Financial Institutions And Markets Bangladesh Bank Finance Essay

Stress testing is a simulation technique used to find the reactions of different Financial Institutions under a set of exceeding, but plausible premises through a series of battery of trials. It is an of import hazard direction tool used by the FIs as portion of their internal hazard direction to alarm direction to adverse unexpected results related to a assortment of hazards and provides an indicant of how much capital might be needed to absorb losingss and how much vulnerable the liquidness place might be should big dazes occur.

Sing the importance and complexness of the methodological analysis of emphasis testing, BB issued guidelines on Stress proving in 2010 and made it compulsory for all the Bankss and fiscal establishments. After thorough analysis of the situational demands and future perspectives the guidelines have now been revised for the NBFIs with the following cardinal facets:

Stress Test evaluation graduated table of 1 to 5 and zonary placement through Leaden Average Resilience-Weighted Insolvency Ratio ( WAR-WIR ) Matrix introduced ;

Artificial Intelligence developed to auto-generate Recommended Action Plan for a peculiar FI based on its zonary placement ;

The Excel based unreal intelligence formats used for Stress Testing have been made more elaborative but simple.

WAR and WIR of the peculiar FI will be used to find its equal capital demand in Basel Accord and will be impacted on the CAMELS evaluation conducted by the cardinal bank.

All the NBFIs are expected to transport out stress proving on quarterly footing i.e. on March 31, June 30, September 30 and December 31 with their first emphasis proving utilizing the revised guidelines based on 30 June 2012. A preparation plan will be initiated shortly for the relevant staff to guarantee smooth execution of the revised guidelines.

I would wish to appreciate the function of those officers who were involved in this exercising. I besides express my gratitude to the honest Governor and Deputy Governor for their valuable counsel and support in this respect.

Introduction

Stress testing is a simulation technique used to find the reactions of different Financial Institutions under a set of exceeding, but plausible premises through a series of battery of trials. At institutional degree, stress proving techniques provide a manner to quantify the impact of alterations in a figure of hazard factors on the assets and liabilities portfolio of the establishment. At the system degree, emphasis trials are chiefly designed to quantify the impact of possible alterations in economic environment on the fiscal system.

Stress testing is an of import hazard direction tool that is used by the Financial Institutions as portion of their internal hazard direction and, through the Basel II capital adequateness model, is promoted by supervisors. Stress proving qui vives FI direction to adverse unexpected results related to a assortment of hazards and provides an indicant of how much capital might be needed to absorb losingss should big dazes occur. Stress proving addendums other hazard direction attacks and steps playing peculiarly of import function in:

supplying advanced appraisals of hazard ;

get the better ofing restrictions of theoretical accounts and historical informations ;

back uping internal and external communicating ;

feeding into capital and liquidness planning processs ;

informing the scene of an FI ‘s hazard tolerance ; and

easing the development of hazard extenuation or eventuality programs across a scope of stressed conditions.

These guidelines have been issued by Bangladesh Bank ( BB ) to supply a structured manner of measuring the exposure of fiscal establishments to extreme but plausible market conditions. These guidelines enable establishments to accurately measure hazard and specify the “ hazard appetency ” of the organisation and besides supply critical information to senior direction for determinations around capital allotment and eventuality planning.

Sing the importance and complexness of the methodological analysis of emphasis testing, BB issued guidelines on Stress proving in 2010 and made it compulsory for the Bankss and fiscal establishments. The guidelines have been revised to do it in line with Basel Accord model and besides to integrate a utile VaR methodological analysis. These revised guidelines are entirely applicable for the NBFIs working in Bangladesh.

Principles for sound Stress Testing patterns

The undermentioned recommendations are formulated with a position to use by the NBFIs to the extent they commensurate with the size and complexness of an FI ‘s concern and the overall degree of hazard that it accepts. NBFIs are hence encouraged to use these recommendations of Stress Testing.

Principles for the Financial Institutions

Use of emphasis testing and integrating in hazard administration

Stress proving should organize an built-in portion of the overall administration and hazard direction civilization of the FIs. Stress proving should be actionable, with the consequences from stress proving analyses impacting determination devising at the appropriate direction degree, including strategic concern determinations of the board and senior direction. Board and senior direction engagement in the stress proving plan is indispensable for its effectual operation.

An FI should run a emphasis proving plan that promotes hazard designation and control ; provides a complementary hazard position to other hazard direction tools ; improves capital and liquidness direction ; and enhances internal and external communicating.

Stress proving plans should take history of positions from across the organisation and should cover a scope of positions and techniques.

An FI should hold written policies and processs regulating the emphasis proving plan. The operation of the plan should be suitably documented.

An FI should hold a appropriately robust substructure in topographic point, which is sufficiently flexible to suit different and perchance altering emphasis trials at an appropriate degree of coarseness.

An FI should on a regular basis keep and update its emphasis proving model. The effectivity of the stress proving plan, every bit good as the hardiness of major single constituents, should be assessed on a regular basis and independently.

Stress proving methodological analysis and scenario choice

Stress trials should cover a scope of hazards and concern countries, including at the firm-wide degree. An FI should be able to incorporate efficaciously, in a meaningful manner, across the scope of its emphasis proving activities to present a complete image of firm-wide hazard.

Stress proving plans should cover a scope of scenarios, including advanced scenarios, and purpose to take into history system-wide interactions and feedback effects.

Stress trials should have a scope of badnesss, including events capable of bring forthing the most harm whether through size of loss or through loss of repute. A stress proving plan should besides find what scenarios could dispute the viability of the FI ( rearward emphasis trials ) and thereby uncover concealed hazards and interactions among hazards.

