Stresstestingnbfi 120712

GUIDELINES ON STRESS TESTING FOR
NON-BANKING FINANCIAL INSTITUTIONS

JUNE, 2012
DEPARTMENT OF FINANCIAL INSTITUTIONS AND MARKETS
BANGLADESH BANK
Members of the Committee for Revising

the Stress Testing Guidelines for NBFIs
Sl No.
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2
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4
5
Name
Md. Abdul Wahab
Md. Iqbal Hossain
Mohammad Imam Hossain
Mohammad Ashfaqur Rahman
Md. Omar Faruque
Guidelines on Stress Testing for NBFIs
Designation
Joint Director
Deputy Director
Assistant Director
Assistant Director
Assistant Director
Page III
Foreword
Stress testing is a simulation technique used to determine the reactions of different
Financial Institutions under a set of exceptional, but plausible assumptions through a
series of battery of tests. It is an important risk management tool used by the FIs as part
of their internal risk management to alert management to adverse unexpected outcomes
related to a variety of risks and provides an indication of how much capital might be
needed to absorb losses and how much vulnerable the liquidity position might be if large
shocks occur.
Considering the importance and complexity of the methodology of stress testing, BB
issued guidelines on Stress testing in 2010 and made it mandatory for all the banks and
financial institutions. After thorough analysis of the situational requirements and future
perspectives the guidelines have now been revised for the NBFIs with the following key
aspects:
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Made the guidelines in line with Basel Accord framework;

Principles for sound Stress Testing practices introduced;
Standard Shocks levels in four risk areas have been made customized in line with
the business of the NBFIs;
A new financial position indicator, Insolvency Ratio (IR), has been introduced;
Liquidity risks have been emphasized more;
Stress Test rating scale of 1 to 5 and zonal positioning through Weighted Average
Resilience-Weighted Insolvency Ratio (WAR-WIR) Matrix introduced;
Artificial Intelligence developed to auto-generate Recommended Action Plan for a
particular FI based on its zonal positioning;
The Excel based artificial intelligence formats used for Stress Testing have been
made more elaborative but simple.
WAR and WIR of the particular FI will be used to determine its adequate capital
requirement in Basel Accord and will be impacted on the CAMELS rating conducted by
the central bank.
All the NBFIs are expected to carry out stress testing on quarterly basis i.e. on March 31,
June 30, September 30 and December 31 with their first stress testing using the revised
guidelines based on 30 June 2012. A training program will be initiated shortly for the
relevant staff to ensure smooth implementation of the revised guidelines.
I would like to appreciate the role of those officers who were involved in this exercise. I
also express my gratitude to the honorable Governor and Deputy Governor for their
valuable guidance and support in this regard.
(M. Mahfuzur Rahman)

Executive Director
Page V
Table of Contents
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
13.
14.
15.
Introduction
Principles for sound Stress Testing practices
Scope of Stress Testing
Framework for Stress Testing
Methodology and Calibration of Shocks
5.1.
Interest Rate Risk
5.2.
Credit Risk
5.3.
Equity Price Risk
5.4.
Liquidity Risk
5.5.
Combined Shock
Insolvency Ratio (IR)
Resilience of the FI
Stress Test Rating
Recommended Action Plan
Interest Rate Stress Test
Duration GAP & Price Sensitivity
Value at Risk (VaR)
Reporting
Standard formats for stress testing
14.1. Reporting cover letter
14.2. Credit Input
14.3. Liquidity Input
14.4. Recommended Action Plans
14.5.
Decision Model Rules
14.6. Test of Resilience
14.7. Summary Sheet
14.8. Interest Rate Output
14.9. Credit Risk Output
14.10.
Liquidity Output
14.11.
Insolvency Output
References
1
2
4
4
5
5
5
6
7
7
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10
11
12
14
15
15
19
20
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22
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24
25
29
30
37
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39
Page VII
List of Acronyms
ALCO
ALM
BDT
BL
CAMELS
CAR
CIR
DF
DGAP
FI
IR
MVE
NBFI
NII
NPL
RSA
RSL
RWA
SMA
SOD
SS
STD
VAR
VES
WAR
WIR
Asset-Liability Management Committee

Asset-Liability Management
Bangladeshi Taka
Bad & Loss
Capital adequacy, Asset quality, Management quality, Earnings,
Liquidity & Sensitivity to Market Risk
Capital Adequacy Ratio
Critical Infection Ratio
Doubtful
Duration Gap
Financial Institutions
Insolvency Ratio
Market Value of Equity
Non Banking Financial Institutions
Net Interest Income
Non Performing Loans
Rate Sensitive Assets
Rate Sensitive Liabilities
Risk Weighted Assets
Special Mention Account
Secured Overdraft
Sub-Standard
Standard
Value at Risk
Value of Eligible Securities
Weighted Average Resilience
Weighted Insolvency Ratio
Page VIII
1. Introduction
Stress testing is a simulation technique used to determine the reactions of different
Financial Institutions under a set of exceptional, but plausible assumptions through a
series of battery of tests. At institutional level, stress testing techniques provide a way to
quantify the impact of changes in a number of risk factors on the assets and liabilities
portfolio of the institution. At the system level, stress tests are primarily designed to
quantify the impact of possible changes in economic environment on the financial system.
Stress testing is an important risk management tool that is used by the Financial
Institutions as part of their internal risk management and, through the Basel II capital
adequacy framework, is promoted by supervisors. Stress testing alerts FI management to
adverse unexpected outcomes related to a variety of risks and provides an indication of
how much capital might be needed to absorb losses should large shocks occur. Stress
testing supplements other risk management approaches and measures playing
particularly important role in:
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providing forward-looking assessments of risk;
overcoming limitations of models and historical data;

supporting internal and external communication;
feeding into capital and liquidity planning procedures;
informing the setting of an FI's risk tolerance; and
facilitating the development of risk mitigation or contingency plans across a range of
stressed conditions.
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These guidelines have been issued by Bangladesh Bank (BB) to provide a structured way
of assessing the vulnerability of financial institutions to extreme but plausible market
conditions. These guidelines enable institutions to accurately assess risk and define the
"risk appetite" of the organization and also provide critical information to senior
management for decisions around capital allocation and contingency planning.
Considering the importance and complexity of the methodology of stress testing, BB
issued guidelines on Stress testing in 2010 and made it mandatory for the banks and
financial institutions. The guidelines have been revised to make it in line with Basel
Accord framework and also to incorporate a useful VaR methodology. These revised
guidelines are exclusively applicable for the NBFIs working in Bangladesh.
Page 1 of 39
2. Principles for sound Stress Testing practices

