Disclosures on Risk Based Capital Requirement under Pillar-III of
Basel-II for the year ended December 31, !!"#
Disclosure $%er%ie& This following detailed qualitative and quantitative disclosures are provided in accordance with the guidelines of Bangladesh bank for Risk Based Capital Adequacy Requirement under Basel-II issued through circular on ecember !"# $%%&' This is intended to provide users an insight about the various risks e(posures to which the bank is focused and maintenance of adequate capital against them' The users will also be able to compare the bank)s performance within the banking industry' BA*IC Bank has an approved market disclosure policy to disclose adequate information to the users in accordance with the suggestions made by Bangladesh Bank which is consistent with Bangladesh Accounting *tandards +BA*,# Bangladesh *tandards on Auditing +B*A,' 'a(or Requirements of Ban)ladesh Bank* )uidelines for Basel-II# -illar-I. /inimum Capital Requirement. Bank shall maintain minimum capital against potential risks +Credit Risks# /arket Risks# and 0perational Risks, which will be at least "%1 of total risk weighted assets' At present all banks operating in Bangladesh is instructed to follow *tandardi2ed approach for Credit Risk and /arket Risk and Basic Indicator Approach for 0perating Risk' Capital Adequacy Assessment and /aintenance shall be submitted to Bangladesh Bank on 3uarterly basis' -illar-II. *upervisory Review. The banks shall have a process for assessing overall capital adequacy in relation to their risk profile and a strategy for maintaining their capital at an adequate level' Adequate capital shall be more than or equal to "%1 of risk weighted assets' Bank should develop an Internal Capital Adequacy Assessment -rocess +ICA-, for assessment and maintenance of adequate capital'
-illar-III. /arket iscipline. -urpose of /arket discipline is to establish more transparent and disciplined financial market so that stakeholders can assess the position of a bank regarding holding of assets and to identify the risks relating to that assets and capital adequacy to meet the probable loss of assets' Banks shall develop an approved market disclosure policy and publish the same at least once in a year along with annual financial statements and also through website' " +he Disclosure# ,ssets# Bank)s total asset mainly consists of loans and advances# investment in government securities and money market placements which is increasing gradually' 3uality of this asset is standard and percentage of non performing asset is also at tolerable level' Comments on nature of assets# Bank) s assets may be classified into several categories such as Banking Assets and 4on Banking Assets# Trading Book Assets and Banking Book Assets# 5arning Assets and 4on 5arning Assets' -arnin) ,ssets .+radin) book asset, Bankin) book asset, etc/# 5arning Asset portfolio of the Bank consists of the followings. a' 6oans and Advances b' Investment in 7overnment *ecurities c' Investment in 5quity *hares d' Investment in other approved *ecurities e' Investment in Call and Term -lacement with Banks and 8inancial Institutions f' Balance with 0ther Banks +*T account# 8C account , 0on-earnin) assets .Cash, Cash reser%e &ith BB, etc1/# 4on 5arning Asset portfolio of the Bank consists of the followings. a' Cash and Cash 5quivalents including foreign currency b' Balance with Bangladesh Bank Current Account for maintaining CRR c' 4on Current Assets including 8urniture and 8i(tures# /achine and 5quipments# 9ehicles and 6eased Assets' d' 0ther assets including receivables' Definition of Default and Classified ,ssets# The Bank follows classification of loans and advances as per applicable circular of Bangladesh Bank' According to Bank Companies Act-"::" the definition of Classified 6oan is as follows. The loans and advances along with interest accrued or a part thereof remaining $ overdue as per definition of Bangladesh Bank for %; months or more is termed as efault or Classified 6oans' ,ddition2Reduction on Classified ,ssets# Bank)s non performing asset has increased slightly in the year $%%: comparing to that of $%%&' 7lobal economic recession has mainly contributed to such increase' Policies and processes for protectin) assets a)ainst Core Risks inherent &ith bankin) acti%ities# The Bank has developed its own core risks +Credit Risk# 8oreign 5(change Risk# Asset 6iability /anagement Risk# /oney 6aundering Risk and Internal Control and Compliance Risk, manual in line with core risks guidelines of Bangladesh Bank' As per these guidelines Asset 6iability Committee +A6C0, regularly reviews bank)s asset and liability position and suggests appropriate course of actions for mitigating any type potential risks' Bank has a Risk /anagement <nit to manage different types of risks' It is also comitted to adhere to core risk guidelines to protect its assets from all sorts of risks' Bankin) and +radin) Book ,sset# Amount in Crore *6 40 ,1 Bankin) Book ,ssets ,moun t " Cash in hand = Balance with BB +e(cluding 8C, 13133 $ /oney at call 141!! ! Investment 35316! a' 7overnment >?T/ T'Bond# -ri2e Bond ":&';! b' 3ualifying +Claims on Banks# etc, @;A'$@ c' 0thers +-rivate Investment, %';$ A 6oans = advances. "5116 a' Classified. *ubstandard $"'&& oubtful ":'@B Bad and 6oss ::'B: b' <nclassified *pecial /ention Account $!'"& *tandard $B;"'B! @ Risk Ceighted Assets. a' Below "%%1 RC &%"'%@ b' "%%1 RC !A$'@% c' Above "%%1 RC $"AA'B% ! ; Rated *tatus. a' Rated Assets B"'&: b' <nrated Assets !:A:'@& B 0ther assets +Including 8i(ed Assets, "5176 A' Total Banking Book Assets +"D$D!DADB, 7!1173 +radin) Book ,ssets# " 8C held in hand !16! $ 8C held in BB = 4ostro account 64117 ! Investment +trading, 7311 a' 7ovt'+part of govt' ?T/ if held above the required *6R amount, ! b' ?8T A$!'B: c' A8* +if any,-*hare of listed companies &'!! B' Total Trading Book Assets +"D$D!, 7"!135 +otal ,ssets .,8B/ 76113 Credit Risk on Bankin) Book Credit Risk is the probability of loss arising from counterparties) failure to meet repayment obligation' Credit risk mainly arises from direct loans and advances# Trade 8inance Business and 0ff Balance *heet e(posures' 'ethods used to measure credit risk# As per guidelines of Bangladesh Bank for Risk Based Capital Adequacy for Banks *tandardi2ed Approach for Credit Risk measurement has been applied' *tandardi2ed approach requires risk weight based on risk assessment done by 5(ternal Credit Assessment Institutions recogni2ed by Bangladesh Bank' Credit e(posure not rated by any 5CAI will get fi(ed weight as per *tandardi2ed approach'
Credit Risk 'ana)ement system# Bank has Credit risk /anual prepared inline with the credit risk of core risks guidelines of Bangladesh Bank' /anual contains the details of policies and procedures of bank)s credit operation' Bank has different Credit departments such as Industrial Credit ivision# Commercial Credit ivision# /icro Credit and Cholesale 8inance ivision and Trade 8inance ivision' Credits sanctioned from these departments go through a series of analysis of financials and feasibility of the proEects' Bank also has Credit Administration ivision and Recovery and 6egal Issues ivision' Credit Administration ivision ensures and monitors the compliance with credit policies# procedures and other rules of Bangladesh Bank' Recovery and 6egal Issues ivision ensures timely recovery of all assets and provide legal support to any dispute'
A Policies and processes for collateral %aluation and mana)ement. Bank has clear stipulation in the credit manual about the eligibility of collateral for credit proposals' Collaterals of fi(ed assets including land# building and factory premises are physically visited by the bank)s credit officers and valued by independent professional valuation firm before sanctioning the loans and advances' All the documents relating to the valid title of the property are checked by the penal lawyers of the bank' /ain types of collaterals taken by the bank. a, Cash Collaterals b, Registered /ortgage of 6and and Building in Commercial# Industrial and Residential sectors c, *tock of inventory# Accounts Receivable and ?ypothecation of machinery Total credit portfolio has been divided into "@ sub >sectors and it regularly monitored that a particular sector does not get too much of our total credit e(posures' In addition the Bank has a mandate of providing at least @%1 of its loan able fund to *mall and /edium *cale Industries' Therefore credit concentration is automatically managed' 9uantitati%e disclosure of credit risk# Amount in Crore
