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MANAGING CORE RISKS

IN BANKING:

ASSET-LIABILITY

MANAGEMENT (ALM)

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Asset Liability Management Policy

Asset Liability Management (ALM) is an integral part of Bank Management;and so, it is essential to have a structured and systematic process for manage theBalance Sheet.

Banks must have a committee comprising of the senior management of the bankto make important decisions related to the Balance Sheet of the Bank. Thecommittee, typically called the Asset Liability Committee (ALCO), should meetatleast once every month to analysis, review and formulate strategy to managethe balance sheet.

In every ALCO meeting, the key points of the discussion should be minuted andthe action points should be highlighted to better position the banks balancesheet. In every ALCO meeting, action points taken in the past ALCO meetingshould be reviewed to ensure implementation.

Specific functions of ALCO are:

1 T i d i t li idit i k k t i k d it l

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PART A

EXECUTIVE SUMMARY. ....................................................................................................4

PURPOSE/METHODOLOGY/LIMITATIONS/DISCLAIMERS.....................................5

POLICY STATEMENT..........................................................................................................7

ORGANISATIONAL STRUCTURE.....................................................................................8

PROCESS .................................................................................................................................9

1. ALCO AND ALM ................................................................................................................9

2. THE COMMITTEE ..........................................................................................................10

3 KEY AGENDAS ...............................................................................................................10

4 ALCO PAPER...................................................................................................................10

4.1 COMMENTARY......................................................................................................10

4.2 INTEREST RATE TREND OF THE MARKET .................................................11

4 3 BALANCE SHEET 11

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EXECUTIVE SUMMARY

Changes in market liquidity and or interest rates exposes banks/ business to therisk of loss, which may, in extreme cases, threaten the survival of institution. Assuch, it is important that senior management as well as the Board of Directorsmust understand the existence of such risk on the balance sheet and they should

ensure that the structure of the institutions business and the level of balancesheet risk it assumes are effectively managed, that appropriate policies andprocedures are established to control and limit these risks, and that resources areavailable for evaluating and controlling interest rate risk. Increasingly AssetLiability Management has become an integral part of Bank Management.Banks are exposed to Balance Sheet Risk, where it is absolutely necessary for

the management of the bank to understand the existence of such risk and bestmanage the exposure to the risk. The Asset Liability Committee (ALCO),comprising of the senior management of a bank, is primarily responsible forBalance Sheet Management or more specifically Balance Sheet RiskManagement.

The report aims at promoting international best practices in Balance Sheet

M t f th b ki i d t i B l d h Th f th t/

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Purpose

This report is aimed to provide a detailed guideline on Asset LiabilityManagement (ALM) of the bank for optimum Balance Sheet Risk Management.This guide is prepared by the members of the Focus group on ForeignExchange Risk & Asset-Liability Management, which emphasises on

developing the market and the banking industry as a whole. The membersinclude:

1) Kh. Khalidur RahmanDeputy General ManagerBangladesh Bank

2) Ezaz AhmedSenior Principal OfficerSonali Bank

3) Ahmed A ShahHead of Global MarketsStandard Chartered Bank

4) Bashar M Tareq

Vi P id t

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covered in details. For example, in Value at Risk (VaR) the complex formulasfor calculating the VaR has not been included.

Disclaimers

All data used as references and examples are hypothetical assumptions and does

not relate to any bank or organization in any respect.

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PART A:POLICY STATEMENT

Board or Management Committee of the Bank should set out the policystatement in at least for the followings and an annual review should be donetaking into consideration of changes in the balance sheet and market dynamics.

1) Loan Deposit Ratio (LD): The AD ratio should be 80%-85%. However, theLoan Deposit ratio of the bank should go upto 110%.

The Loan Deposit ratio = Loan/(Deposit+Capital+Funded Reserve)The ratio will be fixed based on the banks capital, Banks reputation in themarket and overall depth of the money market.

2) Wholesale Borrowing Guidelines (WBG): The guideline should be set inabsolute amount depending on banks borrowing capacity, historic marketliquidity. The limit should be capped at the banks highest level of pastborrowings. However, this limit can be increased based on the match-funding basis.