The following recommendations are formulated with a view to apply by the NBFIs to the
extent they commensurate with the size and complexity of an FI's business and the
overall level of risk that it accepts. NBFIs are therefore encouraged to apply these
recommendations of Stress Testing.
Principles for the Financial Institutions

Use of stress testing and integration in risk governance
1.
Stress testing should form an integral part of the overall governance and risk
management culture of the FIs. Stress testing should be actionable, with the
results from stress testing analyses impacting decision making at the appropriate
management level, including strategic business decisions of the board and senior
management. Board and senior management involvement in the stress testing
program is essential for its effective operation.
2.
An FI should operate a stress testing program that promotes risk identification

and control; provides a complementary risk perspective to other risk management
tools; improves capital and liquidity management; and enhances internal and
external communication.
3.
Stress testing programs should take account of views from across the organization
and should cover a range of perspectives and techniques.
4.
An FI should have written policies and procedures governing the stress testing
program. The operation of the program should be appropriately documented.
5.
An FI should have a suitably robust infrastructure in place, which is sufficiently

flexible to accommodate different and possibly changing stress tests at an
appropriate level of granularity.
6.
An FI should regularly maintain and update its stress testing framework. The
effectiveness of the stress testing program, as well as the robustness of major
individual components, should be assessed regularly and independently.
Page 2 of 39
Stress testing methodology and scenario selection

7.
Stress tests should cover a range of risks and business areas, including at the
firm-wide level. An FI should be able to integrate effectively, in a meaningful
fashion, across the range of its stress testing activities to deliver a complete
picture of firm-wide risk.
8.
Stress testing programs should cover a range of scenarios, including forwardlooking scenarios, and aim to take into account system-wide interactions and
feedback effects.
9.
Stress tests should feature a range of severities, including events capable of

generating the most damage whether through size of loss or through loss of
reputation. A stress testing program should also determine what scenarios could
challenge the viability of the FI (reverse stress tests) and thereby uncover hidden
risks and interactions among risks.
10. As part of an overall stress testing program, an FI should aim to take account of
simultaneous pressures in funding and asset markets, and the impact of a
reduction in market liquidity on exposure valuation.
Specific areas of focus

11. The effectiveness of risk mitigation techniques should be systematically
challenged.
12. The stress testing program should explicitly cover complex and bespoke products
such as securitized exposures. Stress tests for securitized assets should consider
the underlying assets, their exposure to systematic market factors, relevant
contractual arrangements and embedded triggers, and the impact of leverage,
particularly as it relates to the subordination level in the issue structure.
13. The stress testing program should cover pipeline and warehousing risks. An FI
should include such exposures in its stress tests regardless of their probability of
being securitized.
14. An FI should enhance its stress testing methodologies to capture the effect of
reputational risk. The FI should integrate risks arising from off-balance sheet
vehicles and other related entities in its stress testing program.
15. An FI should enhance its stress testing approaches for highly leveraged
counterparties in considering its vulnerability to specific asset categories or
market movements and in assessing potential wrong-way risk related to risk
mitigating techniques.
Page 3 of 39
3. Scope of Stress Testing

Stress testing guidelines for NBFIs have preliminarily been based on simple sensitivity
analysis using four different risk factors namely; Interest rate, Credit, Equity price and
Liquidity. Liquidity position of the institutions have been stressed with more concern.
Stress test under Basel Accord and simple maturity gap analysis for measuring `Interest
rate risk' have been introduced. 'Duration GAP analysis' have been made simplified for
determining the change in market value of equity. Value at Risk (VaR) has also been
incorporated with a view to estimating the actual amount of potential loss which may
arise from unfavorable situations. Moreover, VaR helps in making a comparison with the
result of potential losses calculated under stress testing system.
4. Framework for Stress Testing

The stress-testing framework should be flexible enough to adopt advanced models for
stress testing. It involves:
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A well constituted organizational structure defining clearly the roles and

responsibilities of the persons involved in the exercise. Preferably, it should be the
part of the risk management functions of the FI. The persons involved should be
independent from those who are actually involved in the risk taking and should
directly report the results to the senior management.
Defining the coverage and identifying the data required and available.
Identifying, analyzing and proper recording of the assumptions used for stress
testing.
Calibrating the scenarios or shocks applied to the data and interpreting the results.
An effective management information system that ensures flow of information to the

senior management to take proper measures to avoid certain extreme conditions.
Setting the specific trigger points to meet the benchmarks/standards set by

Bangladesh Bank.
Ensuring a mechanism for an ongoing review of the results of the stress test exercise
and reflecting in the policies and limits set by management and board of directors.
Taking this stress test as a starting point and developing in-house stress test model
to assess the FI's specific risks.
Page 4 of 39
5. Methodology and Calibration of Shocks

Levels of shocks to the individual risk components have been specified considering the
historical as well as hypothetical movements in the risk factors. These levels of shocks are
changeable by Bangladesh Bank from time to time as and when felt necessary. Three
different hypothetical shock scenarios in the stress testing are:
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Minor Level Shocks: These represent small shocks to the risk factors. The level
for different risk factors can, however, vary.
Moderate Level Shocks: It envisages medium level of shocks and the level is
defined in each risk factor separately.
Major Level Shocks: It involves big shocks to all the risk factors and is also
defined separately for each risk factor.
5.1. Interest Rate Risk

