Muhammad Mairaj Asim 8865 Term Report-TFM Fall 2011

8/3/2019 Muhammad Mairaj Asim 8865 Term Report-TFM Fall 2011

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2011

[ROLE OF ASSETLIABILITY COMMITTEE

INMITIGATION OF RISK]


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Course- Treasury and Fund Management

Instructor- Sir Maqbool-Ur-Rehman

Student- Muhammad Mairaj Asim

Program- BBA(H)

ID- 8865

Risk Management Framework:

In order to comply with SBP guidelines on risk management, the Bank had prepared the Basic

framework & policy guidelines, which were approved by the Board. Recognizing the facts

that policies and procedures are imperative to strengthen the internal control systems and to

ensure smooth functioning of any department of an institution, the Bank prepared several

Guidelines and Manuals, which have been approved by the Board of Directors, including

Credit Manual, KYC & Anti Money Laundering Policy & Procedures, Policy for

Acquisition & Disposal of Fixed Assets, Policy for Maturity-wise Distribution of Rate

Sensitive Deposits & Other Accounts, Consumer Credit Policy, Accounting Policy,

Country Risk Management Policy, IT Security Policy, Treasury Manual and Investment

Policy .

OVERVIEW OF ALCO


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At First Women Bank Limited, risk management framework comprises of a Risk Management

Committee (RMC) and a Risk management group. RMC. The center of risk management is

implementation of policies; strategies and creating awareness that every employee is a risk

manager at his / her Job thus invoke the significance of the role in the overall risk structure of the

Bank.

The following are the duties of Alco committee and shall review it in every quarterly meetings of

theirs.

DUTIES

1. Local and national economic forecasts

2. Interest rate forecasts and spreads including a consensus interest rate forecast for the

Bank developed by Bank management

3. Internal cost of funds (recent pricing)

4. Mismatches in the balance sheet

5. Year-to-date operating results

6. Anticipated funding needs

7. Anticipated loan demands

8. Liquidity position

9. Maturity distribution of certificates of deposit of $100,000

10. (GAP) Rate Sensitivity measures

11. Net Interest Margin/Interest Rate Risk Measures

12. Simulation

13. Capital Positions

14. Ratio of loan loss reserves to outstanding risk loans

15. Tax position

16. Fed funds position

17. Investment portfolio

18. Current loan investment and funding strategies

REPORTING REQUIREMENTS

The ALCO shall provide the following to the Board of Directors on a quarterly basis:


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Average daily balance sheet

Interest income and interest expense statements

Non-interest income and non-interest expense statements

Interest spread statement and GAP Report Relevant ratios (detailed above)

Net interest change analysis attributable to dollar volumes, earning, paying and market

rates as well as time (simulation) compared to policy limits.

Investment portfolio and loan activity report

A summary approximating investment portfolio values

Duration analysis to approximate investment portfolio values for different rate

scenarios (annual)

Projected flow of funds analysis

Recommended Asset/Liability Management plan including a quarterly strategy or the

management of interest rate risk and liquidity risk

Assessment of performance against the prior quarter's strategy

Board of Directors

Ms. Shafqat Sultana

President/Chairperson

First Women Bank Limited

Mr. Qamar Hussain

President

National Bank of Pakistan

Ms. Batool Iqbal Qureshi

Secretary, Ministry of Women

Development, Govt. of Pakistan

Mr. Atif R.Bokhari

President

United Bank Limited

Mr. M. Usman Ali Usmani

President

MCB Bank Limited

Mr. Zakir Mehmood

President

Habib Bank Limited

Mr. Khalid A. Sherwani

President

Allied Bank Limited


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Management Team

Charmaine Hidayatullah

Head of Legal, Security & Stationery

Shawana Yamin

Head of Int Division & Company Secretary

Shahid Mughal

Head of Finance & Planning

Mohammad Khalid

Treasurer

Tauqir A. Siddiqui

CIO / Head of Information Technology &

Reconciliation

Naushaba Shahzad

Head of Risk Management
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Agha Shujat Ali

Head of Operations

Feroze Ali Hussaini

Head of Credit Division

Shaheen Zamir

Head of Marketing, PR & Spokesperson

Mehwish Khan

Head of Audit & Secretary Audit Committee

Farhan Ahmed

Head of Treasury Operations

Shahida Mannan

Head of HR

The Role of AlCo

A risk-management committee in first women bank comprises of the senior-management levels of thebank. The ALCO's primary goal is to evaluate, monitor and approve practices relating to risk due to

imbalances in the capital structure. The Asset Liability Management Committee (ALCO) in

First Women Bank takes steps to maximize returns while keeping risks within

acceptable levels. The Committee undertakes regular measurement and monitoring of

the various risks that includes credit risk, market risks, operational risk and others. All

the risks are evaluated in the light of the changing market dynamics. The strategies are

formulated and adjusted to mitigate any rising risk. The Bank uses a range of

monitoring and measurement methods for e.g. interest rate gap analysis and scenario

analysis. The Bank incurs no securitization risk because it does not indulge in any

securitization process.
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RISK MANAGEMENT

Risk Management is a process consisting of defined steps, which support better decision

making by contributing to a greater insight into risks and their impacts. The Bank has in place

the Basic Framework & Policy Guidelines, which cover organizational set up and functions

of Risk Management Department (RMD). Risk management processes help to improve safety,

quality and performance of activities. The Bank intends to further augment its RMD in line

with the regulatory requirements, etc.