3) Commitments: The commitments Guideline limits should not exceed 200%

f h d h l l b i i f h l l h Th

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PART B: ORGANISATIONAL STRUCTURE OF ALM

The Asset Liability Committee (ALCO) is responsible for balance sheet (assetliability) risk management. Managing the asset liability is the most importantresponsibility of a bank as it runs the risks for not only the bank, but also thethousands of depositors who put money into it.

The responsibility of Asset liability Management is on the Treasury Departmentof the bank. Specifically, the Asset liability Management (ALM) desk of theTreasury Department manages the balance sheet. The results of balance sheetanalysis along with recommendation is placed in the ALCO meeting by the

Treasurer where important decisions are made to minimise risk and maximizereturns. Typically, the organisational structure looks like the following:

CEO / MANAGING

DIRECTOR

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The key roles and responsibilities of the ALM Desk:

1) To assume overall responsibilities of Money Market activities.2) To manage liquidity and interest rate risk of the bank.3) To comply with the local central bank regulations in respect of banks

statutory obligations as well as thorough understanding of the risk elements

involved with the business.4) Understanding of the market dynamics i.e competition, potential target

markets etc.5) Provide inputs to the Treasurer regarding market views and update the

balance sheet movement.6) Deal within the dealers authorised limit.

PART C: PROCESS

1. ALCO & Asset Liability Management (ALM)

Th b k li bili i i d h h ALCO Th

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2. The Committee

As the Treasury Department is primarily responsible for Asset LiabilityManagement, ideally the Treasurer (or the CEO) is the Chairman of the ALCOcommittee. The committee consists of the following key personnel of a bank:

- Chief Executive Officer / Managing Director- Head of Treasury / Central Accounts Department- Head of Finance- Head of Corporate Banking- Head of Consumer Banking- Head of Credit

- Chief Operating Officer / Head of Operations

The committee calls for a meeting once every month to set and review strategieson ALM.

3. Key Agendas

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Combined as well as segmented (Current, STD, Term etc.) DepositTrend for local and foreign currency.

Combined as well as segmented (Overdraft, Term etc.) AdvanceTrend for local and foreign currency.

Loan/Deposit Ratios. Limit status and utilisation.

4.2 Interest Rate Trend of the MarketInterest rate and yield curve for Treasury Bills, Overnight funds, term money,competitive banks published customer rates are included in the paper.

4.3 Balance Sheet

A summarised or detailed version of the banks balance sheet for the current andprevious month is provided to understand the trend in assets and liabilities. Thisportion also covers the variance in assets and liabilities against the target of thebank.

4.4 Key Management Indicators (Limits and Utilisation)

The management of every bank sets different limits in managing risk and

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Given the various factors influencing the banks fund-raising from thewholesale market, it is not possible to be absolutely sure of our exactcapacity. A number of factors are considered for setting the wholesaleborrowing guideline (WBG), which include

- Balance sheet size of the bank.- Historical trend of market liquidity.

- Credit Rating of the bank (to understand counterparty bankslimits on the concerned bank).

- Stability of liquidity and interest rates of the market.

(b) Commitments: A banks liquidity is very much vulnerable to undrawncommitments by customers. Undrawn commitments may be unutilised by

not drawing an overdraft limits of customers or any loan commitments,which has not been drawn by customers. Customers have the right to askfor these funds at any point in time and the bank is obligated to pay thecustomer. Thus a ceiling should be set on a banks commitments tocustomers. The undrawn commitment guideline may be establishedwhich relates the maximum level of undrawn commitments to the banksremaining unused wholesale borrowing capacity. These measures are to

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(e) Maximum Cumulative Outflow (MCO):Under normal conditions, theday-to-day management of liquidity relies on the effective control of cashflow. Maximum cumulative outflow (MCO) guidelines control the netoutflow (inflow from asset maturity minus outflow from liabilitymaturity) over the following periods: overnight, one week and one month.

The Treasury operation of a bank will review its funding capabilities andrecommend the guidelines to senior management. These guidelines willbe based on the estimated wholesale funding shortfall after calculating theforecast/contractual cash flow of the entity under normal businessconditions.

The basis of cash flow measurement is to assume that funds are repaid ontheir contractual maturity date. For wholesale funds, this is sufficient.However, it is not realistic to assume that retail business will behave inthis manner. In practice, current accounts and savings deposits are notwithdrawn the next day and overdrafts are not repaid on demand. Retailbusiness can be expected to follow more or less predictable patterns being

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continued existence of an orderly foreign exchange market of sufficientdepth to meet our funding needs.

