Term Paper On Basel III

Executive Summary
This Term Paper is based on the implementation of Basel iii on several Banks on the basis of statutory
requirement of Bangladesh Bank which is defined by our course teacher for the fulfillment of a part of
internal evaluation. It is a complex yet very important international requirement for banks. The value of the
knowledge has attracted us the most.
Bangladesh Bank (BB) is the governing body of all the commercial banks in this country. To be in line with
the international standard for regulation of banking industry (Basel Accord), Bangladesh Bank has
introduced Risk Based Capital Adequacy guideline relating to Basel III. All banks have to follow this
guideline and report to BB effective from 1st January, 2015. The guidelines are structured in three aspects
or pillars: (1) Banks should have minimum capital to guard against different kinds of risks (credit, market
and operation risk); (2) Assessing capital adequacy with risk profile of the bank and capital growth plan
and (3) Public disclosure of banks position on risk, capital and management.
The three main risks that a commercial bank faces are: Credit risk, Market risk and Operational risk. Credit
risk is the risk that arises from the probability that the borrowers of the bank will not pay back. Market risk
is the risk that puts the bank in adverse situation when interest rate, foreign exchange or equity price move
in unfavorable direction.
Operational risk stems from the internal environment, occurring when internal processes, people or system
fail. The banks can become resilient and fend off these risks with adequate capital. This is where the
regulatory guidelines come to play. BB categorizes capital into three tiers. Tier 1 Capital, also known as
the Core Capital, which are the top quality capital for the bank. The Components include: Paid up capital,
general and statutory reserves, retained earnings, minority interest, non-cumulative non put able preference
shares, etc. Tier 2 Capital, also known as supplementary capital, supports Tier 1 capital. BCBS provided
two liquidity measurements (LCR for short term and NSFR for long term assessments) along with the
revised capital measurements in this package to strengthen liquidity framework in regulatory aspects. The
Basel-III strengthens bank capital requirements and introduces new regulatory requirements on bank
liquidity and bank leverage. Liquidity coverage ratio (LCR) and net stable funding ratio (NSFR) are pros
and cons of the Basel-III framework.
To strengthen global capital and liquidity rules with the goal of promoting a more resilient banking sector,
the Basel Committee on Banking Supervision (BCBS) issued Basel III: A global regulatory framework
for more resilient banks and banking systems in December 2010. The objective of the reforms was to
improve the banking sectors ability to absorb shocks arising from financial and economic stress, whatever
the source, thus reducing the risk of spillover from the financial sector to the real economy.
Moreover, Basel III framework was basically the response of the global banking regulators to deal with the
factors, more specifically those relating to the banking system that led to the global economic crisis. The
framework of Basel III sought to increase the capital and improve the quality thereof to enhance the loss
absorption capacity and resilience of the banks, brought in a leverage ratio to contain balance sheet
expansion in relation to capital, introduced measures to ensure sound liquidity risk management framework
in the form of liquidity coverage ratio (LCR) and net stable funding ratio (NSFR), modified provisioning
norms and of course enhanced disclosure requirements.
Introduction:
Basel III is an evolution rather than a revolution for many banks. It was developed from the existing
Basel II framework, and the most significant differences for banks are the introduction of liquidity
and leverage ratios, and enhanced minimum capital requirements. Bangladesh has entered into the
Basel III regime effective from January 01, 2015. Bangladesh Bank (BB) amended its capital standard
which was based on Basel II and circulated new regulatory capital and liquidity guidelines in line with
Basel III of BIS. The new capital and liquidity standards have great implications for banks.
The discussion may be started from original Basel III accord of the BIS, which is the base of the BB's
guideline. Basel III was introduced in 2010 with the intention of gradual implementation starting from
January 01, 2013 and full implementation starting from January 01, 2019. Basel II guideline, the previous
version of capital standard, was felt inadequate to maintain financial stability during global financial crisis
started in 2007. The financial instability took a heavy toll and led to economic crisis in various countries.
Basel III guideline has been formulated to improve shock resilience capacity of the banks to prevent
recurrence of such financial and economic crisis. Basel III has identified the reasons of bank failure in
recent crisis. The main reasons of the crisis, as identified in the Basel III document, are use of excessive
leverage, gradual erosion of level and quality of capital base, insufficient liquidity buffer, pro-cyclicality
and excessive interconnectedness among systematically important institutions.
Generally commercial banks face several types of risks and these are:
Credit risk
Market risk
Operational risk
Liquidity risk
For the mitigation and control of these risks, Bangladesh Bank has imposed some guidelines. These
guidelines are structured on following three aspects or PILLARS:
Pillar 1: Minimum Capital Requirement to be maintained by a bank against credit, market, and
operational risks
Pillar 2: Supervisory Review Process (SRP) Process is basically intended to ensure that the banks
have adequate capital to support all the risks associated in their business.
Pillar 3: Market Discipline is basically a framework of public disclosure on the position of a bank's
risk profiles, capital adequacy, and risk management system.
Objectives of the report:

Core objective:
To find out the way of implementation of Basel III on commercial banks on the basis of statutory
requirement of Bangladesh Bank.
Subsidiary objectives:
To acquire clear idea of Basel III rules

To know implementation of Basel III.
To know brief overview of the selected commercial banks.
To represent the importance of implementation
To assess the overall capital adequacy in relation to risk profile and a strategy for maintaining the
banks capital at an adequate level.
Methodology of the study:

Nature of the study:
This is analytical research based on quantitative information which is related to the implementation of Basel
iii on commercial banks in Bangladesh.
Data collection:
In this study we generally use secondary data. The collection method of secondary data is from the
following sources.
Secondary sources:
We have collected data from secondary sources that means published data. Secondary data are collected
from following sources:
Annual report.
Various publications of the governments.
Technical and trade journals.
Report and publications of various associations connected with business and industry, banks,
stock exchange.
Website.
Limitations of the Study:

While collecting data from different sources and preparing this term paper, some limitations have been
faced. These are as follows:
The main constraint of the study is inexperience and inefficiency to prepare the standard term
paper.
As secondary and processed data have been used to prepare the report, deep and diversified
insights cannot be brought down in several cases.
Rational of the Study:

The zeal to deal with Risk-based Supervision in financial sector is the elementary motivation to select the
area for the project. Moreover, for the last several years, Bangladesh Bank (BB) has been gradually shifting
towards the Risk based Capital Structure framework for banks from the fixed amount of capital for running
banks in its jurisdiction. In order to fulfill the requirement of the term paper program we have chosen some
commercial banks. Our Course teacher assigned us a topic of the term paper to be submitted. The topic of
our term paper is Implementation of Basel iii on commercial Banks in Bangladesh. We have done
our term paper on some commercial banks. During this period we tried to get familiarize ourselves with the
theoretical and practical concept of Implementation of Basel iii on commercial Banks in Bangladesh. The
report would add value to have a better understanding on the status of the implementation of a globally
recognized supervision benchmark in respect of capital adequacy of banks in Bangladesh.
Literature Analysis:
As this is a new criterion in Bangladesh most of the economists, researchers, bankers are not well
experienced with the implementation of Basel iii. In Bangladesh, literatures on implementation of Basel iii
are not available. We have found some international publications among them Moodys Analytics, Oracle
Financial Service, Experian, IBM, Meetup, Basel Analytics Inc. are very much familiar. These
institutions continuously analyze the rules of Basel in comparison with the present economic condition,
political condition, geographical condition, demographic condition, sociological condition of a society.
These institutions generally try to evaluate the bank performance on the basis of implementation of Basel
& provide several kinds of recommendation on the basis of their research. All available publications
generally try to focus on overall implementation of Basel. But the publication on implementation of Basel
on a specific bank is very much rare in case of our country. This term paper is such a kind of study which
focuses on the implementation of Basel iii on commercial banks. This study discovers how the Banks fulfill
the statutory requirement of Bangladesh Bank on the basis of Basel iii. The study generally tries to find out
how the bank manages its risk, what the limitations are and how the limitations can be overcome.
Theoretical Analysis
Basel-III:
In the consequence of global financial turmoil and lessons learned from that to promote a more resilient
banking sector, BCBS undertook the reform initiatives for enhancing capital and liquidity rules. The goal
was to develop a durable banking sector that can sustain and absorb shocks arising from financial and
economic stress. The outcome of the initiatives was released on December 2010 that was comprised of three
core documents and known as Basel-III.
The Basel-III propositions have been formulated by incorporating the following themes:
To strengthen the capital framework of banks:

Uplifting the quality, constancy & transparency of the capital base,
Widening risk coverage,
Supplementing the RBC requirement with a leverage ratio,
Shrinking pro-cyclicality and supporting countercyclical buffers
o Cyclicality of the minimum requirement,
o Forward looking provisioning,
o Capital conservation,
o Excess credit growth,
Addressing systemic risk and interconnectedness,
To commence a global liquidity standard
Liquidity Coverage Ratio (LCR),
Net Stable Funding Ratio (NSFR),
Monitoring tools:
o Mismatch in contractual maturity,
o Concentration of lending,
o Available unencumbered assets,
o LCR by currency,
o Market-oriented monitoring tools.
The capital structure has been faced bit alteration in Basel-II. The capital components have been divided in
following shape:
Tier-1 Capital (going-concern capital):
Common Equity Tier-1,
Additional Tier-1
Tier 2 Capital (gone-concern capital)
Supervisory reconciliation elements:

