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ASSET LIABILITY MANAGEMENT
Industry Best Practices
14 July 2005
Focus Group Members
Asset Liability Management
Team Co-ordinator Sudhir Chandra Das Arif Khan Asad Khan Jadab Malakar Team Members Nehal Ahmed S. H. Aslam Habib Tapan K. Podder
DGM GM MD (Designate) Head of Finance & Company Secretary SVP & Company Secretary Head of Finance & Resources and Company Secretary MD
Bangladesh Bank IDLC of Bangladesh Ltd. Fareast Finance & Investment Ltd. National Housing Finance and Investments Ltd. International Leasing and Financial Services Ltd. Delta Brac Housing Finance Corporation Ltd. Prime Finance & Investment Ltd.
5 2.1 1.0 4.4 4.2 3.3 1.2 5.2 2.0 5.1 3.2 4.3.3 Introduction Background Objectives Scope Methodology Limitations Balance Sheet Risk Profile Liquidity Risk Interest Rate Risk Prepayment Risk Credit Risk Reinvestment Risk Event Risk Asset Liability Management (ALM) Team Composition of Asset Liability Management Team Roles and responsibilities of Asset Liability Management (ALM) Team Periodical Meeting Asset Liability Management Flowchart Policy Statement Loan/Fund Ratio Liquidity Contingency Plan Maturity wise Cashflow Statement Maturity wise Interest Rate Profile Term of Lending Vs.5 4.6 3.3 4.1 2.0 3.3.6 5.1 5. 1 1 1 1 1 1 2 2 3 3 3 3 4 4 4 4 4 4 5 5 5 5 5 5 5 6 6 6 6 6 8 10 10 10 . Borrowing Compliance Balance Sheet Risk Management Process ALM Information System ALM Organization ALM Process 5.4 2.0 2.Asset Liability Management Executive Summary Heading 1.2 1.4 4.4 1.2 Interest Rate Risk Management 6.1 4.3 2.1 Liquidity Risk Management 5.2 Conclusion and Recommendation Action Plan Feedback Appendix iv Page No.5 2.1 6.0 1.3 3.0 6.
imperative for the Financial Institutions to form “Asset Liability Management Committee (ALCO)” with the senior management as its members to control and better manage its Balance Sheet Risk. therefore.Executive Summary Asset Liability Management is the most important aspect for the Financial Institutions to manage Balance Sheet Risk. manage liquidity and interest rate risk. The purpose of this paper is to provide guidance to management and to train new staffs. iv . understand the market position and competition etc. In carrying out its responsibilities. The report aims at promoting international best practices in Balance Sheet Risk Management for the Financial Institutions in Bangladesh. This is intended to be the basic framework for further development of skill and to introduce new policies and processes as we make progress in understanding and implementing the basics. It is. The main responsibilities of ALCO are to look after the Financial Market activities. the ALCO needs to convene periodical meeting and should regularly review the decisions of the meeting with due consideration of the market situation. especially for managing of liquidity risk and interest rate risk. Failure to identify the risks associated with business and failure to take timely measures in giving a sense of direction threatens the very existence of the institution.
