Professional Documents
Culture Documents
Extreme market movements or crises in the past reveal the inadequacy of managing risks based
only on normal business conditions and historical trends. In particular, crises in the 1990s (e.g.
Asian Crisis) and current financial turmoil have augmented the importance of better
understanding of potential vulnerabilities in the financial system and the measures to assess
these vulnerabilities for both the regulators and the bankers. The regulators and managers of
the financial system around the globe have developed a number of quantitative techniques to
assess the potential risks to the individual institutions as well as financial system. A range of
quantitative techniques that could serve the purpose is widely known as stress testing. IMF and
Basel Committee on banking supervision have also suggested for conducting stress tests on the
financial sector.
Stress testing is a simulation technique, which are used to determine the reactions of different
financial institutions under a set of exceptional, but plausible assumptions through a series of
battery of tests. At institutional level, stress testing techniques provide a way to quantify the
impact of changes in a number of risk factors on the assets and liabilities portfolio of the
institution. For instance, a portfolio stress test makes a rough estimate of the value of portfolio
using a set of exceptional but plausible events in abnormal markets.
However, one of the limitations of this technique is that stress tests do not account for the
probability of occurrence of these exceptional events. For this purpose, other techniques, for
example VAR (value at risks) models etc, are used to supplement the stress tests. These tests
help in managing risk within a financial institution to ensure optimum allocation of capital across
its risk profile.
At the system level, stress tests are primarily designed to quantify the impact of possible
changes in economic environment on the financial system. The system level stress tests also
complement the institutional level stress testing by providing information about the sensitivity
of the overall financial system to a number of risk factors. These tests help the regulators to
identify structural vulnerabilities and the overall risk exposure that could cause disruption of
financial markets. Its prominence is on potential externalities and market failures.
underlying relationships between these variables (for example correlations and volatilities).
Stress testing can be based on the historical scenarios, a backward looking approach, or the
hypothetical scenario, a forwardlooking approach.
c. Extreme Value/ Maximum Shock Scenario measures the change in the risk factor in the
worstcase scenario, i.e. the level of shock which entirely wipes out the capital.
Stress test shall be carried out assuming three different hypothetical scenarios:
Minor Level Shocks: These represent small shocks to the risk factors. The level for
different risk factors can, however, vary.
Moderate Level Shocks: It envisages medium level of shocks and the level is defined in
each risk factor separately.
Major Level Shocks: It involves big shocks to all the risk factors and is also defined
separately for each risk factor.
Assumptions behind each Scenario: The stress test at this stage is only a single factor
sensitivity analysis. Each of the five risk factors has been given shocks of three different
levels. The magnitude of shock has been defined separately for each risk factor for all
the three levels of shocks
2%
92992
6200
3%
139488
9300
2008
1%
381185
317.2
10.20
%
9.62%
11.90%
11.07%
10.23%
12.30%
11.44%
10.56%
4.41%
5.38%
4.26%
5.22%
6.18%
5.27%
6.23%
7.19%
2%
762370
634.5
3%
114355
5952
2007
1%
295620
002.4
2%
591240
004.8
3%
886860
007.3
2. The second deals with the negative shift in the NPLs categories and hence the increase in
respective provisioning. The three scenarios shall explain the impact of 50%, 80% and 100%
downward shift in the NPLs categories.
Downward shift in NPLs Catagories
2009
50%
80%
100%
Weighted
13330 13330 13330
Amount
of 42087 42087 42087
provision
Provision after 54698 81963 10013
shift
in 16993 12246 97574
Catagories
8
Increase
in 41367 68632 86809
Provision
74906 70159 33662
Revised
41797 14532 Capital
55094 59841 36440
3662
Revised RWA
69183 66456 64639
21509 71984 05633
4
1
8
Revised
6.04% 2.19% CAR(%)
0.56%
2008
50%
17151
35345
80%
17151
35345
43868
86811
26717
51466
25798
18534
38643
53853
4
6.68%
100%
17151
35345
2007
50%
17312
81318
80%
17312
81318
100%
17312
81318
62904
27760
75594
55059
44743
18916
64303
19127
77343
19268
45752
92414
67627
7585.