Interest rate risk is the potential adverse effect in the value of the on and off-balance
sheet positions of the FI with the change in the interest rates. The vulnerability of the
FI towards the adverse movements of the interest rate can be gauged by using simple
sensitivity analysis as well as duration GAP analysis. The standard scenarios of shock
levels are 2%, 4% and 6% increase in interest rate. For simplicity these shocks will be
stress in the cumulative GAP of Rate Sensitive Assets (RSA) and Rate Sensitive
Liabilities (RSL) up to one year and Duration GAP analysis only to the Bond portfolio of
the FI.
5.2. Credit Risk

Stress test for credit risk assesses the impact of increase in the level of non-performing
loans (NPLs) of the FIs. This involves five individual shocking events. Each shocking
event contains Minor, Moderate and Major Levels of shock.
5.2.1. Increase in NPLs
These scenarios explain the impact of downgrading a portion of the total
performing (both standard and SMA) loans directly to bad & loss category having
100% provisioning requirement. The standard scenarios of shock levels are 2%,
5% and 10%.
Page 5 of 39
5.2.2. Negative shift in all categories

These scenarios assume negative shifts in all categories (both performing and nonperforming) take place resulting in more provision requirements. The standard
scenarios of shock (amount of loan shift from one category to another) levels are
5%, 10% and 15% downward shift in all categories. For example, for the first level
of shock, 5% of the standard downgraded to SMA, 5% of the SMA downgraded to
substandard, 5% of the substandard downgraded to doubtful and 5% of the
doubtful downgraded to bad/loss category.
5.2.3. Fall in the value of eligible securities (VES)
These scenarios assume a sharp decrease in the value of VES creating shocking
events to the FI. The standard scenarios of shock levels are 10%, 25% and 50%.
5.2.4. Increase of NPLs in particular 2 sectors
This measures the concentration risk particularly in 2 sectors where the FI has the
highest investment or exposure. The standard scenarios of shock levels are 5%,
10% and 15% of standard loans of that 2 sectors directly downgraded to bad/loss
category.
5.2.5. Increase in NPLs due to default of top large borrowers
These scenarios are constituted assuming a number of top borrowers of the FI may
become defaulter and create shocking events. The standard scenarios of shock
levels are: default of top 3(three), top 5(five) and top 10(ten) borrowers. In all cases
the standard loans of the respective borrowers are assumed to be directly
downgraded to bad/loss category creating a requirement of 100% provision.
5.3. Equity Price Risk

The stress test for equity price risk assesses the impact of the fall in the stock market
index. Appropriate shocks will have to be absorbed to the respective securities if the
current market value of all the on balance sheet and off balance sheet securities listed
on the stock exchanges including shares, NIT units, mutual funds etc falls at the rate
of 10%, 25% and 50% respectively. The impact of resultant loss will be calibrated in the
CAR.
Page 6 of 39
5.4. Liquidity Risk

The stress test for liquidity risk evaluates the resilience of the FIs towards adverse shifts
in the cash inflow and outflow maturity buckets. Assumed shock scenarios include cash
inflow from assets in projected buckets are being deferred by a standard rates to the next
buckets but cash outflow claims for liabilities are coming much earlier showing claims
from all buckets shifting in the previous by the standard rates. Counter balancing
capacity of the FIs are also being stressed using the standard shocks assuming the
market getting a chronic downturn. For simple sensitivity analysis, counterbalancing
capacity of the FI is assumed to be 50% of its first line of defense (line of credit (SOD))
and 20% of its second line of defense (short-term loan, commercial paper, bill discounting
facility). The standard scenarios of shock levels are 5%, 7% and 10%.
5.5. Combined Shock

FI will assess combined shock by aggregating the results of credit shock, equity shock and
interest rate shock. In case of credit shock, increase in NPLs, results of increase in NPLs
due to default of Top large borrowers, fall in the VES, negative shift in all the categories
and increase of NPLs in particular 2 sectors would have to be taken into account.
Summary of all shock levels are as follows:
Risk Shocks in Stress Testing
Risk Factors
1. Interest Risk-Increase in Interest Rate

2. Credit Risk
- Increase in NPLs
- Downward shift in all categories
- Fall in the VES
- Increase in NPLs under B/L category in 2
sectors
- Increase in NPLs due to Top Large
Borrowers
3. Equity Price Risk- Fall in Stock Prices
4. Liquidity Shock
Scenario
1
Scenario
2
Scenario
3
2%
4%
6%
2%
5%
10%
5%
10%
25%
10%
15%
50%
5%
10%
15%
10
10%
5%
25%
7%
50%
10%
6. Insolvency Ratio (IR)

The NPL to Loan Ratio of an FI is said as the Infection Ratio. Infection Ratio which can
completely erode the regulatory capital of the FI to zero is the Critical Infection Ratio
(CIR). CIR implies Distance to Default or Insolvency. Computation of CIR assumes the
erosion of full regulatory capital due to increase in NPL in Bad/Loss Category ignoring the
Page 7 of 39
tax impact. The higher the CIR, the stable the FI is and the lower the CIR the closer the FI
is to default.
Insolvency ratio is the ratio of Infection Ratio to the Critical Infection Ratio. IR implies the
percentage, an FI is, towards insolvency. Simplified formula to calculate IR is :
Where,
For Stress Testing, after shock IR is computed using the average revised NPL and Average
revised Regulatory Capital of standard shock scenarios in four Credit risk areas, namely:
increase in NPLs, Downward shift in all Categories, Increase in NPLs' under B/L category
in 2 sectors and Increase in NPLs' due to Top large borrowers.
7. Resilience of the FI
Resilience Level for Interest rate, Credit and Equity price shocks are set with the
Minimum Capital Adequacy Ratio (CAR). In the stress test it is checked whether an FI has
adequate capital base after the shock impact.
Resilience Level for Liquidity shocks are identified with the following three parameters :
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Negative gap during 1-90 days time buckets exceed 15% .

