Bank Liabilities Management

- On collecting data of two Egyptian banks' balance sheets, we obtained the

following information:
Bank A

Cash 22500000 Customer deposits 136550340

Treasury bills 13870000 Other loans 12700000
Loans to other banks 18050000 Other liabilities 32200000
Customer loans 29000000
Real estate loans 9363000 Paid in capital 6500000
Financial trading securities 20000000 Retained earnings 1449660
Other assets 63819000 Reserves 1500000
T.A= 190900000 T.L&Eq= 190900000

Bank B

Cash 15000000 Customer deposits 158396000

Treasury bills 39272000 Due to banks 12971000
Investment securities 18632000 Other liabilities 19454720
Customer loans 36732000
Real estate loans 22396000 Paid in capital 5000000
Other assets 49700000 Retained earnings 1191370

Reserves 1718910
T.A 198732000 T.L&Eq= 198732000
1- Calculate the capital adequacy ratio for each bank
2- Which bank is better if you know that Basel Committee on Banking Supervision
requires banks to hold at least 10% of CAR
3- Give your recommendation for the inefficient bank by mentioning 4 different
methods of increasing CAR ratio
4- If you know that bank B is concentrating its loans on a few number of clients,
what do you think is the
Asset Risk Weight solution of such issue?
Non-risky assets 0% Given that the risk weight
Corporate loans 20% categories as following:
Governmental loans 20%
Other bank loans 20%
Collateralized loans 50%
Securities 50%
Other assets 100%

Answer
Bank A
Asset Risk Weight Category Risk Weight of asset
Cash 0% 0
Treasury bills 0% 0
Financial trading 20000000*50% 10000000
securities
Customer loans 29000000*50% 14500000
Governmental loans 14298000*20% 2859600
Real estate loans 9363000*50% 4681500
Loans to other banks 18050000*20% 3610000
Other assets 63819000*100% 63819000
Total 99470100

Bank B
Asset Risk weight category Risk weight of asset
Cash 0 0
Treasury bills 0 0
Financial securities 18632000*50% 9316000
Customer loans 36732000*50% 18366000
Corporate loans 17000000*20% 3400000
Real estate loans 22396000*50% 11198000
Other assets 49700000*100% 49700000
Total 91980000

1- Bank A CAR= = 9.5%, Bank B CAR= = 8.6%

2- None of both banks met Basel committee regulated ratio which is 10%, so both
banks are inefficient but Bank A is still better than Bank B because it has higher
CAR ratio
3- Both banks should do the following to increase their CAR buffer:
a) Issue more capital stocks
b) Increase retained earnings
c) Increase reserves amount
d) Invest in low risk assets
e) Decrease investment in high risk assets
4- Bank B should increase its supervision on the credit department and follow a
non-concentration policy by giving out loans to a lot of different clients not just
few