7
36739
99758
6
1.84%
58443
19713
59274
9713
35470
97028
7
1.67%
27430
37598
12907
31582
46990
37809
66526
8629
25988
05208
4
2.56%
60030
37950
19692
68770
24684
05194
3
7.98%
27944
05229
5
4.62%
Here, for the first level of shock 50% of the SMA shall be categorized under substandard, 50% of
the substandard shall be categorized under doubtful and 50% of the doubtful shall be added to
the bad/loss category. Then the provision has been calculated. The capital base and RWA has
been then reduced by the amount of increase in provision which lowers its CAR. The table shows
that it CAR has reduced by a larger amount in 2007. But all the case and year its CAR has been
remained below CAR mentioned by the BB.
3. The third deals with the increase of the NPLs in particular 1 or 2 sector i.e. garments &
Textiles and the respective provisioning. The three scenarios shall explain the impact of 5%,
7.5% and 10% performing loans of particular 1 or 2 sectors directly downgraded to bad/loss
category having 100% provisioning requirement.
Increase in NPLs under B/L Category in 1 0r 2 sector
2009
2008
5%
7.50% 10%
5%
Loans
to 10927 10927 10927 99028
Garments and 58000 58000 58000 70000
Textile Sectors
0
0
0
Increase in NPLs 54637 81956 10927 49514
9000
8500
58000 3500
7.50%
99028
70000
10%
99028
70000
74271
5250
99028
7000
Increase
Provision
in 54637
9000
Revised Capital
77701
81956
8500
10927
58000
49514
3500
74271
5250
99028
7000
74969
72237
47564
45088
42612
2007
5%
76607
36644
7.50%
76607
36644
10%
76607
36644
38303
6832.
2
38303
6832.
2
36507
57455
5248.
3
57455
5248.
3
34592
76607
3664.
4
76607
3664.
4
32676
Revised RWA
Revised CAR(%)
51000
72773
61100
0
10.68
%
61500
72500
42150
0
10.34
%
72000
72227
23200
0
10.00
%
26500
40820
14650
0
11.65
%
54750
40572
57475
0
11.11
%
83000
40325
00300
0
10.57
%
32348
30304
05306
1
0.120
47010
1
13932
30112
53464
5
0.114
87621
3
95516
29921
01622
9
0.109
21071
3
In 2009, EBL has given more than 10% of its loan to Readymade Garments and Textile industry.
In 2008, it has also made 10% loan to the ship breaking industry. Increase in NPLs has increased
the provision by the same amount and thus decrease the Capital base and RWA. EBL has been
more exposed this risk of increase in NPLs in the specific category in 2009.
2%
11658
67568
67037
3851.6
76461
56148
3%
17488
01352
10055
60777
73109
69223
72649
61614
8
10.52
%
7.21%
72314
42922
3
10.11
%
10.87
%
2008
1%
50753
5436.4
29183
2875.9
49597
37124
2007
2%
3%
1%
10150 15226 37539
70873 06309 2469.2
58366 87549 21585
5751.8 8627.8 0669.8
46679 43760 38179
04248 71372 18510
2%
75078
4938.5
43170
1339.6
36020
67840
3%
11261
77408
64755
2009.4
33862
17171
41023
45712
4
12.09
%
4.89%
40731
62424
8
11.46
%
9.84%
30255
38855
3
11.91
%
9.43%
30039
53788
4
11.27
%
14.24
%
40439
79137
2
10.82
%
14.87
%
30471
23922
3
12.53
%
4.68%
As EBLs market value of Equity has been much increased from 2007 to 2009 side by side with its
capital base and RWA, the impact of fall in market value of equity on CAR has been decreased.
The percentage fall in CAR is much lower in 2009 in comparison to 2008 and 2007 due to fall in
market value of equity.