Taking into consideration the nascent state of the Financial Institution’s. 1. Failure to identify the risks associated with business and failure to take timely measures in giving a sense of direction threatens the very existence of the institution. This paper at best may be viewed as a guideline. 1. Different reports. Practices followed by Banks to the extent it matches with the activities of Financial Institutions have also been analyzed. therefore. In the absence of information about Market risk. web site information of different financial institutions were used as primary input for this paper.1 Background Every Financial Institute irrespective of its size is generally exposed to market liquidity and interest rate risks in connection with the process of Asset Liability Management.1.0 Introduction 1. important that the strategic decision makers of an organization assume special care with regard to the Balance Sheet Risk management and should ensure that the structure of the institute’s business and the level of Balance Sheet risk it assumes are effectively managed.4 Methodology The general methodology of the work includes analyzing already followed practices of the Financial Institutions of South East Asia and local Financial Institutions to manage Balance Sheet Risk. Page 1 . the evaluation of risk of each Financial Institute corresponding to the market could not be quantified at this stage. Risks of the respective financial institutions would be unique to their own environmental conditions and the institutions would be the best judge of their remedial actions required for corrective actions. It is.3 Scope This paper will address the possible risks associated with the normal course of business of a financial institute and suggest the best possible ways to minimize risks. 1. To assess the impact of risk on the business and financial performance of an organization. 3. To be familiarized with the qualitative and quantitative techniques needed to avert and or minimize risk. the exact risk quantification process is still under trial and error. To assess and identify the possible sources of risk in connection with the funding and lending activities.2 Objectives The objectives of this paper are: 1. 2. a tool for management upgradation rather than a mandatory compliance on the part of the financial institutions. 4.5 Limitations Since this is the first study on the aspect of Asset Liability Management of Financial Institutions in Bangladesh. 1. To evaluate the strength of existing risk management tools and improve it further. Bangladesh Bank Guidelines. familiarization of the key elements in the ALM would help the institutions to gradually induct the guidelines. systematically improve the management practices and in due course upgrade their internal controls. The whole exercise is with the objective of limiting these risks against the resources that are available for evaluating and controlling liquidity and interest rate risk. appropriate policies and procedures are established to control the direction of the organization.
1 Liquidity Risk 2. long term Bond under both clean and securitization arrangement etc. c) Exchange rate fluctuation in case of foreign currency transactions.1. b) Pricing option. Status of liquidity is to be judged in terms of length of time it takes to dispose off the asset and the price the asset carries when it is sold. CRR and SLR requirement. The following points are to be considered at the time of asset structuring: a) b) c) d) e) Nature of business. Among them. Liability structuring must be made in such a way so that it matches with the tenure of asset structure.1 Asset Structure Assets serve as a source of liquidity and must be framed in groups according to the nature of either “available for sale” or “held to maturity”. prepayment. long term and short term. liquidity risk is associated with the Financial Institutes’ ability to meet its financial commitment and obligation. Pattern of repayment – regular installment or bullet payment. Value of the organization. Capital adequacy ratio. Tenure of lending. credit risk is associated with default due to client’s failure to repay loan installment. every Financial Institution has to encounter several risks like. 2. Preference share. Page 2 .1. Interest rate structure .fixed or floating. liquidity. The following points are to be considered at the time of liability structuring: a) Grouping of liability into two major categories according to the maturity namely. 2. reinvestment risk is associated with reinvestment of prepayment/regular repayment proceeds at less than the existing rate and event risk is associated with happening of an unforeseen event that may cause financial loss to the organization. reinvestment and event risk etc. interest rate. Favorable gearing ratio. d) Early repayment option. interest rate risk is associated with both funding and lending activities.2. prepayment risk is associated with early repayment of loans.1. 2.3 Capital Structure Capital structure includes Equity. credit.2 Liability Structure Every organization meets its funding needs through liability management. The following points are to be considered at the time of capital structuring: a) b) c) d) Regulatory framework.0 Balance Sheet Risk Profile In carrying out the business.
Default risk is quantified in terms of loan being classified as SS. Credit spread risk arises due to non-recovery of regular installment repayment. 2. 2. which ultimately decreases the overall effective lending rate and erodes margin from lending business. Default risk analysis help identify the reason of default.4 Credit Risk Credit risk can be classified into two categories as under: 2. customer group of making default in respect of their profession and income status.3 Prepayment Risk Prepayment risk arises due to early repayment either partial or entire loan portfolio. 2.4. 2. Credit spread risk also arises due to stringent Income Recognition policy in respect of framing time for SS.4. The Company has to reduce interest rate on several occasions to attract more clients and to compete with the competitors.2 Interest on Lending Interest rate risk arises due to reduction of interest rate on lending from time to time on several occasions.2. It affects profitability of an organization and desired margin to the shareholders. Page 3 . DF. Interest rate risk arises due to change in overall market interest rate structure both on borrowing and lending.2 Credit Spread Risk.2 Interest Rate Risk Interest rate risk affects spread from lending business.1 Default Risk Default risk arises due to client’s failure to repay loan installment in due time.5 Reinvestment risk The risk that the amount of prepaid loans will be reinvested at less than the existing rate is reinvestment risk. and BL.2. 2. and BL etc. 2. Declining interest rate environment induces borrower to make prepayment and forces Financial Institutions to invest at comparatively lower rate.1 Interest on borrowing Interest on borrowing has a significant bearing on the pricing of lending. DF.2. which result in loss of interest income.