Goodwill and other intangibles,
Deferred tax assets,
Hedge reserve for cash flow,
Shortfall of the stock of provisions to expected losses,
Gain on sale related to securitization transactions,
Investments in own shares such as treasury stock,
5
Reciprocal cross holdings in the capital of banking, financial and insurance entities,
Investments that are outside the scope of regulatory consolidation such as investment in
Financial Institutions capita and where bank does not own more than 10% of the issued
common share capital of the entity,
Conditions for maintaining regulatory capital: The Bank complied with all the required conditions for
maintaining regulatory capital as stipulated in the Basel III guidelines as per following details:
Particulars
The bank has to maintain at least 4.50% of total Risk Weighted Assets (RWA) as
Common Equity Tier 1 capital.
Tier 1 capital will be at least 5.50% of the total RWA.
Minimum capital to Risk Weighted Asset Ratio (CRAR) will be 10% of the total RWA
Maximum limit of tier-2 capital: Tier 2 capital can be maximum up to 4% of the total
RWA or 88.89% of CET-1, whichever is higher
Complied
Complied
Complied
Complied
Basel-III prescribed to create buffer against the systemic risk and cyclicality of economy:
Capital conservation buffer which must be comprised of common equity and has a link with the net
profit of the bank.
Countercyclical buffer which is to be determined by the supervisor itself on the basis of relationship
of the credit-GDP growth of that country. This buffer can be country specific or banks specific.
One of the fresh injections of these suggestions is the leverage ratio 1 which would be supplementary to the
CAR for the regulatory assessment. The leverage ratio has been come into light to achieve the following
objectives:
To restrain the upsurge of leverage in the banking sector, serving avoidance of destabilizing
deleveraging processes that can smash up the whole financial system and the economy; and
With a simple, non-risk based backstop measure strengthening the risk based requirements.
For the maiden time, BCBS provided two liquidity measurements (LCR for short term and NSFR for long
term assessments) along with the revised capital measurements in this package to strengthen liquidity
framework in regulatory aspects. The Basel-III strengthens bank capital requirements and introduces new
regulatory requirements on bank liquidity and bank leverage. Liquidity coverage ratio (LCR) and net stable
funding ratio (NSFR) are pros and cons of the Basel-III framework.
The LCR is a new liquidity standard introduced by the Basel Committee to ensure that a bank maintain an
adequate level of unencumbered, high-quality liquid assets that can be converted into cash to meet its
liquidity needs for 30 calendar days.
The NSFR is a new standard introduced by the Basel Committee aiming to limit over-reliance on shortterm wholesale funding assessment of liquidity risk across all on and off-balance sheet items.
The backdrop of this initiation stated by BCBS is as follows:
Though banks have sufficient capital, as they do not manage their liquidity properly, face difficulties.
Liquidity is important for the proper functioning of financial markets as well as banks. Before 2007, funds
were available at low cost. Any kind of frustration collapsed market, liquidity can evaporate quickly and
liquidity crisis can be extended for an unexpected period of time. Financial crisis began in 2007. The whole
financial system became unstable, which emerged the necessity of central banks action to facilitate and
support the financial market, some time, individual institutions.
Road map of Basel III:
2015
2016
2017
2018
2019
2020
10.00%
10.00%
10.00%
1.875%
2.5%
2.5%
11.25%
11.875%
12.5%
12.5%
100%
3%
Readjusted
100%
100%
100%
100%
100%
>100%
>100%
>100%
>100%
Implementation
status
Minimum
Total 10.00% 10.00% 10.00%
Capital
0.625% 1.25%
Capital Conservation Buffer
Minimum
Capital plus
buffer
Leverage Ratio
Total 10.00% 10.625

%
3%
coverage 100%
(from
Sept)
Net stable funding 100%
(from
ratio
Sept)
Liquidity
ratio
3%
Summary of Basel III
Importance of Implementation:
To strengthen the capital and liquidity regulations with the aim of promoting a more resilient
banking sector.
To improve the banking sectors ability to absorb shocks arising from financial and economic stress
and crisis.
To maintain the use of excessive leverage.
To handle gradual erosion of level and quality of capital base, insufficient liquidity buffer, procyclicality and excessive interconnectedness among systematically important institutions.
Overview of Commercial Bank

Overview of City Bank Limited on Basel III
The City Bank Limited (CBL) is the first private sector bank in Bangladesh. The bank has been operating
since 1983 with an authorized capital of Tk.1.75 billion. The City Bank Limited achieve the best bank in
Bangladesh it has won the Finance Asia award in this year. The noble intention behind starting this bank
was to bring about qualitative changes in the sphere of Banking and Financial Management. Today the City
Bank serves its customers at home and abroad with 83 branches spread over the country and about three
hundred oversea correspondences covering the entire major cities and business center of the world. The
CBL was incorporated as a public limited company with limited liability on the 14th March, 1983 and its
formal inauguration was on March 27, 1983 under company act, 1913 in Bangladesh with the primary
8
objective to carry on all kinds of banking business. The City Bank Ltd. recently has started its journey in
Retail Banking. More than 700 staffs have been trained so far on the vital concepts of service excellence
and sales. Retail banking refers to banking in which banking institutions execute transactions directly with
consumers, rather than corporations or other banks. Services offered include: savings and transactional
accounts, mortgages, personal loans, debit cards, credit cards, and so forth.
Capital ensures cushion against any loss suffered by the bank and saves banks from running off. Thus,
capital management is considered as an integral part of the risk management of the bank. Therefore, banks
perform various measures in order to maintain adequate capital level such as Minimum Capital
Requirement (MCR) , Stress Test and Duration Gap Analysis.
BASEL I and Basel II (2010) were basically capital and liquidity standards, while Basel III is both capital
and liquidity standards newly prescribed by Bank for International Settlements (BIS). Bangladesh has
entered into the Basel III regime effective from January 01, 2015. Bangladesh Bank (BB) amended its
capital standard which was based on Basel II. Subsequently, Revised Guidelines on Risk Based Capital
Adequacy (RBCA) were also introduced by central bank. Use of excessive leverage, gradual erosion of
level and quality of capital base, insufficient liquidity buffer, pro-cyclicality and excessive
interconnectedness among systematically important institutions are identified as reasons of bank failure in
Basel III document. The new capital and liquidity standards have great implications for banks.
Bangladesh has entered into the regime of Basel II implementation from Jan 01, 2010 after 1 year parallel
run period in 2009. According to BRPD Circular # 10, dated March 10, 2010, Minimum Capital
Requirement (MCR) has been fixed at 8% upto June 30, 2010, 9% upto June 30, 2011 and 10% from July
01, 2011. In compliance of capital requirement (MCR) under Pillar I risk elements; CBL was well ahead of
minimum required target through 2014. Moreover, CBL increased its eligible capital base by issuing Tier
II Bond of Tk. 300 crore in the last quarter of 2014 to make bank more shock resilient. The City Bank
Limited (CBL) has also adopted Basel III framework as part of its capital management strategy in line with
the revised guideline. Also as per BB directive, CBL is following Standardized Approach (SA) for credit
risk, Standardized Approach (SA) for market risk and Basic Indicator Approach (BIA) for operational risk
and is maintaining capital for credit, market and operational risks.
Mission Of The City Bank Ltd :

To contribute to the socioeconomic development of the country,
To attain highest level of customer satisfaction through extension of services by dedicated
and motivated team of professionals,
To maximize banks profits by ensuring its steady growth,
To maintain the high moral and ethical standards,
Vision Of The City Bank Ltd :
To be the leading bank in the country with best practices and highest social commitment
Implementation of Basel iii on City Bank Ltd.

Capita management is considered as an integral part of the risk management of the bank as capital ensures
cushion against any loss suffered by the bank and saves bank from running off. Banking Industry of
Bangladesh entered into the Basel III from Basel II regime from 1 January 2015. Since then, City Bank
Limited (CBL) has applied the Basel III framework as part of its capital management strategy. Like Basel
II, Basel III accord is also made up of three pillars:
Pillar 1 (Minimum Capital Requirement) covers the calculation of risk-weighted assets and
minimum capital requirement for credit risk, market risk and operational risk
Pillar 2 (Supervisory Review Process) intends to ensure that the Banks have adequate capital
to address all the risks in their business
Pillar 3 speaks of ensuring market discipline by disclosing adequate information to the
stakeholders
Disclosures are intended to inform the general market participants about the scope of application of
new capital adequacy framework, capital of the Bank, risk exposures of the Bank, Banks risk
assessment processes, its risk mitigation strategies and practices and capital adequacy of the bank
through disclosure format in line with the Bangladesh Bank BRPD Circular no. 35 of December 29,
2010 as to Guidelines on Risk Based Capital Adequacy for Banks and subsequent BRPD Circular
18 dated December 21, 2014 on Guideline on Risk Based Capital Adequacy.
The report is prepared once a year, except in exceptional circumstances, according to Disclosure Policy
of CBL and Bangladesh Banks guidelines. For the ease of stakeholders, it is also made available at
CBL web site (www.thecitybank.com).
Key Metrics:
Capital to Risk Weighted Asset
Common Equity Tier I Capital ratio Leverage Ratio
14.03%
10.08%
7.06%
2014: 15.42%
2014: 9.97%
2014: 8.40%
Total Eligible Capital
Common Equity Tier I Capital
Tier II Capital
Tk 2,257.49 crore
Tk 1,623.15 crore
Tk 634.34 crore
2014: Tk 2,348.41 crore
2014: Tk 1,518.45 crore
2014: Tk 829.96 crore
Total Risk Weighted Asset
Credit Risk RWA
Tk 16,094.99 crore
Tk 13,310.83 crore
Credit
density
2014: Tk 15,229.15 crore
2014: Tk 12,413.62 crore
Risk
RWA
82.70%
2014: 81.51%
CAPITAL STRUCTURE
Regulatory capital base is quite different from accounting capital. As per Bangladesh Bank guidelines based
on Basel III accord, regulatory capital is classified into two broad category namely Tier I Capital also known
as going concern capital and Tier II Capital also known as gone concern capital. Additionally, Tier I Capital
is further divided into two categories namely Common Equity Tier 1 (CET1) and Additional Tier 1 (AT1).
Common Equity Tier-1 capital of CBL consists of Fully Paid-up Capital, Statutory Reserves, Share
Premium, General Reserve, Retained Earnings and Minority Interest in its subsidiary in case of
consolidation.
10
Tier-2 capital of CBL consists of general provision, applicable percentage of revaluation reserves (50%
for fixed asset, 50% for securities and 10% for shares) and subordinated debt.
At present, CBL doesnt hold any AT 1 Capital.
Eligible Regulatory Capital Base as on 31 December 2015 (Tk in crore):

