Calculate Capital Adequacy Ratio, Total Capital, or Risk-Weighted Assets when two values are known in this banking formula calculator.
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Capital Adequacy Ratio Formula
The capital adequacy ratio compares a bank’s capital with its risk-weighted assets. It is usually shown as a percentage.
- CAR = Capital Adequacy Ratio, expressed as a percentage
- TC = Total Capital
- RWA = Risk-Weighted Assets
If you know the capital adequacy ratio and risk-weighted assets, the calculator can solve for total capital:
If you know total capital and the capital adequacy ratio, the calculator can solve for risk-weighted assets:
The calculator works by using any two entered values to calculate the missing third value. Leave only one field blank. If you enter total capital and risk-weighted assets, it calculates the capital adequacy ratio. If you enter the ratio and risk-weighted assets, it calculates total capital. If you enter the ratio and total capital, it calculates risk-weighted assets.
Capital Adequacy Ratio Reference Ranges
The table below gives a general way to interpret a capital adequacy ratio. Actual regulatory requirements can vary by jurisdiction, institution type, and capital category.
| Capital Adequacy Ratio | General Interpretation |
|---|---|
| Below 8% | May indicate insufficient capital under many common regulatory frameworks. |
| 8% to 10% | Often considered a minimum or near-minimum capital range. |
| 10% to 15% | Generally indicates a stronger capital position. |
| Above 15% | May indicate a high capital buffer, depending on the bank’s risk profile. |
Example Calculations
Example 1: Calculate capital adequacy ratio
Suppose a bank has total capital of 50,000,000 and risk-weighted assets of 400,000,000.
The capital adequacy ratio is 12.50%.
Example 2: Calculate required total capital
Suppose the target capital adequacy ratio is 10% and risk-weighted assets are 250,000,000.
The required total capital is 25,000,000.
FAQ
What does capital adequacy ratio mean?
The capital adequacy ratio measures how much capital a bank has compared with its risk-weighted assets. A higher ratio generally means the bank has a larger capital cushion against potential losses.
What are risk-weighted assets?
Risk-weighted assets are assets adjusted for risk. For example, a low-risk asset may receive a lower weight, while a higher-risk loan may receive a higher weight. The purpose is to compare capital against the amount of risk the bank is carrying, not just the total size of its balance sheet.
Why is the ratio multiplied by 100?
The formula is multiplied by 100 so the result is shown as a percentage. For example, a ratio of 0.125 becomes 12.5%.