(e) To provide inputs to the Treasurer regarding market views and update the balance sheet movement. Liquidity risk related to Balance Sheet.0 Asset Liability Management (ALM) Team 3.4 Operation Fund Requirement Finance Treasury ALCO Meeting Asset Liability Management Flowchart Implementation & Feedback Page 4 . In the absence of any specific agenda. (f) Deal with the dealer’s authorized limit. 3. Review of the Interest Rate Structure. Action plan. the following are the normal business for discussion: (a) (b) (c) (d) (e) Review of last ALCO minutes. Economic and Market outlook.2. 3.6 Event Risk Financial Institutions are prone to event risks. 3) Disallowing loan loss provision. (b) To manage liquidity and interest rate risk of the Financial Institutions. (c) To comply with the regulations of Bangladesh Bank in respect of statutory obligations as well as thorough understanding of the risk elements involved within the business.1 Composition of Asset Liability Management Team Asset Liability Management team consists of the following members: (a) (b) (c) (d) Managing Director or CEO Head of Treasury Head of Operations (Head of Different operational units) Head of Finance or Resources Management 3. 4) Highest Corporate tax bracket. 3. a few examples are as under: 1) Restriction regarding participation on money market transactions and accepting short-term customer deposit.2 Roles and responsibilities of Asset Liability Management (ALM) Team (a) To assume overall responsibilities of Money Market activities. 2) Introduction of VAT on the service charge of Lease and Housing Finance business.3 Periodical Meeting Head of Treasury conducts the ALCO meeting. (d) To understand the market position and competition etc.
above 3 years – 5 years. it must be borne in mind that under extreme liquidity crisis in the money market. Guarantee etc. lenders may express their inability to disbursed funds. This would help make Spread Analysis. etc. The contingency plan should be backed up by first line of defense like. This contingency plan should be made for six months. A contingency plan needs to be prepared keeping in mind that enough liquidity is available to meet the fund requirements in liquidity crisis situation. firm line of credit (SOD) and second line of defense like. short-term loan. within 7 days. within 7 days. above 5 years . above 1 year – 3 years. as per the situation demands. above 10 years to 15 years. Borrowing Management should classify its assets and liabilities according to their maturity tenure viz. 4. commercial paper.10 years.1 Loan to Fund Ratio The Loan to Fund Ratio = Loan & Lease Finance/ (Capital + Reserve + Deposit + Bank Borrowing+ Bond + Other) The Loan to Fund ratio should not exceed 95%. above 1 year – 3 years.20 years. above 15 years . as per the situation demands.4 Maturity wise Interest Rate Profile Maturity wise Interest Rate Profile should be made both for lending and borrowing products so that Management can know its effective lending and borrowing rate at any particular point in time. However. above 5 years .10 years. 4. 4. Page 5 .20 years. bill discounting facility etc.4. 4. 1-12 months..5 Term of Lending Vs.6 Compliance Internal as well as statutory compliances must be strictly followed.. above 10 years to 15 years.. above 15 years . etc. 4. An annual review of the contingency planning should be made. 2 weeks. Any excess lending must be supported by confirmed sources of fund. Keeping the market scenario and regulatory framework.0 Policy Statement Management Committee of the Financial Institutions should set out the following policy statement and an annual review should be made taking into consideration of the changes in the Balance Sheet and market dynamics: 4.3 Maturity wise Cashflow Statement The cashflow statement should be framed in such a way so that it gives information to management for GAP analysis. 2 weeks.2 Liquidity Contingency Plan A liquidity contingency plan needs to be approved by ALCO. even under arranged credit lines. 1-12 months. Contingency plan should include fund requirement for LC. above 3 years – 5 years. the internal compliance procedure should be flexible enough to adopt any required change immediately to meet the changing situation.. Cashflow statement should be made for different maturity period viz.
