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CAPITAL ADEQUACY RATIO

Statistics Directorate    
Definition:
The capital adequacy ratio is the central feature of the Basel Capital Accord. It is an analytical construct in which regulatory capital is the numerator and risk-weighted assets is the denominator. A minimum ratio of regulatory capital to risk-weighted assets is set to achieve the objective of securing over time soundly-based and consistent capital ratios for all international banks.

Context:
From 1 January 2013 locally incorporated registered banks must comply with the following capital ratios, measured in relation to their risk-weighted assets:

A Common Equity Tier 1 capital ratio of 4.5%;
A Tier 1 capital ratio of 6%;
A total capital of 8%.

From 1 January 2014 a bank that does not maintain a common equity buffer of 2.5% above these minimum ratios will face restrictions on the distributions it can make.

Source Publication:
IMF, 2004, Compilation Guide on Financial Soundness Indicators, IMF, Washington DC, Appendix VII, Glossary
Reserve bank of New Zealand, n.d., Capital adequacy: Basel III, website.

Cross References:
Capital adequacy rules

Hyperlink:
http://www.rbnz.govt.nz/finstab/banking/4572979.html

Statistical Theme: Financial statistics

Created on Thursday, August 26, 2004

Last updated on Thursday, April 04, 2013