The inception of every business starts with the requirements of fund commonly known as Capital. Normally, the capital structure consists of equity and debt mix. Capital adequacy ratio shows how much of shareholders fund of an organization are contributing their capital fund in risk weighted assets. According to the directive of Nepal Rastra Bank, Capital Adequacy Ratio (CAR) has been sealed down to 11 percent from the existing level of 12 percent. It is computed by dividing the total fund by the total risk weighted assets. This is calculated as:
Capital Adequacy Ratio: Total Capital Fund X 100%
___________________
Total Risk Weighted Assets
Where, Total Capital Fund = Core Capital + Supplementary Capital
Total Risk Weighted Assets = On Balance Sheet Risk Weighted Items+ Off Balance Sheet Risk Weighted Items
The Table below shows CAR of SCBNL in Percentage
2003/2004 15.75%
2004/2005 15.85%
2005/2006 14.91%
2006/2007 15.88%
2007/2008 14.95%
Interpretation
If the CAR percentage is higher than the mandatory of minimum capital fund, interest of depositors is safe but in shareholders point of view, it is not better because of idle fund.
2.1.2Asset Quality
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