Monash Bank has the following balance sheet for 2020 (in millions of dollars). Assets Cash $10 Deposits $155 Interbank deposits with AA rated banks 20 Subordinated debt (5 years) 4 Standard residential mortgages non- 70 Non-Cumulative preference shares insured with LVR of 85% Business Loans to BB rated 70 Common Equity 5 borrowers Total assets $170 Total liabilities and equity $170 In addition, the bank has $30 million in performance-related standby letters of credit (SLCs), $50 million in two-year forward FX contracts that are currently in the money by $4 million, and $300 million in six-year interest rate swaps that are currently out of the money by $1 million. Assume all off-balance sheet items counterparties are BBB+ rated according to Standard and Poor's rating. Note: Please refer to Basel tables (Standard approach) for the credit weights and conversion factors. Copy of these tables are uploaded below Part 1 of this exam paper. Meanwhile, the bank also has bank operational business specified as follows: Half-year Commercial gross Retail gross outstanding outstanding loans and All other activity adjusted gross income $ million and advances advances $ million S million H1 20*1 38 73 0.9 H2 20*1 42 78 1.1 H1 20*2 35 81 1.2 H2 20*2 40 80 0.8 42 77 0.9 H1 20*3 H2 20*3 39 79 1.1 (a) Calculate the risk-adjusted assets credit risk for on-balance-sheet and off- balance sheet items of the bank as defined under the Basel III Accord. (4 marks) Calculate the risk-adjusted assets for operational risk. (2 marks) (c) Assuming the Risk Weighted Assets for all other risks is zero, does Monash Bank have enough capital to meet its regulatory capital requirements of Common Equity Tier 1 (CET1), Tier 1 and Total regulatory capital? If not, what is the minimum Common equity Tier 1 (CET1), Tier 1 and Total regulatory capital does it need to meet them? (Show the new balance sheet after adjustment) Liabilities and equity Monash Bank has the following balance sheet for 2020 (in millions of dollars). Assets Cash $10 Deposits $155 Interbank deposits with AA rated banks 20 Subordinated debt (5 years) 4 Standard residential mortgages non- 70 Non-Cumulative preference shares insured with LVR of 85% Business Loans to BB rated 70 Common Equity 5 borrowers Total assets $170 Total liabilities and equity $170 In addition, the bank has $30 million in performance-related standby letters of credit (SLCs), $50 million in two-year forward FX contracts that are currently in the money by $4 million, and $300 million in six-year interest rate swaps that are currently out of the money by $1 million. Assume all off-balance sheet items counterparties are BBB+ rated according to Standard and Poor's rating. Note: Please refer to Basel tables (Standard approach) for the credit weights and conversion factors. Copy of these tables are uploaded below Part 1 of this exam paper. Meanwhile, the bank also has bank operational business specified as follows: Half-year Commercial gross Retail gross outstanding outstanding loans and All other activity adjusted gross income $ million and advances advances $ million S million H1 20*1 38 73 0.9 H2 20*1 42 78 1.1 H1 20*2 35 81 1.2 H2 20*2 40 80 0.8 42 77 0.9 H1 20*3 H2 20*3 39 79 1.1 (a) Calculate the risk-adjusted assets credit risk for on-balance-sheet and off- balance sheet items of the bank as defined under the Basel III Accord. (4 marks) Calculate the risk-adjusted assets for operational risk. (2 marks) (c) Assuming the Risk Weighted Assets for all other risks is zero, does Monash Bank have enough capital to meet its regulatory capital requirements of Common Equity Tier 1 (CET1), Tier 1 and Total regulatory capital? If not, what is the minimum Common equity Tier 1 (CET1), Tier 1 and Total regulatory capital does it need to meet them? (Show the new balance sheet after adjustment) Liabilities and equity
