Finance

Finance

Capital adequacy ratio too high in Azerbaijan

10 December 2009 16:40 (UTC +04:00)

Baku. Vahab Rzayev - APA-ECONOMICS. Capital adequacy ratio, a measure of the amount of a bank’s capital expressed as a percentage of its risk weighted credit exposures, is above the norm in the banking system, said the Central Bank of Azerbaijan in a report.

According to the report, the total capital in the banking system increased by 14.7% or AZN 219.4 million to AZN 1 711.1 million as at October 1.

Structure and trend of the total capital in the banking system

	01.01.2008	01.01.2009	01.10.2009
Tier one capital	755,3	1 091,8	1 286,5
Paid-up share capital/	689,5	949,7	1 057,9
Funds other than the issue of shares	20,3	32,3	32,3
Retained profit	59,6	125,2	214,0
Tier 2	305,4	449,0	472,7
Current year’s profit	132,8	192,1	219,0
General provisions	63,0	93,9	109,4
Other funds of capital	159,3	169,7	144,3
Deductions from total capital	49,4	48,6	47,6
*Total capital after deductions*	*1 009,1*	*1 491,7*	*1 711,1*

As shown in the table, the total capital was increased mainly by a rise in Tier 1 capital which is also seen as a metric of a bank’s ability to sustain future losses.

Capital adequacy ratio is the ratio which determines the capacity of the bank in terms of meeting the time liabilities and other risk such as credit risk, operational risk, etc. In the most simple formulation, a bank’s capital is the "cushion" for potential losses, which protect the bank’s depositors or other lenders.