BANK BRANCH AUDIT - AUDIT OF BASEL RETURNS

*Audit of Basel Returns*

*About:*

Basel is a city in Switzarland which is also the headquarters of Bank for International Settlements(BIS). There are two representstive offices in Hongkong and in Maxico city.

In Basel, Governers of Central Banks of 10 countries had a meeting and they formed a Committee named BCBS- Basel Committee of Banking Supervision, formed in 1974.

The purpose of the committee is to ensure that fin. institutions have enough capital to absorb unexpected losses.

1. CAR, or the capital adequacy ratio, is a comparison of the available capital that a bank has on hand to its risk-weighted assets. The ratio provides a quick idea of whether a bank has enough funds to cover losses and remain solvent under difficult financial circumstances. 

2. Capital Adequacy Ratio (CAR) is also known as Capital to Risk (Weighted) Assets Ratio.

3. CAR minimums are 8.0% under Basel II and 10.5% (with an added 2.5% conservation buffer) under Basel III. 

4. The higher the CAR, the better able a bank should be to meet its financial obligations when under stress.

5. Formulas used:

CET1 Capital Ratio = Common Equity Tier 1 / Credit risk-adjusted asset Value ≥ 4.5%

Tier 1 capital ratio = Tier 1 capital / Credit risk-adjusted assets value ≥ 6%

Total capital (Tier 1 and Tier 2) ratio = Total capital (Tier 1 + Tier 2) / Credit risk-adjusted assets ≥ 8%

Leverage Ratio = Tier 1 capital / Average total consolidated assets value ≥ 3%

6. Audit checklist:

-first of all tally grand total of all loans advances figures in RA1 RA2 with bsheet totals. And ensure no unded assets of beanch left to consider in this return. 

-if not tallied, then dont sign report until u get totals tallied as such. and mention abt it in main audit report comments in CRS.

-then next review n tally categorisations (each portfolio of loans) of risk weighted assets in car ii and iii reports.

-next review the risk weights given for each types of assets. These weights must be extactly same with the international risk weights prescibed for each types of loans portfolios.

-if find any discrepancy if any asset not considered or risks weights r incorrect, Pass MOCIII. Also keep in mind the info. asked by moc iii to be noted.