10%
6521
8437
41
6521
8437
4.1
3750
0601
5.1
7941
5239
85
7294
4983
985
10.8
9%
4.01
8%
15%
6521
8437
41
9782
7656
1.2
5625
0902
2.7
7754
0209
77
7275
7480
977
10.6
6%
6.04
3%
2008
5%
6672
4544
53
3336
2272
2.7
1918
3306
5.5
5059
7369
34
4112
3456
934
12.3
0%
3.20
%
10%
6672
4544
53
6672
4544
5.3
3836
6613
1
4867
9038
69
4093
1623
869
11.8
9%
6.44
%
15%
6672
4544
53
1000
8681
68
5754
9919
6.6
4676
0708
03
4073
9790
803
11.4
8%
9.70
%
2007
5%
5030
0247
85
2515
0123
9.3
1446
1321
2.6
3889
1559
67
3054
2476
680
12.7
3%
3.13
%
10%
5030
0247
85
5030
0247
8.5
2892
2642
5.1
3744
5427
55
3039
7863
468
12.3
2%
6.29
%
15%
5030
0247
85
7545
0371
7.8
4338
3963
7.7
3599
9295
42
3025
3250
255
11.9
0%
9.48
%
The table shows that the bank has been less exposed to the risk of fall in CAR due to change in
exchange rate in 2009. Because its off-balance sheet and on balance sheet exposure has been
lower in 2009.
73218
21225
1
11.22
%
Fall in CAR (% 1.09%
age points)
20%
17700
47815
40%
17700
47815
2008
10%
16579
690
35400
9563
70801
9126
16579
69
33159
38
6631
876
95382
4.1
19076
48.2
38152
96.4
20355
5498.
7
81129
74501
40711
0997.
5
79094
19003
95333
2.175
19066
64.35
3813
328.7
52496
63336
73116
43450
1
11.10
%
2.18%
72912
87900
3
10.85
%
4.36%
41314
33666
8
12.71
%
0.02%
41313
38333
6
12.71
%
0.03%
5247
7566
71
4.131 30686
1E+10 54144
4
12.70 13.14
%
%
0.06% 0.01%
10968
97.71
5
40326
72282
21937
95.43
52506
16668
54844
8.857
5
40332
20731
30685
99299
5
13.14
%
0.02%
30684
89609
8
13.14
%
0.05%
20%
16579
690
40%
1657
9690
2007
10%
95382
41
20%
95382
41
40%
95382
41
40315
75385
Now a days, Bank has been started to invest their excess liquidity in the stock market.
Investment this sector has been increased by a larger amount from 2007. As a result its CAR has
been reduced by a larger percentage in 2009 in comparison to 2007.
Liquidity Risk:
The stress test for liquidity risk evaluates the resilience of the banks towards the fall in liquid
liabilities. The ratio liquid assets to liquid liabilities has been calculated before and after the
application of shocks by dividing the liquid assets with liquid liabilities.
Liquid assets are the assets that are easily turned into cash without the threat of loss. They
include cash, balances with Bangladesh Bank and balances with banks, call money lending,
lending under repo and investment in government securities.
Liquid liabilities include the deposits and the borrowings. In these case, the deposits and
borrowing which have maturities upto 12 month has been taken.
Appropriate shocks have been absorbed to the liquid liabilities if the current liquidity position
falls at the rate of 10%, 20% and 30% respectively. The ratio of liquid assets to liquid liabilities
has been recalculated under each scenario.
