Asset Liability Management

MANAGING CORE RISKS OF FINANCIAL INSTITUTIONS

ASSET LIABILITY MANAGEMENT

Industry Best Practices

1144 JJuullyy 22000055

BANGLADESH BANK

Focus Group MembersAsset Liability Management

Name Designation Organization

TeamCo-ordinator Sudhir Chandra Das DGM Bangladesh Bank

Arif Khan GM IDLC of Bangladesh Ltd. Asad Khan MD (Designate) Fareast Finance & Investment Ltd.

Jadab Malakar Head of Finance & Company Secretary

National Housing Finance and Investments Ltd.

Nehal Ahmed SVP & Company Secretary

International Leasing and Financial Services Ltd.

S. H. Aslam Habib Head of Finance &

Resources and Company Secretary

Delta Brac Housing Finance Corporation Ltd.

Team Members

Tapan K. Podder MD Prime Finance & Investment Ltd.

Asset Liability Management

Executive Summary iv

Heading Page No.

1.0 Introduction 1 1.1 Background 1 1.2 Objectives 1 1.3 Scope 1 1.4 Methodology 1 1.5 Limitations 1

2.0 Balance Sheet Risk Profile 2 2.1 Liquidity Risk 2 2.2 Interest Rate Risk 3 2.3 Prepayment Risk 3 2.4 Credit Risk 3 2.5 Reinvestment Risk 3 2.6 Event Risk 4

3.0 Asset Liability Management (ALM) Team 4 3.1 Composition of Asset Liability Management Team 4 3.2 Roles and responsibilities of Asset Liability Management (ALM) Team 4 3.3 Periodical Meeting 4 3.4 Asset Liability Management Flowchart 4

4.0 Policy Statement 5 4.1 Loan/Fund Ratio 5 4.2 Liquidity Contingency Plan 5 4.3 Maturity wise Cashflow Statement 5 4.4 Maturity wise Interest Rate Profile 5 4.5 Term of Lending Vs. Borrowing 5 4.6 Compliance 5

5.0 Balance Sheet Risk Management Process 6 5.1 ALM Information System 6 5.2 ALM Organization 6 5.3 ALM Process 6

5.3.1 Liquidity Risk Management 6 5.3.2 Interest Rate Risk Management 8

6.0 Conclusion and Recommendation 10 6.1 Action Plan 10 6.2 Feedback 10

Appendix

Executive Summary

Asset Liability Management is the most important aspect for the Financial Institutions to manage Balance Sheet Risk, especially for managing of liquidity risk and interest rate risk. Failure to identify the risks associated with business and failure to take timely measures in giving a sense of direction threatens the very existence of the institution. It is, therefore, imperative for the Financial Institutions to form “Asset Liability Management Committee (ALCO)” with the senior management as its members to control and better manage its Balance Sheet Risk.

The main responsibilities of ALCO are to look after the Financial Market activities, manage liquidity and interest rate risk, understand the market position and competition etc. In carrying out its responsibilities, the ALCO needs to convene periodical meeting and should regularly review the decisions of the meeting with due consideration of the market situation.

The report aims at promoting international best practices in Balance Sheet Risk Management for the Financial Institutions in Bangladesh. The purpose of this paper is to provide guidance to management and to train new staffs. This is intended to be the basic framework for further development of skill and to introduce new policies and processes as we make progress in understanding and implementing the basics.

iv

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1.0 Introduction

1.1 Background

Every Financial Institute irrespective of its size is generally exposed to market liquidity and interest rate risks in connection with the process of Asset Liability Management. Failure to identify the risks associated with business and failure to take timely measures in giving a sense of direction threatens the very existence of the institution. It is, therefore, important that the strategic decision makers of an organization assume special care with regard to the Balance Sheet Risk management and should ensure that the structure of the institute’s business and the level of Balance Sheet risk it assumes are effectively managed, appropriate policies and procedures are established to control the direction of the organization. The whole exercise is with the objective of limiting these risks against the resources that are available for evaluating and controlling liquidity and interest rate risk.

