Banking - Key Ratio

Leverage Ratio

The Tier 1 leverage ratio is the relationship between a banking organization’s center capital and its general property. The Tier 1 leverage ratio is calculated by dividing Tier 1 capital by using a bank’s average general consolidated assets and certain off-stability sheet exposures. RBI additionally calculates Coverage Ratio = (Equity-Net NPA)/(Total Assets – Intangible Assets). This is nearly like leverage ratio above and tells about the quantity of commonplace equity to be had to guide Net Assets.

CET1 Ratio (Core fairness tier 1)- It is a capital measure that turned into added in 2014 as a precautionary degree to defend the economy from a economic crisis. It is expected that each one banks ought to meet the minimal required CET1 ratio of 4.50% by way of 2019. A bank’s capital structure includes Lower Tier 2, Upper Tier 1, AT1, and CET1. CET1 is at the bottom of the capital shape, because of this that within the occasion of a crisis, any losses incurred are first deducted from this tier. CET1 is a measure of financial institution solvency that gauges a bank’s capital power. This degree is better captured via the CET1 ratio which measures a financial institution’s capital against its belongings. Since not all property have the same threat, the belongings acquired by using a bank are weighted primarily based on the credit score chance and market hazard that every asset provides.

Additional Tier 1 – AT1 consists of capital gadgets that are non-stop, in that there's no constant maturity inclusive of: Preferred shares, High contingent convertible securities. Contingent convertible securities (frequently called CoCos) are a prime issue of AT1 and their shape is shaped via their number one purpose as a effectively available source of capital for a firm in times of crisis. CoCos can take in losses both by: Converting into not unusual equity; or Suffering a most important write-down.

Hybrid Debt Capital Instruments – In this category, fall some of capital contraptions, which integrate positive traits of fairness and sure traits of debt. Each has a particular feature, which can be taken into consideration to affect its first-rate as capital. Where those units have close similarities to fairness, particularly whilst they are capable of aid losses on an ongoing foundation without triggering liquidation, they'll be covered in Tier II capital.

Hybrid Security – A hybrid security is a unmarried monetary protection that mixes two or more one-of-a-kind financial units. Hybrid securities, frequently referred to as “hybrids,” usually integrate both debt and fairness characteristics. The most commonplace type of hybrid security is a convertible bond that has capabilities of an normal bond however is closely stimulated by way of the price movements of the inventory into which it is convertible.

Held Till Maturity (HTM) – The securities acquired by using the banks for you to keep them up to adulthood.

Held for Trading (HFT) – Securities in which the purpose is to change by taking advantage of short-time period fee / interest rate moves.

Available for Sale (AFS) – The securities to be had on the market are the ones securities where the purpose of the financial institution is neither to change nor to maintain till adulthood. These securities are valued at the truthful fee which is decided by reference to the excellent to be had source of current marketplace quotations or different information relative to present day price.

Yield to adulthood (YTM) or Yield – The Yield to adulthood (YTM) is the yield promised to the bondholder on the belief that the bond can be held to maturity and coupon bills will be reinvested at the YTM. It is a measure of the go back of the bond.

Slippage ratio – (Fresh accretion of NPAs at some point of the yr/Total standard belongings at the start of the yr) *100

RAROC (danger-adjusted go back on capital) – This is the expected end result over financial capital) allows banks to allocate capital to character enterprise gadgets according to their individual business risk. As a performance assessment tool, it then assigns capital to business units based on their expected monetary value brought.

The theoretical RAROC can be extracted from the one-component CAPM because the excess go back in the marketplace in keeping with unit of marketplace danger (the market price of chance)

RARoC = Adjusted Income Risk Based Capital Requirement = Adjusted Income 

Value at Risk (VaR)

Adjusted Income = [Spread (Direct Income on Loan) + Fees directly attributable to loans – Expected Loss (P(D)*LGD) – Operating Cost] * (1- Marginal tax charge)