PRESENTED BY:

ZEESHAN HUSSAIN - 55405

HAFIZMUHAMMAD MAAZ AHMED - 61037
ALTAF HUSSAIN - 59848 PRESENTED TO:
UMAIR FAROOQUI - 60710
SIR FARAZ KHAN
WALEED HAFEEZ - 60650
 INTRODUCTION

Risk in this context as the possibility that something harmful or undesirable may happen.

The interest rate risk is the risk that an investment's value will change due to a change in the
absolute level of interest rates, in the spread between two rates, in the shape of the yield curve, or
in any other interest rate relationship.

Such changes usually affect securities inversely and can be reduced by diversifying (investing in
fixed-income securities with different durations) or hedging (such as through an interest rate swap).
 STEPS IN THE RISK MANAGEMENT
PROCESS

Following are the steps taken in risk management process.

STEP ONE: Establish your context

Identify, assess, and document potential risks. This involves mapping the following: social scope of risk management
(what are your stakeholders facing)

STEP TWO: Identification of possible risks

Instead of looking at the problem at hand, consider the causes of the problems you might face.

STEP THREE: Assessment

Once risks have been identified, they must be assessed for potential severity of loss and probability of occurrence.
 STEP FOUR: Create a risk management plan
Select appropriate controls or countermeasures to measure each risk. The mitigation needs to be approved by the
appropriate level of management.

STEP FIVE: Implementation

Follow all the planned methods for mitigating the effect of the risks.

STEP SIX: Evaluate and review

Initial plans are never perfect or wholly effective. Experience and change in circumstances will necessitate changes in
the plan and contribute information to allow different decisions to be made depending on the risk being faced.
 RISK IDENTIFICATION, MEASUREMENT
AND MITIGATION

Risk mitigation planning is the process of developing options and

actions to enhance opportunities and reduce threats to project
objectives. Risk mitigation implementation is the process of
executing risk mitigation actions. Risk mitigation progress
monitoring includes tracking identified risks, identifying new risks,
and evaluating risk process effectiveness throughout the project.
 INTRODUCTION TO BASEL III

 Basel III (or the Third Basel Accord or Basel Standards) is a global,
voluntary regulatory framework on Bank Capital Adequacy, Stress
Testing, and Market Liquidity Risk.

 The Basel III standard aims to strengthen the requirements from

the Basel II standard on bank's minimum capital ratios.

 In addition, it introduces requirements on liquid asset holdings and

funding stability, thereby seeking to mitigate the risk of a run on the
Bank.
PILLARS OF BASEL III
 AN OVERVIEW OF CAPITAL INSTRUCTIONS

 Minimum Capital Requirement (MCR):

 The MCR standard sets the nominal amount of capital banks/ DFIs are
required to hold.
 No bank/DFI shall commence and carry on its business in Pakistan unless it
meets the nominal capital requirements prescribed by SBP from time to time.
 Capital Adequacy Ratio:
 The Capital Adequacy Ratio (CAR) assesses the capital requirement based on
the risks faced by the banks/ DFIs.
 Leverage Ratio:
 The Tier-1 Leverage Ratio of 3% is being introduced in response to the
recently published Basel III Accord as the third capital standard by SBP.
 CAPITAL ADEQUACY RATIO (CAR)

 Capital adequacy ratios are a measure of the amount of a bank's capital

expressed as a percentage of its risk weighted credit exposures. An international
standard which recommends minimum capital adequacy ratios has been
developed to ensure banks can absorb a reasonable level of losses before
becoming insolvent.

 Capital Adequacy Ratio (CAR) is calculated by taking the Eligible

Regulatory Capital as numerator and the total Risk Weighted Assets
(RWA) as denominator.
 PEER COMPARISON - PERFORMANCE RATIOS & CAR
100.00%

90.00%

80.00%

70.00%

60.00%

50.00%

40.00%

30.00%

20.00%

10.00%

0.00%
2015 2016 2017 2015 2016 2017 2015 2016 2017 2015 2016 2017 2015 2016 2017
HBL BAH MCB ABL UBL

CAR ROA ROE COVERAGE RATIO

COMPONENTS OF BANK’S CAPITAL

Tier 1 Capital (going-concern capital)

 Common Equity Tier 1 (CET 1)

 Additional Tier 1 (AT 1)

Tier 2 Capital (gone-concern capital)

160000

140000

120000

100000
2017

80000 2016
2015
60000

40000

20000

0
Muslim Commercial Bank Allied Bank Limited Habib Bank Limited Bank Al-Habib United Bank Limited
160,000

140,000

120,000

100,000

2017
80,000
2016
2015
60,000

40,000

20,000

-
Muslim Commercial Bank Allied Bank Limited Habib Bank Limited Bank Al-Habib United Bank Limited
50,000

45,000

40,000

35,000

30,000
2017

25,000 2016
2015
20,000

15,000

10,000

5,000

-
Muslim Commercial Bank Allied Bank Limited Habib Bank Limited Bank Al-Habib United Bank Limited
 GUIDELEINES BY STATE BANK OF
PAKISTAN ON CREDIT RISK MANAGEMENT

 Common Equity Tier 1 of at least 6.0% of the total RWA.

 Tier-1 capital will be at least 7.5% of the total RWA

 Minimum Capital Adequacy Ratio (CAR) of 10% of the total RWA

 Additionally, Capital Conservation Buffer (CCB) of 2.5% of the total RWA is

being introduced which will be maintained in the form of CET1.

 The excess additional Tier 1 capital and Tier-2 capital can only be recognized if

the bank has CET1 ratio in excess of the minimum requirement of 8.5% (i.e. 6.0%

plus capital conservation buffer of 2.5%).