Notes to and forming part of the Unconsolidated Financial Statements

For the year ended December 31, 2018

Trading activities are centered in the Treasury and Capital Markets Group which facilitates clients and also runs proprietary
positions. The Bank is active in the cash and derivative markets for equity, interest rate and foreign exchange.

The Market and Treasury Risk division performs market risk management activities. Within this division, the Market Risk
Management unit is responsible for the development and review of market risk policies and processes, and is involved in
research, financial modelling and testing / implementation of risk management systems, while Treasury Middle Office is
responsible for implementation and monitoring of market risk and other policies, escalation of deviations to senior
management, and MIS reporting.

The functions of the Market Risk Management unit are as follows:

- To keep the market risk exposure within the Bank’s risk appetite as assigned by the BoD and the BRCC.

- To develop, review and upgrade procedures for the effective implementation of market risk management policies
approved by the BoD and BRCC.

- To review new product proposals and propose / recommend / approve procedures for the management of their market
risk. Various limits are assigned to different businesses on a product / portfolio basis. The products are approved
through product programs, where risks are identified and limits and parameters are set. Any transactions / products
falling outside these product programs are approved through separate transaction / product memos.

- To maintain a comprehensive database for performing risk analysis, stress testing and scenario analysis. Stress testing
activities are performed on a quarterly basis on both the Banking and Trading books.

47.2.1 Balance sheet split by trading and banking books

2018 2017
Banking Trading Banking Trading
Total Total
book book book book
---------------------------------------------------------------- (Rupees in '000) ----------------------------------------------------------------

Cash and balances with treasury banks 183,467,358 - 183,467,358 157,582,687 - 157,582,687
Balances with other banks 23,345,698 - 23,345,698 19,516,198 - 19,516,198
Lendings to financial institutions 33,941,546 - 33,941,546 10,867,531 - 10,867,531
Investments 684,810,713 101,564,613 786,375,326 366,163,020 725,623,606 1,091,786,626
Advances 715,936,731 - 715,936,731 627,358,836 - 627,358,836
Fixed assets 45,799,099 - 45,799,099 45,208,373 - 45,208,373
Intangible assets 1,757,033 - 1,757,033 996,191 - 996,191
Deferred tax assets 7,807,084 - 7,807,084 - - -
Other assets 91,169,271 - 91,169,271 79,617,492 - 79,617,492
1,788,034,533 101,564,613 1,889,599,146 1,307,310,328 725,623,606 2,032,933,934

47.2.2 Foreign Exchange Risk

Foreign Exchange Risk is the risk that the fair value of a financial instrument will fluctuate due to changes in foreign
exchange rates. Exposures are monitored by currency to ensure that they remain within the established limits for each
currency. Exposures are also monitored on an overall basis to ensure compliance with the Bank’s SBP approved Foreign
Exchange Exposure Limit.

The Bank is an active participant in the cash and derivatives markets for currencies and carries currency risk from these
trading activities, conducted primarily by the Treasury and Capital Markets Group (TCM). These trading exposures are
monitored through prescribed stress tests and sensitivity analyses.

The Bank's reporting currency is the Pakistan Rupee, but its assets, liabilities, income and expenses are denominated in
multiple currencies. From time to time, TCM proactively hedges foreign currency exposures resulting from its market
making activities, subject to pre-defined limits.

136 United Bank Limited