Investment AND Treasury Manual: Revised & Updated September 2019

INVESTMENT
AND
TREASURY MANUAL
Revised & updated September 2019

Version 7.5
TREASURY DEPARTMENT
Azizi Bank
“Confidential: Strictly for Internal Circulation Only”: Investment Policy & Treasury Manual-2019
TREASURY ................................................................................................................................. 5
1 Introduction ........................................................................................................................ 5
2 Investment committee: ....................................................................................................... 5
2.1 Roles and responsibilities of Investment Committee: ....................................................... 6
3 Capital notes auction: ......................................................................................................... 7
4 Forex management ............................................................................................................. 8
5 Overnight placements ......................................................................................................... 9
6 Long-term foreign currency placements with correspondent/overseas banks: .................... 9
7 Regulatory compliance: ....................................................................................................... 9
8 Placements with local banks ............................................................................................... 9
9 Investments in financial assets .......................................................................................... 10
9.1 Held-to-Maturity .............................................................................................................11

9.2 Fair Value through Profit or Loss .....................................................................................11
9.3 Available-for-Sale ............................................................................................................11
9.4 Investment in Sovereign/Municipal/Corporate Bonds ....................................................12
9.5 Reclassification of Investments .......................................................................................15
9.6 Derivatives .......................................................................................................................15
9.7 Provisioning .....................................................................................................................15
9.8 Impairment ......................................................................................................................16
10 Identifying brokerage companies/Asset Management Companies .................................... 17
11 Investment limits .............................................................................................................. 17
11.1 Country Exposure and Counterparty Exposure: ..............................................................17

11.2 Asset class definitions ......................................................................................................20
11.3 Approval authorities ........................................................................................................21
11.4 Risk tolerance ..................................................................................................................21
11.5 Maturity considerations ..................................................................................................22
11.6 Exit strategy .....................................................................................................................22
12 Structure of treasury department...................................................................................... 23
13 Treasury: procedures and policies ..................................................................................... 23
Zanbaq Square, Opposite Turkish Embassy, Kabul, Afghanistan, Call Centre: 1515 Mob: 0093 799 700 900 / 020 210 44 70 2
www.azizibank.af,www.azizibank.com Email- info@azizibank.af, customercare@azizibank.af
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13.1 Treasury ...........................................................................................................................23

13.2 Structure of treasury .......................................................................................................23
13.3 Role of various offices in Treasury:..................................................................................24
13.4 Know your counterparty..................................................................................................24
13.5 Rate scan .........................................................................................................................24
13.6 Conflicts of Interest .........................................................................................................25
13.7 Personal Investment Policy .............................................................................................25
13.8 Dealer Limits ....................................................................................................................25
13.9 Rotation of Dealers ..........................................................................................................25
13.10 Confirmations ..................................................................................................................25
14 Dealing procedures and principles ..................................................................................... 26
14.1 Scope ...............................................................................................................................26

14.2 Preliminary negotiation of terms ....................................................................................26
14.3 Firmness of Quotation .....................................................................................................26
14.4 Concluding a deal ............................................................................................................27
14.5 Passing of Names by Brokers ...........................................................................................28
14.6 Reporting of deals on the Capital Auctions .....................................................................28
14.7 Written confirmations .....................................................................................................28
14.8 Settlement of Differences................................................................................................29
14.9 Rounding off ....................................................................................................................29
14.10 Bank holidays/market disruption ....................................................................................29
15 Dealing activities ............................................................................................................... 29
15.1 Dealing activities can be classified into - .........................................................................29
16 Non-dealing operations ..................................................................................................... 35
16.1 Trade Finance and International Business .......................................................................35

16.2 Correspondent banking ...................................................................................................43
16.3 Swift transfers: ................................................................................................................36
16.4 Base rate: .........................................................................................................................36
16.5 TT rates: Buying and Selling .............................................................................................36
16.6 Cash Currency Notes Buying and Selling: ........................................................................36
16.7 Export transactions ..........................................................................................................36
16.8 Inward remittances .........................................................................................................36
16.9 Outward remittances ......................................................................................................37
17 Cost of funds ..................................................................................................................... 37
18 Strategy ............................................................................................................................ 37
18.1 Aggregate portfolio parameters ......................................................................................38
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19 Investment policy statement ............................................................................................. 38
20 Annexure 1: important processes ...................................................................................... 40
20.1 Repo Deal (Repurchase agreement) ................................................................................40

20.2 Dealing in Currency auction: ...........................................................................................41
20.3 Capital notes auction deal: ..............................................................................................41
20.4 Own position Deal ...........................................................................................................42
20.5 Inter-bank Deal: ...............................................................................................................42
20.6 Placement with Local Banks: ...........................................................................................43
20.7 Placement with Correspondent Banks: ...........................................................................43
20.8 Nostro accounts:..............................................................................................................45
20.9 Other activities: ...............................................................................................................46
21 Annexure 2........................................................................................................................ 47
21.1 Internal Controls implemented by Treasury Department ...............................................47
22 Annexure 3........................................................................................................................ 48
22.1 Deal slip for FX deals ........................................................................................................48

22.2 List of KYC documents for partner banks ........................................................................48
22.3 Indicative list of counterparties for domestic own position deals is given below ...........49
22.4 Sample Investment Proposal for sovereign bond investments .......................................50
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TREASURY
Treasury is regarded as the “Front Line” in the sense that it either makes profits in its own right or supports
other areas of the bank’s business to make profits (or minimize losses). The treasury is normally responsible
for foreign exchange trading, money market trading, liquidity management, interest rate management and
maintenance of the reserve requirements. Treasury is also responsible for investments in government
securities, debt instruments, bonds, commodity and equity underwriting and trading. It operates under
authorities and limits delegated to it by the ALCO, which in turn operates under authorities and limits
delegated from the Risk Management Committee.
The main component of the Treasury Division is the dealing room and the Back office. Middle office works
in close association with Treasury and in fact has a major role in monitoring of risks assumed by treasury,
but independently reports to ALCO.
1 Introduction
Investment policy is the strategy designed by the top-level investment committee to adopt a disciplined
investment plan. The committee meets at periodic intervals and decides the plan to be adopted for
deployment of excess idle funds available with the bank; so that the bank earns fruitful returns from them.
The primary motive of this committee shall be deployment of idle funds after a thorough analysis of the
financials of the Institutions in such a way as to maximize the returns operating within the boundaries set
by the regulators while adhering to compliance norms and acceptable risks.
2 Investment committee:
At Azizi Bank, an investment committee has been formed to meet at regular intervals (preferably once in a
month) to oversee and to advise on the various investment decisions made by the bank. This committee
shall consist of five members chaired by the CEO/ President and convened by Head – Treasury.
The members shall be:
CEO
COO
CCO
CFO
Head – Treasury (Presenter)
Invitees for the committee meetings consist of Deputy CEO, Secretary to BOS and anyone else deemed
important by the chairperson. Before execution of any Investment the CRO will be responsible to review the
same with Risk angle and give his/her opinion to the Treasury Head with copy to other Members of the
Investment Committee.
All the five will be voting members and they will decide the investment strategy to be adopted by the Bank
from time to time out of the various avenues that are available to the bank. They may invite other senior
Executives of the bank as observers to have their suggestions.
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The Investment committee shall also analyze various modes of investment available to it. Some of the
avenues that are available to the bank at present include
• Capital Notes Auction

• Overnight/Long-Term Foreign Currency Placements with correspondent/overseas/Local banks.
• Placements with Local banks in local currency
• Investments in financial assets including bonds and Exchange Traded Funds/mutual fund investments.
2.1 Roles and responsibilities of Investment Committee:
The investment committee has the governance responsibility in assuring successful deployment of liquid
funds of the Bank and responsible for planning and oversight. The primary role of the Investment Committee
is to approve the Bank’s investment objectives. In doing so, the committee must develop an investment
plan according to the financial needs and circumstances of the Bank in particular with an understanding of
the overall country context in Afghanistan. The head of treasury plays an integral role in the bank’s
investment strategies as a liaison between the investment committee and the treasury department. Critical
roles played by the investment committee can be categorized into two heads (a) Developing sound
investment policy and (b) Ensuring implementation of the policy. In order to undertake these crucial roles,
the committee is expected to acquire requisite knowledge.
2.1.1 Developing sound investment policy
As described in this policy document, the Bank shall undertake the activity of deploying its idle funds in
various assets/asset classes. The committee shall therefore define the Bank’s return objectives, key risks,
the Bank’s tolerance for these risks, strategies for risk mitigation, allocation of funds for various asset classes
(including rationale for doing so) and (but not limited to) currency hedging. In order to develop a sound
investment policy, the members of the committee shall acquaint themselves with the regulation and
changes being brought in by the regulators from time to time. These may include (but not limited to)
defining exposure norms for currencies, countries and counterparties.
2.1.2 Ensuring implementation of the policy
The committee shall from time to time make sure the investments of the bank are commensurate with the
policy. In order to ensure effective implementation, the committee is required to undertake the following
activities.
2.1.2.1 Hold regular Meetings
The Committee shall meet at regular intervals (as stipulated by the regulators/as per necessity/minimum of
once in a month) to assess the performance of treasury department to compare the actuals with the
forecast results and understand the reasons for deviations if any. The crucial elements of the meetings shall
also include, review of Open Forex Positions, Liquidity Ratios, approval of countries, counterparties,
approval for new investment proposals (including placements) and new initiatives. Another crucial point of
discussion of these meetings shall be changes in political and economic conditions in the geographies of
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investments. This is to ensure the committee is updated with information on critical conditions that may
result in loss events.
2.1.2.2 Identification of intermediaries for investments
The committee shall also be responsible for the proposals from the treasury head on approving intermediary
entities (asset management companies/wealth management companies/investment advisory companies).
As mentioned in the document it is always prudent to maintain non-discretionary accounts to maintain
control on investments. However, if the committee decides otherwise, the details and circumstances shall
be documented thoroughly in order to demonstrate critical conditions under which these were approved.
2.1.2.3 Document the meeting minutes and approvals of investment proposals.
The minutes of the meetings shall be documented and circulated for review of the board of supervisors. It
is also essential that the process of approval of each investment proposal is well documented, so as to
demonstrate that a prudent process is in place for approval of investment proposals.
2.1.2.4 Review of financials quarterly
It is also essential for the committee to review its financials quarterly with a lens of treasury operations so
as to check fund allocations proposed are appropriate and if any changes are required. The committee shall
not shy away from asking key question on default risk, liquidity risk, counterparty risk, country risk and
currency risk.
Section I - Investments
3 Capital notes auction:
Da Afghanistan Bank (DAB – Central Bank) conducts capital note auction on a specific day of the week/ or
as per its discretion for the member banks to participate and to park their excess funds. These auctions are
available for periods of 7, 28, 91, 182 days and 364 days or as per the discretion of DAB. Member banks are
intimated in advance the amount to be auctioned. Representatives of the member banks exercise their
options online and advise the DAB on the interest rates at which they are willing to park the excess funds
available with them by way of capital notes auction. From the bids put in by member banks, DAB selects
bids received with the lowest interest rates or a range of interest rates at which offers have been received
and intimates the member banks accordingly if their bids are approved by DAB. In case any of the
participating banks is successful in getting its bids approved it is expected to make adequate funds available
on the following day with DAB which will be debited from their current account by DAB.
Only a nominal rate of interest is paid on these deposit amounts though the interest rates offered are
market driven as they are backed by sovereign guarantee. In case of pre-closure, no interest is payable on
these deposit amounts, but loan facilities are available against these notes at a rate higher than the
contracted rate or it can be traded in the secondary market with Banks. However; Secondary market is
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under development stage. It is always advisable that this facility of availing overdraft against the capital
notes auction should be resorted to as a last resource.
4 Forex management
One of the key roles played by treasury department in Azizi Bank is deployment of foreign currency
resources in such a way that it would not create any excess position i.e., “Overbought” or “Oversold” and
at the same time cash flow is not affected. There are various funding alternatives available for Forex Cash
Management such as Currency Swaps i.e., lending in one currency and borrowing in another currency,
foreign exchange i.e., swapping of one currency into other foreign currency or local currency for deployment
so as to maximize the yield without creating the position and affecting the cash flow. Treasury department
shall operate within the regulation issued by Da Afghanistan Bank on open position in foreign currencies.
This regulation requires banks to calculate their individual foreign exchange positions in individual foreign
currencies as well as overall net foreign exchange positions in non- convertible and all foreign currencies.
The calculation of these positions will also consider off balance sheet accounts that impact their position.
Current limits are set at 20 percent of an institution’s regulatory capital in the case of individual convertible
currencies and 5 percent of the institution’s regulatory capital in the case of individual non-convertible
currencies. The Bank’s overall net open position in non-convertible currencies shall not exceed 10 percent
of the institution’s regulatory capital and overall open position in all foreign currencies shall not exceed 40
percent of the institution’s regulatory capital. Treasury department shall update this policy with any updates
from the central bank. At the end of every working day, the department in coordination with finance
department shall calculate
• individual foreign exchange positions in particular foreign currencies