ALM information system should be designed in such a way so that it could provide reliable information on time to the ALCO. liquidity management can reduce the probability of an adverse situation.3 ALM Process ALM process involves management of both liquidity risk and interest rate risk.3. such as govt. The importance of liquidity transcends individual institutions.5. monitoring and reporting the risk profiles to the ALCO. liquidity has to be tracked through maturity or cash flow mismatches.0 Balance Sheet Risk Management Process 5. The ALM Support Groups consisting of operating staff should be responsible for analyzing. In due course of time the staff should also prepare forecasts reflecting the impact of various possible changes in market conditions on the balance sheet and recommend the action needed to adhere to internal limit. 5. reporting to the Management etc. securities and other money market instruments. These are explained below: 5. By assuring the Company’s ability to meet its liabilities as they become due. Therefore. An organization should have clear risk policies and definite tolerance limits. Experience shows that assets commonly considered to be liquid. which ranges from the simple Gap Statement to extremely sophisticated and data intensive Risk Adjusted Profitability Measurement methods. which could provide information on the aspects of liquidity and interest rate regime.1 Liquidity Risk Management (a) Liquidity Tracking Measuring and managing liquidity needs are vital for effective operation of the Company. The ALCO should measure not only the liquidity positions of the Company on an ongoing basis but also examine how liquidity requirements are likely to evolve under different assumptions. accountability of team member. as liquidity shortfall in one institution can have repercussions on the entire system. could also become illiquid when the market and players are unidirectional. information system. Risk can be measured using different methods. The Treasury Department with the help of IT Department should develop Modules. exchange rate and equity pricing risks. The ALCO should have overall responsibility for management of risks and should decide the risk management policy of the Company and set limits for liquidity. interest rate. For measuring and managing Page 6 . well-defined delegationresponsibility process.2 ALM Organization The success of ALM depends on organization policies.1 ALM Information System Information is the key to the ALM process. 5.
there could be mismatches depending on cash inflows and outflows. in normal course. as detailed in Appendix I. If the Company. could be used for measuring the future cashflows of a financial institute in different time buckets. needs higher tolerance level. in view of current asset-liability profile and the consequential structure mismatches. the main focus should be on the short-term mismatches viz. The format of the statement of liquidity is attached in Appendix I. the use of a maturity ladder and calculation of cumulative surplus or deficit of funds at selected maturity dates is adopted as a standard tool. There is no restriction on where these SLR will be maintained. Page 7 . The cumulative mismatches (running total) across all time buckets shall be monitored in accordance with internal prudential limits set by ALCO from time to time. While the mismatches up to one year would be relevant since these provide early warning signals of impending liquidity problems. 1-90 days. (b)Time Buckets The Maturity Profile..net funding requirement. (d) Time Bucket Mismatch Within each time bucket. every financial institute is required to maintain a Statutory Liquidity reserve (SLR) of 5% (including CRR) on all its liabilities. should not exceed 15% of the cash outflows in this time buckets. it could operate with higher limit sanctioned by ALCO giving specific reasons on the need for such higher limit. These SLRs shall be kept with banks and financial institutions for different maturities. The financial institutions holding deposits are given freedom to place the mandatory securities in any time buckets as suitable for them. In addition. The CRR is maintained with the non-interest bearing current account with the Bangladesh Bank. The mismatches (negative gap) during 1-90 days. The time buckets shall be distributed as under: i) 1 day to 30/31 days (one month) ii) Over one month and upto two months iii) Over two months and upto three months iv) Over three months and upto six months v) Over sixth months and upto one year vi) Over one year and upto three years vii) Over three years and upto five years viii)Over five years and upto seven years ix) Over seven years and upto ten years x) Over ten years (c) CRR/SLR Requirement Every financial institute is required to maintain a Cash Reserve Ratio (CRR) of 2.50% on its customer deposits.
