alhmdllh - Capital Adequacy Capital Adequacy reflects the...

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Capital AdequacyCapital Adequacy reflects the overall financial condition of the banks. It also indicates whetherthe bank has enough capital to absorb unexpected losses. Capital Adequacy ratio acts as anindicator of bank leverage. The main components of this ratio are,Equity capital to total assets=Total shareholders/Total Asset Leverage Ratio Total DEBT/Total Shareholders’ EquityAwash International BankYEARSTETADEBTTE/TADER2010959,348,9439,022,989,3788,063,640,4350.1068.40520111,336,496,54911,089,440,8599,752,944,3100.1217.29720121,650,631,13113,125,216,55911,474,585,4280.1266.95220132,066,218,96817,783,926,77015,717,707,8020.1167.60720142,596,942,94622,106,346,49319,509,403,5470.1177.512average0.1177.555Dashen BankYEARSTETADEBTTE/TADER20101,123,347,63112,353,386,03811,230,038,4070.0919.99720111,396,402,27114,614,795,15613,218,392,8850.0969.46620121,827,893,69517,520,042,31915,692,148,6240.1048.58520132,045,698,69619,747,174,76717,701,476,0710.1048.65320142,597,625,19621,962,202,06319,364,576,8670.1187.455average0.1038.831
Nib International BankWegagen BankYEARSTETADEBTTE/TADER20101,051,726,0315,741,936,5754,690,210,5440.1834.46020111,337,335,1578,060,937,3786,723,602,2210.1665.02820121,604,133,1688,347,154,7886,743,021,6200.1924.20420131,830,424,82010,393,803,4018,563,378,5810.1764.67820142,144,215,39211,528,769,9139,384,554,5210.1864.377average0.1814.549Bank of AbysiniaYEARSTETADEBTTE/TADER2010585,000,0006,280,000,0005,695,000,0000.0939.7352011661,000,0007,278,000,0006,616,548,0000.09110.0092012907,000,0008,240,000,0007,332,672,0000.1108.08520131,108,000,00010,129,000,0009,052,000,0000.1098.17020141,529,000,00011,276,000,0009,747,000,0000.1366.375average0.1088.475YEARSTETADEBTTE/TADER2010916,508,4265,970,511,3045,054,002,8780.1545.51420111,170,759,9197,111,808,0785,941,048,1590.1655.07520121,527,946,2248,275,695,3776,747,749,1530.1854.41620131,665,929,3199,144,543,6157,478,614,2960.1824.48920141,964,357,02810,747,283,2678,782,926,2390.1834.471average0.1744.793
Commercial Bank of Ethiopia (CBE)YEARSTETADEBTTE/TADER20105,532,707,27074,186,911,33868,631,909,7390.07512.40520116,333,141,736114,645,190,270108,003,551,8490.05517.05320127,696,648,250158,804,428,984150,494,318,2710.04819.55320139,193,823,484195,443,220,143186,243,827,0780.04720.257201411,083,630,033244,127,811,602233,035,530,9050.04521.025average0.05418.0586Aggregate average of Five Banks Commercial Bank of Ethiopia (CBE)DERis the ratio of total debt to total equity and it indicates the proportion of assets financedwith debt relative to its shareholders equity. High DER means that a company has beenaggressive in financing its growth with debt and this involve high level of risk that result inBanksTE/TADERAwash0.1177.555Dashen0.1038.831NIB0.1744.793Wegagen0.1814.549BOA0.1088.475average0.1376.841TE/TADER0.07512.4050.05517.0530.04819.5530.04720.2570.04521.0250.05418.0586
volatile earnings as a result of the additional interest expense. The above table shows that thoseprivate banks in average and CBE has 6.841and 18.059DER respectively. Thus CBE has muchgreater DER than those private banks and this indicate that CBE less capital to absorbunexpected loss or it has lower capital adequacy than those private banks.TE/TA is the ratio of total stock holder equity to total asset and it indicates the portion of totalasset financed with equity. Higher ratio represent higher adequacy of capital to absorbunexpected risk or loss. The above table shows that TE/TA ratio for those private banks and CBEis 0.137 or 13.7% and 0.054 or 5.4% respectively. Thus those private banks have more adequatecapital to absorb losses than CBE. This is as a result of that more of CBE assets are financedthrough debt and as CBE government owned it has more debt avail than those private banks.The minimum capital adequacy requirement as per directives No. SBB/50/2011 article 4.4 is 8%and only those private banks can fulfill the requirement.Asset QualityThis ratio measures what types of advances the bank has made to generate interest income. The ratios necessary to assess the assets quality are;-Allowance for Doubtful Loans to Total Assets:This ratio discloses the efficiency of bank in assessing the credit risk and, to an extent, recovering the debts. The lower the

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