Sl. No.
(a)
a.1
a.2
a.3
a.4
a.5
a.6
a.7
(b)
b.1
b.2
b.3
(c)
(d)
(e)
(f)
f.1
f.2
f.5
f.6
(g)
g.1
g.2
(h)
(i)
Particulars
Common Equity Tier I Capital (CET- 1)
Fully Paid-up Capital
Statutory Reserve
Non-repayable Share Premium account
General Reserve
Retained Earnings
Minority interest in subsidiaries
Sub-total Common Equity Tier I Capital (CET- 1)
Deductions from CET-1
Book value of goodwill which are shown as assets
Deferred Tax Asset
Excess investment in equity of other banks, FI and Insurance company
Total Common Equity Tier I Capital
Additional Tier I Capital
Total Tier I Capital
Tier II Capital
General Provisions (provisions for UC + SMA + OBS exposure)
Revaluation Reserves (50% of Fixed Assets & Security, 10% Equity)*
Tier II Subordinated Bond
Sub-Total of Tier II Capital
Deduction from Tier II Capital
Phase-in deduction of Revaluation Reserves as per Basel III guidelines
20% of Tier II Subordinated Bond
Total Tier II Capital
Total Eligible Regulatory Capital
Solo
Consolidated
875.80
500.28
66.09
1.14
308.77
1,752.08
875.80
500.28
66.09
1.14
215.97
0.25
1,659.53
(68.42)
(60.51)
1,623.15
1,623.15
(0.86)
(68.83)
(66.83)
1,523.01
1,523.01
166.39
284.94
300.00
751.32
163.94
285.27
300.00
749.21
(56.99)
(60.00)
634.34
2,257.49
(57.05)
(60.00)
632.16
2,155.17
Approaches followed by Bank for Capital Calculation:

Banking industry of Bangladesh made the transition to Basel III from Basel II since the beginning of 2015.
In this regard, Bangladesh Bank, in line with the Basel Committee on Banking Supervision (BCBS)
recommendations and international best practices, issued revised guideline on Risk Based Capital
Adequacy based on Basel III with the purpose of fully implementing it by the end of 2019. Accordingly,
CBL applied the Basel III framework as part of its capital management strategy and remained fully capital
compliant throughout 2015. Also as per BB directive, CBL is applying following approaches for its risk
wise capital calculation.
Credit Risk: Standard Approach (SA)
Market Risk: Standard Approach (SA)
Operational Risk: Basic Indicator Approach (BIA)
11
Risk Weighted Assets of the Bank:

As on 31 December 2015, Total Risk Weighted Asset (RWA) of the bank was Tk 16,094.99 crore on solo
basis and Tk 16,058.15 crore on consolidated basis where Credit risk accounted for 83% of RWA followed
by Operational risk for 10% and Market risk for 7%. Subsequently, RWA for credit risk generates the
maximum capital requirement of the bank. In order to improve the capital requirement under credit risk,
CBL continuously pursue for external credit rating of its client base. At the end of 2015, CBL managed
cover around 68% of its total eligible loans under valid external credit rating.
Compliance with Regulatory Requirements:

As per Basel III guideline, Minimum Capital Requirement (MCR) for the banks in Bangladesh is currently
10% of its total RWA with the addition of Capital Conservation Buffer which shall be applicable from
2016. CBL is well ahead of this minimum target both in Consolidated and in Solo basis as of December
2015. CBL maintained
Capital to Risk Weighted Asset Ratio (CRAR) of 14.03% on solo basis and 13.42% on consolidated
basis
Tier I capital ratio of 10.08% on solo basis and 9.48% on consolidated basis against the required
level of 6.00%.
Tier II capital of 39% of CET I on Solo basis and 42% of CET I on consolidated basis against the
maximum limit of 88.89%.
Buffer Capital to Support Current and Future Activities:

As a result, CBL managed to maintain surplus capital of 4.03% on solo basis and 3.42% on consolidated
basis. The surplus capital maintained by CBL will act as buffer to absorb all material risks under Pillar II
and to support the future activities of the bank. Furthermore to ensure the adequacy of capital, the bank
draws assessment of capital requirements periodically considering future business growth.
Quantitative Disclosures
Capital Requirement under Credit, Market and Operational Risk (Tk in crore)
Sl.
No.
1.0
1.1
1.2
2.0
2.1
2.2
2.3
3.0
Particulars
Solo
Consolidated
1,331.08
1,177.02
154.06
116.55
9.23
98.46
8.85
161.86
1,311.53
1,157.47
154.06
130.01
9.23
111.93
8.85
164.27
4.0
Capital requirements for Credit Risk:

Portfolios subject to standardized approach-Funded
Portfolios subject to standardized approach-Non-Funded
Capital requirements for Market Risk
Interest rate risk (Standardized Approach)
Foreign exchange risk (Standardized Approach)
Equity risk (Standardized Approach)
Capital requirements for Operational Risk (Basic Indicator
Approach)
Total Capital Required
1,609.50
1,605.82
5.0
5.1
5.2
Capital Ratios
Total Capital Ratio
CET I Capital Ratio
14.03%
10.08%
12
13.42%
9.48%
5.3
5.4
6.0
7.0
Total Tier I Capital Ratio

Tier II Capital Ratio
Available Capital under Pillar II requirement
10.08%
3.94%
9.48%
3.94%
4.03%
647.99
3.42%
549.35
Credit Risk:
Credit risk refers to the probability of loss due to a borrowers failure to make payments on any type of
debt. For most banks, loans are the largest and most obvious source of credit risk. However, there are other
sources of credit risk both on and off the balance sheet. Off-balance sheet items include letters of credit
unfunded loan commitments, and lines of credit. Credit risk management is the process of mitigating those
losses by understanding the adequacy of both a banks capital and loan loss reserves at any given time.
Credit Risk Management at CBL:

In CBL credit is originated from three business segments: Corporate, Commercial and Branch Banking
(SME and Retail). Credit of Corporate, Commercial and Branch Banking (SME-M) business are being
processed by Credit Risk Management Division (CRMD), while SME-S and Retail credit are processed by
Credit & Collection Division (Retail & Small Business Credit). After approval Credit Administration
Division (CAD) disburses the credit approved by CRMD, while Asset Operation team of Credit &
Collection disburses for the SME-S and Retail Credits. Classified credit is handled by Special Asset
Management Division (SAMD) where the same of Retail & SME-S business is handled by Collection team
of Credit & Collection, while both of them are supported by Legal Division. Additionally, Internal Control
and Compliance Division (ICCD) conducts on-site and off-site audit for all credits.
CBL has a structured Credit Risk Management Policy known as Credit Policy Manual (CPM) approved by
the Board of Directors in 2008 and which is reviewed annually. The CPM defines organization structure,
role and responsibilities and, the processes whereby the credit risks carried by the Bank can be identified,
quantified and managed within the framework that the Bank considers consistent with its mandate and risk
tolerance.
Besides the CPM, CBL also frames Credit Instruction Manuals (CIMs) as and when necessary to address
any regulatory issues or establish control points. Bank also has a system of identifying and monitoring
problem accounts at the early stages of their delinquency through implementation of Sales Routine, a
customized tool for Past Due management, so that timely corrective measures are initiated. Retail and SMES segment offer some customized products and there are separate PPGs approved by the Board for each
type of customized products.
Interest Rate Risk

Interest Rate Risk is the risk which affects the Banks financial condition due to changes of market interest
rates. Changes in interest rates affect both the current earnings (earnings perspective) as also the net worth
of the Bank (economic value perspective). Bank assesses the interest rate risk both in earning and economic
value perspective.
Interest Rate Risk Management: Interest Rate Risk Management Policy, Targets and Controls are
comprehended in Asset Liability Management (ALM) Policy of the Bank in a separate section which is
approved by Board of Directors. Interest rate risk in banking book is measured through the following
approaches:
13
Interest Rate Sensitivity analysis (Gap Analysis): Interest Rate Sensitivity (or Interest Rate Gap)
Analysis is used to measure and manage interest rate risk exposure specifically, banks reprising
and maturity imbalances. Gap reports stratify banks rate sensitive assets, liabilities, and offbalance-sheet instruments into maturity segments (time bands) based on the instruments next
reprising or maturity date.
Duration Analysis on Economic Value of Equity: A weighted maturity/reprising schedule is
used to evaluate the effects of changing interest rates on banks economic value by applying
sensitivity weights to each time band. Such weights are based on estimates of the duration of the
assets and liabilities that fall into each time band.
Stress Testing: This testing is used for measuring the Interest rate risk on its Balance Sheet
exposure for estimating the impact on the Capital to Risk Weighted Assets Ratio (CRAR).
Board has also set a prudent limit on interest rate risk such as changes in Net Interest Income or Net Asset
Value in the event of an interest rate shock in the section: Interest Rate Risk Management of ALM Policy
as follows:
The change in the Net Income as a percentage to the budgeted Net Income, should not exceed 5%
based on a scenario of parallel shift of 50 bps
The impact on the Economic Value of Equity (EVE) as a percentage to the Equity, should not
exceed 5% based on a scenario of parallel shift of 100 bps. In addition, a limit of 15% drop in
equity value based on a scenario of parallel shift of 200 bps would be considered
The plausible Interest rate risk in banking book as of Dec 31, 2015 is calculated as below:
Interest Rate Sensitivity Analysis:
Interest rate change
1%
Change in Net Interest Income in short (28)
term bucket (Tk in crore)
2%
(56)
3%
(83)
Duration Gap Analysis:

Interest rate change
Change in market value of equity
(Tk in crore)
1%
2%
3%
(147.10) (294.21) (441.31)
Stress Test for Interest Rate Risk:
(Tk in crore)
Shock Level
Minor
Interest Rate change
1%
2%
3%
Regulatory capital (after

shock)
2,110.38
1,963.28
1,816.18
Risk Weighted Asset (after

shock)
15,947.89
15,800.78
15,653.68
12.43%
11.60%
Capital to Risk Weighted 13.23%