4.5 Maturity Profile Mismatch

A key issue that banks need to focus on is the maturity of its assets andliabilities in different tenors. A typical strategy of a bank to generate revenue is

to run mismatch, i.e. borrow short term and lend longer term. However,mismatch is accompanied by liquidity risk and excessive longer tenor lendingagainst shorter-term borrowing would put a banks balance sheet in a verycritical and risky position.

To address this risk and to make sure a bank does not expose itself in excessivemismatch, a bucket-wise (e.g. next day, 2-7 days, 7 days-1 month, 1-3 months,3-6 months, 6 months-1 year, 1-2 year, 2-3 years, 3-4 years, 4-5 years, over 5year) maturity profile of the assets and liabilities is prepared to understandmismatch in every bucket.

However, as most deposits and loans of a bank matures next day (call, savings,current, overdraft etc.), bucket-wise assets and liabilities based on actual

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An example of Forecasted balance can be as follows:In BDT Mio

TOTAL CALL 2-7D 8D-1M 1-3M 3M-1Y 1-5Y 5Y+

Reserve Assets 1,000 200 300 500Interbank Placings 750 250 250 250

Custy Assets 4,000 300 250 1,400 300 250 1,000 500

Other Assets 500 200 300

Total Assets 6,250 950 550 1,650 550 250 1,800 500

Interbank Deposits (1,000) (750) (250)

Custy Deposits (4,500) (1,200) (1,000) (1,200) (100) (200) (800)Capital &Reserves

(500) (100) (400)

Other Liabilities (250) (250)

Total Liabilities (6,250) (2,200) (1,000) (1,450) (100) (300) (1,200) (0)

CustyCommitments

(2,000) (150) (1,850)

Forward Contracts 250 100 50 100

Total Off-B/S (1,750) (0) 100 50 (50) (1,850)

NETMISMATCH

(1,750) (1,250) (350) 250 400 (1,900) 600 500

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market, policy changes by central bank, a name problem of the bank etc. So, abanks balance sheet should have enough liquid assets for meetingcontingencies. Liquid assets can be as follows:

Reserve Assets. Cash in Tills.

Specific Government Securities. Foreign Currency in open position. Specific FDRs.

A liquidity contingency plan should be in place to ensure a bank is prepared tocombat any crisis situation. A format of a liquidity contingency plan is attached

in Appendix 3.

4.7 Interest Rate Profile

Apart from liquidity risk, a bank also runs interest rate risk, which is theexposure of a bank's financial condition to adverse movements in interest rates.Accepting this risk is a normal part of banking and can be an important sourceof profitability and shareholder value. However, excessive interest rate risk can

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5. The ALCO Process

The ALCO process or the ALCO meeting reviews the ALCO paper along withthe prescribed agendas. The Chairman of the committee, that is the Treasurer orthe CEO, raises issues related to the balance sheet. Treasurer suggests whetherthe interest rates need to be repriced, whether the bank needs deposits or

advance growth, whether growth of deposits and advances should be on short orlonger term, what would be the transfer price of funds among the divisions,what kind of interbank dependency the bank should have etc. In short, all issuesrelated to liquidity and market risk are covered.

Based on the analysis and views of the Treasurer, the committee takes decisions

to reduce balance sheet risk while maximising profits.

6. Action Points

The ALCO takes decisions for implementation of any/all of the followingissues:

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The members communicate the action points to their respective divisions toimplement the strategies undertaken.

8. Special ALCO Meeting

Apart from the regular monthly meeting, ALCO meeting is also called as andwhen any contingent situations arise. A very good example may be, during theEid period. At those times, market liquidity dries out and overnight rates shootup. Banks who are net borrowers from the market may be exposed to hugeinterest expense the high rates in the market. This is an ideal time for a specialALCO meeting, where the committee may take critical decisions for deposit

mobilisation on an urgent basis for reducing dependency from the market.

