What it is
CET1 is the innermost circle of capital: ordinary shares, share premium, general and other eligible reserves, retained earnings. Nothing that has to be repaid or that pays a fixed return.
It is the Basel III measure the world settled on after 2008, because it is the capital that truly absorbs losses while the bank keeps operating.
For most Nepali banks CET1 and Tier 1 are the same, because they have not issued Additional Tier 1 instruments.
How it is calculated
CET1 ratio (%) = Common Equity Tier 1 capital ÷ Total risk-weighted assets × 100.
Worked on Nabil Bank Limited, FY 2082/83 Q4
NABIL's CET1 ratio was 8.87% at the end of FY 2082/83 Q4, against NRB's 4.5% minimum plus 2.5% conservation buffer.
What good looks like
Well above 7% (4.5% + 2.5% buffer). Usually it equals the Tier 1 ratio in Nepal; a gap means the bank has perpetual preference shares or similar.
Watch out
- The conservation buffer must be met with CET1, so the effective floor is 7%, not 4.5%.
- Fair value reserve swings with NEPSE prices can move CET1.
- Regulatory reserve counts toward CET1 even though it cannot be distributed.
In Nepal
NRB Capital Adequacy Framework 2015: minimum CET1 4.5% of RWA, with a 2.5% capital conservation buffer composed of common equity on top.
Questions
It has no Additional Tier 1 instruments, so all its Tier 1 capital is common equity.
Tier 1 is CET1 plus Additional Tier 1 instruments such as perpetual preference shares. Most Nepali banks have none, so the two match.