the Company should take into account all relevant factors based on its asset-liability base.2 Interest Rate Risk Management (a) Gap Analysis The Gap is the difference between Rate Sensitive Assets (RSA) and Rate Sensitive Liabilities (RSL) (Appendix II) for each time bucket. nature of business. every financial institute has to make a number of assumptions according to its asset-liability profiles. While determining the tolerance levels. All investments. This includes final principal repayment and interim installments. etc.3. The positive gap indicates that it has more RSAs than RSLs whereas the negative Gap indicates that it has more RSLs. While the Page 8 . A maturing liability will be a cash outflow while a maturing asset will be a cash inflow. Such assets and liabilities are rate sensitive at the time of re-pricing. The ALCO must ensure that the tolerance levels are determined keeping all necessary factors in view and further refined with experience gained in Liquidity Management. (f) Short-term Dynamic Liquidity In order to enable the Company to monitor its short-term liquidity on a dynamic basis over a time horizon spanning from 1 day to 6 months. In addition to the interest rate gap limits. advances.(e) Statement of Structural Liquidity The statement of Structural Liquidity (Annexure I) shall be prepared by placing all cash inflows and outflows in the maturity ladder according to the expected timing of cashflows. The format should be reviewed and revised over time based on the future requirements. Certain assets and liabilities carry floating rates of interest that vary with a reference rate and hence. The Treasury Department should set prudential limits on individual Gaps in various time buckets with the approval of the ALCO. purchased funds. therefore. be used as a measure of interest rate sensitivity. any principal repayment of loan is also rate sensitive if the Company expects to receive it within the time horizon. deposits. etc. borrowings. The GAP reports indicate whether the institute is in a position to benefit from rising interest rates by having a positive Gap (RSA>RSL) or whether it is in a position to benefit from declining interest rates by a negative Gap (RSL>RSA). Such prudential limits should have a relationship with the Total Assets. 5. ALCO should estimate short-term liquidity profiles on the basis of business projections and other commitments for planning purposes. assets and off-balance sheet positions (Annexure III) into time buckets according to residual maturity or next re-pricing period. (b) Gap Report The Gap Report should be generated by grouping rate sensitive liabilities. whichever is earlier. these items get re-priced at predetermined intervals. that mature/re-price within a specified time-frame are interest rate sensitive. While determining the likely cash inflow/outflow. future strategies. the Treasury Department may set the prudential limits in terms of Earnings at Risk (EaR) or Net interest margin based on their views on interest rate movements with the approval of the ALCO. An indicative format (Annexure II) for estimating short-term Dynamic liquidity is enclosed. The Gap can. Similarly. Earning Assets or Equity.
The interest rates on advances could be re-priced any number of occasions. the tranches of advances are basically floating.interest rates on term deposits are generally fixed during their currency. corresponding to the changes in PLR (Performing Loan Ratio). The interest rate gaps may be identified in the following time buckets: i) 1 day to 30/31 days (one month) ii) Over one month and upto two months iii) Over two months and upto three months iv) Over three months and upto six months v) Over sixth months and upto one year vi) Over one year and upto three years vii) Over three years and upto five years viii) Over five years and upto seven years ix) Over seven years and upto ten years x) Over ten years xi) Non-sensitive The various items of rate sensitive assets and liabilities and off-balance sheet items shall be classified into various time-buckets. Page 9 .
The results of the action points. 6. the key points of the discussion should be minuted and the action points should be highlighted to better position the Balance Sheet. action points taken in the past ALCO meeting should be reviewed to ensure implementation. iv) Address to the limits that are in breach (if any) or are in line of breach and provide detailed plan to bring all limits under control. v) Address to all regulatory issues that are under threat to non-compliance. The ALCO members communicate the action points to their respective divisions to implement the strategies undertaken. The main points of consideration are as under: i) ii) iii) iv) v) vi) The issues addressed. The ALCO takes decisions for implementation of any/all of the following issues: i) Need for Deposit mobilization or Asset growth in right buckets to minimize asset-liability mismatch.2 Feedback All ALCO members are provided with the minutes of the meeting within the next day. The recommendations of the meeting. iii) Need for change in Fund Transfer Pricing and /or customer rates in line with strategy adapted. vi) Call special ALCO meeting when any contingency situation arises. ii) Both short and long term Cashflow plan should be based on market interest rates & liquidity. 6. Refer for future use. Page 10 .1 Action Plan In every ALCO meeting. The action points that were decided in the meeting. The committee should meet at least once in every month to analyze.6. In every ALCO meeting.0 Conclusion and Recommendation Every financial institute must have a committee comprising of the senior management to make important decisions related to the Balance Sheet Risk management process. review and formulate strategy to manage the Balance Sheet Risk.