• overall net foreign exchange position in non-convertible currencies
• overall net foreign exchange position in all foreign currencies
In addition to calculating the above, the department shall obtain crucial ratios of broad liquidity and quick
liquidity ratios to ensure these are at a minimum of 15% and 20% respectively. On a daily basis the
department shall obtain information pertaining to
• foreign currency positions of the bank from all its accounts and investments
• total net overnight and time-limit position in all currencies that the bank is dealing in;
• income and losses regarding foreign currency activities and foreign currency risk exposure
Foreign exchange deals are done either through phone or via emails. Additionally, currency trading platform
(obtained from Transkapital Bank) shall be used for cross currency transactions (own as well as customer).
In order to have better organizational control and to monitor foreign currency transactions done by staff
the department shall practice division between persons deciding on foreign exchange activities
(transactions) and persons responsible for its execution (contracting, executing and recording); Due to small
size of the department and relatively small number of foreign exchange transactions, a clear demarcation
is not adopted for front office and back office staff. However, each individual transaction shall be dealt with
based on the above division. It is essential that the deals done on currency platform (own position) shall be
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squared off within 2 working days and the dealers are not permitted to hold more than USD 3 million (or
equivalent). However, in order to balance OFX positions the department may exchange funds between USD,
EUR and GBP. Off premises and off-office hours deals shall bear approval from CEO/Dy. CEO.
5 Overnight placements
Azizi Bank maintains Nostro accounts with various banks for the purposes of effecting outward remittances
and when excess funds are available in these accounts over and above the normal requirement for the day
to day operations of the bank, overnight placements are encouraged. Treasury department monitors the
requirements and normally at the weekends the funds are blocked for a period of 4 days as Saturday and
Sunday are non-working days for the counter parties.
This enables the bank to earn some returns on the otherwise idle funds. Normally these rates are market
driven and is linked to LIBOR. The placements should be made in such a way so as not to affect the regular
operations of the bank and the funds are made available for operations on week days.
6 Long-term foreign currency placements with correspondent/overseas banks:
The bank may place its liquid foreign currencies with Foreign Banks on case to case basis up to a period of
one year or more duly approved by Investment Committee. The department shall actively pursue avenues
for establishing relationships with foreign banks to diversify the placements in different geographies and
multiple counterparties. The Exposure Norms for the Placements with Foreign Banks shall be as described
in section 11.1.
7 Regulatory compliance:
Notwithstanding the guidelines prescribed herein above, it is obligatory on the part of the person involved
in preparing, processing, recommending, approving, paying and accounting of Investments or Placement of
Funds, to ensure that the Exposure to any single Counter Party will not exceed 15% of the Regulatory
Capital of the Bank in accordance with the DAB Regulations. It is also clarified that the term “Exposure”
includes all Placements, Nostro Balances, Loans, Advances, Investments, other Receivables and other Non-
Fund Based facilities of LCs and BGs. Concentration and exposure norms of the central bank are discussed
in detail in subsequent sections. The Bank shall consider keeping a buffer of at least 10% from the regulatory
limits to accommodate change in regulatory capital and fluctuation in the currency conversions.
8 Placements with local banks
When our bank’s liquidity is more, and the bank has excess funds, which may not be required soon the
Investment committee based on the recommendations of the Head-Treasury may permit placements of
deposits with other local banks. Treasury will decide on the placement of the deposits after consulting the
Operations department and the Credit department on the immediate requirement for funds which may be
needed for disbursement of loans or of any contingency requirement, the bank may have in the near-term
subject to regulatory norms on limits.
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The following will be the Exposure Norms, i.e. ceiling for the placement of deposits with local banks, based
on the level of risk attached to and our internal assessment as provided in the Treasury Manual of the Bank.
However, these limits are subject to change depending upon the Risk profile of the Bank and approved by
the Investment Committee. The committee, from time to time would release the ceiling for placement of
deposits with local banks. (Regulatory norms supersede).
Category Name of the Bank Approved Amount

A Afghanistan International Bank USD 5 Mio or equivalent
A Bank Mille Afghan USD 5 Mio or equivalent
A First Micro Finance Bank USD 3 Mio or equivalent
A National Bank of Pakistan USD 2 Mio or equivalent
A Pashtany Bank USD 3 Mio or equivalent
A Islamic Bank of Afghanistan USD 3 Mio or equivalent
B Ghazanfar Bank USD 2 Mio or equivalent
B New Kabul Bank USD 2 Mio or equivalent
In case the quantum of placement to be exceeded with an aim of profit maximization but after considering
the attendant risk, Head of Treasury in consultation with the CFO and the CRO may obtain prior permission
from CEO, can exceed the prescribed quantum by another 100% per bank and the same will be placed for
ratification in the subsequent Investment Committee meeting. With regard to placement with Islamic Bank
of Afghanistan, which is a fully owned subsidiary of Azizi Bank, it may be decided on mutual consent of both
parties, Azizi Bank and Islamic Bank can place funds with each other at agreed upon market rates. Both
parties shall accept deposit in AFN and USD Current Account within regulatory norms. Accounts with both
banks will continue to be used for interbank transfer/s to local and provincial branches.
9 Investments in financial assets
Despite new standard developed by IASB to deal with classification and measurement of financial
instruments i.e. IFRS 9, Financial Instruments which replaces IAS 39, the bank shall for time being
adopt IAS 39 for classification of its financial assets. As and when the central bank in the country
provides any direction as to the approach for transition through separate guidelines which are
being anticipated by the banks in the country, the bank shall continue to follow IAS 39.
As mentioned elsewhere in the document, the bank shall at any point of time not exceed its
investment in financial assets by more than 5% of the total control, issue etc. Azizi Bank shall always
maintain passive investments as far as treasury investments are concerned. (When the investor
cannot exert significant influence or control over the operations of the investee, investments in
financial assets are considered passive) IFRS has four basic classifications of investments in financial
assets: 1) held-to-maturity, 2) fair value through profit or loss, 3) available-for-sale, and 4) loans
and receivables. For the purpose of treasury policy, we shall consider the first three classifications.
Passive investments in financial assets are initially recognized at fair value. Dividend and interest
income from investments in financial assets, regardless of categorization, are reported in the
income statement. The reporting of subsequent changes in fair value, however, depends on the
classification of the financial asset.
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9.1 Held-to-Maturity
Held-to-maturity investments are investments in financial assets with fixed or determinable

payments and fixed maturities (debt securities) that the investor has the positive intent and ability
to hold to maturity. Azizi Bank shall classify its investments in the above category when there is a
positive intent and ability to hold the security to maturity.
Reclassifications and sales prior to maturity may call into question the Bank’s intent and ability.
Under IFRS, a company is not permitted to classify any financial assets as held-to-maturity if it has,
during the current or two preceding financial reporting years, sold or reclassified more than an
insignificant amount of held-to-maturity investments before maturity unless the sale or
reclassification meets certain criteria.
IFRS require that held-to-maturity securities be initially recognized at fair value. Any difference—
discount or premium—between maturity (par) value and fair value existing at the time of purchase
is amortized over the life of the security. A discount (par value exceeds fair value) occurs when the
stated interest rate is less than the effective rate, and a premium (fair value exceeds par value)
occurs when the stated interest rate is greater than the effective rate. Amortization impacts the
carrying value of the security. Any interest payments received are adjusted for amortization and
are reported as interest income. If the security is sold before maturity (with the potential
consequences described earlier), any realized gains or losses arising from the sale are recognized
in profit or loss of the period. Transaction costs are included in initial fair value for investments that
are not classified as fair value through profit or loss.
9.2 Fair Value through Profit or Loss
Under IFRS, securities classified as fair value through profit or loss include securities held for trading
and those designated by management as carried at fair value.
9.2.1 Held for Trading
Held for trading investments are debt securities acquired with the intent to sell them in the near term.
Held for trading securities are reported at fair value. At each reporting date, the held for trading
investments are remeasured and recognized at fair value with any unrealized gains and losses
arising from changes in fair value reported in profit or loss. Also included in profit or loss are
interest received on debt securities.
9.3 Available-for-Sale
Available-for-sale investments are debt securities not classified as held-to-maturity or fair value
through profit or loss. Under both IFRS investments classified as available-for-sale are initially
measured at fair value. At each subsequent reporting date, the investments are remeasured and
recognized at fair value. Unrealized gain or loss at the end of the reporting period is the difference
between fair value and the carrying amount at that date. Other comprehensive income (in
shareholder’s equity) is adjusted to reflect the cumulative unrealized gain or loss. The amount
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reported in other comprehensive income is net of taxes. When these investments are sold, the
cumulative gain or loss previously recognized in other comprehensive income is reclassified (i.e.,
reversed out of other comprehensive income) and reported as a reclassification adjustment on the
statement of profit or loss.
Under IFRS, for the purpose of recognizing foreign exchange gains and losses, a debt security is
treated as if it were carried at amortized cost in the foreign currency. Exchange rate differences
arising from changes in amortized cost are recognized in profit or loss, and other changes in the
carrying amount are recognized in other comprehensive income. In other words, the total
exchange gain or loss in fair value of an available-for-sale debt security is divided into two
components. The portion attributable to foreign exchange gains and losses is recognized on the
income statement (in profit or loss), and the remaining portion is recognized in other
comprehensive income.
9.4 Investment in Sovereign/Municipal/Corporate Bonds
The department shall set the limits of its total investments in various categories of monetary assets as
discussed in previous sections. The department shall identify geographies and issues of bonds to diversify
the portfolio and avoid concentration risk. Every investment shall bear review of risk department before it
is sent for committee’s approval. From the negotiations the Bank has been having with DAB on Corporate
Bonds, it is believed that a special approval must be taken from DAB on case by case basis where the
proposal shall be accompanied by risk review. The Bank shall only consider corporate bonds which are rated
at or above Baa1 of Moody’s credit rating agency or similar categories in Fitch or S&P rating agencies. An
investment proposal template is attached at the end of this document.
The committee identifies bond investments for consideration based on a desk research through some of
the platforms where the bank has subscribed for membership to access data and research. Leads are also
given by the brokerage companies for upcoming IPOs and current bond issues. The first step in the
assessment of the identified investments is regulatory review. This review takes into consideration,
geographic concentration of Bank’s investments, exposure norms set by the regulator and the impact of the
investment on various ratios including capital adequacy ratio (this is sought from the finance department).
The second step in the review shall include, adherence to the department policies and overall bank policies
that bear an effect due to the investment. This may include but not limited to crosschecking with credit
department. A sample framework for preliminary assessment is given below.
Each of the parameters of Liquidity, Volatility, Issuer/Counterparty credit worthiness and

