April 2001April 2001

An Introduction to Capital AdequacyAn Introduction to Capital Adequacy

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The material that follows is a presentation of The material that follows is a presentation of general background information about the Bank’s general background information about the Bank’s activities current at the date of the presentation, 3 activities current at the date of the presentation, 3 April 2001. It is information given in summary form April 2001. It is information given in summary form and does not purport to be complete. It is not and does not purport to be complete. It is not intended to be relied upon as advice to investors or intended to be relied upon as advice to investors or potential investors and does not take into account potential investors and does not take into account the investment objectives, financial situation or the investment objectives, financial situation or needs of any particular investor. These should be needs of any particular investor. These should be considered, with or without professional advice considered, with or without professional advice when deciding if an investment is appropriate.when deciding if an investment is appropriate.

DisclaimerDisclaimer

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Speaker’s NotesSpeaker’s Notes

• Speaker’s notes for this presentation Speaker’s notes for this presentation are attached below each slide.are attached below each slide.

• To access them, you may need to To access them, you may need to save the slides in PowerPoint and save the slides in PowerPoint and view/print in “notes view.”view/print in “notes view.”

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AgendaAgenda

• TheoryTheory– PrinciplesPrinciples– Treatment of investment in life & funds Treatment of investment in life & funds

management businessesmanagement businesses

• PracticePractice– Effect of an increase in Appraisal Value on Effect of an increase in Appraisal Value on

Capital AdequacyCapital Adequacy– Effect of accelerated goodwill write-off on Effect of accelerated goodwill write-off on

Capital AdequacyCapital Adequacy

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PrinciplesPrinciples

• Capital Adequacy is calculated on stand Capital Adequacy is calculated on stand alone and consolidated basisalone and consolidated basis

• Consolidated basis excludes life companiesConsolidated basis excludes life companies

• Assets are risk weightedAssets are risk weighted

• Two tiers of capitalTwo tiers of capital

• Regulator requires minimum ratios, market Regulator requires minimum ratios, market requires higher ratiosrequires higher ratios

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Treatment of Life Insurance and Treatment of Life Insurance and Funds Management BusinessesFunds Management Businesses

• Assets and liabilities not consolidatedAssets and liabilities not consolidated

• NTA for capital adequacy purposes includes NTA for capital adequacy purposes includes acquired VBIFacquired VBIF

• NTA is deducted from total capitalNTA is deducted from total capital

• Balance is deducted from Tier 1Balance is deducted from Tier 1

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CapitalCapital AdequacyAdequacy 30 Jun 00 31 Dec 30 Jun 00 31 Dec

0000

Total Tier One CapitalTotal Tier One Capital 9,618 9,618 8,914 8,914Total Tier Two CapitalTotal Tier Two Capital 6,097 6,097 5,802 5,802Tier One and Tier Two CapitalTier One and Tier Two Capital 15,715 15,715 14,71614,716DeductionsDeductions (3,197 (3,197)) (2,278 (2,278))Total Regulatory CapitalTotal Regulatory Capital 12,51812,518 12,43812,438

Risk Weighted Capital Ratios (%)Risk Weighted Capital Ratios (%) Tier oneTier one 7.49 7.49 6.71 6.71Tier twoTier two 4.75 4.75 4.37 4.37Less DeductionsLess Deductions (2.49)(2.49) (1.71)(1.71)TotalTotal 9.75 9.75 9.37 9.37

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30 Jun 00 31 Dec 00 30 Jun 00 31 Dec 00

Tier One CapitalTier One CapitalTotal Shareholders’ EquityTotal Shareholders’ Equity 18,43518,435 19,46119,461Eligible Loan CapitalEligible Loan Capital 418 418 423 423Total Shareholders’ Equity and Loan CapitalTotal Shareholders’ Equity and Loan Capital 18,85318,853 19,88419,884Less GoodwillLess Goodwill (5,905) (5,905) (6,007)(6,007)Less Preference sharesLess Preference shares (86) (86) (39) (39)Less Intangible componentLess Intangible component of investment inof investment in

non-consolidated subsidiariesnon-consolidated subsidiaries (2,656)(2,656) (3,449)(3,449)Less Outside equity interestsLess Outside equity interests

in entities controlledin entities controlled by non-consolidated subsidiariesby non-consolidated subsidiaries (588) (588) (1,475)(1,475)

Total Tier One CapitalTotal Tier One Capital 9,6189,618 8,914 8,914

CapitalCapital AdequacyAdequacy ComponentsComponents

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30 Jun 00 31 Dec 00 30 Jun 00 31 Dec 00

Tier One CapitalTier One CapitalTotal Shareholders’ EquityTotal Shareholders’ Equity 18,43518,435 19,46119,461Eligible Loan CapitalEligible Loan Capital 418 418 423 423Total Shareholders’ Equity and Loan CapitalTotal Shareholders’ Equity and Loan Capital 18,85318,853 19,88419,884Less GoodwillLess Goodwill (5,905) (5,905) (6,007)(6,007)Less Preference sharesLess Preference shares (86) (86) (39) (39)Less Intangible componentLess Intangible component of investment inof investment in

non-consolidated subsidiariesnon-consolidated subsidiaries (2,656)(2,656) (3,449)(3,449)Less Outside equity interestsLess Outside equity interests

in entities controlledin entities controlled by non-consolidated subsidiariesby non-consolidated subsidiaries (588) (588) (1,475)(1,475)

