Credit risk from regulator’s perspective problem Loan Management (Chap 12 +13)
Capital adequacy
Tier 2
Tier 1
Risk-based capital ratio = [ total capital ( tier 1+2)]/ risk adjusted assets (>8%)
Undividend project
Qualifying noncumulative repetual preferred stock
Minority int in the equity act of consolidated subsidiaries
Common stock a surplus
Other intangible assets
Selected identifiable intangible assets loss goodwill
Subordinated debt capital instruments
Mandatory convertible debt
Allowance (reserves) for loan and lease losses
Intermediate - term preferred stock
Credit risk categories
Risk-weighted assets
100%
50%
20%
0%
Credit risk categories for off-balance sheet.
Problem loan management
The business cycle
Recovery and Expansion
Downturn
Boom
Offs2526Specific provisions
General provisions
Bad debts
Dynamic provisioning
29Regulatory issues