Assets (after shock)
Moderate
14
Major
Market Risk: Market risk is the risk of potential losses in the on-balance sheet and off-balance sheet
positions of a bank, steams from adverse movements in market rates or prices such as interest rates, foreign
exchange rates, equity prices, credit spreads and/or commodity prices. Market risk exposure may be explicit
in banks trading book and banking book. The objective of the market risk management is to minimize the
impact of losses on banks earnings and shareholders equity.
Governance: Bank follows a market risk management process that allows risk-taking within well-defined
limits in order to create and enhance shareholder value and to minimize risk. Regular market risk reports
are presented to the Board Risk Management Committee (BRMC), Assets & Liabilities Management
Committee (ALCO), Risk Management Unit (RMU) and Investment Committee (IC).
Board of Directors and Board Risk Management Committee (BRMC) have the superior authority to set
market risk management strategy but have delegated its technical functions to the Assets & Liabilities
Management Committee (ALCO), Risk Management Unit (RMU) and Investment Committee(IC) of the
bank. To administer technical policies concerning financial models and risk management techniques and
to implement banks market risk management policies, procedures and systems is delegated to Asset
Liability Management desk, Market Risk Management desk and Treasury Middle Office.
Policy, strategy and risk tolerance: Bank has Foreign Exchange Risk Management Policy, Asset Liability
Management Policy and Investment Policy duly approved by the Board of Directors which covers the
management process of Market Risk Factors. The Bank has reinstated and reviewed Asset Liability
Management (ALM) Policy for effective management of interest rate risk, liquidity risk. Additionally,
various processes and policies including Investment Policy and Value at Risk (VaR) and Stress Testing
policy are in place.
Bank measures it market risk exposure using Value at Risk (VaR) Model which is a quantitative approach
to measure potential loss for market risk. Stress Testing is used on asset and liability portfolios to assess
sensitivity on banks capital in different situations including stressed scenario. This test also evaluates
resilience capacity of the bank.
Risk tolerance limit, Management Action Triggers (MAT) and Stop loss limit are in place to limit and
control loss from trading assets. Notional limit and Exposure limits are set for Trading portfolios and
Foreign Exchange Open Position. Other different control mechanism is primed to monitor foreign exchange
open positions. Foreign exchange risk is computed on the sum of net short positions or net long positions,
whichever is higher, of the foreign currency positions held by the Bank.
Capital Allocation for Market Risk is calculated using Standardized Approach as below:
Solo Basis (Tk in crore):
Particulars
Interest rate risk
Equity position risk
Foreign Exchange risk
Commodity risk
Total capital requirement
Consolidated Basis (Tk in crore):

Particulars
2015
9.23
98.46
8.85
0.00
116.55
2014
38.20
95.78
4.87
0.00
138.84
2015
2014
15
Interest rate risk

Equity position risk
Foreign Exchange risk
Commodity risk
Total capital requirement
9.23
111.93
8.85
0.00
130.01
38.68
111.26
4.87
0.00
154.81
i.
Operational Manual for General Banking covering policies and guidelines for Branch operation,
card operation and Treasury operation,
ii. Foreign Exchange Risk Management Policy
iii. Policy Document on Know Your Customers (KYC)
iv. Anti-Money Laundering & Terrorist Financing guideline
v. ICT security policy
vi. Disaster Recovery and Business Continuity Management Policy
vii. Fraud Detection and Prevention Policy
viii. Insurance Coverage on Assets Financed by CBL
Moreover, CBL has a Risk Management Unit (RMU), comprising of member of senior management of
various risk functions, headed by CRO to regularly oversee various risks of the banks including operational
risk. Activities of RMU are implemented through independent Risk Management Division (RMD) of the
bank. Additionally, CBL has Internal Control and Compliance Division (ICCD) to monitor and control
operational procedure of the bank by undertaking periodic and special audit of the branches and departments
at the Head Office for review of the operation and compliance of statutory requirements. The reports are
submitted subsequently reviewed by the Audit Committee of the Board (ACB) who directly oversees the
activities of Internal Control and Compliance Division to protect against all operational risks.
CBL has adopted Basic Indicator Approach (BI) to assess the capital under operational risk as of the
reporting date. Accordingly, Banks operational risk capital charge has been assessed at 15% of positive
annual average gross income over the previous three years as defined by RBCA.
Capital Requirement for Operational Risk (Tk in crore):

Sl. No.
01
02
Particulars
Capital Charge for Operational Risk under MCR (Solo Basis)
Capital Charge for Operational Risk under MCR (Consolidated Basis)
2015
161.86
164.27
2014
142.71
144.38
Liquidity risk: Liquidity risk is the risk to the bank's earnings and capital arising from its inability to
timely meet obligations when they come due without incurring unacceptable losses. Liquidity risk primarily
arises due to the maturity mismatch associated with assets and liabilities of the bank. Therefore, The Board
of Directors of the bank set policy, different liquidity ratio limits, and risk appetite for liquidity risk
management.
The Board of Directors of the bank set policy, different liquidity ratio limits, and risk appetite for liquidity
risk management. Asset and Liability Management Committee (ALCO), chaired by MD and CEO, is
responsible for both statutory and prudential liquidity management. Ongoing liquidity management is
discussed as a regular item at ALCO meeting, which takes on a monthly basis. At the ALCO meeting,
banks liquidity position, limit utilization, changes in exposure and liquidity policy compliance are
16
presented to the committee. Asset Liability Management Desk (ALM) in the treasury division closely
monitors and controls liquidity requirements on a daily basis.
Liquidity is assessed either through stock approach or cash flow approach. Stock approach assesses the
liquidity condition based on certain liquidity indicators. Under the Cash Flow approach, gap between cash
outflow and inflow in each time bucket and cumulative gaps across time buckets indicates liquidity
condition on As-on-date basis. Cash flow approach is useful for measuring short term liquidity and involves
bucketing assets and liabilities into different maturity buckets. Key liquidity metrics on both local currency
and foreign currency balance sheets are monitored to evaluate the liquidity mismatches and prudential
limits such as:
Cash Reserve Ratio (CRR)
Statutory Liquidity Requirement (SLR)
Advance to Deposit Ratio (ADR)
Structural Liquidity Profile (SLP)
Maximum Cumulative Outflow (MCO)
Medium Term Funding Ratio (MTF)
Liquidity Coverage Ratio (LCR)
Net Stable Funding Ratio (NSFR)
Volatile Liability Dependency Ratio
Liquid Asset to Total Deposit Ratio
Liquid Asset to Short Term Liabilities
Liquidly Risk Management is guided by Asset Liability Management (ALM) Policy of the bank. Liquidly
Risk management and Liquidity Contingency Plan are the two major aspects in the ALM policy. The Bank
is equipped with a Liquidity Contingency Plan (LCP), which is in line with the regulatory guidelines. The
LCP clearly defines the responsibilities of the Liquidity Management Team and ensures the business
continuity through close monitoring of the Banks liquidity position against the pre-defined liquidity
Management Action Triggers (MAT).
Sl.
No.
01
02
03
04
05
06
Particulars
Solo
Consolidated
Liquidity Coverage Ratio

Net Stable Funding Ratio (NSFR)
Stock of High Quality Liquid Assets (Tk in crore)
Total net cash outflows over the next 30 calendar days (Tk in crore)
Available amount of stable funding (Tk in crore)
Required amount of stable funding (Tk in crore)
161.34%
100.15%
3.50
2.17
13.43
13.41
163.34%
100.99%
3.50
2.14
13.44
13.31
Leverage Ratio:
a) Basel III guidelines introduced a simple, transparent, non-risk based ratio known as leverage ratio in
order to avoid building-up excessive on and off balance sheet leverage in the banking system. CBL has
embraced this ratio along with Basel III guideline as it act as a credible supplementary measure to risk
based capital requirement and assess the ratio periodically in order properly address the issue.
17
b) Revised guideline of RBCA based on Basel III as provided by BRPD of Bangladesh Bank is followed
by the bank while managing excessive on and off-balance sheet leverage of the bank. As per RBCA
leverage ratio shall be Tier I Capital divided by Total Exposure after related deductions.
c) CBL follows the approach mentioned in the revised RBCA for calculating exposure of the bank. The
exposure measure for the leverage ratio generally follows the accounting measure of exposure. In order
to measure the exposure consistently with financial accounts, the following are applied by the bank:
a. On balance sheet, non-derivative exposures will be net of specific provisions and valuation
adjustments.
b. No Physical or financial collateral, guarantee or credit risk mitigation is considered.
c. No Netting of loans and deposits is considered
Sl. No. Particulars
01
Leverage Ratio
02
On balance sheet exposure (Tk in crore)
03
Off balance sheet exposure (Tk in crore)
04
Total exposure (Tk in crore)
Solo
7.06%
20,969.18
2,164.05
23,004.31
Consolidated
6.64%
20,902.10
2,164.05
22,929.63
Data Analysis and Findings:

As the banking sector is one of the main sector of a an economy it is important that there are some rules
and regulations regarding to protect the bank from financial crisis , if the banking sector collapse the whole
economy will collapse. Basel III is complex and broad and the City Bank Ltd fully adopted the Basel II
rules as we can on the above analysis we can see that they are above the requirement of the rules. Bangladesh
Bank has modified and simplified the policy to adapt it for our country economic situation. From the study
on implementation of Basel iii on City Bank Limited on the basis of statutory requirement of Bangladesh
Bank there have been some major findings, which are given below:
Data and reports are not centralized in one place all the data are segregated in different department.
It arises the problem in calculation of various ratios and measures. Gradually they are developing.
At the time of implementation there is no software specifically modified for Basel II reporting for
calculating all the relevant ratios and other details, still now there is no software .The cost is also
related.
Capital to Risk Weighted Asset Ratio (CRAR) of the City Bank Ltd. reached in 14.03% on solo
basis and 13.42% on consolidated basis. Tier I capital ratio of 10.08% on solo basis and 9.48% on
consolidated basis against the required level of 6.00%. Tier II capital of 39% of CET I on Solo
basis and 42% of CET I on consolidated basis against the maximum limit of 88.89%. The required
Capital Adequacy Ratio required to maintain is above 10%, and therefore City Bank Ltd. has
successfully fulfilled the criteria. Every year there is a surplus amount which is the difference
between total maintained capital and total minimum capital requirement and the surplus amount is
to meet Stress Test and ICAAP requirement.
CBL managed to maintain surplus capital of 4.03% on solo basis and 3.42% on consolidated basis.
The surplus capital maintained by CBL will act as buffer to absorb all material risks under Pillar II
and to support the future activities of the bank.
Total Risk Weighted Asset (RWA) of the bank was Tk 16,094.99 crore on solo basis and Tk
16,058.15 crore on consolidated basis where Credit risk accounted for 83% of RWA followed by
Operational risk for 10% and Market risk for 7%.
18
Liquidity Coverage Ratio of City Bank Ltd reached in 161.34% on solo basis and 163.34% on
consolidated basis which is fulfill the requirement.
Leverage Ratio is 7.06% on solo basis and 6.64% on consolidated basis.
BASEL III framework of Eastern Bank Limited