Total Tier One CapitalTotal Tier One Capital 9,6189,618 8,914 8,914

CapitalCapital AdequacyAdequacy ComponentsComponents

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30 Jun 00 31 Dec 00 30 Jun 00 31 Dec 00

Tier One CapitalTier One CapitalTotal Shareholders’ EquityTotal Shareholders’ Equity 18,43518,435 19,46119,461Eligible Loan CapitalEligible Loan Capital 418 418 423 423Total Shareholders’ Equity and Loan CapitalTotal Shareholders’ Equity and Loan Capital 18,85318,853 19,88419,884Less GoodwillLess Goodwill (5,905) (5,905) (6,007)(6,007)Less Preference sharesLess Preference shares (86) (86) (39) (39)Less Intangible componentLess Intangible component of investment inof investment in

non-consolidated subsidiariesnon-consolidated subsidiaries (2,656)(2,656) (3,449)(3,449)Less Outside equity interestsLess Outside equity interests

in entities controlledin entities controlled by non-consolidated subsidiariesby non-consolidated subsidiaries (588) (588) (1,475)(1,475)

Total Tier One CapitalTotal Tier One Capital 9,6189,618 8,914 8,914

CapitalCapital AdequacyAdequacy ComponentsComponents

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30 Jun 00 31 Dec 00 30 Jun 00 31 Dec 00

Tier One CapitalTier One CapitalTotal Shareholders’ EquityTotal Shareholders’ Equity 18,43518,435 19,46119,461Eligible Loan CapitalEligible Loan Capital 418 418 423 423Total Shareholders’ Equity and Loan CapitalTotal Shareholders’ Equity and Loan Capital 18,85318,853 19,88419,884Less GoodwillLess Goodwill (5,905) (5,905) (6,007)(6,007)Less Preference sharesLess Preference shares (86) (86) (39) (39)Less Intangible componentLess Intangible component of investment inof investment in

non-consolidated subsidiariesnon-consolidated subsidiaries (2,656)(2,656) (3,449)(3,449)Less Outside equity interestsLess Outside equity interests

in entities controlledin entities controlled by non-consolidated subsidiariesby non-consolidated subsidiaries (588) (588) (1,475)(1,475)

Total Tier One CapitalTotal Tier One Capital 9,6189,618 8,914 8,914

CapitalCapital AdequacyAdequacy ComponentsComponents

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30 Jun 00 31 Dec 00 30 Jun 00 31 Dec 00

Tier One CapitalTier One CapitalTotal Shareholders’ EquityTotal Shareholders’ Equity 18,43518,435 19,46119,461Eligible Loan CapitalEligible Loan Capital 418 418 423 423Total Shareholders’ Equity and Loan CapitalTotal Shareholders’ Equity and Loan Capital 18,85318,853 19,88419,884Less GoodwillLess Goodwill (5,905) (5,905) (6,007)(6,007)Less Preference sharesLess Preference shares (86) (86) (39) (39)Less Intangible componentLess Intangible component of investment inof investment in

non-consolidated subsidiariesnon-consolidated subsidiaries (2,656)(2,656) (3,449)(3,449)Less Outside equity interestsLess Outside equity interests

in entities controlledin entities controlled by non-consolidated subsidiariesby non-consolidated subsidiaries (588) (588) (1,475)(1,475)

Total Tier One CapitalTotal Tier One Capital 9,6189,618 8,914 8,914

CapitalCapital AdequacyAdequacy ComponentsComponents

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30 Jun 00 31 Dec 00 30 Jun 00 31 Dec 00

Tier One CapitalTier One CapitalTotal Shareholders’ EquityTotal Shareholders’ Equity 18,43518,435 19,46119,461Eligible Loan CapitalEligible Loan Capital 418 418 423 423Total Shareholders’ Equity and Loan CapitalTotal Shareholders’ Equity and Loan Capital 18,85318,853 19,88419,884Less GoodwillLess Goodwill (5,905) (5,905) (6,007)(6,007)Less Preference sharesLess Preference shares (86) (86) (39) (39)Less Intangible componentLess Intangible component of investment inof investment in

non-consolidated subsidiariesnon-consolidated subsidiaries (2,656)(2,656) (3,449)(3,449)Less Outside equity interestsLess Outside equity interests

in entities controlledin entities controlled by non-consolidated subsidiariesby non-consolidated subsidiaries (588) (588) (1,475)(1,475)

Total Tier One CapitalTotal Tier One Capital 9,6189,618 8,914 8,914

CapitalCapital AdequacyAdequacy ComponentsComponents

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Treatment of Investments in Life and Treatment of Investments in Life and Funds Management BusinessesFunds Management Businesses