1.2 Objectives

The objectives of this paper are:

1. To assess and identify the possible sources of risk in connection with the funding and lending activities.

2. To assess the impact of risk on the business and financial performance of an organization. 3. To be familiarized with the qualitative and quantitative techniques needed to avert and or

minimize risk. 4. To evaluate the strength of existing risk management tools and improve it further.

1.3 Scope

This paper will address the possible risks associated with the normal course of business of a financial institute and suggest the best possible ways to minimize risks. Taking into consideration the nascent state of the Financial Institution’s, familiarization of the key elements in the ALM would help the institutions to gradually induct the guidelines, systematically improve the management practices and in due course upgrade their internal controls. This paper at best may be viewed as a guideline, a tool for management upgradation rather than a mandatory compliance on the part of the financial institutions.

1.4 Methodology

The general methodology of the work includes analyzing already followed practices of the Financial Institutions of South East Asia and local Financial Institutions to manage Balance Sheet Risk. Practices followed by Banks to the extent it matches with the activities of Financial Institutions have also been analyzed. Different reports, Bangladesh Bank Guidelines, web site information of different financial institutions were used as primary input for this paper.

1.5 Limitations

Since this is the first study on the aspect of Asset Liability Management of Financial Institutions in Bangladesh, the exact risk quantification process is still under trial and error. In the absence of information about Market risk, the evaluation of risk of each Financial Institute corresponding to the market could not be quantified at this stage. Risks of the respective financial institutions would be unique to their own environmental conditions and the institutions would be the best judge of their remedial actions required for corrective actions.

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2.0 Balance Sheet Risk Profile

In carrying out the business, every Financial Institution has to encounter several risks like, liquidity, interest rate, prepayment, credit, reinvestment and event risk etc. Among them, liquidity risk is associated with the Financial Institutes’ ability to meet its financial commitment and obligation, interest rate risk is associated with both funding and lending activities, prepayment risk is associated with early repayment of loans, credit risk is associated with default due to client’s failure to repay loan installment, reinvestment risk is associated with reinvestment of prepayment/regular repayment proceeds at less than the existing rate and event risk is associated with happening of an unforeseen event that may cause financial loss to the organization.

2.1 Liquidity Risk

2.1.1 Asset Structure

Assets serve as a source of liquidity and must be framed in groups according to the nature of either “available for sale” or “held to maturity”. Status of liquidity is to be judged in terms of length of time it takes to dispose off the asset and the price the asset carries when it is sold. The following points are to be considered at the time of asset structuring:

a) Nature of business. b) Tenure of lending. c) Interest rate structure - fixed or floating. d) Pattern of repayment – regular installment or bullet payment. e) CRR and SLR requirement.

2.1.2 Liability Structure

Every organization meets its funding needs through liability management. Liability structuring must be made in such a way so that it matches with the tenure of asset structure. The following points are to be considered at the time of liability structuring:

a) Grouping of liability into two major categories according to the maturity namely, long term and short term.

b) Pricing option. c) Exchange rate fluctuation in case of foreign currency transactions. d) Early repayment option.

2.1.3 Capital Structure

Capital structure includes Equity, Preference share, long term Bond under both clean and securitization arrangement etc. The following points are to be considered at the time of capital structuring:

a) Regulatory framework. b) Favorable gearing ratio. c) Capital adequacy ratio. d) Value of the organization.

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2.2 Interest Rate Risk

Interest rate risk affects spread from lending business. Interest rate risk arises due to change in overall market interest rate structure both on borrowing and lending.

2.2.1 Interest on borrowing

Interest on borrowing has a significant bearing on the pricing of lending. It affects profitability of an organization and desired margin to the shareholders. 2.2.2 Interest on Lending

Interest rate risk arises due to reduction of interest rate on lending from time to time on several occasions. The Company has to reduce interest rate on several occasions to attract more clients and to compete with the competitors.

2.3 Prepayment Risk

Prepayment risk arises due to early repayment either partial or entire loan portfolio, which result in loss of interest income.

2.4 Credit Risk

Credit risk can be classified into two categories as under:

2.4.1 Default Risk

Default risk arises due to client’s failure to repay loan installment in due time. Default risk analysis help identify the reason of default, customer group of making default in respect of their profession and income status. Default risk is quantified in terms of loan being classified as SS, DF, and BL etc.

