What it is
When loans go bad, capital takes the loss so depositors do not. This pillar shows how thick that cushion is.
The headline, capital fund to risk-weighted assets, is compared with NRB's floor of 11% for commercial banks. The verdict says how far above or below the floor the bank sits.
Tier 1 and CET1 show the quality of the capital; total equity and share capital show the rupee amounts behind the ratios.
How it is calculated
Headline = ratio.capital_fund_to_rwa vs NRB_MIN_CAPITAL_FUND_PCT (11). Supporting = ratio.tier1_to_rwa, ratio.cet1_to_rwa, bs.equity.total, bs.equity.share_capital.
Worked on Nabil Bank Limited, FY 2082/83 Q4
NABIL, FY 2082/83 Q4: capital fund to RWA 12.37% (NRB minimum 11%), Tier 1 9.68%, CET1 8.87%, equity Rs 7,190.66 crore, share capital Rs 3,205.70 crore.
What good looks like
Comfortably above 11% with most of it in Tier 1. A bank hugging the floor will pay bonus shares rather than cash and cannot grow loans fast.
Watch out
- The 11% applies to commercial banks under the 2015 framework; other classes and the buffer rules differ.
- Quarterly ratios are unaudited.
- Share capital alone says little; it is the ratio that matters.
In Nepal
NRB Capital Adequacy Framework 2015: 8.5% minimum total capital + 2.5% conservation buffer = 11%; Tier 1 6%; CET1 4.5%. Breach triggers Prompt Corrective Action.
Questions
Because 11% is a hard regulatory line with consequences. Peer comparison is shown too, but the floor matters more.
NRB applies Prompt Corrective Action: no dividend or bonus shares, limits on branches and lending, and a recapitalisation plan.