As portion of an overall emphasis proving plan, an FI should take to take history of coincident force per unit areas in support and plus markets, and the impact of a decrease in market liquidness on exposure rating.

Specific countries of focal point

The effectivity of hazard extenuation techniques should be consistently challenged.

The stress proving plan should explicitly cover complex and made-to-order merchandises such as securitized exposures. Stress trials for securitized assets should see the implicit in assets, their exposure to systematic market factors, relevant contractual agreements and embedded triggers, and the impact of purchase, peculiarly as it relates to the subordination degree in the issue construction.

The stress proving plan should cover grapevine and warehousing hazards. An FI should include such exposures in its emphasis trials irrespective of their chance of being securitized.

An FI should heighten its emphasis proving methodological analysiss to capture the consequence of reputational hazard. The FI should incorporate hazards originating from off-balance sheet vehicles and other related entities in its emphasis proving plan.

An FI should heighten its emphasis testing attacks for extremely leveraged counterparties in sing its exposure to specific plus classs or market motions and in measuring possible wrong-way hazard related to put on the line extenuating techniques.

Scope of Stress Testing:

Stress proving guidelines for NBFIs have preliminarily been based on simple sensitiveness analysis utilizing four different hazard factors viz. ; Interest rate, Credit, Equity monetary value and Liquidity. Liquidity place of the establishments have been stressed with more concern. Stress trial under Basel Accord and simple adulthood spread analysis for mensurating `Interest rate hazard ‘ have been introduced. ‘Duration GAP analysis ‘ have been made simplified for finding the alteration in market value of equity. Value at Risk ( VaR ) has besides been incorporated with a position to gauging the existent sum of possible loss which may originate from unfavourable state of affairss. Furthermore, VaR helps in doing a comparing with the consequence of possible losingss calculated under emphasis proving system.

Model for Stress Testing:

The stress-testing model should be flexible adequate to follow advanced theoretical accounts for stress testing. It involves:

A good established organisational construction specifying clearly the functions and duties of the individuals involved in the exercising. Preferably, it should be the portion of the hazard direction maps of the FI. The individuals involved should be independent from those who are really involved in the hazard pickings and should straight describe the consequences to the senior direction.

Specifying the coverage and placing the information required and available.

Identifying, analysing and proper recording of the premises used for stress testing.

Calibrating the scenarios or dazes applied to the informations and construing the consequences.

An effectual direction information system that ensures flow of information to the senior direction to take proper steps to avoid certain utmost conditions.

Puting the specific trigger points to run into the benchmarks/standards set by Bangladesh Bank.

Guaranting a mechanism for an on-going reappraisal of the consequences of the stress trial exercising and reflecting in the policies and bounds set by direction and board of managers.

Taking this stress trial as a starting point and developing in-house emphasis trial theoretical account to measure the FI ‘s specific hazards.

Methodology and Calibration of Dazes:

Degrees of dazes to the single hazard constituents have been specified sing the historical every bit good as conjectural motions in the hazard factors. Three different conjectural daze scenarios in the emphasis proving are:

Minor Level Dazes: These represent little dazes to the hazard factors. The degree for different hazard factors can, nevertheless, vary.

Moderate Level Shocks: It envisages average degree of dazes and the degree is defined in each hazard factor individually.

Major Degree Dazes: It involves large dazes to all the hazard factors and is besides defined individually for each hazard factor.

Interest Rate Hazard:

Interest rate hazard is the possible inauspicious consequence in the value of the on and off-balance sheet places of the FI with the alteration in the involvement rates. The exposure of the FI towards the inauspicious motions of the involvement rate can be gauged by utilizing simple sensitiveness analysis every bit good as continuance GAP analysis. The standard scenarios of daze degrees are 2 % , 4 % and 6 % addition in involvement rate. For simpleness these dazes will be stress in the cumulative GAP of Rate Sensitive Assets ( RSA ) and Rate Sensitive Liabilities ( RSL ) upto one twelvemonth and Duration GAP analysis merely to the Bond portfolio of the FI.

Recognition Hazard:

Stress trial for recognition hazard assesses the impact of addition in the degree of non-performing loans ( NPLs ) of the FIs. This involves six single flooring events. Each flooring event contains Minor, Moderate and Major Levels of daze.

Addition in NPLs:

These scenarios explain the impact of downgrading a part of the entire acting ( both criterion and SMA ) loans straight to bad & A ; loss class holding 100 % purveying demand. The standard scenarios of daze degrees are 2 % , 4 % and 6 % .

Negative displacement in the NPLs classs:

These scenarios assume negative displacements in the bing NPLs classs take topographic point due to some unfavourable events making flooring events for the FI ensuing in more proviso demands. The standard scenarios of daze degrees are 5 % , 10 % and 15 % downward displacement in the NPLs classs. For illustration, for the first degree of daze, 5 % of the substandard downgraded to doubtful and 5 % of the doubtful downgraded to bad/loss class.

Negative displacement in all classs:

These scenarios assume negative displacements in all classs ( both acting and non-performing ) take topographic point ensuing in more proviso demands. The standard scenarios of daze ( sum of loan displacement from one class to another ) degrees are 5 % , 10 % and 15 % downward displacement in all classs. For illustration, for the first degree of daze, 5 % of the criterion downgraded to SMA, 5 % of the SMA downgraded to substandard, 5 % of the substandard downgraded to doubtful and 5 % of the doubtful downgraded to bad/loss class.