Background
Use of excessive leverage, gradual erosion of level and quality of capital base, insufficient liquidity buffer,
pro-cyclicality and excessive interconnectedness among systematically important institutions are identified
as reasons of recent bank failures. Bank for International Settlements (BIS) came up, in response, with new
set of capital and liquidity standards in the name of Basel III. In compliance with the Revised Guidelines
on Risk Based Capital Adequacy (RBCA) issued by Bangladesh Bank in December 2014, Banks in
Bangladesh have formally entered into Basel III regime from 1 January 2015. The new capital and liquidity
standards have greater business implications for banks.
Eastern Bank Limited (EBL) has also adopted Basel III framework as part of its capital management
strategy in line with the revised guideline. These Market discipline disclosures under Basel III are made
following Guidelines on Risk Based Capital Adequacy (Revised Regulatory Capital Framework for banks
in line with Basel III) for banks issued by Bangladesh Bank in December 2014.
The purpose of Market discipline is to complement the minimum capital requirements and the supervisory
review process. Establishing a transparent and disciplined financial market through providing accurate and
timely information related to liquidity, solvency, performance and risk profile of a bank is another important
objective of this disclosure.
Consistency and Validation

The quantitative disclosures are made on the basis of consolidated audited financial statements of EBL and
its Subsidiaries as at and for the year ended December 31, 2015 prepared under relevant International
Accounting and Financial Reporting Standards as adopted by the Institute of Chartered Accountants of
Bangladesh (ICAB) and related circulars/instructions issued by Bangladesh Bank from time to time. The
assets, liabilities, revenues and expenses of the subsidiaries are combined with those of the parent company
(EBL), eliminating inter-company transactions. Assets of the subsidiaries were risk weighted and equities
of subsidiaries were crossed out with the investment of EBL while consolidating. So, information presented
in the Quantitative Disclosures section can easily be verified and validated with corresponding
information presented in the consolidated audited financial statements 2015 of EBL and its Subsidiaries
along with separate audited financial statements of the Bank available on the website of the Bank
(www.ebl.com.bd). The report is prepared once a year and is available in the website.
Capital Structure
Qualitative Disclosures
(a) Summary information on the terms and conditions of the main features of all capital instruments,
especially in the case of capital instruments eligible for inclusion in Common Equity Tier-1, Additional
Tier 1 or Tier 2.
As per Basel III guideline, regulatory capital consists of Tier-1 (Tier 1 capital has been divided into two
parts: Common Equity Tier 1 and Additional Tier 1) and Tier 2 capital.
19
Conditions for maintaining regulatory capital: The Bank complied with all the required conditions for
maintaining regulatory capital as stipulated in the Basel III guidelines as per following details:
Status of
Compliance
The bank has to maintain at least 4.50% of total Risk Weighted Assets (RWA) as Common Equity Tier Complied
1 capital.
Tier 1 capital will be at least 5.50% of the total RWA.
Complied
Minimum capital to Risk Weighted Asset Ratio (CRAR) will be 10% of the total RWA
Complied
Maximum limit of tier-2 capital: Tier 2 capital can be maximum up to 4% of the total RWA or 88.89%
Complied
of CET-1, whichever is higher
Particulars
BDT in Million
Particulars
Common Equity Tier-1 (CET-1) Capital
Regulatory adjustments
Total Common Equity Tier -1 Capital
Additional Tier 1 Capital
Solo (Bank)
15,823
(1,135)
14,688
-
Consolidated
16,023
(1,136)
14,887
-
Tier-2 Capital
Regulatory adjustments
Total Tier-2 Capital
Total Regulatory Capital
6,225
(449)
5,776
20,463
6,274
(449)
5,824
20,711
Capital Adequacy
(a) A summary discussion of the banks approach assessing the adequacy of its capital to support current
and future activities.
Assessing regulatory capital in relation to overall risk exposures of a bank is an integrated and
comprehensive process. EBL follows the asset based rather than capital based approach in assessing the
adequacy of capital to support current and projected business activities. The Bank focuses on strengthening
risk management and control environment rather than increasing capital to cover up weak risk management
and control practices. EBL has been generating most of its incremental capital from retained profit (stock
dividend and statutory reserve transfer etc.) and occasional issue of right shares to support incremental
growth of Risk Weighted Assets (RWA). Besides meeting regulatory capital requirement, the Bank
maintains adequate capital to absorb material risks foreseen. Therefore, the Banks Capital to Risk
Weighted Asset Ratio (CRAR) remains consistently within the comfort zone during 2015 (13% plus).The
surplus capital maintained by EBL will act as buffer to absorb all material risks and to support the future
activities. To ensure the adequacy of capital to support the future activities, the bank draws assessment of
20
capital requirements periodically considering future business growth. Risk Management Unit (RMU) under
guidance of the SRP team/BRMC (Bank Risk Management Committee), is taking active measures to
identify, quantify, manage and monitor all risks to which the Bank is exposed to.
BDT in Million
Particulars
Capital requirement for Credit Risk
Capital requirement for Market Risk
Capital requirement for Operational Risk
Minimum capital requirement (MCR)
Additional capital maintained over MCR
Total capital maintained
Risk weighted assets
Capital to Risk Weighted Asset Ratio
Common Equity Tier-1 (CET-1) Capital Ratio
Tier-2 Capital Ratio
Available Capital under Pillar 2 Requirement
Solo (Bank)
11,822
919
1,629
14,371
6,093
20,463
143,707
14.24%
10.22%
4.02%
Not Required
Not Decided Yet
Consolidated
12,210
1,008
1,659
14,878
5,834
20,711
148,776
13.92 %
10.01 %
3.91 %
Not Required
Not Decided Yet
Credit Risk
General Disclosure
Credit risk is defined as the probability of failure of counter-party to meet its obligation as per agreed terms.
Banks are very much prone to credit risk due to its core activities i.e. lending to corporate, Consumer, SME,
another bank/FI. The main objective of credit risk management is to minimize the negative impact through
adopting proper mitigates and also limiting credit risk exposures within acceptable limit.
Our credit risk management function has been kept independent of business origination functions to
establish better internal control and to reduce conflict of interest. The Head of Credit Risk Management
(HoCRM) has clear responsibility for management of credit risk. Final authority and responsibility for all
activities that expose the bank to credit risk rests with the Board of Directors. The Board, however,
delegated authority to the Managing Director and CEO or other officers of the credit risk management
division.
The Board also set credit policies and delegates authority to the management for setting procedures, which
together has structured the credit risk management framework in the bank. The Credit Policy Manual
contains the core principles for identifying, measuring, approving, and managing credit risk in the bank and
designed to meet the organizational requirements that exist today as well as to provide flexibility for future.
These policies represent the minimum standards for credit extension by the bank, and are not a substitute
of experience and good judgment.
Interest rate risk in the banking book (IRRBB)

Interest rate risk is the risk that a bank will experience deterioration in its financial position as interest rates
move over time. Interest rate risk is typically divided into two parts:
21
Traded interest rate risk