Diversification/concentration of the investment proposals are measured against maturity of the bond,
planned duration by the investment committee, planned investment and yield. A score sheet shall be
developed based on these criteria along with weights for each of the categories. For example, a bond
maturing in one year or less but with low liquidity and high volatility may still qualify for investment as long
as the country is perceived to settle its obligations in the short term. Inter dependency of various parameters
along with risk appetite is identified and analyzed for decision making. An indicative assessment for holding
periods in three categories viz less than one year, one to two years and above two years is undertaken for
the parameters identified above.
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Additionally, the bank shall from time to time obtain Risk Department view of countries where sovereign
debt issues are expected. This shall help the department in speeding up the process of getting approvals for
investments and thereby meeting the deadlines of IPOs. For expected IPOs, the assessment shall be based
on Country creditworthiness, liquidity and volatility of prices of previous issues and diversification and any
other parameters deemed fit by the investment committee members.
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Regulatory Review – Adherence to Internal

Yes
within regulation Policies Yes
No Preliminary
No
Assessment
Yes
Scrap the project BoS Approval for
No
deviation
Preliminary assessment framework

Lo
w
Hig Medi Lo
Volatility
w
Liquidity
Medi
um
um
gh
h
Hi
Maturity 1-18 Months 18-60 >60

Maturity 1-18 Months 18-60 months >60 months
months months
TTM < One year 1 to 2 years >2 years
Investment 0-500K 500-2000K >2000K
Investment 0-500K 500-2000K >2000K
Yield < 4% 4%-6% >6%
Yield < 4% 4%-6% >6%
Maturity/Planned Duration/Planned Investment
Maturity/Planned Duration/Planned Investment
(USD)/Yield
(USD)/Yield
Hig Medium Low
Issuer/Counte
rparty Credit
Worthiness
High Medium Lo
Diversification/C
w
oncentration
h
Maturity 1-18 Months 18-60 months >60 months

Maturity 1-18 Months 18-60 >60 months
Investmen 0-500K 500-2000K >2000K months
t TTM < One year 1 to 2 years >2 years
Yield < 4% 4%-6% >6% Investment 0-500K 500-2000K >2000K
Maturity/Planned Duration/Planned Investment Yield < 4% 4%-6% >6%
(USD)/Yield Maturity/Planned Duration/Planned Investment
(USD)/Yield
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9.5 Reclassification of Investments
The Bank shall permit reclassification of financial assets. However, there are certain restrictions
and criteria that must be met. Reclassification may result in changes in how the asset value is
measured and how unrealized gains or losses are recognized. IFRS guidelines are followed for
reclassification of Investments.
IFRS generally prohibits the reclassification of securities into or out of the designated at fair value
category, and reclassification out of the held for trading category is severely restricted. Held-to-
maturity (debt) securities can be reclassified as available-for-sale if a change in intention or a
change in ability to hold the security until maturity occurs. At the time of reclassification to
available-for-sale, the security is remeasured at fair value with the difference between it’s carrying
amount (amortized cost) and fair value recognized in other comprehensive income.
Debt securities initially designated as available-for-sale may be reclassified to held-to-maturity if a

change in intention or ability has occurred. The fair value carrying amount of the security at the
time of reclassification becomes its new (amortized) cost. Any previous gain or loss that had been
recognized in other comprehensive income is amortized to profit or loss over the remaining life of
the security using the effective interest method. Any difference between the new amortized cost
of the security and its maturity value is amortized over the remaining life of the security using the
effective interest method. If the definition is met, debt instruments may be reclassified from held
for trading or available-for-sale to loans and receivables if the company expects to hold them for
the foreseeable future.
Financial assets classified as available-for-sale may be measured at cost, where there is no longer
a reliable measure of fair value and no evidence of impairment. However, if a reliable fair value
measure becomes available, the financial asset must be remeasured at fair value with changes in
value recognized in other comprehensive income.
9.6 Derivatives
The bank shall enter into SWAP and Forward contracts to take advantage of arbitrage opportunities, to
hedge its currency and interest rate risks and to keep its open foreign exchange position under regulatory
norms.
These are only broad guidelines with the available avenues of investment for banks in Afghanistan at present
and with the advent of the financial reforms in Afghanistan many more avenues may be available to the
Bank like commercial papers, discounting bills of exchange etc. Then the Bank notes to amend the policy
according to the trends prevailing in the industry.
9.7 Provisioning
The Bank shall make provisioning on the investments as per DAB regulation.
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9.8 Impairment
A financial asset becomes impaired whenever it’s carrying amount is expected to permanently
exceed its recoverable amount. The committee shall set this to 30% decline below the carrying
value or conduct a special meeting to identify impairment. A debt security is impaired if one or
more events (loss events) occur that have a reliably estimated impact on its future cash flows.
Although it may not be possible to identify a single specific event that caused the impairment, the
combined effect of several events may cause the impairment. Losses expected as a result of future
(anticipated) events, no matter how likely, are not recognized. Examples of loss events causing
impairment are:
• The issuer experiences significant financial difficulty;

• Default or delinquency in interest or principal payments;
• The borrower encounters financial difficulty and receives a concession from the lender as
a result; and
• It becomes probable that the borrower will enter bankruptcy or other financial
reorganization.
• Behavior of US treasury bond prices (increasing spread between US treasury bond prices
and non-US bond prices)
The disappearance of an active market because an entity’s financial instruments are no longer
publicly traded is not evidence of impairment. A downgrade of an entity’s credit rating or a decline
in fair value of a security below its cost or amortized cost is also not by itself evidence of impairment.
However, it may be evidence of impairment when considered with other available information.
For held-to-maturity (debt) investments that have become impaired, the amount of the loss is
measured as the difference between the security’s carrying value and the present value of its
estimated future cash flows discounted at the security’s original effective interest rate (the
effective interest rate computed at initial recognition). The carrying amount of the investment is
reduced either directly or through the use of an allowance account, and the amount of the loss is
recognized in profit or loss. If, in a subsequent period, the amount of the impairment loss decreases,
and the decrease can be objectively related to an event occurring after the impairment was
recognized (for example, the debtor’s credit rating improves), the previously recognized
impairment loss can be reversed either directly (by increasing the carrying value of the security) or
by adjusting the allowance account. The amount of this reversal is then recognized in profit or loss.
For available-for-sale securities that have become impaired, the cumulative loss that had been
recognized in other comprehensive income is reclassified from equity to profit or loss as a
reclassification adjustment. The amount of the cumulative loss to be reclassified is the difference
between acquisition cost (net of any principal repayment and amortization) and current fair value,
less any impairment loss that has previously been recognized in profit or loss. Impairment losses
on available-for-sale debt securities can be reversed if a subsequent increase in fair value can be
objectively related to an event occurring after the impairment loss was recognized in profit or loss.
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In this case, the impairment loss is reversed with the amount of the reversal recognized in profit or
loss.
Additionally, deterioration in political and economic conditions shall trigger a special meeting of
the committee to discuss the impact on Azizi Bank’s investments. The committee shall be convened
for a special discussion if there is a decline of more than 10% in the value of the investment.
10 Identifying brokerage companies/Asset Management Companies
It is prudent to identify and open accounts with multiple brokerage/Asset Management companies. The
Bank shall open only non-discretionary accounts with brokerage/Asset Management companies to maintain
greater control of the investments within the bank.
For fresh sovereign bond issues and/or corporate IPOs, for each issue under consideration, the bank signs a
non-disclosure agreement with the brokerage/Asset Management companies for viewing roadshow
presentations/investment memorandums used by the underwriters/bookrunners. These documents are
strictly confidential and shall be shared only with the members of the investment committee and Board of
Supervisors.
11 Evaluation of Investments and proposed limits

11.1 Evaluation by Risk Department
Risk department in the Bank is advised to provide evaluation of countries for investment from time
to time and also upgrade/downgrade their view based on economic, political and any other
consideration deemed to have impact on the countries being proposed for investment by the
committee. Risk department is also advised to provide a framework and criteria for investments
along with weights for various parameters to be taken into consideration for investments.
11.2 Country Exposure and Counterparty Exposure:
The department is advised to get approvals for currency, counterparty and country limits from time to time
based on its compliance and risk assessments and regulatory guidelines. While concentration risk could arise
due to concentration of portfolio in a specific geography/country counterparty risk can manifest into
settlement risk and default risk. Counterparty limits allow us to minimize these risks.
Concentration Risk, either Geographical or Currency or Counterparty or Sectoral is a serious Risk that may
result unbearable Losses and fail an organization. Any single event in the particular Location or Currency or
Sector or in a Counterparty Organization can result huge losses or total loss of the Investment. Therefore,
spreading the Investment into various Countries, Currencies, Sectors and Counterparties will be a prudent
Risk Management practice to mitigate the Investment Concentration Risk. The following guidelines are
provided so as to distribute the investments in various Countries and Counter Parties so that the
Concentration Risk is reduced. As per DAB an asset concentration exists when extensions of credit or other
bank assets posing similar risk characteristics to a bank aggregate 40% or more of a bank's primary capital.
Asset concentrations consist of direct, indirect or contingent funding obligations which may be due to the
bank as described by legally binding contract.
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Treasury team shall operate in coordination with credit department to assess exposures and concentrations
as dictated by DAB. Asset groupings should include all types of loans, including overdrafts; cash items;
suspense resources; securities (including derivatives and mutual fund investments); leases; acceptances;
advances; letters of credit; all other obligations due to the bank; loans endorsed, guaranteed or cosigned by
related individuals. Asset concentrations should also consist of due from banks time and demand accounts
other assets carried on the books of a bank where payment is dependent on one financial institution or
affiliated group, e.g., counterparty risk. Asset concentrations also include assets centered in a particular
industry, product line, and geographic location.
Bank is not permitted to grant credit to a single obligor or group of related obligors, if as a result of that
action the exposure to that obligor or group exceeds 15 percent of regulatory capital or increases the
amount by which the exposure already exceeds 15 percent of regulatory capital. The committee shall ensure
that aggregate amount of large exposures of the bank does not exceeds 200 percent of regulatory capital
Country Exposure: Considering the Risk involved in investing in different countries, particularly the
Economic & Political scenario that may influence the re-payment or non-re-payment or delayed and/or
partial re-payments resulting loss to the investments, the Investment Exposure norms are set-out below,
basing on the Credit Ratings provided by the leading International Credit Rating Agencies, such as S&P,
Moody’s and Fitch. This Exposure ceiling is stipulated mainly to prevail upon the individuals who are
responsible to manage the Assets of the Bank and to avoid concentration Risk in High Risk Countries.
Countries with Credit Maximum Exposure Per Country in USD Millions Investment Grade
Ratings from Fitch/Moody’s
AAA or Aaa Maximum allowed as per regulation (40% of Highest Safety
regulatory capital)
AA+, AA, AA- or Aa1, Aa2, Maximum allowed as per regulation (40% of Very High Safety
Aa3 regulatory capital)
A+, A, A- or A1, A2, A3 Maximum allowed as per regulation (40% of High Safety
regulatory capital)
BBB+, BBB, BBB- or Baa1, USD 20 million or 40% of regulatory capital Good
Baa2, Baa3 whichever is less
BB+, BB, BB- or Ba1, Ba2, USD 20 million or 40% of regulatory capital Speculative
Ba3 whichever is less.
B+, B, B- or B1, B2, B3 USD 15 million or 40% of regulatory capital Highly Speculative
whichever is less.
CCC+, CCC, CCC- or Caa1, 0 Very High Risks
Caa2, Caa3
CC, C or Ca 0 Very Near to
Default
D 0 In Default
Counter Party Exposure: In view of the Concentration Risk, Counter Party Exposure Norms are stipulated
below which are also based on the Ratings provided by International Credit Rating Agencies, such as S&P,
Moody’s and Fitch.
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Counter Parties with Maximum Exposure Per Counter Party in USD Investment Grade
Credit Ratings Millions
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AAA or Aaa Maximum allowed as per regulation (15% of Highest Safety