In the 'over 5 years' Time-bucket as these do not involve any cash outflow. 2. Current liabilities and provisions: (a) Sundry creditors As per the due date or likely timing of cash outflows. Notes. Deposits: (a) Term deposit from public (b) Term deposits from Banks/FIs 4. should be slotted as per their residual maturity As per the residual maturity Over six months and up to one year 5. (b) Expenses Payable (other than interest) (c) Advance income received (d) Interest payable on bonds/deposits (e) Provision for NPAs (f) Provision for Investments portfolio . Non-redeemable or perpetual In the 'over 5 years' time bucket preference capital. Bonds and debentures (a) Plain vanilla bonds/debentures As per the residual maturity of the instruments (b) Bonds/debentures with embedded call/put As per the residual period for the earliest exercise options (including zero/coupon/deep discount date for the embedded option. OUTFLOWS TIME-BUCKET CATEGORY 1. In case provisions are not held security-wise. In respective lime buckets as per the due date of payment. being institutional/wholesale deposits.APPENDIX I MATURITY PROEILE –LIQUIDITY HEADS OF ACCOUNTS A. bonds) (c) Fixed rate notes As per the residual maturity 3. the provision may be shown on “over 5 yrs” time slot. Capital funds (a) Equity capital. The amount of provision may be netted out from the gross amount of the NPA portfolio and the net amount of NPAs belated time-buckets The amount may be netted from the gross value of investments portfolio and the net investments be shown as inflow in the prescribed lime-slots. As per the likely time of cash outflow. Funds and Surplus (b) Preference capital – redeemable/non perpetual As per the residual maturity of the shares. Reserves. A behavioral analysis could also be made to assess the trend of outflows and the amounts slotted accordingly. BORROWINGS: (a) Term money borrowings (b) Bank borrowings (SOD) As per the residual maturity These.
Remittance in transit 3. INFLOWS 1. The balance in excess of the minimum balance be shown in 1 to 30 day time bucket. In the respective time buckets as per the sanctioned disbursement schedule. 8. C. Advances (performing) (a) Term loans (b) Corporate loans/short term loans 6. As per usance of the bills to be received under the lines of credit. Assets on lease Cash flows from the lease transaction may be slotted in respective time buckets as per the timing of the cash flow. The assets created out of evolvements may be shown under respective maturity buckets on the basis of probable recovery dates. CONTINGENT LIABILITIES (a) Letters of credit/guarantees (outflow through devolvement) (b) Loan commitments pending disbursal (outflow) (c) Lines of credit committed to/by other Institutions (outflow/inflow) . 7. Balances with banks (a) Current account In 1 to 30/31 day time-bucket. As per the residual maturity. Fixed assets (excluding leased assets} In the 'over 5 year' time-bucket. In the 'over 5 year1 time-bucket. Investments [net of provisions) The stipulated minimum balance be shown in 6 months to 1 year bucket. -do- (b) Deposit accounts/short term deposits 4.B. As per residual maturity. the likely evolvements should be estimated and this amount could be distributed in various time buckets on judgmental basis. As suitable to the FIs "1 day to 30/31 days (One month)" "Over one month and up to 2 months" and "Over two months and up To 3 months" buckets depending upon the defeasance period proposed by the FIs The cash inflows on account of the interest and principal of the loan may be slotted in respective time buckets as per the timing of the cash flows as stipulated in the original/revised repayment schedule.Cash 2. Other assets Based on the past trend analysis of the evolvements vis-a-vis the outstanding amount of guarantees (net of margins held). 5.