Market RiskMarket risk is the risk of loss arising from movements in market variables, such as interest

rates, exchange rates and equity indices, etc. Concentration limits and other controls are

applied through various checks and controls.

The Asset and Liability Management Committee (ALCO) of the Bank is responsible forreviewing policies relating to risk assets, primarily in lending and treasury related transactions

as well as in reviewing / approving the procedures, setting of limits, monitoring and

implementation as per Boards approved policies.

Procedural guidelines for covering the risks involved in various types of financing and

customers transactions are being followed to ensure customers due diligence.

A number of developments are underway more particularly for operational and credit risk

areas. Information technology infrastructure is being developed so as to strengthen the

monitoring capacity as well as to keep pace with the modern banking facilities.


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The management ensures all policies and procedures are regularly reviewed with a view to

have full compliance with SBP guidelines as far as feasible and practicable with a view to

ensure an efficient and effective system.

Credit riskCredit risk is the possibility that a borrower or counter party will fail to meet its obligations in

accordance with agreed terms. The Banks Credit Manual contains detailed procedures and

guidelines to address credit risk methodology for identifying, assessing, monitoring and

mitigating the risk factors. The credit manual is under process of implementation and it will be

followed in conjunction with risk based lending approach.

The Banks policies and procedures on Country Risk Management have been approved by theBoard of Directors.

Concentration of credit and deposit

Credit risk is the risk that one party to a financial instrument will fail to discharge an obligation

and cause the other party to incur a financial loss. Credit risk is monitored, reviewed and

analysed by Asset and Liability Management Committee (ALCO), which has established

credit lines and credit limits to control exposure to counter parties. Investments are made onlyin instruments with good credit ratings.

Out of the total financial assets of Rs. 12,360.020 million (2009: 9,924.878 million), the

financial assets which were subject to credit risk amounted to Rs. 7,877.775 million (2009: Rs.

5,224.265 million). To manage credit risk the Bank applies credit limits to its customers and

obtains adequate collateral.

Credit Risk is managed by monitoring credit exposures, restricting transactions with specific

parties with greater likelihood of default and regularly assessing the creditworthiness of such

clients.

Collateral used by the Bank for Credit Risk Mitigation (CRM) in the simple approach are.


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Cash margin

Government Securities

Government Securities (for repo-style transactions)

Guarantees of Government, Banks, PSEs and rated Corporate

Foreign Exchange RiskForeign exchange risk management Main objective of foreign exchange risk management is to

ensure that foreign exchange exposure of the Bank remains within the defined risk appetite

(20% of the paid up capital). Daily reports are generated to evaluate the exposure in different

currencies. Details of the Bank's currency risk

Exposure is as follows:


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Equity position Risk

Equity price risk arises, primarily in trading book, due to changes in process of individualstocks or levels of equity indices. The Bank's existing equity book primarily comprises of

available for sale portfolio, which is maintained with a medium term view of capital gains and

higher dividend yields. Equity price risk is managed by applying nominal limits on individual

scrips. The portfolio is also diversified to minimize the risk.


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Yield / Interest Rate Risk

Yield risk is the risk of decline in earnings due to adverse movement of the yield curve.

Interest rate risk is the risk that the value of the financial instrument will fluctuate due to

changes in the market interest rates.

The reconciliation of:


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- total assets and total financial assets; and

- total liabilities and total financial liabilities is as follows:

Liquidity Risk

Liquidity risk is defined as the potential loss arising from the Banks inability to meet its owncontractual obligations, when due. The liquidity risk is managed through a frameworkof liquidity policies, controls and limits. These policies and controls ensure that the Bankmaintains diversified sources of funding to meet its contractual obligations.


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Operational Risk

Operational risk is the risk resulting from inadequate or failed internal processes, people

system or from external events. This risk arises from operational risk is the risk of inadequate

documentation, legal or regulatory incapacity and uncertainty in enforcement of contracts.

Procedural guidelines have been issued down the line. Necessary information / guidelines for

Know Your Customer (KYC) compliance have also been issued by the Bank. Every staff is

required to get do a self assessment of him self .

ADDRESSING TECHNOLOGY RISK

The Bank has commenced the most ambitious and challenging project in its history, of

upgrading the entire technology platform. Bank has acquired Oracle Financial Services

Software (OFSS) (previously flexcube) as the core banking software with the key objectives to

improve business management,

upgrade customer service,

Strengthen the internal control environment, and improve quality and timing of

financial and non-financial information.

In addition the Bank is also implementing Oracle Financial as MIS and Supply Chain

Management software, PeopleSoft as human resource management software, Reveleus as risk

management software and Siebel as customer relationship management software. These

softwares will be fully integrated with OFSS and collectively strengthen the product and

service delivery capacity while improving the overall operational and internal control

standards

Documents

Muhammad Mairaj Asim 8865 Term Report-TFM Fall 2011