regulatory capital)
AA+, AA, AA- or Aa1, Maximum allowed as per regulation (15% of Very High Safety
Aa2, Aa3 regulatory capital)
A+, A, A- or A1, A2, A3 Maximum allowed as per regulation (15% of High Safety
regulatory capital)
BBB+, BBB, BBB- Maximum allowed as per regulation (15% of Good
orBaa1, Baa2, Baa3 regulatory capital)
BB+, BB, BB- or Ba1, Maximum allowed as per regulation (15% of Speculative
Ba2, Ba3 regulatory capital)
B+, B, B- or B1, B2, B3 Maximum allowed as per regulation (15% of Highly Speculative
regulatory capital)
CCC+, CCC, CCC- or 0 Very High Risks
Caa1, Caa2, Caa3
CC, C or Ca 0 Very Near to Default
D 0 In Default
Clarification: There may be occasions where a Counter Party may have a higher Credit Rating than their
Sovereign Rating. In such cases, the Counter Party is eligible for the Exposure according to their Rating.
However, the total exposure for the Country should not be exceeded.
In case international ratings are not available for certain counterparties, the management shall approve
usage of relevant ratings from leading agencies in the country of the counterparty.
These are only broad guidelines with the available avenues of investment for banks in Afghanistan at present
and with the advent of the financial reforms in Afghanistan many more avenues may be available to the
Bank like commercial papers, derivatives, commodities, etc. The policy should be reviewed and updated on
an annual basis to incorporate the changes in the regulations, banking practices and other considerations
of the Management.
11.3 Asset class definitions
It is recognized that with the explosion of derivatives and synthetic structures as well as the investment
strategy of funds, it may be sometimes difficult to neatly classify the asset into one particular class
investment; in all such instances the classification should be based on an assessment of the characteristics
of the investments based on an ‘closest fit’ and classified accordingly.
The following rules shall be applicable to the Bank’s investments:
• Bonds/Notes/Bills: Includes fixed income instruments, collective investment vehicles and managed
portfolios including derivatives linked to debt and credit markets.
• Commodities (Gold and other metals): It may be prudent for the bank, at times to invest liquid
funds in gold to hedge the risk of depreciating local currency.
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Banking Book and Trading Book: For Regulatory purposes, banks classify their activities into two main
categories, viz. Banking and Trading, whereby Bank’s assets belong to one of these two categories.
• The Banking Book is an accounting term that refers to the assets on a Bank’s Balance sheet that are
not actively traded and meant to be held to maturity. Banks are not required to mark these to
market. Unless there is reason to believe that the counterparty will default on its obligation, they
are held at historical cost. (Please refer to section 9.8)
• The Trading Book is an accounting term that refers to assets that are held by a bank and are
regularly traded. The trading book is required under Basel II and III to be marked to market daily.
The Trading book was devised to house market-related assets (derivatives, bonds and so on) rather
than traditional banking activities. Trading book assets are supposed to be highly liquid and easy to
trade.
11.4 Approval authorities
The following rules shall be applicable to the Bank’s investments:
• Any changes in the aggregate percentage allocations between Strategic Investments and AFS
Investments or the sub-limits for each asset class shall require the approval of the Board of
Management of the Bank.
• Strategic investments, regardless of amount, require the approval of the Board of Management of
the Bank.
• Within the above portfolio aggregate, any single Investment up to a maximum of 10% of the
Regulatory Capital as on the previous month end (reference to be made to Monthly DAB Reports),
may be approved by the Investment Committee; Individual transactions amounts in excess of 10%
of the Regulatory Capital should be approved by Board of Supervisors.
• The nature of investments is such that dividend/interest re-investment programs provide an
efficient cost-effective mechanism to increase exposure. Therefore, once the Investment
Committee &/or the Board of Supervisors have approved the initial investment, re-investment of
dividends/interest within the various policy parameters set above may be approved by the Chief
Executive Officer.
11.5 Risk tolerance
• The general principle is that the Bank will seek to achieve a risk weighted investment grade portfolio
for all its holdings. Considering the reality of the global scenario in which not all investments are
rated by an acceptable rating agency, wherever possible alternative proxies (Investment ratings,
Morningstar) may be used until a more appropriate rating system is available.
• At the transaction level, exposure to any single investment/entity shall not exceed 15% of the Bank’s
Regulatory Capital at all times. This limit will be applicable only to those investments that can be
readily identified as a standalone investment in any entity and the investment decision is under the
direct control of Board of Management.
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• Exposure to any single investment shall not exceed 5% of the issue unless it is a tailor made
structured product, with secondary market liquidity.
• Exposure to any single fund manager/fund house shall not exceed 15% of the Regulatory Capital of
the Bank.
11.6 Maturity considerations
While Strategic Investments may be of a perpetual nature, AFS Investments may have any maturity provided,
they are redeemable prior to maturity in an organized market or through a reputable market maker.
Notwithstanding the redeemable feature of investments, nominal maturities will comply with mismatches
as determined by ALCO from time to time.
11.7 Exit strategy
All investments must have a clearly defined exit strategy. In the case of Strategic Investments, typically,
these will be held to perpetuity, unless, of course, there is a change in strategic direction approved by the
Board of Supervisors. Nevertheless, it must be recognized that at some price a Strategic Investment may
also be of enhancement in shareholder value, and, should such an eventuality arise, due consideration shall
be given by the Board. Therefore, it is the responsibility of the approving authority to determine and
document the exit strategy as appropriate.
Section II -Department structure and procedures
Azizi Bank
12 Structure of treasury department
Head - Treasury
Manager Dy. Head Analyst
Sr. Treasury
Officer
Sr. Treasury
Officer
Treasury Officer
Treasury Officer
13 Treasury: procedures and policies

13.1 Treasury
In a commercial bank, treasury refers to the fund and revenue at the disposal of the bank and day-to-day
management of the same. The Treasury unit acts as the custodian of cash and other liquid assets. The art of
managing, within the acceptable level of risk, the consolidated funds of the bank optimally and profitably
are called Treasury Management. In other words, treasury management refers to all activities involving the
management of revenues, inflow and outflow of funds, maintenance of Reserve Requirements and Open
forex position etc.
The treasury department manages and administers the cash resources, borrowing programs, and all
investment and debt management activities of the bank. It further manages the borrowing programs and
investment activities for all its crown corporations and may work for government agencies if opportunities
available.
13.2 Structure of treasury
The treasury department is manned by Front office, mid office, Back office. The dealers and traders
constitute the front office. In course of their buying and selling transactions, they are the first point of
interface with other participants in the market (dealers of other banks, brokers and customers). They report
to their department heads. They also interact among themselves to exploit opportunities. A mid office set-
up independent of the treasury unit, acts as a unit responsible for risk monitoring, measurement and
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analysis and reports directly to top management for control. This unit provides risk assessment to Asset
Liability Committee (ALCO) and is responsible for daily tracking of risk exposures, individually as well as
collectively. The back office undertakes accounting, settlement and reconciliation operations. The Internal
Audit Department independently inspects/audits daily operations in the Treasury department to ensure
adherence to internal/regulatory systems and procedure.
13.3 Role of various offices in Treasury:
Front Office Dealing

Mid-office Risk Management, Accounting and MIS
Back Office Confirmations, Settlement and Reconciliation & profit evaluation
Since there may be an overlap of the mid-office and back-office functions, the managements may lay down
any other level of segregation that it thinks fit. The Bank is in the process of implementing the above said
roles as the treasury expands. Personnel in back – office functions and mid-office functions should be
functionally segregated from those in the front office. Persons who conclude trades must not be involved
in the confirmation or Settlement of trades.
13.4 Know your counterparty
It is a good practice to conduct basic due diligence and, know your counterparty checks before Dealing.
These checks should show a basic understanding of who the counterparty is, and why the Counterparty is
dealing with the product. For back to back transactions, firms should, in spirit of Duty of care be satisfied
that the company is aware of the risks involved in using those products, and that the person is authorized
by the company for executing those transactions.
The department shall extend support to obtain details of information that are not available on public domain
and essential for compliance and risk review. List of such documents is attached in the annexure.
13.5 Rate scan
Market players shall not deal at the rates which are not market related. Management should ensure that
proper procedures, including the periodicity of taking rate scans, are in place to ensure this. Management
should set up the rate – Capital Auctions within which the actual traded rates should fall.
A proper procedure to monitor the deals, which are outside the rate-bands, should be laid down. Usually
this would be, because of extraordinary volatility, or because the amount of the deal is small and
transactional costs have been loaded into the price.
The bank-office should report these exceptions to the management, and the management must satisfy itself
that the exceptions are for legitimate and comprehensible reasons.
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13.6 Conflicts of Interest
It is possible that the dealers may favor a set of financial institutions/money service providers over others.
Therefore, it is imperative that the dealers notify any personal interest/relationship with the counter-party
to the internal audit department and restrict themselves from indulging in deals with related parties. In the
event, it becomes necessary to deal with such a party, the dealer should withdraw him/herself from the
transaction and assign another team member to conduct such a transaction.
13.7 Personal Investment Policy
The Bank shall from time to time review the scope for the dealers to benefit from the personal investments
in the products, which the Institution is dealing with. During the investment committee meetings, each
dealer shall substantiate any personal investment in the products that the Bank is holding for itself and on
behalf of its clients. Management may formulate a personal Investment policy and ensure adherence to the
same. While framing the personal investment policy, the management may take into consideration the rules
and regulations laid down by any statutory authority in respect to insider trading. It shall be noted that
currently the Bank does not indulge in Asset Management activities (for managing client portfolio). Once a
separate revenue generating vertical which manages customer portfolio is created, personal investment
policy shall be drafted and BoS approval obtained.
13.8 Dealer Limits
Individual limits for any own position FX deal for officers and managers in the department shall be kept at
USD 2 million per transaction (or equivalent value), with a total amount not exceeding USD 6 million per day
and USD 60 million per month. For any amounts above these limits an approval from CEO or Dy. CEO shall
be obtained. The limit is set at USD 10 million or equivalent for HDFC funding and booking, nostro funding
or currency exchanges between two currencies in nostro accounts as per business need.
13.9 Rotation of Dealers
Dealers should not be kept for long on the same desk. From time to time, the management shall review the
volumes and transactions for the deals over a period of time and take decisions as to dealer rotation. The
management shall also take into consideration the number of resources available in the department and
their skillsets required for conducting deals with local and international financial institutions. Further, a
system of an annual compulsory leave of 6 days or longer or as decided from time to time in the Investment
Committee meeting may be introduced, so that no dealer remains on the job continuously.
13.10 Confirmations
The Bank should ensure that it has a process in place, which at the minimum ensures the following:
Treasury shall introduce a system for recording its dealing activity. This will protect the bank from any
disputes arising with the counterparty. It must also act as an auditable record of the dealers both to identify
any fraud and also for monitoring and appraising performance.
Azizi Bank
Deals recorded by the trader are confirmed independently by the back-office. All confirmations should
include the date of the deal, the name of the counterparty, and all other details of the deal. It is a good
practice to also confirm all settlement details, even when some of these details do not change with each
and every deal. The back-office must respond promptly to confirmations received for which they do not
have a corresponding trade. It is proper to first check with the front office to ensure that no deal has been
missed, and then they should promptly advise the back-office of the counterparty for the absence of the
trade.
Any discrepancy between a confirmation and significant details of the trade, or even the existence of a trade,
should be brought to the attention of the management. Management should satisfy themselves about the
genuineness and accuracy of the trade. It is important that discrepancies should be promptly sorted out
within a few minutes of the deal.
Have a dealing mandate in the format specified in section 15.
14 Dealing procedures and principles