Liquidity Risk
2009
10%
Liquid
18226
Asset
53277
5
Liquid
50557
Liabilities
64310
7
Liquidity
0.3605
Ratio
09938
Fall
in 50557
Liquid
64311
Liabilities
Revised
13170
Liquid
76846
Asset
4
Revised
45501
Liquid
87879
Liabilities
6
Revised
0.2894
Liquidity
55487
Ratio
20%
18226
53277
5
50557
64310
7
0.3605
09938
10111
52862
1
81150
04154
30%
18226
53277
5
50557
64310
7
0.3605
09938
15167
29293
2
30592
39843
40446
11448
6
0.2006
37422
35390
35017
5
0.0864
42768
2008
10%
12859
62862
6
44435
88084
2
0.2893
97405
44435
88084
20%
12859
62862
6
44435
88084
2
0.2893
97405
88871
76168
84160
40542
39724
52458
39992
29275
8
0.2104
41562
35548
70467
4
0.1117
46757
30%
12859
62862
6
44435
88084
2
0.2893
97405
13330
76425
3
47113
5627
31105
11658
9
0.0151
4656
2007
10%
10253
64537
2
33202
77807
2
0.3088
18899
33202
77807
20%
10253
64537
2
33202
77807
2
0.3088
18899
66405
55614
30%
10253
64537
2
33202
77807
2
0.3088
18899
99608
33422
69333
67565
36130
89758
29281
1950.4
29882
50026
5
0.2320
20999
26562
22245
8
0.1360
23624
23241
94465
0
0.0125
98427
8316530000
73319990000
11.34%
Scenario 3
1%
2%
3%
582933784 1165867568 1748801352
335186925.8 670373851.6 1005560777
7981343074 7646156148 7310969223
72984803074 72649616148 72314429223
10.94%
10.52%
10.11%
3.59%
7.21%
10.87%
5%
10%
15%
6521843741 6521843741 6521843741
326092187.1 652184374.1 978276561.2
187503007.6 375006015.1 562509022.7
8129026992 7941523985 7754020977
73132486992 72944983985 72757480977
11.12%
10.89%
10.66%
2.004%
4.018%
6.043%
1%
2%
3%
47667990000 47667990000 47667990000
46496310000 46496310000 46496310000
1171680000 1171680000 1171680000
2.46%
2.46%
2.46%
464963100
929926200 1394889300
464963100
929926200 1394889300
7851566900 7386603800 6921640700
72855026900 72390063800 71925100700
10.78%
10.20%
9.62%
4.99%
10.04%
15.16%
1636643100 2101606200 2566569300
3.43%
4.41%
5.38%
50%
80%
100%
1731281318 1731281318 1731281318
5469816993 8196312246 10013975748
3738535675 6465030928 8282694430
4577994325 1851499072 33835569.85
69581454325 66854959072 65037295570
6.58%
2.77%
0.05%
5%
7.50%
10%
10%
20%
40%
1770047815 1770047815 1770047815
177004781.5
354009563
708019126
101777749.4 203555498.7 407110997.5
8214752251 8112974501 7909419003
73218212251 73116434501 72912879003
11.22%
11.10%
10.85%
1.09%
2.18%
4.36%
Liquid Asset
Liquid Liabilities
Liquidity Ratio
Fall in Liquid Liabilities
Revised Liquid Asset
Revised Liquid Liabilities
Revised Liquidity Ratio
10%
18226532775
50557643107
0.360509938
5055764311
13170768464
45501878796
0.289455487
20%
18226532775
50557643107
0.360509938
10111528621
8115004154
40446114486
0.200637422
30%
18226532775
50557643107
0.360509938
15167292932
3059239843
35390350175
0.086442768
Non
asset
earning
Liabilities
Equity
Borrowings
Face
Value
340244
0722
677721
6553
477000
0000
264000
0000
177004
7815
312206
06679
149089
15404
288484
8439
683740
75612
Cou
pon
Repricing
Period
0
YT
M
0
Weighte
d YTM
6%
6%
1%
8.50
%
7.50
%
1%
8.40
%
7.04
%
0
13%
13%
6%
13%
13%
3%
0%
428266
7000
166327
0081
288864
9177
189118
0194
537196
5566
183732
55670
203496
14306
248167
1067
572216
256
339597
1692
4%
0.25
4%
4%
4%
4%
4%
0%
0%
10%
Market
Value
340244
0722
677721
6553
478981
4237
265142
0140
177004
7815