Fall in the value of eligible securities ( VES ) :

These scenarios assume a crisp lessening in the value of VES making flooring events to the FI. The standard scenarios of daze degrees are 10 % , 25 % and 50 % .

Addition of NPLs in peculiar 2 sectors.

This measures the concentration hazard peculiarly in 2 sectors where the FI has the highest investing or exposure. The standard scenarios of daze degrees are 5 % , 10 % and 15 % of standard loans of that 2 sectors straight downgraded to bad/loss class.

Addition in NPLs due to default of top big borrowers.

These scenarios are constituted presuming a figure of top borrowers of the FI may go defaulter and make lurid events. The standard scenarios of daze degrees are: default of top 3 ( three ) , top 5 ( five ) and top 10 ( 10 ) borrowers. In all instances the standard loans of the several borrowers are assumed to be straight downgraded to bad/loss class making a demand of 100 % proviso.

Equity Price Hazard:

The emphasis trial for equity monetary value hazard assesses the impact of the autumn in the stock market index. Appropriate dazes will hold to be absorbed to the several securities if the current market value of all the on balance sheet and off balance sheet securities listed on the stock exchanges including portions, NIT units, common financess etc falls at the rate of 10 % , 25 % and 50 % severally. The impact of attendant loss will be calibrated in the CAR.

Liquid Hazard:

The emphasis trial for liquidness hazard evaluates the resiliency of the FIs towards inauspicious displacements in the hard currency influx and outflow adulthood pails. Assumed daze scenarios include hard currency influx from assets in projected pails are being deferred by a standard rates to the following pails but hard currency escape claims for liabilities are coming much earlier demoing claims from all pails switching in the old by the standard rates. Counter equilibrating capacity of the FIs are besides being stressed utilizing the criterion shocks presuming the market acquiring a chronic downswing. For simple sensitiveness analysis, compensating capacity of the FI is assumed to be 50 % of its first line of defence ( line of recognition ( SOD ) ) and 20 % of its 2nd line of defence ( short-run loan, commercial paper, measure dismissing installation ) . The standard scenarios of daze degrees are 5 % , 10 % and 15 % .

Combined Daze:

FI will measure combined daze by aggregating the consequences of recognition daze, equity daze and involvement rate daze. In instance of recognition daze, addition in NPLs, consequences of addition in NPLs due to default of Top big borrowers, autumn in the VES, negative displacement in all the classs and addition of NPLs in peculiar 2 sectors would hold to be taken into history.

Summary of all daze degrees are as follows:

Hazard Dazes in Stress Testing

Hazard Factors

Scenario 1

Scenario 2

1. Interest Hazard -Increase in Interest Rate

2 %

4 %

2. Credit Hazard

– addition in NPLs

2 %

5 %

– Downward displacement in NPLs ‘ Classs

5 %

10 %

– Downward displacement in all Classs

5 %

10 %

– Fall in the VES

10 %

25 %

– Addition in NPLs ‘ under B/L class in 2 sectors

5 %

10 %

– Addition in NPLs ‘ due to Exceed big loan borrowers

3

5

3. Equity monetary value Risk – Fall in Stock Monetary values

10 %

25 %

4. Liquid Daze

5 %

10 %

Insolvency Ratio ( IR )

The NPL to Loan Ratio of an FI is said as the Infection Ratio. Infection Ratio which can wholly gnaw the regulative capital of the FI to zero is the Critical Infection Ratio ( CIR ) . CIR implies Distance to Default or Insolvency. Calculation of CIR assumes the eroding of full regulative capital due to increase in NPL in Bad/Loss Category disregarding the revenue enhancement impact. The higher the CIR, the stable the FI is and the lower the CIR the closer the FI is to default.

Insolvency ratio is the ratio of Infection Ratio to the Critical Infection Ratio. IR implies the per centum, an FI is, towards insolvency. Simplified expression to cipher IR is:

CIR = ( NPL + Regulatory Capital ) /Total Loans ;

Insolvency ratio = Infection Ratio/Critical Infection Ratio.

For Stress Testing, after daze IR is computed utilizing the norm revised NPL and Average revised Regulatory Capital of standard daze scenarios in four Credit hazard countries, viz. : addition in NPLs, Downward displacement in all Categories, Increase in NPLs ‘ under B/L class in 2 sectors and Increase in NPLs ‘ due to Exceed big loan borrowers.

Resilience of the FI

Resilience Level for Interest rate, Credit and Equity monetary value dazes are set with the Minimum Capital Adequacy Ratio ( CAR ) . In the emphasis trial it is checked whether an FI has equal capital base after the daze impact.

Resilience Level for Liquidity dazes are identified with the undermentioned three parametric quantities:

Negative spread during 1-90 yearss clip pails exceed 15 % .

The cumulative spread up to the annual period exceeds 15 % .

Counter equilibrating capacity up to the annual period dry out.