14.1 Scope
Deals done in Afghanistan market should be conducted based on guidelines contained in DAB guidelines.
In respect of deals done with overseas counterparties, the counterparty should be made aware of the
conventions followed in Afghanistan, in advance, to avoid any possible confusion.
14.2 Preliminary negotiation of terms
Dealers should clearly state at the outset, prior to a transaction being executed, any qualifying conditions
to which the deal will be subject to. Where a firm quote has been indicated by Inter-Bank Market, Currency
Exchange market/Sarai Shazada, Kabul/DAB, qualifying conditions cannot be specified after the conclusion
of the deal.
Typical examples of qualifications include: where a price is quoted subject to the necessary credit approval,
limits available for the counterparty, inability to conclude a transaction because offices of the member in
other centers are not open. This should be made known to the broker and the potential counter parties at
an early stage and before names are exchanged by the broker.
14.3 Firmness of Quotation
Dealers, whether acting as principals, agent or broker, have a duty to make absolutely clear whether the
prices they are quoting are firm or merely indicative. Prices quoted by brokers should be taken as indicative,
unless otherwise qualified.
In case the dealer is willing to do the deal only with a certain set of counter parties, he should put the quote
as firm only for preferred counter parties.
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In respect of other deals, a dealer quoting a firm price or rate either through a broker, or directly to a
potential counterparty, is committed to deal at that price or rate in a marketable amount, provided the
counterparty name is acceptable. Generally, prices are assumed to be firm if the counterparty or the broker
is on line. Members should clearly and immediately indicate when the prices are withdrawn.
In volatile markets, or when some news is expected, dealers quoting a firm price or rate should indicate the
length of time for which their quote is firm. The price or the rate is usually for the marketable amount. If
the quote is not for a marketable quantity, the dealer/broker should qualify the same while submitting the
quote.
A significant part of the transaction by brokers relies on mandates given by dealers acting on behalf of
principals. The risk that the principal runs is that such an offer could get hit after an adverse market move
has taken place.
The broker is expected to use the mandate to advertise the principals’ interest to the entities that the broker
expects will have an interest in the price. Generally, the broker is fee to show the price to the entities he
deems fit, but members have the right to expect that if a smaller set is defined; the broker will adhere to
such a smaller set.
Mandates shall not be for a period of more than 15 minutes, unless otherwise specified. Brokers are
expected to check with the principal from time to time to ensure that the mandate is still current.
The broker shall reveal the name of the entity offering the mandate, when the counterparty is firm to deal
at the mandated price. The broker will then call the member who offered the mandate and confirm the deal.
In the absence of any significant market movement, the member who has offered the mandate is expected
to adhere to it. In case the price is not adhered to, it is the responsibility of the member who had offered
the mandate to explain why the mandate is no longer valid. It is required of the member that the mandate
price be withdrawn before the broker reveals the counterparty name, the only exception to this is when the
counterparty name is not acceptable. The principal should call the broker if he wishes to withdraw the
mandate before its expiry. The quote cannot be withdrawn after the broker has concluded the deal.
14.4 Concluding a deal
Dealers should regard themselves as bound to honor a deal once the price, name acceptability, credit
approval, and any other key commercial terms have been agreed. Oral agreements are considered binding;
the subsequent confirmation is evidence of the deal but should not override terms agreed orally.
Where quoted prices are qualified as being indicative or subject to negotiation of commercial terms,
Members should normally treat themselves as bound to honor the deal at the point when the terms have
been agreed without qualification.
Making a transaction subject to documentation is not a good practice. In order to minimize the likelihood
of disputes arising once the documentation is prepared, dealers should make every effort to clarify all
material points quickly during the oral negotiating of terms, and should include these in the confirmation,
where brokers are involved, and members have the right to expect that the broker will make them aware
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immediately on conclusion of the deal. As a general rule, a deal should be regarded as having been
completed / done where the dealer positively acknowledges the brokers confirmation. It is expected that a
broker shall not assume that deal is done without oral confirmation from the dealer.
14.5 Passing of Names by Brokers
It is a good practice for dealers not to seek the names of the counterparty before transacting, and for Brokers
not to divulge the names before concluding the deal. Dealers and brokers should at all times treat the details
of transactions as absolutely confidential between the parties involved.
To save time and avoid confusion, dealers should, wherever practical, give brokers prior indication of
counterparties with whom, for whatsoever reason, they would be unwilling to do business. In all their
transactions, brokers should aim to achieve a mutual and immediate exchange of names.
In the discount markets (yet to be developed where Buy and sell of Capital Auctions take place), it is
accepted that members may vary the price (second leg) depending on the counterparty. Hence, it is
acceptable for the member to know the name of the counterparty in advance.
14.6 Reporting of deals on the Capital Auctions
The dealers should enter the deals, concluded on the Capital Auctions be reported on the Capital Auctions,
within a period of 60 minutes of the conclusion of the deal.
It would be a good practice to conclude the approval of the deals within a period of 60 minutes from the
time of conclusion of the deal. In any case, the process should be completed before the time of closure of
the Capital Auction.
14.7 Written confirmations
A written confirmation of each deal must be sent out at the earliest, and a confirmation should also be
received from the counterparty. The confirmation provides a necessary safeguard against dealing errors.
Confirmations should be dispatched and checked promptly, even when oral deal confirmations have been
undertaken. Confirmation of each deal must be sent out at the earliest. This is particularly essential if the
dealing is for same day settlement. All participants of the wholesale markets should have in place the
capability to dispatch confirmations so that they are received and can be checked within a few hours from
the time of striking the deal. Where the products involved are more complex, and so require more details
to be included on the confirmation, this may not be possible; nevertheless, it is in the interest of all
concerned that such deals are confirmed as quickly as possible, and in no case later than the next working
day of the date of the deal. It is recommended that the principals should inquire about confirmations not
received within the expected time.
All confirmations should include the trade date, value date, the name of the counterparty, and all other
details of the deal, including, wherever appropriate, the commission charged by the broker. All
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confirmations should state: The settlement of the deals in money market is subject to DAB, market
conventions, irrespective of the counterparty being a member of DAB.
It is vital that principals, upon receipt of confirmations, immediately check the confirmations carefully so
that discrepancies are quickly revealed and corrected. As a rule, the confirmations should not be issued by
or sent to and checked by dealers. Confirmation is a back–office function.
14.8 Settlement of Differences
If all the procedures outlined above are adhered to, the incidence and size of differences would be reduced.
Errors may occur, and they should be identified and corrected promptly. Failure to observe, these principles
could leave those responsible bearing the cost of any differences which arise. Where difference in payment
arises because of errors in the payment of funds, firms should not attempt undue enrichment by retaining
the funds.
14.9 Rounding off
All interest receivable/payable should be rounded off to the higher Afghani if the pulse component is equal
to or higher than 50 puls and should be ignored if the puls component is less than 50 puls. The rounding off
to puls should also be done in respect of broken period interest receivable/payable.
14.10 Bank holidays/market disruption
The list of holidays will be displayed on its website; subject to availability of information from DAB. If due to
unforeseen events, a particular date for which transactions have been entered into is subsequently declared
as a Holiday, and then while settling such claims, the principle of no undue enrichment should be followed.
This Practice will be followed only in case of declaration of an unscheduled holiday.
Management of market risk should be the primary concern of the top management of the banks. The ALCO
is a decision-making unit responsible for balance sheet planning from risk-return perspective including
strategic management of interest rate and liquidity risks. Dealers must sign the Code of conduct (yet to be
developed). We are in process of implementing the above said guidelines as the treasury expands.
15 Dealing activities
15.1 Dealing activities can be classified into -
• Money Market Operations

• Capital market operations
• Foreign Exchange Operations
• Derivatives dealing
• Securities dealing
• Debt and Hybrid Instruments
Azizi Bank
15.1.1 Money Market Operations:
The Money Market activities include:
• Debt Trading: Trading in Capital Notes & T-Bills and notes

• Proprietary and Customer trading
Investments are divided into three portfolios in terms of IFRS regulations. Each security has to be classified
appropriately at the time of initial acquiring.
15.1.2 Foreign Exchange activities
The Foreign Exchange Desk in Treasury Department deals in Merchant and Inter-bank Forex transactions.
The Bank actively deals in major currencies.
The Forex desk takes care of the following transactions:
• Transacting in currencies for customers

• Covering the position in the market; in turn earn a spread on the difference
• Trading in currencies
• Overnight/ Term borrowing and lending in foreign markets.
Trading in Foreign currencies is facilitated through different accounts that are maintained with other banks
abroad and those of the foreign banks with us (Nostro, Vostro and Loro). Trading is facilitated in the markets
through “two-way quotes”. These are called the “bid” and “ask or offer” rates. Bid is the rate at which the
person quoting is willing to buy while ask refers to the rate at which the person quoting would be willing to
sell. The difference in the rates is the spread that the dealer would make for the bank. The major currencies
are USD, Euro, and Pound Sterling. In times of turbulence, the spreads usually widen.
In the forex market, both the buy-sell prices (two-way quotes) are in a particular fashion. For e.g. in USD, a
quote of 67.8000/50 signifies that the Bank is willing to buy at 67.8000 and is simultaneously willing to sell
at 67.8050. The difference of .0050 is the bank’s spread, and in banking terminology, it is said to have a
spread of 50 pips or points. The exchange rates for major currencies are usually quoted to four decimals in
the wholesale market. The fourth decimal (0.0001) is called a 'point'. Currencies such as Japanese Yen are
quoted to two decimals in the market.
The following are the types of transactions executed in the market.
Outright/ Cash/ Ready: Exchange of currencies takes place on the date of Deal itself.
Tom: Exchange of currencies takes place on the next working day or from Friday to Monday.
Spot: Exchange of currencies takes place on the 2nd working day after the date of Deal or from Friday to
Tuesday. This is the most prevalent type of transaction.
Azizi Bank
Forward: A forward is a contract for exchange of one particular currency into another currency at a set price
on a set future date. This transaction is done to hedge oneself against the currency risk. A customer locks
the exchange rate at which he will sell or buy currency in the future. If an exporter expects an inflow in
foreign currency and also expects that currency to depreciate over time, he would book a forward cover.
Swap: Simultaneous sale and purchase of two currencies at an agreed rate with an agreement to reverse
the sale/purchase at a later date, at an agreed future price. The bank can undertake these transaction/s.
Repo: A repurchase agreement, also known as a repo, currency repo, RP, or sale and repurchase agreement,
is the sale of securities together with an agreement for the seller to buy back the securities at a later date.
The repurchase price should be greater than the original sale price, the difference effectively representing
interest, sometimes called the repo rate. The party that originally buys the securities effectively acts as a
lender. The original seller is effectively acting as a borrower, using their security as collateral for a secured
cash loan at a fixed rate of interest.
A repo is almost equivalent to a spot sale combined with a forward contract. The spot sale results in transfer
of money to the borrower in exchange for legal transfer of the security to the lender, while the forward
contract ensures repayment of the loan to the lender and return of the collateral of the borrower. The
difference between the forward price and the spot price is effectively the interest on the loan, while the
settlement date of the forward contract is the maturity date of the loan. The bank can undertake these
transaction/s. The bank shall not enter into a SWAP/FRA/repo deal for maturities longer than three months.
The dealer maintains 2 types of positions:
It is determined on the basis on net sales and purchases of the bank. Based on whether the bank has a
positive or negative balance, it can take either of the following two positions respectively:
• Overbought (O/B) position

• Oversold (O/S) position.
Similarly, for every currency, there are consolidated Overnight and Daylight exposures that banks are
permitted to take.
Every day exchange rates for currency exchange are circulated by HO Treasury Dept. to all branches via e-
mail & uploaded in the ICBA system and also on the website.
All Branches are advised to follow these rates uniformly.
As the currency exchange market is highly volatile & fluctuating in nature, branches are advised to take
exchange rates for exchange of any currency beyond a limit stipulated by the management which is decided
and circulated from time to time from the Head Treasury /Dy. Head – Treasury or someone assigned by
them in the department. No branch is authorized to exchange/deal in Pak Rupees PKR.
Exchange Rates of USD to INR is also given in the Exchange Rates daily through E-mail. However, Head
Treasury/Dy. Head- Treasury and designated staff have authority to offer better rates.
Azizi Bank
Limits for improvements are stipulated as below:
Deputy Head of treasury/Manager/officers are permitted to deviate from the daily published rate by
Officers to Manager Deputy Head of Treasury