9. Market Risk and Asset Liability Management

Market Risk measures the risk of loss due to adverse movements in marketprices or rates such as interest rates, FX rates. Following are the key

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Say the market interest rate for 1 month is 8% and 1 year is 10%. Now, if weneed to square the balance sheet gaps, we need to lend in 1month at 8% andneed to borrow in 1 year tenor at 10%. Therefore, the expected Value at Riskto square the position will be:

VaR = 100 * (8% * 30 days/360 days) (100 * 10% * 360 days/360 days) =BDT (0.67 10) = BDT 9.33 mio

Different organisations use different techniques or formulas for calculatingVaR. An example of such VaR calculation is included in Appendix 4.

(b) Factor Sensitivity: It is the sensitivity of an instrument/book to changes ina particular risk factor.For example, PV01 = the impact of +1bp parallel move in the zero curve.

(c) Management Action Trigger: The MAT It is a trigger level to warn of apersistently loss-making position. It defines management's tolerance foraccepting market risk related losses on a rolling 30 day calendar day basis:

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Liquidity Risk

The risk that bank or business will be unable to meet its commitment as theyfall due leading to bankruptcy or rise in funding cost. It is the solvency ofbusiness and which has special reference to the degree of readiness in which

assets can be converted into cash with out loss.

Banks traditionally use the statutory liquidity reserve and their borrowingcapacity in the volatile interbank money market as the source of liquidity. But aconscious approach to measure and monitor the liquidity is somewhat lacking inour market. We can learn and draw immense benefit by sharing the bestpractices, tools and techniques of liquidity management.

Interest Rate Risk

Interest rate risk is the exposure of a bank's financial condition to adversemovements in interest rates. Accepting this risk is a normal part of banking andcan be an important source of profitability and shareholder value. However,

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translate the level of interest rate risk they undertake, whether as part of theirtrading or non-trading activities, into their overall evaluation of capitaladequacy, although there is no general agreement on the methodologies to beused in this process. In cases where banks undertake significant interest rate riskin the course of their business strategy, a substantial amount of capital should beallocated specifically to support this risk.

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APPENDIX 1

AN ALCO PAPER FOR KOROTOA BANK LTD.

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23 Bangladesh Bank Focus Group

APPENDIX 2

A Demo ALCO Minutes

ACTION POINTS(Korotoa Bank)

ALCO MEETING(Mar 03, 2003 )

Attendees: CEO (Name)Head of Corporate Banking (Name)Head of Consumer Banking (Name)Head of Treasury (Name)Head of Operations (Name)Head of Credit (Name)Head of Finance (Name)

Date ItemNo

Section Issue and proposed action To be Actionby

(initials) (Date)

03/03/03

1 PREVIOUS MINUTES 1. Revision to customer interest rates were to be discussed & new rates to be established.Deposit growth to be reviewed.

2 ECONOMY/ MARKET 1. No significant change in macro-economic factors, other than inflationary growth.2. Inflation rose to 4.57% in November 2002, highest since FY1999.3. Foreign Exchange reserve stands at US$ 1.78 bio in February 2003.4. Broad Money (M2) recorded an increase of 5.29% during July-Dec 2002 period

compared to same period last year.5. ADP is expected to cut to BDT 16.5 bio from BDT 19.0 bio for FY 20036. Overnight rates in the downtrend after Eid.7. Treasury Bill yield curve is expected to be stable with no major change in sight.

8. Secondary Market for Treasury Bills is emphasised the BBK.

3 LIQUIDITY 1. AD ratio has increased since the last meeting in Feb032. Lcy Deposits has no major change in February.3. Assets have grown by approx. BDT 250 mio in February.4. Inter-bank borrowing is approx. BDT 1,000 mio.5. AD ratio still within limits but there is clearly a need to grow our core deposit base

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and reduce reliance on inter-bank.6. Medium Term Funding Ratio has improved due to growth in longer term deposits.

4 PRICING 1. Need to mobilise deposits on an urgent basis to reduce interbank dependency.2. Growth of Advance and Deposits should be synchronised.

5 ACTION 1. Introduce new (increased) customer rates to encourage deposit accretion andemphasize need to focus on account profitability for assets w.e.f. 1st Mar.

2. Finance to determine impact of new rates on avg CB & C&I balance sheet of Jan03and advise ALCO.

3. Contingency action plan to manage stressed liquidity discussed & agreed.

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APPENDIX 3

Liq. Contingency Plan

KOROTOA BANKCONTINGENCY ACTION PLAN TO MANAGE STRESSED LIQUIDITY

SCOPE

To establish an action plan to manage a stressed liquidity situation created by a nameproblem in the market.

