To measure credit risk, we will therefore weight the total amount of the loan, referred to as the outstanding balance, by the quality of the borrower. 5\A bank has a solvency problem when its liabilities and equity are greater than its assets." As we saw in the equation above, the bank must collect more deposits to be able to distribute more credit. Credit risk is the risk that a borrower will default or that his financial situation will worsen to the point of devaluing the bank's loan to him. Solvency ratios are any form of financial ratio analysis that measures the long-term health of a business. As such, it will have a tendency to be more risk-averse in the granting of loans. However, in the Financial Stability Report (page 40) issued by the CBN earlier in the year, it claimed that commercial banks in Nigeria had an NPL ratio of 14% as at December 2016. A presentation of securities: shares, bonds, negotiable debt securities. Solvency ratios measure a company’s ability to satisfy its long-term obligations. A company balance sheet may be broken down as follows: The balance sheet is presented as Total Assets = Total Liabilities + Equity. However, the capital required to cover currency and commodity positions is applied to all these positions wherever they may be held in the bank. Financial institutions are considered solvent if its assets exceed liabilities. The company's capital includes all resources subject to business risk, that is, they may be recovered only at the time of the company's liquidation (equity) or after a very long period of time (quasi-equity). Such assets always have an uncertain and thus risky character (especially when essentially composed of loans, as is the case for banks! Many of them have been acquired by other financial institutions. A decrease in the solvency ratio has a stronger impact on banks’ senior bond yields and interest rates for term deposits for banks with a relatively lower solvency ratio. Solvency ratios are ratios that tell us whether the bank is a healthy long-term business or not. Credit risk = Assets weighted according to their risk. 2\A solvency problem occurs when a bank’s equity capital is less than its assets." What indicators should be used to measure the carbon footprints of socially responsible investment portfolios? Those companies which have high solvency ratios have good financial health and easily pay its obligations. rating agencies (Moody's, Standard & Poor's, etc.) Aside from the mathematical aspect of calculating equity capital, the Basel Commission wanted to define more precisely the proper functioning of the banking market. As well as disclosing capital and risk frameworks, they are also required to demonstrate how the regulations’ principles are embedded into their business. Each financial instrument category requires a different calculation method, which always consists of first evaluating a position, then calculating the capital required by applying a weighting of 0% to 8% to the position. For a fuller list, please see the quoted documents in the appendix. Market risk is the risk of a partial or total devaluation of positions taken due to changes in market conditions (share prices, interest rates). The Central Bank set an NPL ratio of 5%, and expects banks to stay within this range. Solvency ratios, also called leverage ratios, measure a company’s ability to sustain operations indefinitely by comparing debt levels with equity, assets, and earnings. Companies that have a higher solvency ratio are deemed more likely to meet the debt obligations while companies with a lower solvency ratio are more likely to pose a risk for the banks and creditors. Two possible methods: By maturity: standard weightings are defined for the different maturities of positions.