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Question 902  Basel accord

Below is a table of the 'Risk-weights for residential mortgages' as shown in APRA Basel 3 Prudential Standard APS 112 Capital Adequacy: Standardised Approach to Credit Risk January 2013.

LVR (%)

Standard eligible mortgages

Non-standard eligible mortgages

 

Risk-weight (no mortgage insurance)

%

Risk-weight (with at least 40% of the mortgage insured by an acceptable LMI)

%

Risk-weight (no mortgage insurance)

%

Risk-weight (with at least 40% of the mortgage insured by an acceptable LMI)

%

0 – 60

35

35

50

35

60.01 – 80

35

35

75

50

80.01 – 90

50

35

100

75

90.01 – 100

75

50

100

75

> 100.01

100

75

100

100

A bank is considering granting a home loan to a man to buy a house worth $1.25 million using his own funds and the loan. The loan would be standard with no lenders mortgage insurance (LMI) and an LVR of 80%.

What is the minimum regulatory capital that the bank requires to grant the home loan under the Basel 3 Accord? Ignore the capital conservation buffer.




Copyright © 2014 Keith Woodward