Embedded Value

Value Future New Business

Appraisal Value

Value Business in Force

Shareholder NTA

Value Future New Business

Shareholder NTA

Self Generated Business in Force

Acquired Business in Force

Deducted from Total Capital

LessExternal Debt

Capital Adequacy

ComponentsIntangible Component of Investment in

Non-Consolidated Subs

Deducted fromTier 1 Capital

Value Future New Business

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30 Jun 00 31 Dec 30 Jun 00 31 Dec 00 00

Tier Two CapitalTier Two CapitalGeneral Provisions for bad and doubtful debts General Provisions for bad and doubtful debts 1,358 1,358 1,412 1,412FITB related to general provisionFITB related to general provision (420) (420) (420) (420)Dated note and bond issuesDated note and bond issues 5,120 5,120 4,771 4,771Preference sharesPreference shares 39 39 39 39Total Tier Two CapitalTotal Tier Two Capital 6,0976,097 5,8025,802

CapitalCapital AdequacyAdequacy ComponentsComponents

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30 Jun 00 31 Dec 30 Jun 00 31 Dec 00 00

Tier Two CapitalTier Two CapitalGeneral Provisions for bad and doubtful debts General Provisions for bad and doubtful debts 1,358 1,358 1,412 1,412FITB related to general provisionFITB related to general provision (420) (420) (420) (420)Dated note and bond issuesDated note and bond issues 5,120 5,120 4,771 4,771Preference sharesPreference shares 39 39 39 39Total Tier Two CapitalTotal Tier Two Capital 6,0976,097 5,8025,802

CapitalCapital AdequacyAdequacy ComponentsComponents

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30 Jun 00 31 Dec 30 Jun 00 31 Dec 00 00

Tier Two CapitalTier Two CapitalGeneral Provisions for bad and doubtful debts General Provisions for bad and doubtful debts 1,358 1,358 1,412 1,412FITB related to general provisionFITB related to general provision (420) (420) (420) (420)Dated note and bond issuesDated note and bond issues 5,120 5,120 4,771 4,771Preference sharesPreference shares 39 39 39 39Total Tier Two CapitalTotal Tier Two Capital 6,0976,097 5,8025,802

CapitalCapital AdequacyAdequacy ComponentsComponents

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30 Jun 00 31 Dec 30 Jun 00 31 Dec 00 00

Tier Two CapitalTier Two CapitalGeneral Provisions for bad and doubtful debts General Provisions for bad and doubtful debts 1,358 1,358 1,412 1,412FITB related to general provisionFITB related to general provision (420) (420) (420) (420)Dated note and bond issuesDated note and bond issues 5,120 5,120 4,771 4,771Preference sharesPreference shares 39 39 39 39Total Tier Two CapitalTotal Tier Two Capital 6,0976,097 5,8025,802

CapitalCapital AdequacyAdequacy ComponentsComponents

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CapitalCapital AdequacyAdequacy 30 Jun 00 31 Dec 30 Jun 00 31 Dec

0000

Total Tier One CapitalTotal Tier One Capital 9,618 9,618 8,914 8,914Total Tier Two CapitalTotal Tier Two Capital 6,097 6,097 5,802 5,802Tier One and Tier Two CapitalTier One and Tier Two Capital 15,715 15,715 14,71614,716DeductionsDeductions (3,197 (3,197)) (2,278 (2,278))Total Regulatory CapitalTotal Regulatory Capital 12,51812,518 12,43812,438

Deductions for life insurance and funds management companies:Deductions for life insurance and funds management companies: Tier oneTier one 2,656 2,656 3,449 3,449Total capitalTotal capital 3,1973,197 2,2782,278TotalTotal 5,8535,853 5,727 5,727

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Capital AdequacyCapital Adequacy Effect of Increase in Appraisal Value Effect of Increase in Appraisal Value

Appraisal Value

Value Business in Force

Shareholder NTA

Value Future New Business

Capital Adequacy

ComponentsIncrease

ShareholderEquityIn

creases

Increase

Deducted from Total CapitalNo Change

LessExternal Debt

Value Future New Business

Shareholder NTA

Self Generated Business in Force

Acquired Business in Force

Intangible Component of Investment inNon-Con SubsDeducted fromTier 1 Capital

Deduction increases

Increase

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Capital AdequacyCapital AdequacyEffect of Accelerated Goodwill Write-offEffect of Accelerated Goodwill Write-off

Shareholders’ Equity

Less: Goodwill

Other Additions/Adjustments

Tier 1 Capital

Other Additions/Adjustments

Tier 1 Capital

Shareholders’ Equity $300

Less: Goodwill $300

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SummarySummary

• Capital adequacy calculated as per usual, Capital adequacy calculated as per usual, except no consolidation of life insurance and except no consolidation of life insurance and funds management companiesfunds management companies

• Value of life insurance and funds Value of life insurance and funds management companies deducted from management companies deducted from capital basecapital base– NTA from total capitalNTA from total capital– Balance from Tier 1Balance from Tier 1

April 2001April 2001

An Introduction to Capital AdequacyAn Introduction to Capital Adequacy