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Decimal Digest
09 May 2011

Contrast in Health of National Banking Systems

As with our many weekly articles, this week, we show how the 2007-8 credit crisis has affected the banking systems in various parts of the world in different ways.

The chart below shows the adjusted regulatory capital adequacy ratio for banking systems of various nations in the world. We have adjusted the reported capital adequacy to make 100% provision for all declared NPAs, based on the banking laws of respective nations. We have included countries for which data for any quarter of 2010 or 2011 was available with us at the national level. Some major countries like France and Switzerland were not included due to unavailability of latest data. We did not have access to reliable data on China.

We consider all countries with adjusted regulatory capital adequacy below 10% as highly susceptible to future shocks and the countries with ratio above 13% as countries with relatively safe banking systems, with the ability to absorb future shocks. The chart shows that most Euro nations and Japan have a worrisome position of banking system, while emerging nations such as India and Brazil have relatively safer banking systems. This analysis does not adjust for varying methods used for recognizing NPAs in various countries.


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