2.4.2 Credit Spread Risk.

Credit spread risk arises due to non-recovery of regular installment repayment, which ultimately decreases the overall effective lending rate and erodes margin from lending business. Credit spread risk also arises due to stringent Income Recognition policy in respect of framing time for SS, DF, and BL.

2.5 Reinvestment risk

The risk that the amount of prepaid loans will be reinvested at less than the existing rate is reinvestment risk. Declining interest rate environment induces borrower to make prepayment and forces Financial Institutions to invest at comparatively lower rate.

2.6 Event Risk

Financial Institutions are prone to event risks, a few examples are as under:

1) Restriction regarding participation on money market transactions and accepting short-termcustomer deposit.

2) Introduction of VAT on the service charge of Lease and Housing Finance business. 3) Disallowing loan loss provision. 4) Highest Corporate tax bracket.

3.0 Asset Liability Management (ALM) Team

3.1 Composition of Asset Liability Management Team

Asset Liability Management team consists of the following members:

(a) Managing Director or CEO (b) Head of Treasury (c) Head of Operations (Head of Different operational units) (d) Head of Finance or Resources Management

3.2 Roles and responsibilities of Asset Liability Management (ALM) Team

(a) To assume overall responsibilities of Money Market activities. (b) To manage liquidity and interest rate risk of the Financial Institutions. (c) To comply with the regulations of Bangladesh Bank in respect of statutory obligations as well as thorough understanding of the risk elements involved within the business. (d) To understand the market position and competition etc. (e) To provide inputs to the Treasurer regarding market views and update the balance sheet movement.(f) Deal with the dealer’s authorized limit.

3.3 Periodical Meeting

Head of Treasury conducts the ALCO meeting. In the absence of any specific agenda, the following are the normal business for discussion:

(a) Review of last ALCO minutes.(b) Economic and Market outlook. (c) Liquidity risk related to Balance Sheet. (d) Review of the Interest Rate Structure. (e) Action plan.

3.4 Asset Liability Management Flowchart

Operation

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Fund Requirement

Finance

Implem-entation& Feed- back

Treasury ALCO Meeting

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4.0 Policy Statement

Management Committee of the Financial Institutions should set out the following policy statement and an annual review should be made taking into consideration of the changes in the Balance Sheet and market dynamics:

4.1 Loan to Fund Ratio

The Loan to Fund Ratio = Loan & Lease Finance/ (Capital + Reserve + Deposit + Bank Borrowing+ Bond + Other)

The Loan to Fund ratio should not exceed 95%. Any excess lending must be supported by confirmed sources of fund. However, it must be borne in mind that under extreme liquidity crisis in the money market, even under arranged credit lines, lenders may express their inability to disbursed funds.

4.2 Liquidity Contingency Plan

A liquidity contingency plan needs to be approved by ALCO. A contingency plan needs to be prepared keeping in mind that enough liquidity is available to meet the fund requirements in liquidity crisis situation. An annual review of the contingency planning should be made. The contingency plan should be backed up by first line of defense like, firm line of credit (SOD) and second line of defense like, short-term loan, commercial paper, bill discounting facility etc. Contingency plan should include fund requirement for LC, Guarantee etc. This contingency plan should be made for six months.

4.3 Maturity wise Cashflow Statement

The cashflow statement should be framed in such a way so that it gives information to management for GAP analysis. Cashflow statement should be made for different maturity period viz., within 7 days, 2 weeks, 1-12 months, above 1 year – 3 years, above 3 years – 5 years, above 5 years - 10 years, above 10 years to 15 years, above 15 years - 20 years. etc., as per the situation demands.

4.4 Maturity wise Interest Rate Profile

Maturity wise Interest Rate Profile should be made both for lending and borrowing products so that Management can know its effective lending and borrowing rate at any particular point in time. This would help make Spread Analysis.

4.5 Term of Lending Vs. Borrowing

Management should classify its assets and liabilities according to their maturity tenure viz., within 7 days, 2 weeks, 1-12 months, above 1 year – 3 years, above 3 years – 5 years, above 5 years - 10 years, above 10 years to 15 years, above 15 years - 20 years. etc., as per the situation demands.