312206
06679
149089
15404
288484
8439
684053
09989
Duration
Weighted
Duration
428266
7000
166327
0081
288864
9177
189118
0194
537196
5566
183732
55670
203496
14306
248167
1067
572216
256
339597
1692
713484
8980
684053
09989
0.248
0.02
0.99
0.02
4.58
0.19
0.00
0.08
0.01
0.5
0.13
0.96
0.29
4.01
0.15
6.42
0.05
0.00
0
0.99
0.10
4.18
0.29
0.98
0.04
0.00
0.97
0.44
3.83
0.83
0.00
1.71
&
Current Deposit
deposit
other liabilities
0
6.50
%
10.5
0%
10.5
0%
10.5
0%
10.5
0%
0.083
0.5
1
5
10
Capiatal
Changes in MV of
Equity
1%
2%
3%
582933
784
1E+
09
2E+09
6.50
%
10.5
0%
10.5
0%
10.5
0%
10.5
0%
0.00
0.86
Leverage
Adjusted
Dgap
0.77
0.94
Stress Testing
Eastern Bank Limited
For The Year Ended 2008
Capital Base
Risk weighted Asset
capital Adequacy Ratio
5251570000
41315290000
12.71%
Scenario 3
1%
2%
3%
507535436.4 1015070873 1522606309
291832875.9 583665751.8 875498627.8
4959737124 4667904248 4376071372
41023457124 40731624248 40439791372
12.09%
11.46%
10.82%
4.89%
9.84%
14.87%
5%
10%
15%
6672454453 6672454453 6672454453
333622722.7 667245445.3 1000868168
191833065.5
383666131 575499196.6
5059736934 4867903869 4676070803
41123456934 40931623869 40739790803
12.30%
11.89%
11.48%
3.203%
6.437%
9.701%
1%
2%
3%
39662160000 39662160000 39662160000
38118531724 38118531724 38118531724
1308852167 1308852167 1308852167
3.30%
3.30%
3.30%
381185317.2 762370634.5 1143555952
381185317.2 762370634.5 1143555952
4870384683 4489199366 4108014048
40934104683 40552919366 40171734048
11.90%
11.07%
10.23%
6.39%
12.91%
19.55%
1690037484 2071222801 2452408119
4.26%
5.22%
6.18%
50%
80%
100%
1715135345 1715135345 1715135345
4386886811 6290427760 7559455059
2671751466 4575292414 5844319713
2579818534 676277585.7
-592749713
38643538534 36739997586 35470970287
6.68%
1.84%
-1.67%
5%
7.50%
10%
10%
20%
40%
16579690
16579690
16579690
1657969
3315938
6631876
953332.175
1906664.35
3813328.7
5250616668 5249663336 5247756671
41314336668 41313383336 41311476671
12.71%
12.71%
12.70%
0.02%
0.03%
0.06%
Liquid Asset
Liquid Liabilities
Liquidity Ratio
Fall in Liquid Liabilities
Revised Liquid Asset
Revised Liquid Liabilities
Revised Liquidity Ratio
10%
20%
30%
12859628626 12859628626 12859628626
44435880842 44435880842 44435880842
0.289397405 0.289397405 0.289397405
4443588084 8887176168 13330764253
8416040542 3972452458
-471135627
39992292758 35548704674 31105116589
0.210441562 0.111746757 -0.01514656
Face
Value
3518546
161
3406323
925
2250000
000
2092000
000
1657969
0
2699709
5064
1243028
8828
1974783
466
5268561
7134
Cou
pon
0
Repricing
Period
0
YTM
0
wighted
YTM
0.00%
6%
6%
0.39%
8.50
%
7.50
%
0
0.35%
8.20
%
7.44
%
0
13%
13%
6.66%
13%
13%
3.07%
0.00%
3163896
000
1285256
219
4988477
52
1636147
588
4163833
720
1997307
1464
1444561
1477
1135390
615
2081118
96
3340206
211
4%
0.25
4%
4%
4%
4%
4%
0.30%
0.00%
10.76%
Market
Value
3518546
161
3406323
925
2277761
896
2093280
128
1657969
0
2699709
5064
1243028
8828
1974783
466
5271465
9158
Durat
ion
0
weighted
Duration
0
0.99
0.063972
4.19
0.181047
0.98
0.038915
0.97
0.496772
3.83
0.903127
3163896
000
1285256
219
4988477
52
1636147
588
4163833
720
1997307
1464
1444561
1477
1135390
615
2081118
96
3340206
211
2864286
216
5271465
9158
0.248
0.014885
0.99
0.024138
4.58
0.043341
