ParwadaBank has attracted a new client: Dodgy Aeronautical Fusion Corporation. ParwadaBank has provided Dodgy A.F....
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Accounting
ParwadaBank has attracted a new client: Dodgy Aeronautical Fusion Corporation.
ParwadaBank has provided Dodgy A.F. Corp with both:
- A 5-year term loan in the amount of $12 million
- A performance-related guarantee in the amount of $321 million
You know that performance-related guarantees have a credit-conversion factor of 50%.
Goody's, a credit rating agency, has assigned a Dodgy A.F. Corp a rating of "B-", which places them in External Credit Rating Grade 5.
You have the following extract from the regulator's guide to risk weightings:
| COUNTERPARTY | EXTERNAL CREDIT RATING GRADE | |||||
| 1 | 2 | 3 | 4 | 5 | 6 | |
| Reserve Bank of Australia | 0% | 0% | 0% | 0% | 0% | 0% |
| Commonwealth government of Australia | 0% | 0% | 0% | 0% | 0% | 0% |
| State governments & Territories | 0% | 20% | 50% | 100% | 100% | 150% |
| Commercial banks (<3mth maturity) | 20% | 20% | 20% | 50% | 50% | 150% |
| Commercial banks (>3mth maturity) | 20% | 50% | 50% | 100% | 100% | 150% |
| Corporations | 20% | 50% | 100% | 100% | 150% | 150% |
Assuming Basel III requirements, what is the minimum CET1 capital amount (in $millions) required for ParwadaBank to support their total exposure to Dodgy A.F. Corp?
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