AFN exchanges of USD and EUR 3 pull 5 pull
USD to INR 3 paise 10 paise
USD to AED 10 pips 15 pips
USD to CNH 20 pips 30 pips
USD to RUB 3 bps 5 bps
Head of treasury is entitled to improve the rates beyond the limits suggested above keeping market rates,
weighted average cost of outstanding amounts into consideration. At no point the rates offered shall be
more than the prevailing market rates. Treasury may refer to various sites providing live exchange rates.
Deposit and withdrawal transaction charges are communicated to branches from time to time in
consultation with payments department and market scan by operations department. For Salary of Expats
and Senior Executives: Due to exchange rate volatility and salaries being given in AFN, all expats would get
salaries in AFN which later would be converted back to USD. The amount decided for disbursement and
converting back to USD would be the same i.e. it would be the average rate provided to HR for disbursement
of salary.
If updated exchange rates are not received for the day and transaction amount is more than USD 1000 or
equivalent, then branches are required to contact the treasury department at treasury.dept@azizibank.af.
This permission is required for cash as well as transfer transactions.
From time to time the committee shall review and revise its margins on INR and other remittances of its
expat staff and send out circulars. Also, the committee shall decide on the maximum limits for its staff to
convert USD to AFN and vice versa.
COO/CCO/ Dy. CEO are authorized to give concession to promoters’ related companies / Azizi Group of
companies and their staff members up to 50%.
For any concession beyond 50%, approvals must be sought from the CEO by COO for operations and CCO
for credit related issues with proper justification for approval / relaxation or waiver of charges. In the
absence of CEO, Dy. CEO is authorized to approve the same.
CEO has full powers to waive the service charges. However, concessions allowed by CEO to the extent of
100% to the customers will be placed to the Board of Supervisors for their approval in the next meeting.
The concessions will be offered based on the cost benefit analysis. For this purpose, amount of deposit/
balances kept with us & volume/turnover of the business routed through us are to be considered.
If any concession of service charges is to be given / offered at the beginning of relationship / opening of
account, the same will be done on the Projected Business to be routed through investment committee and
Azizi Bank
the amount of deposits / balance to be kept with us. In such cases, it will be given for a period of maximum
three months initially & then reviewed and continued based on cost benefit analysis.
Exchange Rates:
Every day exchange rates for currency exchange are circulated by HO Treasury Dept. to all branches via e-
mail & uploaded in the ICBA system and also on the website. All Branches are advised to follow these rates
uniformly.
Remittance in INR (Indian Rupees) by staff: A concessional exchange rate shall be published daily by treasury
department based on market rates/booking rates. This special rate will be extended only for salary
remittances / loan taken from bank.
15.1.3 Reporting of Concessions in Charges:
All concessions given should be reported by the Treasury-Head/ Dy. CEO to the CEO within 7 days after close
of each month; over and above their powers.
All concessions made by CEO should be reported in the next Supervisory Board Meeting if 100% or beyond
its powers.
Management Board is authorized to change these charges from time to time subject to above guidelines &
the changes made on this score will be put up in the next Supervisory Board meeting with proper
justifications for ratification.
15.1.4 Funds position
It is the actual cash balance in our Nostros in various banks. In determining this the transit periods for
remittances and maturities are important considerations. The dealer takes into account the actual foreign
exchange to be received or delivered abroad that day.
Open Position: The Bank could also keep positions Intra-day or overnight in line with Central Bank guidelines
and Bank’s internal policies.
There is a cap on daylight and the overnight exposures that a bank can have while dealing in forex. It also
has caps on exposures that it can have with each individual bank while transacting business called
counterparty limits. Bank will ensure Open Forex Position is in control every month end as per the Central
Bank directives. Failing which Treasury department will take all necessary action and discuss strategy with
Heads of Department/CEO and DY. CEO.
In investing or forex trading / exposure as a net off from assets or liabilities that has been established, or
entered, that has yet to be closed with an opposing transaction. An open position can exist following a buy
(long) position, or a sell (short) position. In either case, the position will remain open until an opposing trade
has taken place. Any positions which has not been settled by physical payment or offset by an equal and
opposite deal of the same size.
Azizi Bank
Open Forex position is regulated to avoid risk of getting exposed to fluctuations in the forex market as any
adverse movement may bring in loss and mitigate risks. Central banks all over the World puts cap in open
forex positions.
Individual Banks may also put cap on Day Light limit- A limit set by a bank on its foreign-exchange dealings
in a given currency with a particular counterparty. Banks also set up Overnight Limit which is the aggregate
number of currency positions a trader can carry over from one trading day until the next. Central Bank of a
Country usually specifies / regulates the limits on exposure which Bank or financial institution of that
Country may have/ set as the overnight limit. These limits are reviewed on an ongoing basis.
Overnight limits are preventative measures enacted by central banks to keep financial institutions from
accumulating more currency exposure than can be hedged by the close of the trading day. This also has the
effect of making financial institutions keep a closer eye on exposure to exchange rate movements
throughout the day. Central banks can also set intraday limits to mitigate risk in the foreign exchange market.
What affects Open Forex Exposure?
• Increase or decrease in Regulatory Capital

• Going short or long on Assets
• Going short or long on Liabilities
• Going short or long on Off Balance Sheet Items
Requisite Trigger Levels for monitoring Open Forex Position
• In case Open Forex Position (OFx) is within 15% of regulatory Capital, no action needs to be initiated.
• In case OFx is between 15% and 20% on any given day, then Open Forex Position would be discussed in
ALCO/Investment/Board meeting and appropriate steps taken to bring down OFx.
• The Trigger will be OFx greater than or equal to 20% for a single FX currency and greater than or equal
to 40% for all FX currencies. In case of any trigger, Treasury will inform the matter to Management Board,
CEO and Dy. CEO immediately for initiating further action to contain the OFx position within the
Regulatory Norms.
• Convertible currency and non-convertible currency
Reduction Plan for Open Forex Position to comply with Regulatory Norms:
There are 3 ways we would reduce current OFx position
• Increase in Regulatory Capital

• Going Short or Long on Assets or Going Short or Long on USD by selling or buying USD in Local Market
• Entering into forward contract/derivative contract
Measures taken monitor and control Open Forex Position
Azizi Bank
• Continuous monitoring of Forex Portfolio

• Comparative Analysis of Monetary Assets and Liabilities
• Daily reporting of OFx to Management Board
• In case of any trigger level triggered, taking appropriate action
• Escalating to different verticals for taking appropriate action
• Requesting urgent meeting on adhoc basis, if required, to resolve the issue
When the Bank has an open position, it tries to maximize the gains by buying low and selling high. For this
purpose, techniques such as technical analysis and fundamental analysis are used. Technical analysis
envisages a study of movement of market over 1 trading session, 1 day, 1 month, 1 year or more using price
and volume data. The plot includes 30-day, 60-day, ½ year and 1 year moving averages. A study can also be
made by forming support and resistance levels. Charting patterns are analyzed using line charts, bar charts,
candlestick charts, point and figure charts, linear scales and logarithmic scale, volume charts and relative
strength analysis. Some of the technical indicators used for this purpose would include moving averages,
Bollinger Bands, momentum oscillators, sentiment indicators (opinion polls, put/call ratio etc.). However,
fundamental analysis is also undertaken to understand the macro economic factors that affect the economy
and thus the currency.
The transactions can be done either via brokers or Reuters or IBS (electronic trading platforms). Azizi Bank
currently uses a currency trading platform obtained from Transkapital Bank.
16 Non-dealing operations
16.1 Trade Finance and International Business
This is one of the most profitable activity for the bank as of now. Hence it becomes all the more important
for the bank to focus on its trade finance activities. Resultant to that bank has undertaken steps to enhance
its reach in trade finance within branches. This section shall be elaborated in credit manual. Treasury shall
work in coordination with credit department to identify exposures and concentration.
16.1.1 Major functions of the Trade Finance & International Banking Department
Handling regulatory issues, which include compliance with regulations of various authorities such as Central
Bank regulations etc.
Keeping a track of the business volumes being generated by the branches and the margins at which they
are operating thereby contributing to the profitability of the Bank
Maintaining relationships with Correspondent Banks outside Afghanistan and initiating relationships with
other foreign banks.
As per the guidelines, local Banks shall be classified into the four categories A, B, C and D (A being lowest in
risk exposure and D being the highest). The committee shall also decide on the ceiling for the placement of
deposits in these banks.
Azizi Bank
In case of Bilateral Placement on reciprocal basis, Azizi Bank has more than 100% cash collateral; in that
case it can be passed with the approval of Investment Committee.
16.2 Swift transfers:
SWIFT is an acronym for the Society for Worldwide Inter-bank Financial Telecommunications. Anyone can
transfer money by instructing his bank to transfer the money to the vendor giving the bank the name of the
vendor’s bank, the banks SWIFT number and the vendor’s account number subject to completion of other
formalities/submission of documents.
16.3 Base rate:
A base rate is the rate, which forms the basis for the computation of spot and forward rates. In our case an
example could be average of buying and selling Sarai Shahzada rate.
16.4 TT rates: Buying and Selling
The base rate to which the bank loads a margin forms the TT rates
16.5 Cash Currency Notes Buying and Selling:
Cash refers to Currency Notes buying and selling. The rate calculation in this case is based on taking Sarai
Shahzada Rates.
16.6 Export transactions
Financing of Export transactions may be in the form of providing Packing Credit and Post-shipment credit to
the exporters. Credit is usually provided to exporter against Importer’s LC. Hypothecation or pledge of goods
may also be required. These are fund-based transactions and mostly come under the purview of the Credit
department.
16.7 Inward remittances
The bank earns fee-based income in money transfer, remittances, and of course gets deposits in foreign
currency.
The types of inward remittances are:
• Realization of export proceeds

• Personal /Individuals Funds/Remittances
• External Commercial Borrowings/ Donations/aids/Investments etc.
• Gifts and other remittances
Azizi Bank
16.8 Outward remittances
The types of outward remittances are:
• Payment of import transactions

• Remittances of Individuals/Salary Transfers etc.
• Payment of Interest/Dividend Payouts
17 Cost of funds
The Bank’s Cost of Funds is determined, as a weighted average of the cost of the Bank’s various liabilities.
While interpreting the CoF, the most important thing is to consider the composition of the funds considering
the sustainability of each of the components. This is periodically calculated by finance team in consultation
with operations department and communicated to us. Cost of Funds is used to calculate Net Interest Margin
and Net Interest Income. There is a constant conflict between volume and spread. The Bank is laying greater
emphasis on current and savings banks account as compared to term deposits. The data to determine CoF
is procured from the Data Centre directly.
The cost of funds computation includes the following:
• Cost of funds parked in the Savings bank accounts and deposits,

• Current account and term deposits.
• Cost of Tier II capital raised by the bank
• Cost of borrowings made
• Forex Borrowing
18 Strategy
Azizi Bank, being a new generation private sector bank, currently has a lower ratio of low cost deposits to
funds as compared to some other banks to fund its short term as well as long-term assets. Thus, the Bank’s
dependence on non-retail liabilities is very high. Competition from the other Banks poses a threat in
obtaining cheap deposits from large corporates for long tenors.
Annual plans developed by the bank which include projected deposits in each individual currency after
taking into consideration the reserves to be maintained as per DAB guidelines, proposed lending in each
currency (CD Ratio) and working capital requirements along with other key cashflow components, provide
basis for total funds available for treasury investments. Any changes to the proposed total funds for treasury
investment activities shall bear approval from BoS. Below section provides sub-allocation of treasury funds
to various income generating components. Balances maintained in Nostro accounts, and with local banks
(including DAB) are eliminated from the sub-allocation for total investment portfolio of treasury funds.
Azizi Bank
18.1 Aggregate portfolio parameters
As statutory investments are required by local laws and are pre-requisite for the Bank to operate as a
business, these are excluded by portfolio limitations or individual limits. (However, within the total required
for statutory investments, limits on specific investments will be set by the Investment Committee).
Further, as the Inter Bank Placements/Deposits and the DAB Capital Notes are investments of short term
nature to take advantage of the fluctuating surplus funds and also the Risk Weight of these items are either
Zero or low (20%), these are excluded from the portfolio limitations or individual limits. Also, investments in
associates and subsidiaries is also eliminated from the below limits set for investment portfolio of treasury
department.
In respect of all these investments the aggregate global investments of the Bank shall not exceed the lower
of: -
• 300% of the Bank’s Regulatory Capital

