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Basel II - PF Loans
Basel II - PF Loans
Basel II Risk
Supervisory Rating Basel I Risk Weights - IRB Target Capital
Category Weights Approach - Ex 1 Ratio
Loss Given
3-m LIBOR 5% Default (LGD)
Target ROE (pre-
Loan Spread 1.80% tax)
Debt-funding cost - Basel II Capital
LIBOR 5% ratio - Target
Under Basel II
Under Basel I Hold Spread
Interest Income 6.80% 6.80%
Expenses
Administrative / Operating 0.10% 0.10%
Expense Loan Loss (PD = 2%) 0.50% 0.50%
Cost of Funds
Regulatory Risk weight 100% 150%
Required Capital Ratio 8.00% 12.00%
Debt Charge (Interest) 4.60% 4.40%
Equity (Capital) Charge 1.60% 2.40%
20% 1.2%
20% 1.2%
20% 2.4%
20% 2.4%
20% 2.4%
100% 9.6%
25%
20%
8%
Under Basel II
Increase Spread
7.40% <LIBOR+Loan Spread>
0.10%
0.50% <PD*LGD>
150%
12.00%
4.40% <(1-Capital ratio)*Debt funding cost>
<Capital ratio*Risk weight*Target
2.40% ROE>
0.00%