(ii) Interest overdue for more than one month but less than seven months (i e) before the relative amount becomes past due for six months) ( i i i ) Principal installments overdue for 7 months but less than one year In 1 To 3 year bucket In the 3 to 6 month bucket In the 6 to 12 month bucket without reckoning the grace period of month D.) should be shown in a time bucket corresponding to timing of such cash flows. (b) Overdue receivables on account of interest and installments of standard loans/hire purchase assets/leased rentals should be slotted as below: (i) Overdue for less than one month. capital expenses. where outflows exceed inflows) in the 1 to 30/31 days time-bucket should not exceed the prudential limit of 15% of outflows of each time-bucket and the cumulative gap up to the one-year period should not exceed 15% of the cumulative cash outflows upto one year period. the measures proposed for bringing the gaps within the limit. FINANCING OF GAPS: The negative gap (i.NOTE: (a) Any event-specific cash flows (e. etc. outflow due to wage settlement arrears.g. . should be shown by a footnote in the relative statement.e. incometax refunds. In case these limits are exceeded.
The prematurely withdrawable deposits with no lockin period or past such lock-in period should be slotted in the earliest/shortest time bucket. Borrowings (a) Term Loan borrowings Sensitive. reprice on maturity. on maturity of such (b) Fixed rate (plain vanilla) including zero coupons (c) Instruments with embedded options Sensitive.APPENDIX II INTEREST RATE SENSITIVITY HEADS OF ACCOUNTS LIABILITIES RATE SENSITIVITY OF TIME BUCKET 1. Sensitive. Notes. To be placed in respective time buckets as per the next exercise date. Deposits: (a) Deposits/Borrowings (i) Fixed rate (ii) Floating rate (b) Corporate deposits 4. reprice on the roll-over/reprising date. reprice on the roll-over/ repricing date To be placed es per residual peiod to the repricjng date in the relative time bucket . Bonds and debentures (a) Floating rate Sensitive. (b) Borrowings from others (i) Fixed rate Sensitive. As per the residual maturity Sensitive. To be placed as per residual maturity in the relative time bucket (ii) Floating rate Sensitive. To be placed as per residual maturity in the relative time bucket. Sensitive reprice on the contractual rollover date. reprice instruments. after the lock-in period. reprices on maturity. should be slotted in respective time buckets as per the repricing dates. 3. could reprice on maturity or in case of premature withdrawal being permitted. Sensitive. if any. repricing on maturity. To be slotted in the respective timebuckets as per the next repricing date. stipulated for such withdrawal. Reserves and Surplus Non-sensitive 2. To be slotted in respective time buckets as per residual maturity or as per residual lock-in period. Capital. could reprice on the exercise date of the option particularly in rising interest rate scenario. To be slotted as per the residual maturity in the respective time buckets. as the case may be.
convertible preference shares. shares of subsidiaries / joint ventures. Sensitive only when PLR or risk premium is changed by the FIs. Balances with banks (in India only) (a) In current a/c (b) In deposit accounts. Sensitive on maturity. Non-sensitive.5. Fixed assets (excluding assets on lease) 8. Cash 2. (c) Equity shares. debentures. Non –sensitive . To be slotted as per residual maturity. 6. Assets on lease The cash flows on lease a sets are sensitive to changes in interest rates. cumulative noncumulative. reprice on the next repricing date. Floating rate securities. bonds.g. Current liabilities and provisions: (a) Sundry creators Non-sensitive Non-sensitive (b) Expenses Payable (other than interest) (c) Swap adjustment a/c Non-sensitive Non-sensitive (d) Interest payable on bonds/deposits Non-sensitive (e) Provisions ASSETS: Non -sensitive Non-sensitive 1. Non-sensitive. Other assets Intangible assets and items not representing cash inflows. The leased asset cash flows be slotted in the time buckets as per timing of the cash flows. reprices on maturity. Money at call and be places short notice and other placements 4. redeemable preference shares etc. Investments (a) Fixed income securities (e. venture capital units. To be slotted as per residual time to the repricing date. 5. Non-sensitive Sensitive. 7. Remittance in transit 3. Advances (performing) Term loans/corporate loans/ Short Term Loans (i) Fixed rate (ii) Floating rate Sensitive on cash flow/maturity. securities zero coupon bends. govt.) (b). Sensitive.