The cumulative gap up to the one-year period exceeds 15% .
Counter balancing capacity up to the one-year period dry out .
8. Stress Test Rating

After conducting the stress test, each FI will be categorized as of either Green or Yellow or
Red zone based on the Weighted Average Resilience (WAR) on the three levels of shock
scenarios. The FIs will first be scored in each level of scenario keeping a total point of 100
for each. When scoring for each level Interest Rate shock will have 10% weight, Credit
Risk 60%, Equity Price Risk 10% and Liquidity Risk 20% . The 60% weight for Credit risk
will be subdivided as 10% for increase in NPLs, 10% for Downward shift in all Categories,
5% for Fall in the VES, 15% for Increase in NPLs' under B/L category in 2 sectors and
20% for Increase in NPLs' due to Top large borrowers.
Page 8 of 39
Scores achieved in each scenario will then be given weight as 50% for Minor, 30% for
Moderate and 20% for Major level shocks to identify the combined WAR of a particular FI.
The WAR will be scaled in rating of 1 to 5 of which 1 fall in Green, 2 and 3 in Yellow and 4
and 5 in Red Zone. For each individual shock Green will achieve 100% of the shock
weight, Yellow 80% and Red null. For Interest rate, Credit and Equity price shocks extra
CAR of 2% or more above the minimum is Green, close above or equal to minimum CAR
(extra is less than 2%) is Yellow and falling short from minimum CAR is Red. For Liquidity
shocks not falling short in any parameter is Green, short in one is Yellow and falling short
in more than one is Red. The ratings for stress test shocks are summarized below:
Scenario Total
WAR> 80%
70%<WAR<80%
60%<WAR<70%
40%<WAR<60%
WAR<40%
Rating
1
2
3
4
5
Zone
G
Single Shock
100%
80%
0%
Insolvency ratio, percentage towards insolvency will also be scaled in 1 to 5 grades after
computing the Weighted Insolvency Ratio (WIR) from the three shock levels and set the
Green, Yellow or Red zone depending on the farness from insolvency. WIR ratings will be
assigned as under:
Scenario Total
WIR<10%
10% <WIR<20%
20% <WIR<40%
40%<WIR<60%
WIR>60%
Ratin g
1
2
3
4
5
Zone
G
Y
R
WAR-WIR Matrix
Overall financial strength and resilience of an NBFI will be identified plotting its achieved
ratings in the WAR-WIR Matrix. The overall zone setting of an FI will be determined with
80% weight of WAR and 20% weight of WIR as under:
WAR
WIR
Green
Yellow
Red
Green
GG
YG
RG
Yellow
GY
YY
RY
Red
GR
YR
RR
Page 9 of 39
WAR and WIR of the particular FI will be used to determine its adequate capital
requirement in Basel Accord and will be impacted on the CAMELS rating conducted by
the central bank.
9. Recommended Action Plan

FIs falling in either zone will have some Recommended Action Plan for securing
continuous improvement in the stress test. The level of score for each zone will be set by
the central bank from time to time considering the prevailing market condition.
Present level of score for zonal segregation and respective to-do list is as follows, as and
when applicable:
Zone
Weighted Average
Resilience
Green
WAR> 80%
Yellow
60%<WAR < 80%
Red
WAR <60%

Recommendations:
Monitor strictly any downturn of performance
indicators.
Recommendations:
Three Year Capital Management Plan
Recovery Plan of NPL
Increase Securities
Credit Diversification Plan
Policy for Investment in Shares
Liquidity Contingency Plan
Ensure proper compliance of ALM Guidelines
ALCO meeting minutes.
Submission to BB:
Increase Securities
Credit Diversification Plan
Policy for Investment in Shares
Liquidity Contingency Plan
Page 10 of 39
10. Interest Rate Stress Test

The FIs should follow the steps mentioned below in carrying out the interest rate stress
tests:
For simple Sensitivity analysis

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Calculate all on-balance sheet Rate Sensitive Assets (RSA) and Rate Sensitive
Liabilities (RSL).
Plot the RSA and RSL into different time buckets on the basis of maturity.
Calculate maturity GAP by deducting RSL from RSA (GAP= RSA - RSL).
Using the formula of NII = i(GAP)
For Duration Gap analysis

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Estimate the market value of all on-balance sheet rate sensitive assets and liabilities
of the FI to arrive at market value of equity.
Calculate the durations of each class of asset and the liability of the on-balance
sheet portfolio and arrive at the aggregate weighted average duration of assets and
liabilities.
Calculate the duration GAP by subtracting aggregate duration of liabilities from that
of assets.
Estimate the changes in the economic value of equity due to change in interest rates
on on-balance sheet positions along the three interest rate changes.
Calculate surplus/(deficit) on off-balance sheet items under the assumption of three

different interest rate changes.
Estimate the impact of the net change (both for on-balance sheet and off-balance
sheet) in the market value of equity on the capital adequacy ratio (CAR).
Market value of the asset or liability shall be assessed by calculating its present value
discounted at the prevailing interest rate. The outstanding balances of the assets and
Liabilities should be taken along with their respective maturity or repricing period,
whichever is earlier.
Page 11 of 39
INPUT & OUTPUT FORMATS
14.1. Reporting cover letter

FIs have to submit their reporting as per formats mentioned in the subsequent sections
along with the following cover letter as well as send an electronic report as per prescribed
format in a compact disc.
REPORT ON STRESS TESTING OF FINANCIAL INSTITUTION

