Finance

Finance

Capital adequacy ratio moves up in Azerbaijanâ€™s banking system

18 November 2009 10:57 (UTC +04:00)

Baku. Vahab Rzayev â€“ APA-Economics. As of October, 1 Azerbaijan-based banksâ€™ capital adequacy ratio was 19.4%, up 1.7 percentage points from a year ago, said the National Bank of Azerbaijan.
However, the ratio declined by 0.2 percentage points in January-September and 0.1 percentage points in the third quarter.

The capital adequacy is the percentage of a bankâ€™s total capital to its risk-weighted assets. The capital adequacy shows general credibility of a bank.

The capital adequacy is relative and can change when assets or capital changes.

100% safest assets are not calculated in the ratio under the instructions specified by the Basel committee of the Bank for International Settlements.

Although capital adequacy requirements have existed for a long time, the Basel committee specified the requirements.

Each class of asset has a weight of between zero and 1 (or 100%). Very safe assets such as government debt have a zero weighting, high risk assets (such as unsecured loans) have a rating of one. Other assets have weightings somewhere in between. The weighted value of an asset is its value multiplied by the weight for that type of asset.