Bank Capital Adequacy ModelFree Financial Model Download

A bank capital adequacy model calculates regulatory capital ratios (CET1, Tier 1, Tier 2, leverage ratio) across a base-case forecast and stress scenarios to determine whether a bank maintains sufficient regulatory capital as it grows its loan book and manages net interest margin compression from rising deposit costs. The model answers whether the bank can support dividend payments while meeting Basel III capital requirements and how much loan growth is sustainable given retained earnings and capital constraints.

Revenue is driven by net interest income (interest earned on loans and securities less interest paid on deposits and wholesale funding), scaled by average balance methodology to avoid circular references, plus non-interest income from fees and services. Cost of credit is modelled as provision for credit losses (PCL) on gross loans, scaled by a through-the-cycle expected loss rate (0.3–0.6% of loans). Operating expenses include staff costs (typically 50–60% of opex), IT and technology, premises, and professional fees, with efficiency ratio (OpEx/Revenue) a key metric (target 50–65%). Risk-weighted assets (RWA) are calculated by applying Basel III risk weights to each asset category (cash 0%, securities 20%, loans 75%, PP&E 100%), and capital ratios are derived as CET1/RWA.

Bank investors, regulators, rating agencies, and depositors use bank models to confirm the institution maintains adequate capital buffers for loan losses, assess ROAE (return on average equity) vs. cost of capital, benchmark efficiency ratios against peers, and project dividend capacity constrained by target CET1 ratio maintenance.