*SOLO/CONSOLIDATED
As on
* Delete which is not appropriate.
NAME OF FI
DATE OF SUBMISSION
Information in this return is endowed as per the Stress Testing Guideline

for NBFIs. This return has been prepared in accordance with the
instructions issued by Bangladesh Bank. We certify that this return is, to
the best of our knowledge and belief, correct.
.
Chief Executive Officer
..
Name
...
Chief Financial Officer
..
Name
Name and telephone number of responsible person who may be contacted

by Bangladesh Bank in case of any query.
..
Name
..
Telephone Number
Page 19 of 39
14.2. CREDIT INPUT

Name of the Institution:
Acronym of the name:
Reporting Base Date:
Table: 1 Basic Information
Amount in
Sl.
Particulars
No
BDT Crore
1 Regulatory Capital
2 Risk Weighted Assets
3 CAR %
0.00%
Table: 2 Sector Wise Credit Portfolio
(Amount in Crore)
STD
Sl.
No
1
2
Particulars
Total
Trade and Commerce

Industry
A) Garments and Knitwear
B) Textile
C) Jute and Jute-Products
D) Food Production and Processing Ind.
0.00
0.00
0.00
0.00
E) Plastic Industry
F) Leather and Leather-Goods
G) Iron, Steel and Engineering
H) Pharmaceuticals and Chemicals
I) Cement and Allied Industry
J) Telecommunication and IT
k) Paper, Printing and Packaging
0.00
0.00
0.00
0.00
0.00
0.00
0.00
SMA
Value of Loans
Value of Loans
Value of Loans
without Eligible with
without Eligible
ES
ES
ES
ES
ES
ES
Security ES
Loans
BL
with
Security ES
Loans
DF
Loans
Security ES
Loans
SS
Loans
Value of Loans
Security ES
Loans
Value of
Security
0.00
L) Glass, Glassware and Ceramic Ind 0.00

M) Ship Manufacturing Industry 0.00
N) Electronics and Electrical Products 0.00
3
4
5
O) Power, Gas, Water & Sanitary Service

P)Transport and Aviation
Industry Total
Agriculture
Housing
Others
A) Merchant Banking
B) Margin Loan
C) Others
Others Total
Grand Total
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00 0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00 0.00
0.00 0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
Table: 3 Top 10 Borrowers STD Loans/Leases

Sl.
No
1
Particulars
Total Loans/Leases (Top 10 Borrowers)
Loans/Leases for which
Eligible Security is held
Amount in BDT Crore

Total
B1
B2
B3
B4
B5
B6
B7
B8
B9
B10
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
Loans/Leases for which

Eligible Security is not held
0.00
Value of Eligible Security
0.00
Page 20 of 39
14.3. LIQUIDITY INPUT
Name of the FI
Reporting Base Date
Particulars
1
A. Outflows
1. Capital
(a) Equity and perpetual preference shares
(b) Non-perpetual preference shares
2. Reserves and surplus
3. Notes, bonds & debentures
(a) Plain vanilla bonds/debentures
(b) Bonds/debentures with embedded options
4. Deposits
(a) Term deposits from public
(b) Term deposits from Banks/Fls
5. Bank borrowings
(a) SOD
(b) Long term loans
6. Current liabilities and provisions
(a) Short term loans
(b) Accounts payable
(c) Advance income received
(d) Interest payable on bonds/deposits
(e) Provisions
7. Contingent Liabilities
(a) Letters of credit/guarantees
(b) Loan commitments, pending disbursal
(c) Lines of credit committed to other institutions
8. Others
A. TOTAL OUTFLOWS (A)
B. INFLOWS
1. Cash
2. Remittance in transit
3. Balances with banks
(a) Current account
(b) Deposit/Short-term deposits
(c) Money at call & short notice
4. Investments
(a) Investments in Bonds & Securities
(b) Investments in Shares
5. lease Finance & Loans (performing)
(a) Lease finance
(b) Home Loan
(c) Term loan
(d) Corporate loans/short term loans
6. Non-performing loans
7. Fixed assets (excluding assets on lease)
8. Other Assets:
(a) Intangible assets & other non-cash flow items
(b) Interest and other Income receivable
(c) Others
9. Others
B. TOTAL INFLOWS (B)
C. MISMATCH (B-A)
D. CUMULATIVE MISMATCH
E. C AS PERCENTAGE OF A
:
:
(Amount in crore)
1 to 30/31 day Over 1 month to Over 2 months Over 3 months Over 6 months Over 1 year to Over 3 year to Over 5 years
(One month)
2 months
to 3 months to 6 months
to 1 year
3 years
5 years
0.00
0.00
0.00
10
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
Settlement
Maturity
Coupon
Yield
Structure of the Bond Portfolio
Face Value Present Value
Total/Average
0.00
First Line of Defense (BDT Crore)

Second Line of Defense (BDT Crore)
Total
0.00
Frequency
0.00
Duration
Remarks
0.00
SOD
short-term loan, commercial paper, bill discounting facility
Page 21 of 39
14.4. RECOMMENDED ACTION PLANS

Name of the Institution :
Reporting Base Date :
WAR-WIR MATRIX
Rating
-
Zone
-
Result of WIR MATRIX (Test-II)
WAR-WIR MATRIX
Result of WAR MATRIX (Test-I)
RECOMMENDED ACTION PLANS
Risk Factors
1. Interest Risk Increase in Interest Rate

Monitor strictly any downturn of
performance indicators.
2. Credit Risk
Recommendation of:
increase in NPLs
Downward shift in all Categories
Fall in the VES
Increase in NPLs under B/L
category in 2 sectors
Increase in NPLs due to Top large
borrowers
3. Equity price Risk Fall in Stock Prices
4. Liquidity Shock

Recommendation of:
Three Year Capital Management
Plan
Submission of:
Page 22 of 39
14.5. DECISION MODEL RULES

RESULTS (WAR & WIR)
Result of WAR MATRIX (Test-I)

Result of WIR MATRIX (Test-II)
Rating
-
Zone
-
WAR-WIR MATRIX
WAR
WAR-WIR Matrix
WIR
Green
Yellow
Red
Green
-
Yellow
-
Red
-
Page 23 of 39
14.6. TEST OF RESILIENCE