Stress Test Evaluation

After carry oning the emphasis trial, each FI will be categorized as of either Green or Yellow or Red zone based on the Leaden Average Resilience ( WAR ) on the three degrees of daze scenarios. The FIs will foremost be scored in each degree of scenario maintaining a entire point of 100 for each. Tonss achieved in each scenario will so be given weight as 60 % for Minor, 30 % for Moderate and 10 % for Major degree dazes to place the combined WAR of a peculiar FI. The WAR will be scaled in evaluation of 1 to 5 of which 1 autumn in Green, 2 and 3 in Yellow and 4 and 5 in Red Zone. For each person daze Green will accomplish 100 % of the daze weight, Yellow 80 % and Red nothing. For Interest rate, Credit and Equity monetary value dazes excess CAR of 1 % or more above the lower limit is Green, near above or equal to minimal CAR ( extra is less than 1 % ) is Yellow and falling short from minimal CAR is Red. For Liquidity shocks non falling short in any parametric quantity is Green, abruptly in one is Yellow and falling short in more than one is Red. The evaluations for stress trial dazes are summarized below:

Scenario Sum

Rating

Zone

Single Shock

WARa‰? 80 %

1

Gram

100 %

70 % a‰¤WAR & lt ; 80 %

2

Yttrium

80 %

60 % a‰¤WAR & lt ; 70 %

3

40 % a‰¤WAR & lt ; 60 %

4

Roentgen

0 %

WAR & lt ; 40 %

5

Insolvency ratio, per centum towards insolvency will besides be scaled in 1 to 5 classs after calculating the Leaden Insolvency Ratio ( WIR ) from the three daze degrees and put the Green, Yellow or Red zone depending on the remoteness from insolvency. WIR evaluations will be assigned as under:

Scenario Sum

Rating

Zone

WIR & lt ; 10 %

1

Gram

10 % a‰¤WIR & lt ; 20 %

2

Yttrium

20 % a‰¤WIR & lt ; 40 %

3

40 % a‰¤WIR & lt ; 60 %

4

Roentgen

WIRa‰?60 %

5

WAR-WIR Matrix

Overall fiscal strength and resiliency of an NBFI will be identified plotting its achieved evaluations in the WAR-WIR Matrix. The overall zone scene of an FI will be determined with 80 % weight of WAR and 20 % weight of WIR as under:

A

War

WIR

A

Green

Yellow

Green

GG

Gray

Yellow

YG

YY

Red

Roentgenium

RY

WAR and WIR of the peculiar FI will be used to find its equal capital demand in Basel Accord and will be impacted on the CAMELS evaluation conducted by the cardinal bank.

Recommended Action Plan

FIs falling in either zone will hold some Recommended Action Plan for procuring uninterrupted betterment in the stress trial. The degree of mark for each zone will be set by the cardinal bank from clip to clip sing the predominating market status.

Present degree of mark for zonary segregation and several to-do list is as follows, as and when applicable:

Zone

Leaden Average Resilience

Recommended Action Plan

Green

WARa‰? 80 %

Recommendations:

Monitor purely any downswing of public presentation indexs.

Yellow

60 % a‰¤WAR & lt ; 80 %

Recommendations:

Three Year Capital Management Plan

Recovery Plan of NPL

Increase Securities

Recognition Diversification Plan

Policy for Investment in Shares

Liquidity Contingency Plan

Ensure proper conformity of ALM Guidelines

ALCO meeting proceedingss.

Red

WAR & lt ; 60 %

Submit in BB:

Three Year Capital Management Plan

ALCO meeting proceedingss.

Recovery Plan of NPL

Increase Securities

Recognition Diversification Plan

Policy for Investment in Shares

Liquidity Contingency Plan

ALCO meeting proceedingss.

Interest Rate Stress Test:

The FIs should follow the stairss mentioned below in transporting out the involvement rate emphasis trials:

For simple Sensitivity analysis

Calculate all on-balance sheet Rate Sensitive Assets ( RSA ) and Rate Sensitive Liabilities ( RSL ) .

Plot the RSA and RSL into different clip pails on the footing of adulthood.

Calculate adulthood GAP by subtracting RSL from RSA ( GAP= RSA – RSL ) .

Using the expression of a?†NII =a?†i ( GAP )

For Duration Gap analysis

Estimate the market value of all on-balance sheet rate sensitive assets and liabilities of the FI to get at market value of equity.

Calculate the continuances of each category of plus and the liability of the on-balance sheet portfolio and arrive at the sum leaden mean continuance of assets and liabilities.

Calculate the continuance GAP by deducting aggregative continuance of liabilities from that of assets.

Estimate the alterations in the economic value of equity due to alter in involvement rates on on-balance sheet places along the three involvement rate alterations.

Calculate surplus/ ( shortage ) on off-balance sheet points under the premise of three different involvement rate alterations.

Estimate the impact of the net alteration ( both for on-balance sheet and off-balance sheet ) in the market value of equity on the capital adequateness ratio ( CAR ) .

Market value of the plus or liability shall be assessed by ciphering its present value discounted at the prevalent involvement rate. The outstanding balances of the assets and Liabilitiess should be taken along with their several adulthood or repricing period, whichever is earlier.

Duration GAP & A ; Price Sensitivity

For simpleness, continuance of merely the Bond portfolio of the FI will be determined for placing any damage of value for taging to market. Duration for the entire Asset-Liability portfolio of the FI can besides be determined to detect the overall impact on an FI for alteration in market involvement rates.

Duration is the step of a portfolio ‘s monetary value sensitiveness to alterations in involvement rates. Longer the continuance, larger the alterations in the monetary value for a given alteration in the involvement rates. Larger the voucher, lower would be the continuance and smaller would be the alteration in the monetary value for a given alteration in the involvement rates. The continuance is measured as:

Where,

CFt

=

hard currency flow at clip T,

T

=

the figure of periods of clip until the hard currency flow payment,

YTM

=

the output to maturity1 of the security bring forthing the hard currency flow, and

N

=

the figure of hard currency flows.