Non-traded interest rate risk (balance sheet)
Interest rate risk in the banking book (IRRBB) arises from a banks core banking activities. It arises from
differences between the timing of rate changes and the timing of cash flows (re-pricing risk); from changing
rate relationships among yield curves that affect bank activities (basis risk); from changing rate
relationships across the range of maturities (yield curve risk); and from interest-rate-related options
embedded in bank products (option risk).
The process of interest rate risk management by the bank involves determination of the business objectives,
expectation about future macro-economic variables and understanding the money markets and debt market
in which it operates. Interest rate risk management also includes quantifying the appetite for market risk to
which bank is comfortable.
The Bank uses the following approach to manage interest rate risks inherent in the Balance sheet:
Simple Gap Analysis: Traditional Gap analysis of on-balance sheet Asset Liability Management (ALM)
involves careful allocations of assets and liabilities according to reprising/maturity buckets. This approach
quantifies the potential change in net interest income using a specified shift in interest rates, e.g. 100 or 200
basis points, or a simulated future path of interest rates. Assumptions: For Gap analysis, bank considers the
following:
for fixed-rate contract, remaining maturity is considered
for contracts with provision of re-pricing, time remaining for next re-pricing is considered.
for assets and liabilities which lack definitive re-pricing interval or for which there is no stated maturity,
bank determines the core and volatile portion. For asset, volatile portion is bucketed till 3 months using
historical repayment behavior and stable portion is bucketed in 6-12 months bucket. For liabilities,
volatile portion is bucketed till 1 year using historical withdrawal behavior and stable portion is bucketed
in over 1 year segment.
Also, following assumptions are met:
the main assumption of gap analysis is that interest rate moves on parallel fashion. In reality however,
interest rate does not move upward.
Contractual repayment schedule is met.
Re-pricing of assets and liabilities takes place in the
midpoint of time bucket.
the expectation is that loan payment will occur in schedule.
optionally embedded in different products is not
considered.
22
Gap Analysis
Result of Gap analysis as on December 31, 2015:
Particulars
For 100 basis point increase/decrease in Interest rate, Impact on NII
For 200 basis point increase/decrease in Interest rate, Impact on NII
3 months
6 months
BDT 30.70 Million BDT 52.70 Million
BDT 60.40 Million
BDT 105.40
Million
The focus of the Duration Analysis is to measure the level of a banks exposure to interest rate risk in terms
of sensitivity of Market Value of its Equity (MVE) to interest rate movements. Duration Gap can be used
to evaluate the impact on the Market Value of Equity of the bank under different interest rate scenarios.
ALCO monitors the Leveraged Liability Duration and duration gap of the total bank balance sheet on a
quarterly basis to assess the impact of parallel shift of the assumed yield curve.
Particulars
Duration of Asset
Duration of Liabilities
Leveraged Liability Duration
Duration Gap
Dec-31, 2014
Dec-31, 2015
1.18
0.41
0.82
0.36
Market Risk
Market Risk: Market Risk is defined as the possibility of loss due to changes in the market variables. It is
the risk that the value of on/off-balance sheet positions will be adversely affected by movements in equity
price, interest rate and currency exchange rates. The objective of our market risk policies and processes is
to obtain the best balance of risk and return whilst meeting customers requirements. The primary categories
of market risk for the bank are:
Interest rate risk: arising from changes in yield curves, credit spreads and implied volatilities on interest
rate options.
Currency exchange rate risk: arising from changes in exchange rates and implied volatilities on foreign
exchange options.
Equity price risk: arising from changes in the prices of equities, equity indices, equity baskets and implied
volatilities on related options.
Bank has comprehensive Treasury Trading Policy, Asset-Liability Management Policy, Investment Policy
approved by Board of Directors to assess, monitor and manage all the above market risks. Bank has defined
various internal limits to monitor market risk and is computing the capital requirement as per standardized
approach of Basel III. Moreover, Bank has already taken initiatives to incorporate BASEL III guidelines in
its ALM policy. As soon as Bangladesh Bank publishes the finalized ALM guideline, bank will incorporate
changes and place the ALM policy to board for approval.
Methods used to measure Market Risk: Bank applies maturity method in measuring interest rate risk in
respect of securities in trading book. The capital charge for entire market risk exposure is computed under
23
1.48
0.84
0.73
0.75
the standardized approach using the maturity method and in accordance with the guideline issued by
Bangladesh Bank.
Market Risk Management System: To manage the interest rate risk, ALCO regularly monitors various
ratios and parameters. Of the ratios, the key ratios that ALCO regularly monitors are Liquid asset to total
assets, Volatile liability dependency ratio, and medium term funding ratio, Snap liquidity ratio and Short
term borrowing to Liquid assets ratio. ALCO also regularly monitors the interest rate sensitive gap and
duration gap of total portfolio.
To manage foreign exchange risk of the bank, the Bank has adopted the limit by central bank to monitor
foreign exchange open positions. Foreign exchange risk is computed on the sum of net short positions or
net long positions, whichever is higher of the foreign currency positions held by the Bank.
Bank is using Value at Risk (VaR) analysis based on historical method to assess the minimum level of loss
on foreign currency holding that is likely to be exceeded at certain level of probability (5% probability) in
1 day. Also, based on VaR, bank has set Management Trigger Point at BDT 10.00 million for aggregate
currency exposure, based on 1 day VaR at 95% level of confidence. Value-at-Risk estimates (Loss in
domestic currency) presented below:
Particulars
Time horizon
Confidence level
1 day
2 days
3 days
4 days
5 days
90%
906,694
1,689,473
2,623,467
3,419,797
4,274,386
95%
1,242,254
2,486,815
3,538,621
4,549,525
5,533,622
99%
1,623,511
2,862,315
4,124,439
5,151,926
6,735,972
To manage equity risk, the Investment Committee of the bank ensures taking prudent investment decisions
complying sectorial preference as per investment policy of the bank and capital market exposure limit set
by BB.
Capital required (Solo basis) for market risk as on the reporting date 31-12-15:
BDT in Million
a
b
c
d
Particulars
Interest rate risk
Equities
Foreign exchange risk
Commodity risk
Total
Amount
386
394
139
919
Operation Risk
Operational Risk: Operational risk is the risk of loss arising from fraud, unauthorized activities, error,
omission, inefficiency, systems failure or external events. It is inherent in every business organization and
covers a wide spectrum of issues. We seek to minimize exposure to operational risk, subject to cost benefit
trade-offs. The bank captures some pre identified risk events associated with all functional departments of
the bank through standard reporting format.
24
Policies and processes for mitigating operational risk: Operational Risk Management Unit is primarily
responsible for risk identification, measurement, monitoring, control, and reporting of operational risk. This
unit presently reports to Head of ICCD (Internal Control and Compliance Division). Besides, there is a
committee called Bank Risk Management Committee (BRMC) that also oversees the operational risk
issues of the bank. Operational risks are analyzed primarily through review of Departmental Control
Function Check List (DCFCL). This is a self-assessment process for detecting HIGH risk areas and finding
mitigation of those risks. These DCFCLs are then discussed in monthly meeting of BRMC. The committee
analyze HIGH and MODERATE risk indicators and set responsibility for specific people to resolve the
issue.
Performance gap of executives and staffs: EBL is an equal opportunity employer. At EBL we recognize
the importance of having the right people at right positions to achieve organizational goals. Our recruitment
and selection is governed by the philosophy of fairness, transparency and diversity. Understanding what is
working well and what requires further support is essential to our performance management system. The
performance management process aims to clarify what is expected from employees as well as how it is to
be achieved.
At the beginning of a year we adequately communicate to our direct reports what are expected from him/her
during ensuing period. A half yearly and yearly performance appraisal practices are in place to review
achievements based on which rewards and recognition decisions are made. Internal control & compliance
(ICC) is continuously monitoring to minimize any potential brand damaging performance gap by employees
especially fraud-forgery, misuse of power of attorney, weak customer services, weak internal and regulatory
compliance etc.
However, our learning and development strategy puts special focus on continuous professional
development to strengthen individuals skill level by removing the weakness to perform the assigned job
with perfection. We have a wide range of internal & external training programs to enhance capabilities as
well as minimize performance gap that will contribute more to bottom line.
The reward and recognition policy of the bank is designed to motivate our people to perform better be it
business or supporting business. Our strategy of reinforcing peoples positive behaviors is based on
following premises:
understanding the nature what really motivates our people.
encourage teamwork, by creating a culture where individual and team
success is recognized.
regular benchmarking to compare our reward and recognition strategy with similar organizations.
Potential external events: We understand that business operates in an umbrella of inter connected socioeconomic and political environment. Few externalities affect business performance directly such as macroeconomic conditions, regulatory changes, change in demand, status of infrastructure whereas few factors
affect operations of the business directly or indirectly such as force shut down due to political instability,
threat of vandalism to the banks sophisticated physical outlets including IT equipments etc.
Approach for calculating capital charge for operational risk: The bank applies Basic Indicator
Approach of Basel III as prescribed by BB in revised RBCA guidelines. Under this approach, banks have
to calculate average annual gross income (GI) of last three years and multiply the result by 15% to determine
25
required capital charge. Gross Income is the sum of Net Interest Income and Net non-interest income of
a year or it is Total Operating Income of the bank with some adjustments as noted below. GI shall: Be
gross of any provision (e.g. for unpaid interest), Be gross of operating expenses, including fees paid to
outsourcing service providers, Include lost interest i.e. interest suspense on SMA and classified loans.
BDT in Million
Particulars
Capital charge for operation risk
Solo (Bank)
1,629
Consolidated
1,659
Liquidity Ratio
Methods used to measure Liquidity risk
Liquidity Risk is the risk that the bank does not have sufficient financial resources to meet its obligations
as they fall due or will have to do so at excessive cost. The risk arises from mismatch in the timing of cash
flows. The intensity and sophistication of liquidity risk management system depends on the nature, size and
complexity of a banks activities. Sound liquidity risk management employed in measuring, monitoring and
controlling liquidity risk is critical to the viability of the bank. Liquidity Risk management procedures in
EBL are comprehensive and holistic. The measurement tools those are used to assess liquidity risks are:
a) Statutory Liquidity Requirement (SLR)
b) Cash Reserve Ratio (CRR)
c) Asset to Deposit Ratio (ADR)
d) Structural Liquidity Profile (SLP)
e) Maximum Cumulative Outflow (MCO)
f) Medium Term Funding Ratio (MTF)
g) Liquidity Coverage Ratio (LCR)
h) Net Stable Funding Ratio (NSFR)
i) Volatile Liability Dependency Ratio
j) Liquid Asset to Total Deposit Ratio
k) Liquid Asset to Short Term Liabilities
Liquidity risk management system
Responsibility of managing and controlling liquidity of EBL lies with Asset Liability Management
Committee (ALCO) which meets at least once in every month. Asset and Liability Management (ALM) desk
closely monitors and controls liquidity requirements on a daily basis by appropriate coordination of
funding activities and they are primarily responsible for management of liquidity in the bank. A monthly
projection of fund flows is reviewed in ALCO meeting regularly.
Policies and processes for mitigating liquidity risk