0.08
0.006319
0.5
0.189445
0.96
0.263073
4.01
0.086369
6.42
0.025345
1.683833
Current Deposit
deposit
other liabilities
0
6.50
%
10.5
0%
10.5
0%
10.5
0%
10.5
0%
0
0.083
0.5
1
5
10
Capiatal
6.50
%
10.5
0%
10.5
0%
10.5
0%
10.5
0%
0
0
0.652915
0.617439
1.066395
Changes in MV of
Equity
1%
2%
3%
5075354
36.4
1E+0
9
2E+09
Stress Testing
Eastern Bank Limited
For The Year Ended 2007
Capital Base
Risk weighted Asset
capital Adequacy Ratio
4033769180
30687089893
13.14%
Scenario 3
1%
2%
3%
375392469.2 750784938.5 1126177408
215850669.8 431701339.6 647552009.4
3817918510 3602067840 3386217171
30471239223 30255388553 30039537884
12.53%
11.91%
11.27%
4.68%
9.43%
14.24%
5%
10%
15%
5030024785 5030024785 5030024785
251501239.3 503002478.5 754503717.8
144613212.6 289226425.1 433839637.7
3889155967 3744542755 3599929542
30542476680 30397863468 30253250255
12.73%
12.32%
11.90%
3.129%
6.287%
9.475%
1%
2%
3%
30895706294 30895706294 30895706294
29562000242 29562000242 29562000242
1333706052 1333706052 1333706052
4.32%
4.32%
4.32%
295620002.4 591240004.8 886860007.3
295620002.4 591240004.8 886860007.3
3738149178 3442529175 3146909173
30391469891 30095849888 29800229886
12.30%
11.44%
10.56%
6.43%
12.98%
19.66%
1629326054 1924946057 2220566059
5.27%
6.23%
7.19%
50%
80%
100%
1731281318 1731281318 1731281318
4474318916 6430319127 7734319268
2743037598 4699037809 6003037950
1290731582
-665268629 -1969268770
27944052295 25988052084 24684051943
4.62%
-2.56%
-7.98%
5%
7.50%
10%
10%
20%
40%
9538241
9538241
9538241
953824.1
1907648.2
3815296.4
548448.8575 1096897.715
2193795.43
4033220731 4032672282 4031575385
30686541444 30685992995 30684896098
13.14%
13.14%
13.14%
0.01%
0.02%
0.05%
Liquid Asset
Liquid Liabilities
Liquidity Ratio
Fall in Liquid Liabilities
Revised Liquid Asset
Revised Liquid Liabilities
Revised Liquidity Ratio
10%
20%
30%
10253645372 10253645372 10253645372
33202778072 33202778072 33202778072
0.308818899 0.308818899 0.308818899
3320277807 6640555614 9960833422
6933367565 3613089758 292811950.4
29882500265 26562222458 23241944650
0.232020999 0.136023624 0.012598427
Face
Value
2353781
734
1540351
987
3930000
00
9840000
00
9538241
Coup
on
0
Repricing
Period
0
YTM
0
wighted
YTM
0.00%
6%
6%
0.25%
8.50
%
7.50
%
0
0.09%
8.37
%
7.46
%
0
1983815
3708
1105755
2586
1414392
004
3759077
0260
13%
13%
6.86%
13%
13%
3.82%
0.00%
3173000
000
2377960
31
3163228
00
4593401
555
3910865
824
1231292
9213
6702979
035
2354470
545
2049084
4%
0.25
4%
4%
4%
4%
4%
0%
6.50
%
10.5
0%
10.5
0%
10.5
0%
10.5
0%
0
0.083
6.50
%
10.5
0%
10.5
0%
10.5
0%
10.5
0%
0
0.20%
0.00%
11.21%
Market
Value
2353781
734
1540351
987
3950000
00
9843408
37
9538241
Durat
ion
0
weighted
Duration
0
0.99
0.040565
4.18
0.04392
0.97
0.025399
1983815
3708
1105755
2586
1414392
004
3759311
1097
0.97
0.511876
3.83
1.126548
3173000
000
2377960
31
3163228
00
4593401
555
3910865
824
1231292
9213
6702979
035
2354470
545
2049084
0.248
0.020932
0.99
0.006262
4.58
0.038538
0.08
0.008323
0.5
0.163766
0.96
0.171171
4.01
0.251148
6.42
0.00035
2697893
994
1291403
016
3759311
1097
1.748307
Current Deposit
deposit
other liabilities
2697893
994
0.5
1
5
10
Capiatal
0
0.66049
0.6378
1.110507
Changes in MV of
Equity
1%
2%
3%
3753924
69.2
8E+0
8
1E+09