The continuance GAP is measured by comparing the leaden mean continuance of assets with the leaden mean continuance of liabilities ( leverage-adjusted ) . The leaden mean continuance of assets and liabilities is calculated as follows:

WaDa

WlDl

Where,

Evergreen state

=

market value of the plus “ a ” divided by the market value of all the assets

Wl

=

market value of the liability “ cubic decimeter ” divided by the market value of all the liabilities

District attorney

=

continuance of the plus “ a ”

Deciliter

=

continuance of the liability “ cubic decimeter ”

N

=

entire figure of assets

m

=

entire figure of liabilities

The continuance GAP indicates how the market value of equity ( MVE ) of an FI will alter with a certain alteration in involvement rates. If the leaden mean continuance of assets exceeds the leaden mean continuance of liabilities ( leverage-adjusted ) , the continuance GAP is said to be positive. A positive continuance spread signifies that the assets are comparatively more involvement rate sensitive than liabilities. Hence if the involvement rates rise, the value of assets will fall proportionally more than the value of liabilities and the market value of equity will fall consequently and frailty versa. Duration Gap will be calculated as under:

DGAP =

DA –

( MVL )

Ten DL

( MVA )

The alteration in market value of equity shall be calculated as:

a?† MVE

( -DGAP ) Ten

a?†i

X Total Assetss

( 1+y )

a?†i = The alteration in the involvement rate

Y = The effectual output to adulthood of all the assets

The impact of involvement rate alteration on involvement bearing off-balance sheet contracts shall be individually calculated. As a first measure, the existent market monetary value of each contract shall be determined which should stand for the existent monetary value of the contract if sold instantly. The 2nd measure involves ciphering the market monetary value once more by taging to market each contract individually presuming a alteration in involvement rate. The difference between the two market monetary values would find the sum of reappraisal excess or shortage. The reappraisal excess would originate if the existent market monetary value of the contract is less than the monetary value calculated after presuming a alteration in the involvement rate and reappraisal shortage would ensue in, if otherwise. The reappraisal surplus/deficit originating due to the alteration in the involvement rates of the off-balance sheet contracts should be subtracted/ added to the autumn in market value of equity derived by the DGAP attack to get at the net alteration in the market value of equity.

The impact of this net alteration in the market value of equity will so be calibrated in the CAR. The impact of this net autumn ( if any ) in the MVE shall be adjusted from the regulative capital and the risk-weighted assets and the revised CAR shall be calculated under each of the above scenarios.

Value at Risk ( VaR )

VaR is a method of mensurating market hazard based upon a common assurance interval and clip skyline. It is a statistical estimation of expected possible loss that is derived by interpreting the peril of any fiscal instrument into a common criterion. The FI may utilize 99 % or 95 % assurance degree, and one twenty-four hours keeping period for its trading portfolios. That means about one time ( with 99 % assurance ) or five ( with 95 % assurance ) in every one hundred yearss the trading place are expected to lose more than the VaR estimation. The Board should reexamine the VaR consequences quarterly.

VaR measures possible losingss in usually active markets. An built-in restriction of VaR is that it gives no information about how much losingss could transcend their expected degrees. On the other manus, the emphasis proving plan identifies cardinal hazards and ensures that FI ‘s capital can easy absorb possible loss from unnatural events.

Methods of Calculating VaR:

The Variance-Covariance Method

Historical Method

Monte Carlo Simulation

Among the three method the discrepancy -covariance method is simple to use and reasonably straightforward to explicate. Besides datasets for its usage are instantly available. That ‘s why the FIs are advised to follow Variance-Covariance Method for mensurating VaR.

Formula for measuring VaR of stocks for more than two

Portfolio VaR= Total portfolio x Standard divergence of portfolio

sp = the standard divergence or volatility of the portfolio

w1 = weight of the first plus in the portfolio

w2 = weight of the 2nd plus in the portfolio

s1 = the standard divergence or volatility of the first plus

s2 = the standard divergence or volatility of the 2nd plus

= Correlation between the assets.

Reporting

The FIs will exert emphasis proving on their ain portfolio on quarterly footing i.e. on March 31, June 30, September 30 and December 31. FIs will hold to subject their emphasis proving study as per formats mentioned in subdivision 14. within the 15 yearss of the following month. Name and reference with contact figure ( sooner cell figure ) of two concerned functionaries will hold to be furnished in the statements for farther question ; if necessary.

Standard formats for emphasis testing

The formats used for Stress Testing have been made more elaborative but simple in this revised guidelines. The formats have been segregated as Input format and Output format. Data needs merely to be inserted in the Input Formats and the Outputs will be generated automatically. This Excel based unreal intelligence will besides advice the Recommended Action Plans for the FIs based on their zonary placement.

Reporting screen missive

FIs have to subject their coverage as per formats mentioned in the subsequent subdivisions along with the following screen missive every bit good as direct an electronic study as per prescribed format in a compact phonograph record.

Report on Stress Testing of FINANCIAL INSTITUTION

*SOLO/CONSOLIDATED

As on aˆ¦aˆ¦aˆ¦aˆ¦aˆ¦aˆ¦aˆ¦aˆ¦aˆ¦

* Delete which is non appropriate.

Name OF FI

Date OF SUBMISSION

Information in this return is endowed as per the Stress Testing Guideline for NBFIs. This return has been prepared in conformity with the instructions issued by Bangladesh Bank. We certify that this return is, to the best of our cognition and belief, correct.

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Chief Executive Officer Chief Financial Officer

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Name Name

Name and telephone figure of responsible individual who may be contacted by Bangladesh Bank in instance of any question.

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Name Telephone Number

CREDIT INPUT

LIQUIDITY INPUT

RECOMMENDED ACTION PLANS

Name of the Institution:

Reporting Base Date:

WAR-WIR MATRIX

A

A

Rating ( 1/2/3 )

Zone ( G/Y/R )

Consequence of WAR MATRIX ( Test-I )

Consequence of WIR MATRIX ( Test-II )

WAR-WIR MATRIX

RECOMMENDED ACTION PLANS

Hazard Factors

Recommended Action Plan

1. Interest Hazard -Increase in Interest Rate

Monitor purely any downswing of public presentation indexs.

