum current loan-to-value cannot exceed sixty-five (65 %) percent; and(iii) Market value of mortgaged property must be supported by an independentassessment of value, which can be in the form of an appraisal conducted by aqualified real property appraiser, or the tax base of the real property establishedby the Municipalities in accordance with Law on the Taxes on ImmovableProperty in the Republic of Kosovo.(b) Loans to builders to finance real estate construction where the property to befinanced has been pre-sold or pre-leased pursuant to a legally enforceable contractwith the sales proceeds or rentals unconditionally assigned to the bank.Category 5 – 100 % (one hundred percent) Risk Weight(a) Direct claims having maturities of one year or less or claims unconditionallyguaranteed by banks, subject to prior approval of the CBK, that are not rated, asdescribed in Annex I.(b) All other claims to debtors that do not qualify for a Category 1-4 risk weight.(c) Premises, plant and equipment, other fixed assets and other real estate owned as aresult of foreclosures or other takings of land or buildings as a result of defaults.Category 6 – 150 % (one hundred and fifty percent) Risk Weight(a) Direct claims having maturities of one year or less or claims unconditionallyguaranteed by banks, subject to prior approval of the CBK, that has short-termcredit rating, as described in Annex I.2. Off-Balance-Sheet Items Conversion FactorsThe following values are assigned to off balance-sheet items:a) Unused portions of commitments with original maturities of 1 year or less and unusedportions of commitments which are unconditionally cancellable at any time, regardless ofmaturity, will be assigned 0% of their face value for risk weighting purposes.b) Short-term self-liquidating trade related contingencies; including commercial lettersof credit and bid guarantees will be assigned 20% of their face values for risk weightingpurposes.c) Direct credit substitutes including guarantees of payment and standby letters of creditwill be assigned 100% of their face values for risk-weighting purposes.d) Any other item not included in (b) and (c) will be assigned 100% of their face valuesfor conversion to on balance-sheet equivalents.
Page 1 and 2: Pursuant to Article 35, paragraph 1
Page 3: and from which future economic bene
Page 7 and 8: Article 9Leverage Ratio1. Under par
Page 9 and 10: ANNEX IIFormula for calculating the

Regulation on Bank Capital Adequacy

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