TEST-I : (WAR)
Minor
Risk Factors
Moderate
Major
HWAR
Zone Score Zone Score Zone Score
Weight
1. Interest Risk Increase
in Interest Rate
10%
2. Credit Risk
60%
50%
-
30%
100%
20%
increase in NPL
10%
Downward shift in
all Categories
10%
5%
15%
20%
10%
20%
Fall in the VES

Increase in NPLs
under B/L category
in 2 sectors
Increase in NPLs
due to Top large
borrowers
3. Equity price Risk Fall
in Stock Prices
4. Liquidity Shock
VWAR
100%
TEST-II : (WIR)
Minor
Risk Factors
Weight
1. Credit Risk shocksIncrease in
NPL
Moderate Major
WIR
Zone
Zone
Zone
50%
30%
20%
100%
Page 24 of 39
14.7. SUMMARY SHEET

Current Scenario
Regulatory Capital (BDT in Crore )
Risk Weigheted Assets (RWA) (BDT in Crore)
Capital Adequacy Ratio (CAR)
1. Interest Rate Risk
(BDT in Crore)
Interest Rate Risk
Minor
Moderate
Major
2%
4%
6%
Revised Capital
Revised RWA
Revised CAR
Magnitude of Shock
(BDT in Crore)
2. Credit Risk
CR-1: Credit Risk-Increase in NPL (UC Directly Downgraded to BL)

Minor
Moderate
Major
2%
5%
10%
Revised Capital
Revised RWA
Revised CAR
Magnitude of Shock
(BDT in Crore)
CR-2: Credit Risk-Downward Shift in Loans (STD to SMA, SMA to SS, SS to DF & DF to BL)
Minor
Moderate
Major
5%
10%
15%
Revised Capital
Revised RWA
Revised CAR
Magnitude of Shock
Page 25 of 39
SUMMARY SHEET
(BDT in Crore)
CR-3: Credit Risk-Fall in the Value of Eligible Securities
Minor
Moderate
Major
10%
25%
50%
Revised Capital
Revised RWA
Revised CAR
Magnitude of Shock
(BDT in Crore)
CR-4: Credit Risk-Increase of NPLs in the Major 2 Sectors
Minor
Moderate
Major
5%
10%
15%
Revised Capital
Revised RWA
Revised CAR
Magnitude of Shock
(BDT in Crore)
CR-5: Credit Risk-Increase of NPLs Due to Top 10 Borrowers
Minor
Moderate
Major
Top 3
Borrowers
Top 5
Borrowers
Top 10
Borrowers
Revised Capital
Revised RWA
Revised CAR
Magnitude of Shock
Combined Shocks (All Credit Shocks)
(BDT in Crore)
Combined Shocks
Magnitude of Shock
Minor
Moderate
Major
Revised Capital
Revised RWA
Revised CAR
Page 26 of 39
SUMMARY SHEET
3. Equity Price Risk
(BDT in Crore)
Equity Price Risk
Minor
Moderate
Major
10%
25%
50%
Revised Capital
Revised RWA
Revised CAR
Magnitude of Shock
4. Liquidity Risk
Current Scenario ( 1 = Satisfactory, 0 = Unsatisfactory)
Negative gap during 1-90 days time buckets
Cumulative gap up to 1 year
Counter balancing capacity up to 1 year
Liquidity Risk
Minor
Moderate
Major
5%
7%
10%
Negative gap during 1-90 days time buckets
Cumulative gap up to 1 year
Counter balancing capacity up to 1 year
Magnitude of Shock
Combined Shocks (Interest, Credit & Equity Price Shocks)
(BDT in Crore)
Combined Shocks
Magnitude of Shock
Minor
Moderate
Major
Revised Capital
Revised RWA
Revised CAR
Page 27 of 39
Insolvency Ratio
SUMMARY SHEET
Current Scenario
Infection Ratio (NPL to Loans)
Critical Infection Ratio (CIR)
Insolvency Ratio
Insolvency Ratio after Shocks
Magnitude of Shock
Minor
Moderate
Major
Insolvency Ratio
Page 28 of 39
14.8. INTEREST RATE OUTPUT

Required Information to Calculate the Shock
Risk Weigheted Assets (BDT in Crore)

Current Provision (BDT in Crore)
Particulars
1 to
30/31
day
(One
month)
Over
Over
Over 1
2
3
Over
month months months
6
months
to 2
to 3
to 6
months months months
to
1 year
A. Total Rate Sensitive Liabilities (A)
B. Total Rate Sensitive Assets (B)
C. Mismatch
D. Cumulative Mismatch
E. Mismatch (%)
Interest Rate Risk

Minor
Moderate
Major
2%
4%
6%
Revised Regulatory Capital (BDT in Crore)
Risk Weighted Assets (BDT in Crore)

Revised CAR (%)
Magnitude of Shock
Change in the Value of Bond Portfolio

(BDT in Crore)
Net Interest Income (BDT in Crore)
Page 29 of 39
14.9. CREDIT RISK OUTPUT

INCREASE OF NPL (UC TO BL)

Total Loan (BDT in Crore)
Total NPL (BDT in Crore)
Total STD Loan with VES (BDT in Crore)
Total STD Loan without VES (BDT in Crore)
Value of Eligible Security Against STD (BDT in Crore)
Total SMA Loan with VES (BDT in Crore)
Total SMA Loan without VES (BDT in Crore)
Value of Eligible Security Against SMA (BDT in Crore)
Current Provisions (BDT in Crore)
NPL to Loans
Credit Risk-Increase in NPL (UC Directly Downgraded to BL)

Minor
Moderate
Major
Magnitude of Shock
2%
5%
10%
Increase in NPL (BDT in Crore)
Revised NPL (BDT in Crore)
Revised NPL to Loans Ratio