• 50% of the Bank’s total assets
Within the aggregate limits the sub-limits of the individual segments shall not exceed the lower of the
following percentages of the Bank’s Capital Base and Total Assets respectively:
Investment Category Regulatory Total Assets (%)

Capital (%)
Strategic Investments including held-to-maturity 300% 50%
Trading/AFS Investments 250 50

Of which Bonds/Notes/Bills 200 40
(Sovereign/Municipal/Corporate)
Gold 5 1
19 Sanctioning Limits
Sanctioning hierarchy matrix is as below.
Sanctioning Sovereign Placements Quasi- Public Corporate Equity

Authority debt Govt. Sector – Bonds
security security debt
securities
CEO $1 mio $3 mio NA NA NA NA
Investment $2 mio $5 mio NA NA NA NA
Committee
BoS >$2 mio >$5 Only BoS Only BoS Only BoS Only BoS
Azizi Bank
20 Investment policy statement
This Investment Policy Statement (IPS) of the Bank provides the long-term framework within which the Asset
Allocation strategies designed to achieve the investment objectives can be formulated. This IPS will be
reviewed and approved by the Board of Supervisors on an annual basis.
Maximum % of total treasury

Total Treasury Portfolio Other
investments as per annual plan
Placements with overseas banks 50% Subject to other limits
specified in this document
Sovereign Bonds 50%** Subject to other limits
Sukuks* 10% Subject to other limits
Investments in Funds/ETFs 10% Subject to other limits
*Definition Sukuks: A sukuk is an Islamic financial certificate, similar to a bond in Western finance, that
complies with Sharia — Islamic religious law. Since the traditional Western interest-paying bond structure
is not permissible, the issuer of a sukuk sells an investor group a certificate, and then uses the proceeds to
purchase an asset, of which the investor group has partial ownership. The issuer must also make a
contractual promise to buy back the bond at a future date at par value.
Azizi Bank
Section III: Annexes
21 Annexure 1: important processes

21.1 Repo Deal (Repurchase agreement)
Treasury department should enable the following on Repurchase Agreement/s deal:
• It will specify forward rate period in order to prevent from currency risk involved in it (maximum of
15 days). If the proposal is for more than 15 days, it shall bear approval from BoM.
• Repo deal ticket for each and every deal and cover the above information on it; moreover, the same
would be recorded with the other necessary documents for future evidence.
• In order to bring more clients and more profit for the bank, possibility would be explored to deal
more with clients as well as satisfy their need according within the bank policy and procedure.
• Would collect contract letter from client for each and every deal to prevent from future risk of
conflict.
• Would consult in establishing a separate GL Head or maintain excel sheets with documents for
recording of repo deal transactions and record each and every repo deal. It will help them in
understanding of how much they have bought or sold or how much income they have earn from
each and every deal.
• Having a proper register for recording of all repo transactions and record each and every deal, and
in case of any query they would be able to provide necessary information. The register may cover
the below fields:
o Date
o Repo Serial Number
o Amount
o Time period
o Buying and selling Rate
o Dealer/ trader information
• In case the register is created in soft copy format then they would periodically take the printout of
that and after authorization they would make a file for recording of hard copy of it.
• They should record the repo transactions in designated GL head or excel sheet, to prevent misuse
of fund.
• Having practice to conduct basic due diligence and record it properly to know the trader/dealer
before deal.
• In case of dealing on phone with counterparty, treasury department would record the
conversation between them electronically/physically to prevent from future risk.
• Moreover, a proper recording mechanism would be implemented for recording of conversation
and mails and deals would be shared with Risk Department and Audit department
Azizi Bank
21.2 Dealing in Currency auction:
Treasury department should enable the following on Currency Notes Auction deal with DAB on
Saturdays/Mondays and Wednesdays or as specified by DAB:
• Recording the currency auction transactions in designated GL head and after that transfer to customer
accounts, it will prevent from misuse of fund as well as prevent from leakage of revenue.
• The currency auction deal transactions would be booked on same date in system, it will helpful at the
time of reconciliation of mirror account with DAB account.
• Ensuring that branches are applying same rate given by treasury department while doing currency
auction deals from their branches; it will prevent from misuse of fund by branches.
• Improving filing system and record each and every document related to currency auction deal.
• Considering setting up additional bank account (GL Head) for currency auction deal transactions, it will
help the department to easily reconcile all the transactions as well as to identify which type of
transactions are causing variances in the bank account with actual.
• The person/s assigned by treasury head is authorized to participate in currency auction with DAB. The
dealer limit is applicable here as well. The rate is decided by the department based on market
intelligence obtained through sources in Sarai Shahzada market.
• Submission of daily transaction vouchers to Concurrent Audit section of Internal Audit department on
daily basis for rechecking purpose, it will help the department in rectifying wrong entries on time.
• On daily basis Treasury department would generate system report for checking the accuracy of daily
transactions in system and record the same for future evidence.
21.3 Capital notes auction deal:
Treasury department should enable the following on Capital Notes Auction deal on the days auction is held
by DAB:
• Mail approval shall be taken from CEO/Dy. CEO regarding introduction of authorized person/s. Bidding
amount and rate shall be decided from time to time based on availability of funds and previous bidding
results.
• Properly booking the auction bids. Meanwhile, before each and every deal it would supervise the
traders in order to improve the business activities as well as to not violate the treasury auction
requirement.
• Reviewing the system transactions on daily basis, print it and keep in a file for future reference.
• Proper maintenance of updation of filing systems in accordance with an existing framework for easy
retrieval and record every document related to capital note auction.
• Keeping of hard copies of records in order to avoid future risks, because soft copy records may be lost
due to technical issues such as data corruption/recovery or staff turnover; moreover, they would bring
improvement in their current filing system as well.
• On test check basis would do recalculation of discount amount, interest and tax of certain cases to
confirm the accuracy of transactions maintain through DAB and keep evidence for future reference.
Azizi Bank
• Ensuring proper entry of narration while adjusting interest of capital notes on monthly basis. It will be
helpful for future evidence.
• The below points would be part of narration:
• Security Number of capital auction
• Date of placement and maturity
Would improve their filing system and record each deal documents; moreover, on daily basis they would
check the system transactions with physical document in order to ensure all entries documents are available
in the records.
21.4 Own position Deal
Treasury department should enable the following on Own Position deal:
• Established policy and procedure with approval from BoS for own position deal in treasury manual and
perform their daily activities in the light of their approved policy and procedure once business volumes
pick up; limits for individual dealers and daily limits shall be proposed in the policy.
• Monitoring of all the deals especially those deals which are performed by branches in order to prevent
from misuse of bank fund.
• Prepared a list of all dealers with whom they deal on regular basis and that list and would get approved
by the top management in order to prevent from future risk.
• Reporting mechanism between front office, mid office and back office and on daily basis would report
to them about each activity carried out, to prevent from risk in future.
• Rotation of dealers; moreover, if they are continuously dealing with same exchanger due some reason,
they would introduce proper control in order to prevent from misuse of funds.
• All deals shall be recorded to maintain control on the transaction
• A dealer is restricted from sending confirmations to SWIFT department and also confirmations to
counterparties
• A dealer is supposed to record the details of the deal through a deal slip and send it to back office for
further process. A sample of the deal slip is attached in the annexure.
21.5 Inter-bank Deal:
Treasury department should enable the following on interbank deals:
Keeping of hard copies of recorded deals printed once in a month for all the deals conducted during a month.
Establishing a documents process regarding cash management for provincial branches and record every
deal documents in related files; despite to this, they would make a soft file for recording of account
statements with correspondence Banks and on monthly basis they would generate the report and keep it
in file, it will be needful for future evidence; moreover, in case of arranging money to provincial branches
through money exchanger they would take approval for the commission payment to dealers and record the
same.
Azizi Bank
In case of interbank deal with other banks for the purpose of cash management to provincial branches, has
introduced a process for dealing with other banks and record every document related to the deals in related
files such as (Confirmation emails/official letter from banks, ACSS Form from both the banks, Account
Statements, etc.).
In case of interbank deals with other banks there is separate files for each bank they deal with and file all
the documents related to particular deals in related files for reference.
21.6 Placement with Local Banks:
Treasury department should enable the following on dealing with placement with Local Banks:
Collecting statement of those accounts which Azizi Bank have with other banks on monthly basis and file it
properly either soft or hard copy, for future reference.
Would pass the deals’ entries in system on timely basis, it will prevent from wrong reporting in balance
sheet; moreover, they would make separate files either hard or soft for recording of statement of Azizi
Bank’s accounts with other banks for future evidences.
Would properly maintain and update their filing systems in accordance with an existing framework for easy
retrieval. Moreover, they would record all the required documents and make separate files for each and
every activity.
The interest amount would be booked in system according to the agreed amount and proper narration
would be interred entered in system in order to differentiate from each other.
21.7 Correspondent banking
It involves relationship with other banks and includes following activities:
• Opening of Nostro account

• Trade finance activities
• Negotiation for charges for LC opening etc.
• Reciprocal business
• RMA arrangements
• Trade Finance and International Banking activities consist of financing for Import/Export
transactions
• Inward Remittances
• Outward Remittance
• Placement of funds
• Correspondent Banking Activities
Azizi Bank
21.8 Onboarding of Correspondent Banks
Correspondent banking relationships are essential for a bank’s ability to provide key services like
trade finance, cross-border wire transfers and much more. Correspondent banking is an activity
that has been negatively impacted by de-risking in certain regions and sectors. This is of concern
to the international community, as correspondent banking is an important means of facilitating
cross-border movements of funds and enabling financial institutions to access financial services in
different currencies and foreign jurisdictions, thereby supporting international trade. In the last
ten years according to various reports correspondent relationships have reduced by anywhere
between 20 to 30% due to increasingly complex regulatory landscape across the globe.
At Azizi Bank efforts are made to be fully compliant with the global guidelines of Anti Money
Laundering and terrorist financing. Leads are generated from various corners of the bank’s staff for
establishment of relationships for cross border banks. Once a lead is generated, compliance
department is informed of the lead and a preliminary due diligence is undertaken by them using
various tools available with them. The correspondent institution gathers sufficient information to
understand the purpose and intended nature of the correspondent banking relationship. For this
purpose, a list of documents authenticated by regulatory authorities of the respective countries
are obtained for record. detailed information including those as per list below but is sent to the
bank and also a list of documents is obtained from the banks as mentioned below (this is not an
exhaustive list, as per need further documentation is also obtained occasionally).
List of documents sent
1. Request letter to open USD and/or any foreign currency account for remittance settlement.
2. Company Registration Certificate
3. Central Bank License
4. Remittance License/Outward Remittance License from concern authority of Afghanistan
5. MOA and AOA
6. Board minutes for opening and operating the account and passport copies of authorized
officials
7. CEO Passport Copy (Self Attested)
8. Three years audited financial statements
9. AML/CFT and KYC policy of your Bank.
10. Correspondent Due Diligence form
Similarly, detailed information including those as per list below is obtained from the prospective
correspondent bank
1. Company Registration Certificate

