RAROC Calculation Explanation

RAROC (Risk-Adjusted Return on Capital) is calculated as:

$\text{RAROC} = \frac{\text{After-tax expected risk-adjusted net income}}{\text{Economic capital}}$

Step 1: Calculate Economic Capital

$\text{Economic capital} = \text{CNY 3,800,000,000} \times 0.15 = \text{CNY 570,000,000}$

Step 2: Calculate Components

• Expected Revenue (ER): $\text{CNY 3,800,000,000} \times 0.041 = \text{CNY 155,800,000}$
• Return on Economic Capital (ROEC): $\text{CNY 570,000,000} \times 0.02 = \text{CNY 11,400,000}$
• Interest Cost (IC): $\text{CNY 3,800,000,000} \times 0.006 = \text{CNY 22,800,000}$
• Operating Cost (OC): $\text{CNY 3,800,000,000} \times 0.003 = \text{CNY 11,400,000}$
• Expected Loss (EL): $\text{CNY 3,800,000,000} \times 0.03 = \text{CNY 114,000,000}$

Step 3: Calculate Pre-tax Income

$\text{Pre-tax income} = \text{ER} + \text{ROEC} - \text{IC} - \text{OC} - \text{EL}$ $= 155,800,000 + 11,400,000 - 22,800,000 - 11,400,000 - 114,000,000 = \text{CNY 19,000,000}$

Step 4: Calculate Taxes

$\text{Taxes} = \text{CNY 19,000,000} \times 0.38 = \text{CNY 7,220,000}$

Step 5: Calculate After-tax Net Income

$\text{After-tax net income} = \text{CNY 19,000,000} - \text{CNY 7,220,000} = \text{CNY 11,780,000}$

Step 6: Calculate RAROC

$\text{RAROC} = \frac{\text{CNY 11,780,000}}{\text{CNY 570,000,000}} = 0.02067 = 2.07\%$

Therefore, the after-tax RAROC is 2.07%, which corresponds to option B.