capital adequacy ratio (CAR)
is calculated as a ratio of a bank’s capital base to its
risk-weighted assets. The ratio is intended to be a measurement of a bank’s
capital position in respect of its exposures to
market risk and
operational risk. The
stipulates that locally incorporated
must maintain a minimum CAR of 8%, but the
Monetary Authority may under
section 101 of the Ordinance increase the minimum ratio to not more than
16%. Each locally incorporated authorized institution is assigned a minimum
ratio on an unconsolidated (solo) basis or on both a consolidated and
unconsolidated basis within the range specified by the Ordinance.
The method based on which a locally incorporated authorized institution
should calculate its CAR is set out in detail in the Banking (Capital) Rules
made by the MA under section 98A of the Ordinance. The standards set out in
the Rules are in line with the International Convergence of Capital
Measurement and Capital Standards released by the Basel Committee (commonly
referred to as “Basel II”) in June 2006.
Consolidated basis: In the calculation of the consolidated CAR, the
consolidated position of the institution covers its local and overseas
branches and the subsidiaries specified by the HKMA.
Solo basis: In the calculation of the solo CAR, the combined position
of the institution's local and overseas branches is covered.