Balances with banks (a) Current account (b) Deposit/ short-term deposits (c) Money at call & short notice . INFLOWS 1. Current Liabilities and provisions : (a) Short term loans (b) Accounts payable (c) Advance income received (d) Interest payable on bonds/ deposits (e) Provisions 7. TOTAL OUTFLOWS (A) B. pending disbursal (c) Lines of credit committed to other institutions 8. bonds & debentures (a) Plain vanilla bonds/debentures (b) Bonds/debentures with embedded options 4.Contingent Liabilities (a) Letters of credit/guarantees (b) Loan commitments. Others A. Notes.ANNEXURE I Name of Financial Institution (FI): Statement of Structural Liquidity as on: (Amount in crore) A.Cash 2. Remittance in transit 3. Bank Borrowings (a) SOD (b) Long term loans 6. Reserves and surplus 3. Deposits (a) Term deposits from public (b) Term deposits from Banks/FIs 5. Capital (a) Equity and perpetual preference shares (b) Non -perpetual preference shares 2. Outflows Over Over 2 Over 3 Over6 Over 1 to Over 3 one months months months one 30/31 Over 5 years to Total day (one month to 3 to 6 to one year to years 5 years to 2 month) months months year 3 years months 1.
TOTAL INFLOWS (B) C. Non-performing loans 7. Fixed assets (excluding assets on lease) 8. MISMATCH (B-A) D. Investments (net of provisions) 5. Others B . C AS PERCENTAGE OF A . Other assets : (a) Intangible assets & other non-cash flow items (b) Interest and other income receivable (c) Others 9.4. CUMULATIVE MISMATCH E. Lease Finance & Loans (performing) (a) Lease finance (b) Home Loans (c) Term loan (d) Corporate loans/short term loans 6.
Interest inflow on performing Advances 5. Outflow on account of off-balance sheet items 6. MISMATCH (B-A) D. Net decrease in borrowings from various sources/net increase in market lending 1 -14 days 15-28 days 29 days 3 .6 to 3 m o n t h s months 5.ANNEXURE II Name of the Financial Institution (FI): Statement of short-term Dynamic Liquidity as on: (Taka in crore) Outflows 1. Other inflows TOTAL INFLOWS (B) C. Net increase in borrowings from various sources 6. CUMULATIVE MISMATCH E. Net increase in investments (i) Govt. Inflow on account of off-balance sheet items 7. C AS PERCENTAGE TO TOTAL OUTFLOWS . Net decrease in public deposit 4. Net cash position 2. Net increase in deposits 3. Increase in loans & Advances 2. Interest inflow on investments 4. /approved securities (ii) Bonds/debentures/shares (iii) Others 3. Other outflows TOTAL OUTFLOWS (A) INFLOWS 1.
TOTAL OUTFLOWS (A) B. Outflows 1 t o Over one 30/31 day month to 2 (one month) months Over 2 month s to 3 months 1. Balances with banks (a) Current account (b) Deposit/short-term deposits (c) Money at call a short notice 4. Cash 2. Reserves and surplus 3. Others A. Lease Finance & Loans . Contingent Liabilities (a) Letters of credit/guarantees (b) Loan commitments. Current Liabilities and provisions: (a) Short term loans (b) Accounts payable (c) Advance income received (d) Interest payable on bonds/deposits (e) Provisions 7. Capital (a) Equity and perpetual preference shares (b) Non-perpetual preference shares 2. Investments (net of provisions) 5. Bank Borrowings 6. Deposits (a) Term deposits from public (b) Term deposits from Banks/FIs 5. Notes. pending disbursal (c) Lines of credit committed to other institutions 8.ANNEXURE III Name of Financial Institution (FI): Statement of Interest Rate Sensitivity as on: (Amount in crore of Taka) Over 3 Over 6 Over Over Over months months one 3 Total 5 year years to 6 to one to3 to 5 years year months years years A. bonds & debentures (a) Plain vanilla bonds/debentures (b) Bonds/debentures with embedded options 4. INFLOWS 1. Remittance in transit 3.
CUMULATIVE MISMATCH E. Other assets: (a) Intangible assets and other noncash flow items (b) Interest and other income receivable (c) Others 9. Non-performing loans 7. Others B. Fixed assets (excluding assets on lease) 8. TOTAL INFLOWS (B) C. C AS PERCENTAGE OF A . MISMATCH (B-A) D.(a) Lease Finance (b) Home Loans (C) Term loan (d) Corporate loans/short term loans 6.
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