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(Notification of NBS No. 211/2001 Coll. on issue of the Decree amending and supplementing the Decree of NBS No. 2/2000 on Capital Adequacy of Banks).
The Decree on Capital Adequacy of Banks stipulates what is meant by capital and reserves for calculation of the proportion of capital adequacy, proportions of loan exposure and unsecured positions and sets out the minimum proportion of capital and reserves to the risk-weighted assets of the bank ensuring that the bank's own funds are sufficient to cover any losses arising from credit risks incurred by the bank in connection with its business, and to retain the ability of the bank to fully fulfil its obligations.
The original provision under which banks are obliged to maintain capital adequacy of at least 8% remains unchanged by the new decree.
The amendment to the decree is related to definitions of terms 'capital adequacy' and 'reserves of the bank' and introduces a new term 'substantial loss' as well as some other terms.
'Capital adequacy' means the proportion of capital and reserves for ordinary banking risks to the adjusted value of risk-weighted assets, expressed as a percentage.
'Reserves' mean financial sources of the bank created for the weight of costs for the purpose of formulating the expected loss from off-balance sheet items, which will or can become the bank's assets.
'Substantial loss' means a loss, which equals or is higher than 10% of the registered capital of the bank.
'Ordinary banking risk' means the credit risk or market risk, whereas the credit risk represents the possibility of losses due to even only a partial failure in satisfying a receivable, and the market risk represents the possibility of losses as a consequence of possible change in prices of asset values, which are sold or acquired by the bank in connection with its banking activities.
'Presumed loss from receivable' is that part of its nominal value, which on the basis of a reasonable assumption will not be paid.
The original decree was also supplemented by determination of the scope within which the reserves are added to the proportion of capital adequacy.
This decree is in force from 20 June 2001.
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