PURPOSE OF THE PLAN

To provide a framework within which an effective response to a liquidity crisis can bemanaged.

NB Stressed Liquidity is defined as a condition that arises from a sudden deterioration of theperceived safety and credibility of the Bank, resulting in substantial withdrawal of funds bydepositors.

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KOROTOA BANK

CONTINGENCY ACTION PLAN TO MANAGE STRESSED LIQUIDITY

PHASE 1 IMPENDING CRISIS

1. Phase 1 Team

- (ALCO Members)- Chief Executive Officer- Head of Treasury- Head of Finance- Head of Corporate Banking- Head of Consumer Banking- Head of Credit- Head of Operations

2. Action Points

2.1 Investigate the underlying cause of the crisis to establish:

Responsibility

Team

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KOROTOA BANK


PHASE 2 - CRISIS SITUATION

1. Phase 1 Team

- (ALCO Members)- Chief Executive Officer- Head of Treasury- Head of Finance- Head of Corporate Banking- Head of Consumer Banking- Head of Credit

- Head of Operations

2. Action Points

2.1 Communication

2.1.1 Convene Emergency ALCO Meeting to review the crises, agree contentof any external /internal messages and delegate tasks.

Responsibility

Chief Executive

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KOROTOA BANK


PHASE 2 - CRISIS SITUATION (cont)

2.2 Assessment and Action

2.2.1 Confirm the liquid and market asset portfolio for initial selectiveliquidation.

2.2.2 Assess the level of interbank borrowing capacity and raise funds tomeet liquidity from the most reliable sources.

2.2.3 Approach Bangladesh Bank for Repo.

2.2.4 Selling Fcy from forex open position limit to generate Lcy liquidity.

2.2.5 Approach Bangladesh Bank for extended use of the rediscountwindow.

2.2.6 Monitor closely withdrawal patterns, under report to Head ofTreasury.

Responsibility

Head of Treasury

Head of Treasury

Head of Treasury

Head of Treasury

Head of Treasury

Head of Treasury

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CRITICAL CONTACT INFORMATION1. Management Team- Chief Executive

(Name)

- Head of Treasury(Name)

- Head of C&IB(Name)

- Head of Finance(Name)

- Head of Consumer Banking(Name)

- Head of Operations(Name)

- Head of Credit(Name)

Work Telephone

XXXXXXX

XXXXXXX

XXXXXXX

XXXXXXX

XXXXXXX

XXXXXXX

XXXXXXX

Home Telephone

XXXXXXX

XXXXXXX

XXXXXXX

XXXXXXX

XXXXXXX

XXXXXXX

XXXXXXX

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Government and/or Central Bank Statutory Holdings / Liquidity Requirements

Regulation Parameter/Formula Comprising

Cash reserve 4% of liabilities Lcy cash at Central Bank

Liquidity reserve 16% of liabilities Treasury Bills

Cash in TillsFcy balance with Central BankLcy balance with Central Bank

Selected Govt Bonds

Money Market Instruments Comprising Marketable Securities and Reserve Liquidity

Instrument Features/Restrictions Included inMarketable

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CONTINGENCY FUNDING PLAN

Local Book

Money Market

Term Deposit Call Money Repo

Central Bank (Marketable Securities and Reserve Portfolio)

Repo of Treasury bills Encashment of surplus balance with Central Bank

Other Cash in hand

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QUANTIFICATION OF AMOUNT OF CONTINGENCY FUNDS - LOCAL CURRENCY

BDT IN MILLION

Sources of contingency fundsDuring

stressed liquidity

EstimatedMaximum

Available Funds

Cost to Korotoa

Money MarketF Term Deposit 500 12.00%

Central Bank(Marketable Securities and ReservePortfolio)

F Repo facility for Treasury Bills 900 9.00-10.00%

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QUANTIFICATION OF AMOUNT OF CONTINGENCY FUNDS FOREIGN CURRENCY

Sources of contingency fundsduring

stressed liquidity

Formula/ParametersFor basis of

calculation

EstimatedMaximum

Available Funds

Cost toKorotoa

Money Market (Marketable Securities)

Interbank Deposit

Reserve

Libor+0.50bps

1 month Libor

USD 5 mio

BDT 120 mio(USD 2 [email protected])

2.00-3.50%

1.25%-1.75%

Signature

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APPENDIX 4

A common formula for Value at Risk (VaR) calculation:

Value at Risk = 2 X Factor Sensitivity X Volatility

Where, 2 relate to 2 standard deviations (97.5 % confidence level).