Extra Provisions for Loans without
VES (BDT in Crore)
Extra Provisions for Loans with VES
(BDT in Crore)
Increase in Provisions (BDT in Crore)
Revised Capital (BDT in Crore)
Revised Risk Weighted Assets (BDT in Crore)
Revised CAR
Page 30 of 39
DOWNWARD SHIFT IN ALL CATEGORIES (STD TO SMA, SMA TO SS, SS TO DF & DF TO BL)

Risk Weigheted Assets (BDT in Crore)

Current Provision (BDT in Crore)
Particulars
STD
SMA
SS
DF
Loans with VES (BDT in Crore)
Loans without VES (BDT in Crore)
Value of Eligible Security (BDT in Crore)
Credit Risk-Downward Shift in Loans (STD to SMA, SMA to SS, SS to DF & DF to BL)
Minor
Moderate
Major
5%
10%
15%
Revised CAR %
Magnitude of Shock
Extra Provisions for Loans without VES

(BDT in Crore)
Extra Provisions for Loans with VES
(BDT in Crore)
Page 31 of 39
FALL IN THE VALUE OF ELIGIBLE SECURITIES


VES for SS Loan (BDT in Crore)
VES for DF Loan (BDT in Crore)
VES for BL Loan (BDT in Crore)
Credit Risk-Fall in the Value of Eligible Securities

Minor
Moderate
Major
10%
25%
50%
Revised CAR %
Magnitude of Shock
Weighted Amount of Eligible Securities

(BDT in Crore)
Page 32 of 39
INCREASE OF NPL IN 2 MAJOR SECTORS


Sector of
Highest Loan
Sector of 2nd
Highest Loan
Loan Disbursed to (BDT in Crore)
Total STD with VES (BDT in Crore)
Total STD without VES (BDT in Crore)

Value of Eligible Security Against STD
(BDT in Crore)
Total SMA with VES (BDT in Crore)
Particulars
Total SMA without VES (BDT in Crore)

Value of Eligible Security Against SMA
(BDT in Crore)
NPL to Loans
Credit Risk-Increase of NPL in the 2 Major Sectors

Minor
Moderate
Major
5%
10%
15%
Revised NPL (BDT in Crore)
Revised NPL to Loans Ratio

Extra Provision for Loans without VES
(BDT in Crore)
Extra Provision for Loans with VES
(BDT in Crore)
Increase in Provisions
Revised CAR
Magnitude of Shock
Page 33 of 39
INCREASE OF NPL DUE TO TOP 10 BORROWERS

Required Information

Total Loan to Top 10 Borrowers (BDT in Crore)
Total Loans for which Eligible Securities Held (BDT in Crore)
Total Loans for which No Eligible Securities Held (BDT in Crore)
Value of Eligible Security (BDT in Crore)

NPL to Loans
Credit Risk-Increase of NPL Due to Top 10 Borrowers (Loans without Eligible Securities)
Minor
Moderate
Major
Magnitude of Shock
Top 3
Borrowers
Top 5
Borrowers
Top 10
Borrowers
Total Loans Disbursed to (BDT in Crore)

Increase in Provisions
Credit Risk-Increase of NPL Due to Top 10 Borrowers (Loans with Eligible Securities)
Minor
Moderate
Major
Magnitude of Shock
Top 3
Borrowers
Top 5
Borrowers
Top 10
Borrowers
Value of Eligible Securities (BDT in Crore)
Increase in NPL(BDT in Crore)

Increase in Provisions (after
adjustment of eligible securities)
(BDT in Crore)
Page 34 of 39
INCREASE OF NPL DUE TO TOP 10 BORROWERS

Credit Risk-Increase of NPLs Due to Top 10 Borrowers (Total)
Minor
Moderate
Major
Magnitude of Shock
Top 3
Borrowers
Top 5
Borrowers
Top 10
Borrowers
Increase in NPL(BDT in Crore)
Revised Capital(BDT in Crore)

Revised Risk Weighted Assets(BDT
in Crore)
Revised CAR
COMBINED SHOCKS
Combined Shocks (All Credit Shocks)
Magnitude of Shock
Minor
Moderate
Major
Revised CAR
Page 35 of 39
FALL IN THE VALUE OF EQUITY

Regulatory Capital (BDT in Crore)

Total Exposure in Stock Market (BDT in Crore)
Equity Price Risk

Minor
Moderate
Major
10%
25%
50%
Fall in the stock prices(BDT in Crore)
Revised Capital(BDT in Crore)
Revised Risk Weighted Assets(BDT in Crore)
Revised CAR
Magnitude of Shock
COMBINED SHOCKS
Combined Shocks (Interest, Credit & Equity Price Shocks)

Magnitude of Shock
Minor
Moderate
Major
Revised CAR
Page 36 of 39
14.10. LIQUIDITY OUTPUT