2. Banking License or any equivalent document issued by the Central Bank of the bank’s
country
3. Memorandum and Articles of Association (equivalent document)
4. Certificate of Registration
Azizi Bank
5. List of Directors and Management Profile, along with proof of date of birth, place of birth
and address
6. KYC docs of the signatories to be self-attested
7. Tax Identification Number
8. Shareholding pattern
9. Three years audited financial statements
10. Wolfsberg questionnaire
Once the due diligence is completed by compliance department, a proposal is made in the
immediate BoS for opening of new account and authorization of the chief officials who would
operate the account. A resolution is passed to this effect and RMA is established in SWIFT system
so that messages can be exchanged between the banks.
21.9 Placement with Correspondent Banks:
Treasury department should enable the following for Correspondent Banks:
• Filing for recording of bank accounts statement with other banks in order to keep either soft or hard
copy of other banks statement for reference; moreover, they would collect statement of those
accounts on monthly basis.
• Limit introduced by investment Committee to fix a ceiling for placement of deposit with a particular
foreign bank; and on the light of that ceiling the treasury department would act accordingly.
• Recording of placement deals in manual excel sheet, it will help them in monitor and controlling of the
deals as well as in booking of the placement amounts, interest amount and maturity amount on time
in related GL Head.
• The users would be introduced by management to foreign banks in order to act on behalf of Bank in
relation with them for FX System. Moreover, the same would be recorded with treasury department
for future reference.
• Have developed filing system and file each and every document relate to placements in the particular
file and in case of any query in future they would provide the documents of the concerned without
any delay.
• Process has been introduced for controlling balance of other bank accounts and on timely basis would
arrange fund to those accounts to avoid overdue charges or to place the fund for better income.
• Preparation of separate file for each bank and record all related documents and vouchers in it, it will
make work easier for reference.
• Ensuring filing of related documents of placement from related parties and record the same and keep
it ready for future reference.
21.10 Nostro accounts:
Treasury department should enable the following for Nostro Accounts:
Azizi Bank
• Recording of Nostro accounts agreement and keep it ready for future reference.
• The availability of funds in the Nostro accounts would be properly managed and required minimum
balance would be maintained by the treasury department for prevention of interest charges as well as
for maintaining good image and background with the correspondent banks.
• Defining the ceiling and the floor for the Nostro accounts balance would be maintained and would
follow proper Nostro reconciliation process and reporting requirement to avoid overdraft in the
accounts.
• A proper procedure would be introduced by the department for placement of amounts with foreign
Banks; moreover, the placement entries would be passed in mirror accounts on the same date of
placement in order to properly classify the assets in the period.
• Proper narration would be entered for each and every transaction in system.
• The charges would be recorded in the relevant period and statement for Nostro accounts would be
maintained by the department for all future reference.
• In case of debit of income GL Head, proper approval would be taken from management; moreover, a
copy of the approval would be attached with the vouchers for verification.
• Establishing a proper procedure for monitoring of placement with other banks in order to book all the
transaction related to each and every placement in system on timely basis; furthermore, the investment
committee approval would be taken for each placement with other banks.
• Procedure has been introduced by department for controlling the INR remittances that the rate would
be given as per card rate of the day, if higher rate given to customers, proper written approval would
be taken from authorized officials of the department, it will prevent from misuse of rate by employees
for personal income.
• A regular analysis would be conducted for additional rate given in remittances and a proper file would
be preparing either soft or hard copy for recording of the rate approved for exchange of money more
than limit.
• Recording each and every document related to deals with other banks and keep it ready for future
references.
21.11 Other activities:
On the basis of above observations, treasury department should ensure:
• Properly recording the investment committee meeting agenda and minutes of the meeting.
• Introduction of job rotation so that every staff would is aware about the activities and able to perform
in absence of the concerned staff and able to provide require data.
• Introducing a proper control regarding open Forex Position in order to keep the open Forex Position
within the regulatory norm of the DAB.
• Properly making exchange reports for transactions (Cash and transfer) of all the branches from system
and accordingly prepare their manual daily exchange position report to check the accuracy of rate
applied by the branches in various exchange transactions.
Azizi Bank
• Maintaining soft records of approvals given to branches for exchange of amount more than limit apart
from Card rates would be maintained and consolidated monthly.
A proper monitoring system should be introduced by the department in order to control the discrepancy of
the rate given by the branches above their powers.
Manual has been redrafted so as to cover all the aspects of the treasury department in details and must
specify the nature of activities, level of authorities and introduce proper controls for purpose to mitigate
the operational and market risk; furthermore, cover the below points:
Nature of Operation
Activities that should be undertaken by the treasury department.
• Reporting requirements and frequency of reporting

• Limit definitions for exchange dealing
• Local dealings and procedure for dealing in local market. Worksheets with the details to be organized
monthly.
• Operational procedure for maintaining and controlling open FX.
On daily basis submitting daily transaction vouchers to Concurrent Audit section of the audit department
for rechecking, it will help department in correcting the wrong entries on timely basis in system.
Preparation of separate file for recording of the agreement letter between Azizi Bank and other banks for
all future reference.
Proper MIS has been introduced, activities being monitored and reported to the investment committee and
top management; moreover, level of authorities would be reviewed, relevant controls are enforced, duties
and responsibilities are allocated among staff for better practices and segregation of duties.
Job description for each employee/position working in the department and concerned employees so they
are aware about his/her responsibility.
Properly recording the DAB accounts statement and keep it ready for future references; moreover, a
separate file would be created for overnight placement with other bank and documents relate to overnight
placement would be recorded.
A proper practice has been introduced for RR (Required Reserve) in treasury department manual.
22 Annexure 2
22.1 Internal Controls implemented by Treasury Department
For effective internal control, the treasury department should ensure the following.
Azizi Bank
Maintaining proper record of Currency Auction and investments and Capital Notes in a workbook and
organized date wise.
While calling the branches for confirmation, Cisco phones are used which have recorded line and deals are
confirmed to branches over recorded line or mail. Infrastructure set up towards this is under process.
Revisions in policies and procedures for booking deals, currency auction, dealing with exchangers.
Daily reconciliations shall be performed for all the bank accounts. This activity is currently undertaken by
operations department.
All vouchers are sent to Audit department and daily exchange deal, placements, as and when there is an
update are provided to Risk department which acts as a Treasury Mid Office.
On daily basis system report is generated for checking daily transactions in system and is checked and
verified by Treasury Officer and Senior Treasury Officer internally apart from being circulated to Risk and
Audit Department for all deals. Conducting Training on Treasury Products and Services to Treasury Staff
members and Branches on regular basis.
All hard copies on fund management, placements and Investment Committee are maintained.
23 Annexure 3
23.1 Deal slip for FX deals
Deal Number: Deal type:

Domestic/International
Deal Date: Dealer Employee ID:
Buy currency: Sell currency:
Buy Quantity Sell Quantity:
Buy price: Value date:
Name of counterparty: Account No. of counterparty:
Dealer of Azizi Bank: Dealer of counterparty:
Dealing Time local: Dealing Time counterparty
Country:
23.2 List of KYC documents for partner banks
• Banking License or any equivalent document issued by the Central Bank of the bank’s country
• Memorandum and Articles of Association (equivalent document)
• Certificate of Incorporation
• Certificate of Registration
• List of Directors and Management Profile, along with proof of date of birth, place of birth and address
• KYC docs of the signatories self-attested
• Tax Identification Number
Azizi Bank
• Shareholding pattern
• Wolfsberg questionnaire
23.3 Indicative list of counterparties for domestic own position deals is given below
Counterparty USD A/No. AFN A/No. License doc. Limits

Kawoon Money Ex 000201200336827 002011000336934 Yes
Haji Mohammad Exchanger 000201200250734 000201100250679 Yes
Haji Rahim Exchange 00201200295448 000201100629713 No
Osmani Exchange 000201200654931 000201100654795 Yes
Faramoz Exchange 000101205531540 000101105531647 No
Albashir Exchange 000101209303310 000101109303255 No
Abdul Wahid Exchange 000201200329927 000201100329872 Yes
DABS 000101205063745 000101103490247 Yes
Azizi Bank
23.4 Sample Investment Proposal for sovereign bond investments
Approval Form for Bond Investment

30 October 2018
Issuing Republic of South Africa Country of Republic of South Africa
Entity Domicile
Issuer’s Country Rating
Rating
Type of Corporate/Sovereign/Municipal Issue Rating Risk Review Yes/No
Bond Report Attached
ISIN Coupon Payment Frequency

Currency of Issue Duration
Coupon Rate Maturity
Indicative Price Outstanding as of approval
date
Yield Proposed Investment Amount
*bid price & yield are indicative, actual bid price and yield would be determined during the trading time.
Highlights:
Unit 2015 2016 2017 US Treasury Yield 8th Oct
GDP per capita Curve Rates 2018
GDP 1 Year 2.607
Economic Growth 2 Year 2.885
Public Debt 3 Year 2.982
Inflation Rate 5 Year 3.069
External Debt 7 Year 3.173
Exports 10 Year 3.233
Imports
Reserves
Country Economic Outlook:
Approval Framework:
Investment Rationale:
Proposed by
Head - Treasury
Approved by:
Chief Finance Officer Chief Operating Officer Chief Credit Officer

Deputy Chief Executive Officer Chief Executive Officer
*******************
Azizi Bank
Recommended for Approval by the Management Board in their meeting Dated 24th October 2019
Mohammad Salem Omaid
CEO & President
Approved by the Board of Supervisors in their meeting Dated 30th October 2019
(As recorded in the minutes of the meeting)
(Sundaram Prabhu)
Chairman

Investment AND Treasury Manual: Revised & Updated September 2019

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Investment AND Treasury Manual: Revised & Updated September 2019

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INVESTMENT

Revised & updated September 2019

2 Investment committee: ....................................................................................................... 5

2.1 Roles and responsibilities of Investment Committee: ....................................................... 6

3 Capital notes auction: ......................................................................................................... 7

4 Forex management ............................................................................................................. 8

5 Overnight placements ......................................................................................................... 9

6 Long-term foreign currency placements with correspondent/overseas banks: .................... 9

7 Regulatory compliance: ....................................................................................................... 9

8 Placements with local banks ............................................................................................... 9

9 Investments in financial assets .......................................................................................... 10

9.1 Held-to-Maturity .............................................................................................................11

10 Identifying brokerage companies/Asset Management Companies .................................... 17

11 Investment limits .............................................................................................................. 17

11.1 Country Exposure and Counterparty Exposure: ..............................................................17

12 Structure of treasury department...................................................................................... 23

13 Treasury: procedures and policies ..................................................................................... 23

13.1 Treasury ...........................................................................................................................23

14 Dealing procedures and principles ..................................................................................... 26

14.1 Scope ...............................................................................................................................26

15 Dealing activities ............................................................................................................... 29

15.1 Dealing activities can be classified into - .........................................................................29

16 Non-dealing operations ..................................................................................................... 35

16.1 Trade Finance and International Business .......................................................................35

17 Cost of funds ..................................................................................................................... 37

18.1 Aggregate portfolio parameters ......................................................................................38

19 Investment policy statement ............................................................................................. 38

20 Annexure 1: important processes ...................................................................................... 40

20.1 Repo Deal (Repurchase agreement) ................................................................................40

21.1 Internal Controls implemented by Treasury Department ...............................................47

22.1 Deal slip for FX deals ........................................................................................................48

The members shall be:

• Capital Notes Auction

2.1 Roles and responsibilities of Investment Committee:

2.1.1 Developing sound investment policy

2.1.2 Ensuring implementation of the policy

2.1.2.1 Hold regular Meetings

2.1.2.2 Identification of intermediaries for investments

2.1.2.3 Document the meeting minutes and approvals of investment proposals.

2.1.2.4 Review of financials quarterly

3 Capital notes auction:

• individual foreign exchange positions in particular foreign currencies

6 Long-term foreign currency placements with correspondent/overseas banks:

8 Placements with local banks

Category Name of the Bank Approved Amount

9 Investments in financial assets

Held-to-maturity investments are investments in financial assets with fixed or determinable

9.2 Fair Value through Profit or Loss

9.2.1 Held for Trading

9.4 Investment in Sovereign/Municipal/Corporate Bonds

Each of the parameters of Liquidity, Volatility, Issuer/Counterparty credit worthiness and

Regulatory Review – Adherence to Internal

Preliminary assessment framework

Maturity 1-18 Months 18-60 >60

Maturity 1-18 Months 18-60 months >60 months

9.5 Reclassification of Investments

Debt securities initially designated as available-for-sale may be reclassified to held-to-maturity if a

• The issuer experiences significant financial difficulty;

10 Identifying brokerage companies/Asset Management Companies

11 Evaluation of Investments and proposed limits

11.2 Country Exposure and Counterparty Exposure:

AAA or Aaa Maximum allowed as per regulation (15% of Highest Safety

11.3 Asset class definitions