2. Credit Hazard

A

– addition in NPLs

Three Year Capital Management Plan

Recovery Plan of NPL

– Downward displacement in NPLs ‘ Classs

Monitor purely any downswing of public presentation indexs.

– Downward displacement in all Classs

Monitor purely any downswing of public presentation indexs.

– Fall in the VES

Monitor purely any downswing of public presentation indexs.

– Addition in NPLs ‘ under B/L class in 2 sectors

Monitor purely any downswing of public presentation indexs.

– Addition in NPLs ‘ due to Exceed big loan borrowers

Three Year Capital Management Plan

3. Equity monetary value Risk – Fall in Stock Monetary values

Monitor purely any downswing of public presentation indexs.

4. Liquid Daze

Monitor purely any downswing of public presentation indexs.

DECISION MODEL RULES

Name of the Institution:

Reporting Base Date:

RESULTS ( WAR & A ; WIR )

A

A

Rating

Zone

Consequence of WAR MATRIX ( Test-I )

Consequence of WIR MATRIX ( Test-II )

WAR-WIR MATRIX

WAR-WIR Matrix

War

Green

Yellow

WIR

Green

Yellow

Red

Trial OF RESILIENCE

Name of the Institution:

Reporting Base Date:

TEST-I: ( WAR )

Hazard Dazes in Stress Testing

Hazard Factors

A

Minor

Moderate

Major

Zone

Mark

Zone

Mark

Zone

Mark

A

Weight

60 %

30 %

10 %

1. Interest Hazard -Increase in Interest Rate

15 %

2. Credit Hazard

50 %

A

– addition in NPL

10 %

– Downward displacement in NPL Classs

5 %

– Downward displacement in all Classs

10 %

– Fall in the VES

5 %

– Addition in NPLs ‘ under B/L class in 2 sectors

10 %

– Addition in NPLs ‘ due to Exceed big loan borrowers

10 %

3. Equity monetary value Risk – Fall in Stock Monetary values

10 %

4. Liquid Daze

25 %

VWAR

A

TEST-II: ( WIR )

Hazard Dazes in Stress Testing

Hazard Factors

A

Minor

Moderate

Major

A

Zone

Zone

Zone

Weight

60 %

30 %

10 %

1. Credit Risk shocks-Increase in NPL

A

SUMMARY SHEET

Name of the Institution:

Reporting Base Date:

Current Scenario

Regulative Capital ( BDT in Crore )

Hazard Weigheted Assets ( RWA ) ( BDT in Crore )

Capital Adequacy Ratio ( CAR )

1. Interest Rate Hazard

( BDT in Crore )

Interest Rate Hazard

Magnitude of Shock

Minor

Moderate

10 %

25 %

Revised Capital

Revised RWA

Revised Car

2. Credit Hazard

( BDT in Crore )

CR-1: Credit Risk-Increase in NPL ( UC Directly Downgraded to BL )

Magnitude of Shock

Minor

Moderate

2 %

5 %

Revised Capital

Revised RWA

Revised Car

( BDT in Crore )

CR-2: Credit Risk-Downward Shift in NPL ( SS Downgraded to DF & A ; DF Downgraded to BL )

Magnitude of Shock

Minor

Moderate

5 %

10 %

Revised Capital

Revised RWA

Revised Car

SUMMARY SHEET

( BDT in Crore )

CR-3: Credit Risk-Downward Shift in Loans ( STD to SMA, SMA to SS, SS to DF & A ; DF to BL )

Magnitude of Shock

Minor

Moderate

Major

5 %

10 %

15 %

Revised Capital

Revised RWA

Revised Car

( BDT in Crore )

CR-4: Credit Risk-Fall in the Value of Eligible Securities

Magnitude of Shock

Minor

Moderate

Major

10 %

25 %

50 %

Revised Capital

Revised RWA

Revised Car

( BDT in Crore )

CR-5: Credit Risk-Increase of NPLs in the Housing Sector & A ; in the Margin Loan Sector

Magnitude of Shock

Minor

Moderate

Major

5 %

10 %

15 %

Revised Capital

Revised RWA

Revised Car

( BDT in Crore )

CR-6: Credit Risk-Increase of NPLs Due to Exceed 10 Borrowers

Magnitude of Shock

Minor

Moderate

Major

Top 3 Borrowers

Top 5 Borrowers

Top 10 Borrowers

Revised Capital

Revised RWA

Revised Car

SUMMARY SHEET

Equity Price Risk

( BDT in Crore )

Equity Price Risk

Magnitude of Shock

Minor

Moderate

Major

10 %

25 %

50 %

Revised Capital

Revised RWA

Revised Car

Liquid Hazard

Current Scenario ( 1 = Satisfactory, 0 = Unsatisfactory )

Negative spread during 1-90 yearss clip pails

Accumulative spread up to 1 twelvemonth

Counter equilibrating capacity up to 1 twelvemonth

Liquid Hazard

Magnitude of Shock

Minor

Moderate

5 %

10 %

Negative spread during 1-90 yearss clip pails

Accumulative spread up to 1 twelvemonth

Counter equilibrating capacity up to 1 twelvemonth

Combined Dazes

( BDT in Crore )

Combined Dazes

Magnitude of Shock

Minor

Moderate

Major

Revised Capital

Revised RWA

Revised Car

SUMMARY SHEET

Insolvency Ratio

Current Scenario

Infection Ratio ( NPL to Loans )