For Interest Rates - using absolute volatility:

Value at Risk = 2 X Factor Sensitivity X Volatility

( )Value at RiskDuration

YieldVolatility

t

= +

2

1 1Net Present Value

( )

( )( ) ( )VAR

C

YY

Y Y Y Y

t

d

y

dy

t

t t n n=

+

+

2

11

11

2

1 1 ,..........,

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VAR VAR VAR VAR

VAR VAR

P folio n

P folio i

i

n

'

'

.................= + + +

==

12

22 2

2

1

100% correlation of losses:

This approach assumes that a loss is incurred on each and every position.

( ) ( ) ( )

( )

VAR Abs VAR Abs VAR Abs VAR

VAR Abs VAR

P folio n

P folio i

i

n

'

'

.........................= + + +

==

1 2

1

Perfect correlation between positions:This approach assumes that positions are perfect hedges for each other.

VAR VAR VAR VAR

VAR VAR

P folio n

P folio i

i

n

'

'

. . . . . . . . . . . . . . . . . . . . . .= + + +

==

1 2

1

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K O R O T O A B A N K

A S S E T L IA B I L I T Y M A N A G E M E N T

A L C O P A P E R S

F O R T H E M O N T H O F : F E B R U A R Y 2 0 0 3

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COMMENTARY Date

28-Feb-

03

Liquidity

LCY Month on Month Balance Sheet Movements

`- Corporate Banking Deposits increased by BDT 100 mio; Mainly due to FDR by: (a) 'A' Company (BDT 50 mio) (b) 'Z' Corporation (BDT 50 mio).

`- Corporate Banking Advances decreased by BDT 150 mio; Mainly due to overdraft repayment by: (a) 'A' Company (BDT 50 mio) (b) 'Z' Corporation (BDT 50mio).

`- Consumer Banking Deposits decreased by BDT 100 mio; Mainly due to maturity of FDR of BDT 50 mio.

`- Consumer Banking Advances decreased by BDT 100 mio; Mainly due to overdraft repayment of BDT 50 mio and maturity of fixed loan of BDT 50 mio.

FCY Month on Month Balance Sheet Movements

`- FCY balance sheet remained relatively unchanged.

Other Liquidity Issues

`- Savings Deposit of corporate banking has decreased by 2%, whereas FDR has increased by 2.5%.

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FINANCIAL ENVIRONMENT Date

28-Feb

0

1) TREASURY BILLS

(a) Treasury Bills are auctioned at every Monday.

(b) Typical Rates

TENOR INTEREST RATES (% )

Jan-03 Dec-02 Nov-02 Oct-02 Sep-02 Aug-02 Jul-02 Jun-02 May-02 Apr- 02 Mar-02 Feb-02 Jan-0228 D 7.80% 8.00% 7.40% 6.70% 6.30% 5.90% 5.40% 4.60% 4.30% 4.10% 4.10% 4.50% 4.10%

91 D 9.00% 7.50% 7.50% 6.90% 7.00% 5.80% 5.80% 5.10% 5.00% 5.10% 5.20% 4.90% 4.90%

182 D 7.80% 7.80% 7.60% 7.20% 6.40% 5.80% 5.80% 5.00% 5.00% 5.00% 5.00% 5.00% 4.90%

364 D 10.10% 10.00% 9.50% 8.00% 6.40% 6.30% 6.20% 5.80% 5.90% 5.80% 5.80% 5.20% 5.20%

2 Y 10.90% 10.70% 10.10% 9.00% 6.90% 6.90% 7.00% 6.90% 6.80% 6.80% 6.90% 6.90% 6.40%

5 Y 11.50% 11.20% 10.90% 10.60% 10.40% 9.30% 8.60% 8.60% 8.70% 8.80% 9.40% 9.40% 9.50%

2) Overnight rates ranged between 5-7% for the month.

