The definition of internal standards capital – ICGR’
The internal rate of internal capital generation (ICGR) is a quantitative mathematical rate that portrays how quickly a Bank is able to generate its own capital. The internal rate of internal capital generation is calculated by dividing the retained earnings of the Bank in the average balance of total capital of all participants during a specific reporting period. The Bank’s retained earnings by subtracting dividends paid from the net profit.
Internal rate generation penetration ‘capital – ICGR’
The higher the internal rate of internal capital generation, the greater the ability of the Bank to produce capital to loan. This figure increases profitability, but also depends on the value of its shares. A quick way to calculate the internal rate of internal capital generation to take the plowback ratio times the return on equity (roe). The plowback ratio is what remains after the dividends were paid from retained earnings.
Example Of Calculation Of The Coefficient Of Internal Generation Of Capital
For example, if the plowback ratio is 0.80 and the return on equity is 17%, the internal rate of generation of capital is 13.6%. Thus, the company has increased its equity capital by 13.6%.