Critical Infection Ratio ( CIR )

Insolvency Ratio

Insolvency Ratio after Shocks

Magnitude of Shock

Minor

Moderate

Infection Ratio ( NPL to Loans )

Critical Infection Ratio ( CIR )

Insolvency Ratio

Interest Rate OUTPUT

Name of the Institution:

Reporting Base Date:

Required Information to Calculate the Daze

Regulative Capital ( BDT in Crore )

Hazard Weigheted Assets ( BDT in Crore )

Capital Adequacy Ratio ( CAR )

Current Provision ( BDT in Crore )

Particulars

Required Information to Calculate the Daze

1 to 30/31 twenty-four hours ( One month )

Over 1 month to 2 months

Over 2 months to 3 months

Over 3 months to 6 months

1

2

3

4

5

A. Entire RATE SENSITIVE LIABILITIES ( A )

B. TOTAL RATE SENSITIVE ASSETS ( B )

C. MISMATCH

D. CUMULATIVE MISMATCH

E. MISMATCH ( % )

Interest Rate Hazard

Magnitude of Shock

Minor

Moderate

1 %

2 %

Change in the Value of Bond Portfolio ( BDT in Crore )

Net Interest Income ( BDT in Crore )

Revised Regulatory Capital ( BDT in Crore )

Hazard Weighted Assets ( BDT in Crore )

Revised CAR ( % )

CREDIT RISK OUTPUT

INCREASE OF NPL ( UC TO BL )

Name of the Institution:

Reporting Base Date:

Required Information to Calculate the Daze

Regulative Capital ( BDT in Crore )

Hazard Weigheted Assets ( RWA ) ( BDT in Crore )

Capital Adequacy Ratio ( CAR )

Entire Loan ( BDT in Crore )

Entire NPL ( BDT in Crore )

Entire STD Loan with VES ( BDT in Crore )

Entire STD Loan without VES ( BDT in Crore )

Value of Eligible Security Against STD ( BDT in Crore )

Entire SMA Loan with VES ( BDT in Crore )

Entire SMA Loan without VES ( BDT in Crore )

Value of Eligible Security Against SMA ( BDT in Crore )

Current Provisions ( BDT in Crore )

NPL to Lend

Credit Risk-Increase in NPL ( UC Directly Downgraded to BL )

Magnitude of Shock

Minor

Moderate

2 %

5 %

Addition in NPL ( BDT in Crore )

Revised NPL ( BDT in Crore )

Revised NPL to Loans Ratio

Excess Commissariats for Loans without VES ( BDT in Crore )

Excess Commissariats for Loans with VES ( BDT in Crore )

Addition in Provisions ( BDT in Crore )

Revised Capital ( BDT in Crore )

Revised Risk Weighted Assets ( BDT in Crore )

Revised Car

DOWNWARD SHIFT IN NPL ( SS TO DF & A ; DF TO BL )

Name of the Institution:

Reporting Base Date:

Required Information to Calculate the Daze

Regulative Capital ( BDT in Crore )

Hazard Weigheted Assets ( BDT in Crore )

Capital Adequacy Ratio ( CAR )

Current Provision ( BDT in Crore )

Particulars

United states secret service

DF

Loans with VES ( BDT in Crore )

Loans without VES ( BDT in Crore )

Value of Eligible Security ( BDT in Crore )

Credit Risk-Downward Shift in NPL ( SS Downgraded to DF & A ; DF Downgraded to BL )

Magnitude of Shock

Minor

Moderate

5 %

10 %

Excess Commissariats for Loans without VES ( BDT in Crore )

Excess Commissariats for Loans with VES ( BDT in Crore )

Addition in Provisions ( BDT in Crore )

Revised Capital ( BDT in Crore )

Revised Risk Weighted Assets ( BDT in Crore )

Revised CAR %

DOWNWARD SHIFT IN ALL CATEGORIES ( STD TO SMA, SMA TO SS, SS TO DF & A ; DF TO BL )

Name of the Institution:

Reporting Base Date:

Required Information to Calculate the Daze

Regulative Capital ( BDT in Crore )

Hazard Weigheted Assets ( BDT in Crore )

Capital Adequacy Ratio ( CAR )

Current Provision ( BDT in Crore )

Particulars

Venereal disease

SMA

United states secret service

DF

Loans with VES ( BDT in Crore )

Loans without VES ( BDT in Crore )

Value of Eligible Security ( BDT in Crore )

Credit Risk-Downward Shift in Loans ( STD to SMA, SMA to SS, SS to DF & A ; DF to BL )

Magnitude of Shock

Minor

Moderate

5 %

10 %

Excess Commissariats for Loans without VES ( BDT in Crore )

Excess Commissariats for Loans with VES ( BDT in Crore )

Addition in Provisions ( BDT in Crore )

Revised Capital ( BDT in Crore )

Revised Risk Weighted Assets ( BDT in Crore )

Revised CAR %

Fall IN THE VALUE OF ELIGIBLE SECURITIES

Name of the Institution:

Reporting Base Date:

Required Information to Calculate the Daze

Regulative Capital ( BDT in Crore )

Hazard Weigheted Assets ( RWA ) ( BDT in Crore )

Capital Adequacy Ratio ( CAR )

VES for SS Loan ( BDT in Crore )

VES for DF Loan ( BDT in Crore )

VES for BL Loan ( BDT in Crore )

Current Provisions ( BDT in Crore )