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COMPETITIVE ENVIRONM ENT Date

28-Feb-

03

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COMPETITIVE ENVIRONM ENT Date 03

DEPOSIT BANK 'A' BANK 'B' BANK 'C' BANK 'D' KOROTOA BANK

SAVINGS 5.00 7.50 7.50 6.50 8.00

STD 4.00 - - - -

1 MNTH - - - - -

3 MNTH 7.00 9.25 9.00 7.50 9.00

6 MNTH 7.25 9.50 9.50 8.00 9.25

12 MNTH 7.75 11.00 9.75 8.25 9.25

24 MNTH 8.00 11.50 - - 10.00

36 MNTH 8.00 12.00 - - 10.50

LENDING

Agriculture 12.00-16.00 9.00-13.00 11.00-16.00 12.00 14.00

Export Credit 7.00-9.00 7.00 7.00 7.00-9.00 7.00

Small Cottage Ind. 11.50-12.00 11.50-13.00 14.00-16.00 12.00 15.00

Term Loans 9.00-13.00 13.00-15.00 12.50-16.50 15.00 15.00

Working Cap 14.00 12.00-15.00 10.00-15.50 13.25-15.00 15.00

Commentary

1) FDR interest rates varies with amount and tenor for all banks.

2) Interest rate is fixed and non-negotiable.

BALANCE SHEET SUMM ARY Currency: BDT (Mio) Date 28-Feb-03

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ASSETS Current Month Previo us Mon th LIABIL ITIES

Current

Month Previous Month

Reserve Assets 1,000 900 Interbank Deposits (1,000) (625)

Interbank Placings 750 900 Corp. Custy Deposits (1,500) (1,400)

Corp. Custy Assets 2,500 2,350 Cons. Custy Deposits (3,000) (3,100)

Cons. Custy Assets 1,500 1,400 Capital & Reserves (500) (625)

Other Assets 500 600 Other Liabilities (250) (400)

Total Assets 6,250 6,150 Total Liabilit ies (6,250) (6,150)

ASSET CATEGORIES LIABIL ITY CATEGORIES

CORPOR ATE ASSETS Current Month Previo us Mon th CORPORATE LIABI LITIES

Current


Overdraft 750 700 Savings Deposits (500) (550)Fixed Loan 1,000 1,100 Current Deposits (400) (400)

Others 750 550 FDR (300) (350)

Others (300) (100)

CONSUMER ASSETS Current Month Previous Month CONSUMER LIABILITIES

Current


Overdraft 500 600 Savings Deposits (900) (900)

Fixed Loan 500 450 Current Deposits (600) (650)

Others 500 350 FDR (500) (550)

Others (1,000) (1,000)

LIQUIDITY KEY INDICATORS

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Currency: BDT (Mio) Date

28-Feb-

03

Key M anagement Indicators

Current

Month Previous Month Limits Excess?

Wholesale Borrowing Guidelines 1,000 625 2,000 NO

Commitments 1,500 1,800 2,250 NOLoan Deposit Ratio 89% 83% 100% NO

Medium Term Funding Ratio 60% 54% 50% NO

Swapped Funds Guideline 750 700 1,000 NO

Maximum Cumulative Outflow(MCO)

1 Day -1,250 -1,300 -1,500 NO

2-7 Day -1,600 -1,500 -2,000 NO

8 Days to 1 Month -1,350 -2,240 -3,000 NO

FORECAST LIQUIDITY SUMM ARY

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Currency:

BDT

(Mio) Date 28-Feb-03


Reserve Assets 1,000 200 300 500

Interbank Placings 750 250 250 250

Custy Assets 4,000 300 250 1,400 300 250 1,000 500Other Assets 500 200 300

Total Assets 6,250 950 550 1,650 550 250 1,800 500


Custy Deposits (4,500) (1,200) (1,000) (1,200) (100) (200) (800)

Capita l & R eserves (500) (100) (400)

Other Liabilit ies (250) (250)

Total Liabilit ies (6,250) (2,200) (1,000) (1,450) (100) (300) (1,200)

Custy Commitments (2,000) (150) (1,850)

Forward Contracts 250 100 50 100Total Off-B/S (1,750) 100 50 (50) (1,850)

NET MISMATCH (1,750) (1,250) (350) 250 400 (1,900) 600 500

CUMULATIVE NET MISMATCH (1,250) (1,600) (1,350) (950) (2,850) (2,250) (1,750)

LIMITS (1,500) (2,000) (3,000)