(Amount in Crore)
Maturitywise Distribution of Assets-Liabilities
Particulars
1
C. MISMATCH
E. MISMATCH (%)
F. CUMULATIVE COUNTER BALANCING CAPACITY (AFTER MISMATCH)
1 to 30/31 day Over 1 month Over 2 month Over 3 months Over 6 months Over 1 year to Over 3 years to Over 5 years
(One month) to 2 months to 3 months to 6 months to 1 year
3 years
5 years
2
3
4
5
6
7
8
0.00
0.00 0.00 0.00 0.00
0.00 0.00
0.00
0.00 0.00 0.00 0.00
0.00 0.00
0.00
0.00 0.00 0.00 0.00
0.00 0.00
0.00
0.00 0.00 0.00 0.00
0.00 0.00
0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%
0.00
0.00 0.00
0.00
0.00
0.00 0.00
Scenario 1
0.00
0.00 0.00 0.00
0.00
0.00 0.00 0.00
C. MISMATCH
0.00
0.00 0.00 0.00
0.00
0.00 0.00 0.00
E. MISMATCH (%)
0.00% 0.00% 0.00% 0.00%
F. CUMULATIVE COUNTER BALANCING CAPACITY (AFTER HAIRCUT & MISMATCH) 0.00
0.00
0.00
0.00
Scenario 2
0.00
0.00 0.00 0.00
0.00
0.00 0.00 0.00
C. MISMATCH
0.00
0.00 0.00 0.00
0.00
0.00 0.00 0.00
E. MISMATCH (%)
0.00% 0.00% 0.00% 0.00%
0.00
0.00
0.00
Scenario 3
0.00
0.00 0.00 0.00
0.00
0.00 0.00 0.00
C. MISMATCH
0.00
0.00 0.00 0.00
0.00
0.00 0.00 0.00
E. MISMATCH (%)
0.00% 0.00% 0.00% 0.00%
0.00
0.00
0.00
Total
9
10
0.00 0.00
0.00 0.00
0.00 0.00
0.00
0.00% 0.00%
0.00
0.00
0.00%
0.00
0.00 0.00
0.00
0.00 0.00
0.00
0.00 0.00
0.00
0.00 0.00
0.00% 0.00% 0.00%
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00%
0.00
0.00
0.00
0.00
0.00%
0.00%
0.00
0.00
0.00
0.00
0.00%
0.00
0.00%
0.00
0.00
0.00
0.00
0.00%
0.00
0.00
0.00
0.00
0.00
0.00%
0.00
0.00
0.00
0.00
0.00
0.00%
0.00
0.00
0.00
0.00
0.00
0.00%
0.00
0.00%
0.00
0.00
0.00
0.00
0.00%
0.00
0.00
0.00
0.00
0.00
0.00%
0.00
0.00
0.00
0.00
0.00
0.00%
0.00
0.00
0.00
0.00
0.00%
0.00
0.00
0.00
0.00%
Page 37 of 39
14.11. INSOLVENCY OUTPUT

Basic Information
Total Loan (BDT in Crore)
Total of NPL and Regulatory Capital


Insolvency Ratio
Increase
Increase
Increase
Increase
Combined Shocks
Minor
Magnitude of Shock
of NPL after CR-1
of NPL after CR-2
of NPL after CR-4
of NPL after CR-5
-
Moderate
Major
Revised Regulatory Capital after CR-1
Increase of NPL
Revised NPL
Revised Regulatory Capital
Total of NPL & Regulatory Capital
Revised Infection Ratio (Revised NPL to Loans)
Revised Critical Infection Ratio

Revised Insolvency Ratio
Page 38 of 39
15. References:
1.
DOS Circular No-01, dated-21 April, 2010, Guidelines on Stress Testing.
2.
DOS Circular No-1, dated-23 February, 2011, Revised Guidelines on Stress

Testing.
3.
Basel Committee on Banking Supervision (May 2009), Principles for sound stress
testing practices and supervision.
4.
Christian Schmieder, Claus Puhr, and Maher Hasan (April 2011), Next
Generation Balance Sheet Stress Testing, IMF Working Paper.
5.
Christian Schmieder, Heiko Hesse, Benjamin Neudorfer, Claus Puhr, Stefan W.

Schmitz (January 2012), Next Generation System-Wide Liquidity Stress Testing,
IMF Working Paper.
Page 39 of 39

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GUIDELINES ON STRESS TESTING FOR

NON-BANKING FINANCIAL INSTITUTIONS

DEPARTMENT OF FINANCIAL INSTITUTIONS AND MARKETS

Members of the Committee for Revising

Guidelines on Stress Testing for NBFIs

Made the guidelines in line with Basel Accord framework;

(M. Mahfuzur Rahman)

Guidelines on Stress Testing for NBFIs

Asset-Liability Management Committee

Guidelines on Stress Testing for NBFIs

providing forward-looking assessments of risk;

overcoming limitations of models and historical data;

Guidelines on Stress Testing for NBFIs

2. Principles for sound Stress Testing practices

Principles for the Financial Institutions

An FI should operate a stress testing program that promotes risk identification

An FI should have a suitably robust infrastructure in place, which is sufficiently

Guidelines on Stress Testing for NBFIs

Stress testing methodology and scenario selection

Stress tests should feature a range of severities, including events capable of

Specific areas of focus

Guidelines on Stress Testing for NBFIs

3. Scope of Stress Testing

4. Framework for Stress Testing

A well constituted organizational structure defining clearly the roles and

An effective management information system that ensures flow of information to the

Setting the specific trigger points to meet the benchmarks/standards set by

Guidelines on Stress Testing for NBFIs

5. Methodology and Calibration of Shocks

5.1. Interest Rate Risk

5.2. Credit Risk

Guidelines on Stress Testing for NBFIs

5.2.2. Negative shift in all categories

5.3. Equity Price Risk

Guidelines on Stress Testing for NBFIs

5.4. Liquidity Risk

5.5. Combined Shock

1. Interest Risk-Increase in Interest Rate

6. Insolvency Ratio (IR)

Guidelines on Stress Testing for NBFIs

Negative gap during 1-90 days time buckets exceed 15% .

8. Stress Test Rating

Guidelines on Stress Testing for NBFIs

Guidelines on Stress Testing for NBFIs

9. Recommended Action Plan

60%<WAR < 80%

Guidelines on Stress Testing for NBFIs

Recommended Action Plan

10. Interest Rate Stress Test

For simple Sensitivity analysis

Using the formula of NII = i(GAP)

For Duration Gap analysis

Calculate surplus/(deficit) on off-balance sheet items under the assumption of three

Guidelines on Stress Testing for NBFIs

INPUT & OUTPUT FORMATS

14.1. Reporting cover letter

REPORT ON STRESS TESTING OF FINANCIAL INSTITUTION

Information in this return is endowed as per the Stress Testing Guideline

Name and telephone number of responsible person who may be contacted

Guidelines on Stress Testing for NBFIs

14.2. CREDIT INPUT

Table: 2 Sector Wise Credit Portfolio

Trade and Commerce