A, Total 5(posures of Credit Risk " 8unded. a, omestic A%$"'AB b, 0verseas % $ 4on-8unded a, omestic !B&'B: b, 0verseas % ! istribution of risk e(posure by claims A' Claims on sovereigns and central banks A@A'@A B' Claims on other official entities @B'%: C' Claims on banks and securities firms B;:'&@ ' Claims on corporate +/edium 5nterprise loans need to be shown separately, "A"A'!" 5' Claims included in the retail portfolio = small enterprises +consumer loan need to be shown separately, $&A'B$ 8' Claims secured by residential property A;:'B$ 7' Claims secured by commercial real estate $$B':B ?' Consumer "@'!& I' 0ther Categories. > -ast due loansF4-6 +4et of *pecific -rovision, ""$'$& - 0ff-balance sheet items !B&'B: A Credit Risk /itigation Claims secured by financial collateral "A@'AB @ 4et e(posure after the application of haircuts' A@'%A Claims secured by eligible 7uarantee % 'arket risk on +radin) Book /arket risk is the possibility of losing assets in balance sheet and off balance sheet position arising out of the volatility in market variables i'e'# interest rate# e(change rate and price' Bank uses standardi2ed approach to calculate market risk for trading book e(posure as per instruction of Bangladesh Bank' Trading book e(posures consists of position in financial instruments held with trading intent' 7enerally investment in ?eld for Trading category is main part of trading book e(posures' Trading steps are taken after considering regular update about the market' Bank diversifies its assets in various categories of trading assets' Bank has also a limit policy to mitigate unwanted market risk factors' 3uantitative isclosure. *6 40 The capital requirements for. Amount in Crore " Interest rate riskG :':A $ 5quity position riskG A':" ! 8oreign e(change riskG and "'@: A Commodity risk %'%% $perational risk 0perational Risk is defined as the risk of loss resulting from inadequate or failed internal processes# people and system or from e(ternal events' Bank has internal manuals on Internal Control and Compliance# ?uman Resource where details of operational policies# procedures and ?R related activities have been stated' Bank regularly monitor and reviews the performance of e(ecutives both quantitatively and qualitatively through analysis of achievement of business target in various parameters and behavioral# tactical and leadership aspects through confidential evaluation process' Bank is running through centrali2ed real time online system' 5(ternal events like natural disaster and unauthori2ed access to Bank)s centrali2ed computer system can affect the bank significantly' Bank has alternative arrangement for disaster recovery and a highly qualified team of IT e(perts is working to prevent any type of unauthori2ed access' Bank has an Audit and Inspection ivision and Compliance ivision' Audit and ; Inspection team regularly work to detect and remove procedural flaws# error and fraud' Compliance ivision is working to ensure all sorts of regulatory and policy compliance to help smooth operation and maintain consistency and thus reduce risk'
Bank uses Basic Indicator approach for calculating operational Risk as per instruction of Bangladesh Bank' The capital requirements for. Amount in Crore H 0perational Risk !"'!% 'aintenance of :pecific Pro%ision Bank determines *pecific -rovision on 4on performing assets as per relevant circulars of Bangladesh bank and maintains adequate provision as required which is quarterly reported to Bangladesh Bank' As per instruction of Bangladesh Bank specific provisions is calculated and maintained under the following categories of classified assets. *6 4on -erforming Assets Categories -ercentage of *pecific -rovision " *ubstandard loans and advances $%1 $ oubtful loans and advances @%1 ! Bad and 6oss loans and advances "%%1
Apart from above quantitative loan provisioning system bank also applies qualitative Eudgment to determine the quality of loans and advances and makes appropriate specific provision if necessary' Amount In Crore A 7ross 4on -erforming Assets "A"'$! 4on -erforming Assets to 0utstanding 6oans and Advances A'&!1 B /ovement of 4onperforming Assets 0pening balance "$@'"$ Additions ";!'": Reductions "AB'%& Closing Balance "A"'$A C /ovement of *pecific -rovision for 4-As 0pening Balance A"'@& -rovisions made during the year ""'!@ Crite off %';% Crite back of e(cess provisions %'%% Closing Balance @$'!A B 'aintenance of Re)ulatory Capital Capital Instruments eligible for inclusion in Tier " or in <pper Tier $' In Crore Tk' A Amount of Tier-" Capital -aid up Capital "A@'@! *tatutory Reserve "@@':: 7eneral reserve A'%% Retained 5arnings @!'%" Total of Tier -I !@&'@! B Amount deducted from Tier-" Capital 7ood will %%'%% *hortfall %%'%% 0thers %%'%% C Total amount of Tier $ capital +net of deductions from Tier $ capital, ;:'A& Total eligible capital' A$&'%" Capital ,dequacy A summary presentation of the bankIs approach to assessing the regulatory capital. In Crore Tk' A Amount of Regulatory Capital to meet unforeseen loss !BB'"A Amount to meet Credit Risk !$:'A% Amount to meet /arket Risk ";'AA Amount to meet 0perational Risk' !"'!% B *ome additional capital over /CR maintained by the banksJ %%'%%