LIQUIDITY STRESS Currency BDT (Mio) Date

28-Feb-

03

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Local Currency Day 1 Day 2 Day 3 Total Stress Day 1 Day 2 Day 3

Marketable Assets 0 0 0 Net Cumulative Cashflow(Combined) 250 303 328

Reserve Assets 250 250 250

Stress Cash Flow -25 30 45

Surplus/ Shortfall in Reserve/MarketableAssets 225 280 295

Foreign Currency Day 1 Day 2 Day 3 Other Sources of Liquidity Day 1 Day 2 Day 3

Marketable Assets 0 0 0 NONE

Reserve Assets 10 11 13

Stress Cash Flow 15 12 20Surplus/ Shortfall in Reserve/MarketableAssets 25 23 33

Net Cumulative Cashflow(Combined) 250 303 328

USD Currency Day 1 Day 2 Day 3

Stress Compliance

Surplus/Shortfall in Reserve/Marketable

Assets 3 Day Stress Compliance Ye s

INTERES T RATE RISK Currency BDT (Mio) Date

28-Feb-

03

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Variable/ 1D 2D-1M 1-6M 6-12M 1-5Y 5Y+

TOTAL ASSETS 950 10.00% 2,200 11.00% 650 10.00% 150 12.00% 1,800 14.00% 500 14.50%

TOTAL LIABILTIES (2,200) 5.00% (3,250) 5.50% (150) 7.00% -250 10.00% (400) 0.00% 0 0.00%

Fwd Contracts 0 150 100 0 0 0

Net Mismatch (1,250) (900) 600 (100) 1,400 500

LOCAL REGULATORY COMPLIANCE

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Date 28-Feb-03

REGULATIONS COMPLIANCE COMMENTS

(1) Cash Reserve Requirements (CRR) and Statutory Liquidity Ratio (SLR). The bank is required to place the

following percentage of their customer deposits with the central bank, interest free on a monthly basis and Govt.Securities and Treasury Bills. CRR-4% of average Time and Demand Deposits as at two months prior period SLR16% of a average Time and Demand deposits as at two months prior period.

(2) Fcy Balance held with Central Bank will not qualify for CRR

Yes

(3) Advance to Deposit Ratio

Bank is not to exceed a total (lcy + fcy) advances to deposit ratio of 120% as per statutory liquidity requirement.Central Bank does not have a set guideline but they usually come back if the ratio is over 90% for a long time.

Yes

(4) Bangladesh Central Bank Position

Banks operating in Bangladesh are required to maintain credit balance with the Central Bank minimum 4% of time

and Demand Deposits as CRR and the accounts must not be overdrawn

Yes

(5) Capital Adequacy Ratio

Banks operating in Bangladesh are required to maintain a minimum capital at 8% of total risk weighted assets

Yes

(6) Large Exposures

Banks operating in Bangladesh are required to restrict their lending to any large single relationship to 15% of theircapital and with the approval of Central Bank it can be increased to 100% of their capital

Yes

Note Regulatory changes

* Banks operating in Bangkadesh are required to maintain a minimum capital at 9% (core apital of which minimum 4.5%) of total risk weighted assets.

CONTRACTUAL LIQUIDITY SUMM ARY Currency BDT (Mio) Date

28-Feb-

03

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Reserve Assets 1,000 200 300 500

Interbank Placings 750 250 250 250

Custy Assets 4,000 1,250 100 600 300 250 1,000 500

Other Assets 500 500

Total Assets 6,250 2,200 400 850 550 250 1,500 500


Custy Deposits (4,500) (1,200) (1,000) (1,200) (100) (200) (800)

Capita l & Reserves (500) (100) (400)

Other Liabilit ies (250) (250)

Total Liabilit ies (6,250) (2,200) (1,000) (1,450) (100) (300) (1,200) 0

Custy Commitments (2,000) (150) (1,850)

Forward Contracts 250 100 50 100

Total Off-B/ S (1,750) 0 100 50 (50) (1,850)

NET MISMATCH (1,750) 0 (500) (550) 400 (1,900) 300 500

CUMULATIVE NET MISMA TCH 0 (500) (1,050) (650) (2,550) (2,250) (1,750)

YIELD BAROMETER Date

28-Feb-

03

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Overdraft

Fixed Loan

Others

Savings A/C

Current A/C

FDR

Others

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Documents

Albs Risks