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Bank capital and distribution headroom

Test a proposed dividend against earnings, incremental losses, asset growth, capital buffers and separate liquidity and distribution limits.

Part 9; Appendix 03 §A3.1; workbook Bank Insurance!D16:D23. Fictional internal capital floor, not a statutory minimum. Inputs are illustrative assumptions, not live prices or investment recommendations.

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Scenario and units

Scenario / evidence label:

Currency:

Amount and share-count scale:Use the same scale for money and share counts. Money divided by shares then gives currency per share.

Period / valuation date:

Capital generation and asset growth

Opening eligible capital:

Opening risk-weighted assets:

After-tax earnings retained before the proposed dividend:

Additional after-tax stress loss not already in earnings:

Risk-weighted asset growth (%):Enter a percentage, for example 10 for 10%.

Independent distribution constraints

Selected minimum capital ratio (%):Enter a percentage, for example 10 for 10%.

Additional management buffer (percentage points):Enter a percentage, for example 10 for 10%.

Separately reviewed cash available for distributions:

Separately reviewed legal / supervisory distribution limit:

Proposed dividend:

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Your scenario, step by step.

Fictional teaching case · Illustrative annual period. Currency: KES; money and shares: billion. Prices and per-share results use whole currency units per share. Percentage columns show percentages; discount factors are unitless.

Capital headroom before dividend19.2

Distribution within all entered limits19.2

Proposed dividend above capacity0

Capital and distribution bridge

Measure	Value
Opening eligible capital	100
After-tax earnings	20
Incremental stress loss	0
Capital before dividend	120
Closing RWA	560
Selected floor plus buffer (%)	18
Required retained capital	100.8
Capital headroom before dividend	19.2
Reviewed cash limit	25
Reviewed legal / supervisory limit	25
Capacity under entered constraints	19.2
Proposed dividend	10
Capital after proposed dividend	110
Closing capital ratio (%)	19.6429
Capital headroom after proposed dividend	9.2

Interpret the result.

This single capital-ratio illustration reproduces the workbook mechanics. Its default floor is a fictional internal assumption, not a current statutory rule.

Use the same regulated entity and capital definition throughout. Multiple capital tiers, deductions, leverage limits and supervisor restrictions need separate review.

Loss is incremental to entered earnings. Do not deduct credit losses already included in earnings again. Liquidity and legal limits are independent binding constraints.

Formulae and symbol definitions.

C_1=C_0+E-L-D,\qquad A_1=A_0(1+g_A)

Closing capital = opening capital + retained earnings − incremental loss − dividend. Closing RWA grows from the opening risk-weighted asset base.

\[ H=C_0+E-L-(r+b)A_1 \]

Capital headroom before dividend deducts the selected minimum and management buffer applied to closing RWA.

D_{\max}=\max(0,\min(H,Q,J))

Distribution capacity is the nonnegative minimum of capital headroom, cash availability and the entered legal/supervisory ceiling.

Symbol	Definition and units
$$C_0,C_1$$ C0, C1	Eligible capital before and after the scenario.
$$E,L,D$$ E, L, D	After-tax earnings, additional after-tax loss, and proposed dividend.
$$A_0,A_1$$ A0, A1	Opening and closing risk-weighted assets.
$$g_A$$ gA	RWA growth rate as a decimal.
$$r,b$$ r, b	Selected capital ratio and additional buffer, decimals; buffer input is percentage points.
$$H$$ H	Capital headroom before the proposed dividend; can be negative.
$$Q,J$$ Q, J	Independent reviewed liquidity and legal/supervisory distribution limits.
$D_{\max}$ Maximum distribution	Capacity under entered constraints, not a statutory approval.

Read the research and workbook evidence.

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Existing FCFF/WACC valuation explorer · Detailed workbook library

Method background: Berkshire Hathaway’s 1986 owner-earnings discussion. Filings require accounting interpretation; these tools do not fetch SEC or NSE data automatically.

Symbol	Definition and units
$\(C_0,C_1\)$ C0, C1	Eligible capital before and after the scenario.
$\(E,L,D\)$ E, L, D	After-tax earnings, additional after-tax loss, and proposed dividend.
$\(A_0,A_1\)$ A0, A1	Opening and closing risk-weighted assets.
$\(g_A\)$ gA	RWA growth rate as a decimal.
$\(r,b\)$ r, b	Selected capital ratio and additional buffer, decimals; buffer input is percentage points.
$\(H\)$ H	Capital headroom before the proposed dividend; can be negative.
$\(Q,J\)$ Q, J	Independent reviewed liquidity and legal/supervisory distribution limits.
$D_{\max}$ Maximum distribution	Capacity under entered constraints, not a statutory approval.