In order to develop comprehensive liquidity risk management framework, EBL implemented Contingency
Funding Plan (CFP), which is a set of policies and procedures that serves as a blueprint for the bank to meet
its funding needs in a timely manner and at a reasonable cost. CFP also ensures:
26
a) Reasonable liquid assets being maintained;

b) Measurement and projection of funding requirements during various scenarios; and
c) Management of access to funding sources.
Maturity ladder of cash inflows and outflows is an effective tool to determine banks cash position; that
estimates cash inflows and outflows with net deficit or surplus (GAP) both on a day to day basis and over
a series of specified time periods. A bucket wise (e.g. call, 2-7 days, 1 month, 1-3 months, 3-12 months, 15 years, over 5 years) maturity profile of the assets and liabilities is prepared to understand mismatch
in every bucket. A structural maturity ladder or profile is prepared periodically following guidelines of
the Bangladesh Bank.
Liquidity Coverage Ratio and Net Stable Funding Ratio as on December 31, 2015 are given below:
BDT in Million
Particulars
Stock of High quality liquid assets
Total net cash outflows over the next 30 calendar days
Liquidity Coverage Ratio (%)
Available amount of stable funding
Required amount of stable funding
Net Stable Funding Ratio (%)
Leverage Ratio
Policies and processes for managing excessive on and off-balance sheet leverage
Leverage ratio is the ratio of tier 1 capital to total on and off-balance sheet exposures. The leverage ratio
was introduced into the Basel III framework as a non-risk based backstop limit, to supplement risk-based
capital requirements. In order to avoid building up excessive on and off-balance sheet leverage in the
banking system, a simple, transparent, non-risk based leverage ratio has been introduced by the Bangladesh
Bank. The leverage ratio is calibrated to act as a credible supplementary measure to the risk based capital
requirements.
The leverage ratio is intended to achieve the following objectives:
Constrain the build-up of leverage in the banking sector which can damage the broader financial system
and the economy; and
Reinforce the risk based requirements with an easy to understand and a non-risk based measure.
Approach for calculating exposure
The Bank has calculated the regulatory leverage ratio as per the guideline of Basel III. The numerator,
capital measure is calculated using the new definition of Tier I capital applicable from 01 January 2015.
The denominator, exposure measure, is calculated on the basis of the Basel III leverage ratio framework as
adopted by the Bangladesh Bank.
27
Amount
29,962
25,472
117.63
136,520
131,495
103.82
Quantitative Disclosure
Leverage Ratio as on 31 December, 2015 is given below:
BDT in Million
Particulars
On balance sheet exposure (A)
Off balance sheet exposure (B)
Regulatory Adjustments (C)
Total exposure (A+B-C)
Leverage Ratio
Amount
186,743
39,942
1,135
225,550
6.51 %
Data Analysis and Findings:

As the banking sector is one of the main sector of a an economy it is important that there are some rules
and regulations regarding to protect the bank from financial crisis , if the banking sector collapse the whole
economy will collapse. Basel III is complex and broad and the Eastern Bank Ltd fully adopted the Basel III
rules as we can on the above analysis we can see that they are above the requirement of the rules. Bangladesh
Bank has modified and simplified the policy to adapt it for our country economic situation. From the study
on implementation of Basel III on Eastern Bank Limited on the basis of statutory requirement of Bangladesh
Bank there have been some major findings, which are given below
EBL follows the asset based rather than capital based approach in assessing the adequacy of
capital to support current and projected business activities.
The Bank focuses on strengthening risk management and control environment rather than
increasing capital to cover up weak risk management and control practices.
EBL has been generating most of its incremental capital from retained profit (stock dividend and
statutory reserve transfer etc.) and occasional issue of right shares.
Capital to Risk Weighted Asset Ratio (CRAR) of the Eastern Bank Ltd. reached in 14.24% on solo
basis and 13.92% on consolidated basis which fulfill the requirement of Basel Accord.
Total Risk Weighted Asset (RWA) of the bank was Tk 143,707 million on solo basis and Tk
148,776 million on consolidated basis.
Liquidity Coverage Ratio of Eastern Bank Ltd reached in 117.63% and Net Stable Funding Ratio
is 103.82% on consolidated basis which is fulfill the requirement.
Leverage Ratio is 6.51% on consolidated basis.
THE MAJOR CHALLENGES TO IMPLEMENT BASEL-III

Capital
The first set of Basel III reforms agreed in later part of 2010 tackled the issue of numerator part of regulatory
capital ratio. While minimum total capital requirements were kept unchanged at 8% of the RWA, the
definition of various components of capital and its composition were thoroughly revised to ensure that
capital performs its intended role of loss absorption. The minimum common equity requirement was raised
from 2% level, before the application of regulatory adjustments, to 4.5% after the application of stricter
adjustments. This meant that common equity requirement was effectively raised from 1% to 4.5%. The Tier
1 capital, which includes common equity and other qualifying financial instruments based on stricter
criteria, was increased from 4% to 6%. It has also been agreed that there would be a capital conservation
buffer of 2.5% above the regulatory minimum requirement to present 8% to 10.5%. In our case, the level
28
of capital increases from 9% to 11.5%, if capital conservation buffer is taken into account. In this context,
it may be pertinent to note that post crisis, major banks in advanced economies have raised their capital
adequacy level significantly. In general, globally banks have raised their CET1 ratio by almost 400 bps
during last four years. And importantly, this is mainly by way of fresh infusion of equity capital.
The second element in the capital framework is the leverage ratio. We have advised banks that they would
be monitored on a leverage ratio of 4.5%. We are watching this closely. Leverage ratio generally does not
adjust the assets for risk weights and therefore would need the required capital for a given balance sheet.
We have seen on the basis of the RW profile of banks that the leverage ratio is not acting as the binding
factor for most banks in Bangladesh. To ensure that the leverage ratio acts as a credible back-stop measure,
the Bangladesh Bank would continue to monitor the leverage ratio behavior of Bangladeshi banks and also
the developments of other related regulatory framework before finalizing the appropriate level of leverage
ratio for Bangladeshi banks.
Another element that could lead to higher capital is the changes in the Risk Weighted Assets, more
specifically, on account of proposed revisions to the standardized approaches for risk measurements. The
Banks intends to avoid reliance on credit ratings for determining risk weights for credit risk given the
lessons learnt from the crisis. Although this is work in progress, under the proposed revised framework,
banks would be required to utilize a set of risk drivers like leverage of the entity, NPAs, etc. to determine
the appropriate risk weight. Similarly, for market risk, there would be a requirement to compute sensitivities
(delta, gamma, etc.) on a deal level for computing RWAs. Besides, talks are already underway to review
the existing treatment of sovereign assets under Basel framework wherein exposure to sovereign requires
zero or very little capital charge. These proposals will alter the way banks compute RWAs. Besides, a new
explicit capital charge for interest rate risk for banking book positions is also proposed to be introduced.
Further, specific to the advanced approaches for risk measurement, the Basel Committee is undertaking a
strategic framework review with a view to enhancing simplicity, reducing complexity and at the same time
ensuring that the framework remains risk sensitive.
The fourth element impacting capital requirements is provisioning. IFRS 9 requires provisioning based on
expected loss provisions.
Liquidity
The second Challenge comes from Liquidity Framework. The global crisis underscored the importance of
liquidity management by banks. The apparently strong banks ran into difficulties when the interbank
wholesale funding market witnessed a seizure. In fact, I have mentioned elsewhere too that for me it is only
a matter of time before a liquidity risk degenerates into a solvency risk for a bank and therefore needs to be
avoided. The crisis proved that and had it not been for central bank support, the crisis toll could have gone
beyond what we saw. The LCR and the NSFR Frameworks basically address this problem
In the Bangladeshi context, any discussion on the LCR issue brings to the fore the fact that it runs parallel
to SLR requirement. We have over a period of time reduced SLR and of the current level of 21.5%, a portion
i.e.7 % is available for LCR as well. There is always the contention that the parallel need to maintain SLR
and LCR poses an additional burden on the banks in Bangladesh. We are aware of this concern and already
communicated our intention to reduce the SLR requirements in a phased manner. However, there are several
factors that would have to be addressed before we can move further to address the potential overlap.
Bangladesh Bank is looking at the comments received and will come out with the final guidelines taking
into consideration the responses to the extent we can accommodate them.
29
Technology
The Third challenge is technology. Bangladesh Bank is in the process of making significant changes in
standardized approach for computing RWAs for all three risk areas. These revised standardized approaches
themselves will be quite risk sensitive and will be dependent on a number of computational requirements.
Further, Bangladesh Bank has proposed that for those banks which are under advanced approaches, RWAs
based on standardized approaches may work as some kind of floor. BCBS is working on calibration of these
floors. Banks may need to upgrade their systems and processes to be able to compute capital requirements
based on revised standardized approach.
Skill development
The fourth challenge is skill development. This is a requirement both in the supervised entities and within
the Central Bank. Implementation of the new capital accord requires higher specialized skills in banks. In
fact, it requires a paradigm shift in risk management. The governance process should recognize this need
and make sure that the supervised entity gears up to it. Risk awareness has to spread bank-wide, the manner
of doing business that measures risk adjusted returns needs to permeate the system. Top management and
the Human Resource Development Policy of banks thus need to get tuned. Bangladesh Bank also need to
hone up their skills in regulating and supervising banks under the new system. This as an ongoing process
and are continuously working towards skill improvement.
Governance
One can have the capital, the liquid assets and the infrastructure. But corporate governance will be the
deciding factor in the ability of a bank to meet the challenges. Central bank added a separate principle on
corporate governance in its core principles for effective banking supervision which were revised in 2012.
It is interesting to note that before 2012, there was no separate principle on corporate governance. Global
community is recognizing the importance of corporate governance and is trying to fix the issues. Thus while
strong capital gives financial strength, it cannot assure good performance unless backed by good corporate
governance.
Complex transactions
Excessive interconnectedness among financial institutions also made the financial crisis so severe. Financial
institutions were engaged in an array of complex transactions, which rapidly transmitted the crisis from one
institution to another. To limit the interconnectedness among financial institutions, Basel III suggested a
number of measures. These measures include: i) the bank's capital will be deducted for investment in shares
of financial institutions (including bank, NBFI and insurance) in excess of 10 per cent of bank's capital, ii)
Use of central counterparties has been encouraged in the over-the-counter derivatives, iii) Higher capital
requirement has been imposed for derivative products and iv) capital surcharge has been made applicable
for systemically important banks.
30
THE IMPACT OF BASEL III ON BANKS AND FINANCIAL SYSTEM

Capital
Capital requirements are also a part of Basel III. Banks are required to hold 4.5% of risk-weighted assets in
the form of their own equity. This rule is an effort to make banks have skin in the game when it comes to
making decisions to reduce the agency problem. More capital rules include 6% of risk-weighted assets
being of Tier 1 quality. Risk weighted assets are the most vulnerable during a downturn, so these rules will
protect the banks.
Liquidity ratios
Another element of Basel III is required liquidity ratios. The liquidity coverage ratio mandates that banks
must hold high-quality, liquid assets that would cover the bank's cash outflows for a minimum of 30 days
in the event of an emergency. The net stable funding requirement is for banks to have enough funding to
last for a whole year in an emergency.
Impact on business segments