Credit Risk-Fall in the Value of Eligible Securities

Magnitude of Shock

Minor

Moderate

10 %

25 %

Leaden Amount of Eligible Securities ( BDT in Crore )

Addition in Provisions ( BDT in Crore )

Revised Capital ( BDT in Crore )

Revised Risk Weighted Assets ( BDT in Crore )

Revised CAR %

INCREASE OF NPL IN 2 MAJOR SECTORS

Name of the Institution:

Reporting Base Date:

Required Information to Calculate the Daze

Regulative Capital ( BDT in Crore )

Hazard Weigheted Assets ( RWA ) ( BDT in Crore )

Capital Adequacy Ratio ( CAR )

Particulars

Sector of Highest Loan

Sector of 2nd Highest Loan

Loan Disbursed to ( BDT in Crore )

Entire NPL ( BDT in Crore )

Entire STD with VES ( BDT in Crore )

Entire STD without VES ( BDT in Crore )

Value of Eligible Security Against STD ( BDT in Crore )

Entire SMA with VES ( BDT in Crore )

Entire SMA without VES ( BDT in Crore )

Value of Eligible Security Against SMA ( BDT in Crore )

Current Provisions ( BDT in Crore )

NPL to Lend

Credit Risk-Increase of NPL in the 2 Major Sector

Magnitude of Shock

Minor

Moderate

5 %

10 %

Addition in NPL ( BDT in Crore )

Revised NPL ( BDT in Crore )

Revised NPL to Loans Ratio

Excess Provision for Loans without VES ( BDT in Crore )

Excess Provision for Loans with VES ( BDT in Crore )

Addition in Commissariats

Revised Capital ( BDT in Crore )

Revised Risk Weighted Assets ( BDT in Crore )

Revised Car

INCREASE OF NPL DUE TO TOP 10 Borrowers

Name of the Institution:

Reporting Base Date:

Required Information

Regulative Capital ( BDT in Crore )

Hazard Weigheted Assets ( RWA ) ( BDT in Crore )

Capital Adequacy Ratio ( CAR )

Entire Loan to Exceed 10 Borrowers ( BDT in Crore )

Entire Loans for which Eligible Securities Held ( BDT in Crore )

Entire Loans for which No Eligible Securities Held ( BDT in Crore )

Value of Eligible Security ( BDT in Crore )

Current Provisions ( BDT in Crore )

NPL to Lend

Credit Risk-Increase of NPL Due to Exceed 10 Borrowers ( Loans without Eligible Securities )

Magnitude of Shock

Minor

Moderate

Major

Top 3 Borrowers

Top 5 Borrowers

Top 10 Borrowers

Entire Loans Disbursed to ( BDT in Crore )

Addition in NPL ( BDT in Crore )

Addition in Commissariats

Credit Risk-Increase of NPL Due to Exceed 10 Borrowers ( Loans with Eligible Securities )

Magnitude of Shock

Minor

Moderate

Top 3 Borrowers

Top 5 Borrowers

Entire Loans Disbursed to ( BDT in Crore )

Value of Eligible Securities ( BDT in Crore )

Addition in NPL ( BDT in Crore )

Addition in Provisions ( after accommodation of eligible securities ) ( BDT in Crore )

INCREASE OF NPL DUE TO TOP 10 Borrowers

Credit Risk-Increase of NPLs Due to Exceed 10 Borrowers ( Total )

Magnitude of Shock

Minor

Moderate

Top 3 Borrowers

Top 5 Borrowers

Entire Loans Disbursed to ( BDT in Crore )

Addition in NPL ( BDT in Crore )

Addition in Provisions ( BDT in Crore )

Revised Capital ( BDT in Crore )

Revised Risk Weighted Assets ( BDT in Crore )

Revised Car

Fall IN THE VALUE OF EQUITY

Name of the Institution:

Reporting Base Date:

Required Information to Calculate the Daze

Regulative Capital ( BDT in Crore )

Hazard Weigheted Assets ( RWA ) ( BDT in Crore )

Capital Adequacy Ratio ( CAR )

Entire Exposure in Stock Market ( BDT in Crore )

Equity Price Risk

Magnitude of Shock

Minor

Moderate

10 %

25 %

Fall in the stock monetary values ( BDT in Crore )

Revised Capital ( BDT in Crore )

Revised Risk Weighted Assets ( BDT in Crore )

Revised Car

COMBINED SHOCKS

Name of the Institution:

Reporting Base Date:

Combined Dazes

Magnitude of Shock

Minor

Moderate

Revised Capital ( BDT in Crore )

Revised Risk Weighted Assets ( BDT in Crore )

Revised Car

LIQUIDITY OUTPUT

INSOLVENCY OUTPUT

Name of the Institution:

Reporting Base Date:

Basic Information

Regulative Capital ( BDT in Crore )

Entire Loan ( BDT in Crore )

Entire NPL ( BDT in Crore )

Sum of NPL and Regulatory Capital

Infection Ratio ( NPL to Loans )

Critical Infection Ratio ( CIR )

Insolvency Ratio

Combined Dazes

Magnitude of Shock

Minor

Moderate

Addition of NPL after CR-1

Addition of NPL after CR-3

Addition of NPL after CR-5

Addition of NPL after CR-6

Revised Regulatory Capital after CR-1

Revised Regulatory Capital after CR-3

Revised Regulatory Capital after CR-5

Revised Regulatory Capital after CR-6

Addition of NPL

Revised NPL

Revised Regulatory Capital

Sum of NPL & A ; Regulatory Capital

Revised Infection Ratio ( Revised NPL to Loans )

Revised Critical Infection Ratio

Revised Insolvency Ratio