No assessment of the impact of Basel III would be complete without a review of the effect on profitability
of individual businesses and the bank as a whole. As suggested in our April 2010 white paper, three types
of impact must be considered:
Balance-sheet-specific impact at the corporate level
Balance Sheet Specific impact at the corporate level cannot be attributed to individual businesses. Examples
include those capital deductions that will affect each banks balance sheet differently, depending on its
assets, but will not have a particular effect on businesses.
Universal impact across all banks and businesses

The new capital and leverage ratios are the best examples of rules that affect all businesses proportionally.
The impact would be more pressing on marginally profitable businesses, but all businesses would suffer
unless the cost rise could be passed on to customers.
Business-specific impact
This category includes rules on risk-weighted assets (RWAs), liquidity, and long-term-funding, which were
designed specifically to address the risks that were visible during the crisis, for example, in trading and
securitization
Shadow Banking
Excessive leverage i.e. use of non-equity fund has played major role in both initiation and deepening of the
crisis. The initiation of the crisis was in shadow banking system of the USA. The shadow banking system
is a set of institutions that carry out functions very similar to those of traditional banks but that are less
regulated. They are kept less regulated because they do not receive deposit from the public. How do they
provide bank-like services without accepting deposit? Let us explain it with a simplified example. Suppose
that an investor availed margin loan from a broker to purchase a security. The security is kept pledged to
31
the broker against the margin loan. The broker can use the pledged security to enter into a repo (repurchase
agreement) transaction with a pension fund which have excess fund to invest for a short period. The pension
fund can deposit the excess fund in a bank but the return of such short-term deposit is not attractive. So,
pension fund searches for alternative profitable avenues for investment with equal importance on safety of
the fund. If it enters into repo transaction with the broker, it will be able to invest its short-term fund more
profitably that is secured by repo security. In this case, the pension fund is called repo lender, the broker is
called repo borrower and the security of the repo transaction is called collateral. Thus, a bank like
transaction is made in the shadow banking system and leverage is created contracts in the period prior to
the financial crisis. The asset size of shadow banking system in the USA was even higher than the formal
banking system at that period. Mortgage Backed Securities (MBS) were popularly used as repo collateral
in these transactions. MBS are created by pooling mortgage loans and selling them as security. The sale of
mortgage loan increases the availability of fund for extending further loan. The demand of MBS as repo
collateral in pre-crisis period caused more securitization of mortgage loans and the loanable fund for house
purchasers increased markedly. The availability of loan increased the home prices excessively.
In 2007, the overpriced housing market started to decline in the US. Consequently, the price of the
mortgage-backed securities started to fall due to fear of increase of default by the home owners (borrowers).
As a result, the repo lenders started to refuse to lend money against such securities. The securities had to
be forcedly sold out to pay the repo lenders money. The sale pressure of the securities further reduced the
price of the same and the loop continued to worsen the scenario day by day.
Like the shadow banks, the formal banks also accumulated excessive leverage in their balance sheet while
maintaining necessary risk-based capital ratio. The de-leveraging process and the price slump in the shadow
banking system greatly affected these banks. They were compelled to reduce their leverage in a forced
manner that caused huge losses, reduced capital ratio and contracted the availability of the credit in the
economy. But it is apparent that the excessive leverage of the banks contributed to the crisis. Even the banks
maintained necessary risk-based capital ratio. It means that capital ratio alone is not sufficient to protect the
stability of financial sector. As such, Basel III introduces a simple, transparent, non-risk-based regulatory
Leverage Ratio to constrain leverage in the banking sector and supplement risk-based capital ratio as a
safeguard against model risk. The leverage ratio is calculated by dividing tier 1 capital with total exposure.
STRATEGIES TO IMPROVING THE RISK ARCHITECTURE

Managing the data
In order to meet the Basel III compliance, banks have to ensure that risk and finance teams have quick
access to centralized, clean, and consistent data. The data management requirements of Basel III are
significant. If the data is dispersed across different silos it involves more overhead costs compared to those
with a more centralized approach to collecting, consolidating, and submitting reports under Basel I, II, and
III. Data has to be efficiently managed so as to ensure that calculations for capital adequacy, leverage, and
liquidity are done accurately.
Transparency/Audit-ability-data lineage
Once a regulatory report has been submitted, it is highly likely that a regulator will follow up with the bank
to clarify critical issues about how the results were calculated and how the rules were applied. This will
require the bank to identify, check, approve, and submit the data quickly and accurately. This audit process
will be especially difficult for banks if the data is dispersed across multiple silos and systems, as it will take
longer to search for the relevant information. Banks with a centralized data model will be able to respond
faster and more efficiently to these enquiries.
32
Stress testing
This will be difficult to deliver if organizations have their data distributed across multiple silos. It will take
more effort, time and it will deliver less accurate results, compared with having a data model where all the
critical information is held in a central repository. Placing all the data in a central repository will allow
banks to run a wide array of complex stress tests that meet the needs of the business.
Ways to strengthen risk management

Capacities so as to generate adequate and qualitative data? There are various Enterprise Data Management
tools currently available to improve data quality. Banks need to setup sound practices for data governance.
That would involve the following:
Assessing the current state of data quality at the company.
Understanding and fixing the root causes of data contamination.
Creating standards and procedures for data quality.
Enforcing the policies and procedures that govern the data while the data is in their custody.
Periodically monitoring (auditing) the quality of the data in their custody.
Monitoring and advising the end users on proper usage of their data.
Conclusion
Todays world is very much competitive & fast-growing. Banking sector is one of the most gigantic
contributing sectors which ensure the blood flow of any economy. In this highly competitive world a bank
is exposed certain collapse due to capital deficiency, thats why there was badly need an international
standard to avoid the threat of certain collapse. For safeguard and survival of bank, Basel Committee on
Banking Supervision (BCBS) imposed Basel I, Basel II, and BASEL III. Basel III in our country is being
followed with enthusiasm. Theoretically the 10% CAR should be enough for banks to be shock resilient
and defend adverse business environment in Bangladesh. It remains to be seen in real world whether the
adequate capital can save a bank or not. Still there is no harm in maintaining the eligible capital as per BB
guidelines and be prepared for any economic disaster. The framework of Basel III sought to increase
the capital and improve the quality thereof to enhance the loss absorption capacity and resilience
of the banks, brought in a leverage ratio to contain balance sheet expansion in relation to capital,
introduced measures to ensure sound liquidity risk management framework in the form of liquidity
coverage ratio (LCR) and net stable funding ratio (NSFR), modified provisioning norms and of
course enhanced disclosure requirements. In a nutshell, from a regulators perspective, a relevant
standards and apt guidelines commensurate to BASEL framework should be set for the banking industry
so that the benefits of risk management can be maximized and the undesired outcomes of financial turmoil
can be mitigated.
33
References
1. Bangladesh Bank (December 2014) Guidelines on Risk Based Capital Adequacy- (Revised
Regulatory Capital Framework for banks in line with Basel III).
2. Challenges ahead for banks, (2015), The Financial Express
3. Siddique Islam, BB set to implement Basel III, The Financial Express
4. www.investopedia.com
5. www.bb.org.gov.bd
6. www.wikipedia.com
7. Annual Reports of Banks
34

Term Paper On Basel III

Hochgeladen von

Dokumentinformationen

Originaltitel

Copyright

Verfügbare Formate

Dieses Dokument teilen

Dokument teilen oder einbetten

Freigabeoptionen

Stufen Sie dieses Dokument als nützlich ein?

Sind diese Inhalte unangemessen?

Copyright:

Verfügbare Formate

Term Paper On Basel III

Hochgeladen von

Copyright:

Verfügbare Formate

Executive Summary

Objectives of the report:

To acquire clear idea of Basel III rules

Methodology of the study:

Limitations of the Study:

Rational of the Study:

To strengthen the capital framework of banks:

Tier 2 Capital (gone-concern capital)

Supervisory reconciliation elements:

Total 10.00% 10.625

Summary of Basel III

Overview of Commercial Bank

Mission Of The City Bank Ltd :

Implementation of Basel iii on City Bank Ltd.

Common Equity Tier I Capital ratio Leverage Ratio

Total Eligible Capital

Common Equity Tier I Capital

2014: Tk 2,348.41 crore

2014: Tk 1,518.45 crore

2014: Tk 829.96 crore

Total Risk Weighted Asset

Credit Risk RWA

2014: Tk 15,229.15 crore

2014: Tk 12,413.62 crore

Eligible Regulatory Capital Base as on 31 December 2015 (Tk in crore):

Approaches followed by Bank for Capital Calculation:

Risk Weighted Assets of the Bank:

Compliance with Regulatory Requirements:

Buffer Capital to Support Current and Future Activities:

Capital requirements for Credit Risk:

Total Tier I Capital Ratio

Credit Risk Management at CBL:

Interest Rate Risk

Duration Gap Analysis:

Stress Test for Interest Rate Risk:

Interest Rate change

Regulatory capital (after

Risk Weighted Asset (after

Capital to Risk Weighted 13.23%

Consolidated Basis (Tk in crore):

Interest rate risk

Capital Requirement for Operational Risk (Tk in crore):

Liquidity Coverage Ratio

Data Analysis and Findings:

BASEL III framework of Eastern Bank Limited

Consistency and Validation

Interest rate risk in the banking book (IRRBB)

Traded interest rate risk

Policies and processes for mitigating liquidity risk

a) Reasonable liquid assets being maintained;

Data Analysis and Findings:

THE MAJOR CHALLENGES TO IMPLEMENT BASEL-III

THE IMPACT OF BASEL III ON BANKS AND FINANCIAL SYSTEM

Impact on business segments

Universal impact across all banks and businesses

STRATEGIES TO IMPROVING THE RISK ARCHITECTURE

Ways to strengthen risk management

Das könnte Ihnen auch gefallen