4.6 Compliance

Internal as well as statutory compliances must be strictly followed. Keeping the market scenario and regulatory framework, the internal compliance procedure should be flexible enough to adopt any required change immediately to meet the changing situation.

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5.0 Balance Sheet Risk Management Process

5.1 ALM Information System

Information is the key to the ALM process. ALM information system should be designed in such a way so that it could provide reliable information on time to the ALCO. An organization should have clear risk policies and definite tolerance limits. Risk can be measured using different methods, which ranges from the simple Gap Statement to extremely sophisticated and data intensive Risk Adjusted Profitability Measurement methods. The Treasury Department with the help of IT Department should develop Modules, which could provide information on the aspects of liquidity and interest rate regime.

5.2 ALM Organization

The success of ALM depends on organization policies, information system, well-defined delegation-responsibility process, accountability of team member, reporting to the Management etc. The ALCO should have overall responsibility for management of risks and should decide the risk management policy of the Company and set limits for liquidity, interest rate, exchange rate and equity pricing risks.

The ALM Support Groups consisting of operating staff should be responsible for analyzing, monitoring and reporting the risk profiles to the ALCO. In due course of time the staff should also prepare forecasts reflecting the impact of various possible changes in market conditions on the balance sheet and recommend the action needed to adhere to internal limit.

5.3 ALM Process

ALM process involves management of both liquidity risk and interest rate risk. These are explained below:

5.3.1 Liquidity Risk Management

(a) Liquidity Tracking

Measuring and managing liquidity needs are vital for effective operation of the Company. By assuring the Company’s ability to meet its liabilities as they become due, liquidity management can reduce the probability of an adverse situation. The importance of liquidity transcends individual institutions, as liquidity shortfall in one institution can have repercussions on the entire system. The ALCO should measure not only the liquidity positions of the Company on an ongoing basis but also examine how liquidity requirements are likely to evolve under different assumptions. Experience shows that assets commonly considered to be liquid, such as govt. securities and other money market instruments, could also become illiquid when the market and players are unidirectional. Therefore, liquidity has to be tracked through maturity or cash flow mismatches. For measuring and managing

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net funding requirement, the use of a maturity ladder and calculation of cumulative surplus or deficit of funds at selected maturity dates is adopted as a standard tool. The format of the statement of liquidity is attached in Appendix I.

(b)Time Buckets

The Maturity Profile, as detailed in Appendix I, could be used for measuring the future cashflows of a financial institute in different time buckets. The time buckets shall be distributed as under:

i) 1 day to 30/31 days (one month) ii) Over one month and upto two months iii) Over two months and upto three months iv) Over three months and upto six months v) Over sixth months and upto one year vi) Over one year and upto three years vii) Over three years and upto five years viii)Over five years and upto seven years ix) Over seven years and upto ten years x) Over ten years

(c) CRR/SLR Requirement

Every financial institute is required to maintain a Cash Reserve Ratio (CRR) of 2.50% on its customer deposits. The CRR is maintained with the non-interest bearing current account with the Bangladesh Bank. In addition, every financial institute is required to maintain a Statutory Liquidity reserve (SLR) of 5% (including CRR) on all its liabilities. There is no restriction on where these SLR will be maintained. The financial institutions holding deposits are given freedom to place the mandatory securities in any time buckets as suitable for them. These SLRs shall be kept with banks and financial institutions for different maturities.

(d) Time Bucket Mismatch

Within each time bucket, there could be mismatches depending on cash inflows and outflows. While the mismatches up to one year would be relevant since these provide early warning signals of impending liquidity problems, the main focus should be on the short-term mismatches viz., 1-90 days. The cumulative mismatches (running total) across all time buckets shall be monitored in accordance with internal prudential limits set by ALCO from time to time. The mismatches (negative gap) during 1-90 days, in normal course, should not exceed 15% of the cash outflows in this time buckets. If the Company, in view of current asset-liability profile and the consequential structure mismatches, needs higher tolerance level, it could operate with higher limit sanctioned by ALCO giving specific reasons on the need for such higher limit.

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(e) Statement of Structural Liquidity

The statement of Structural Liquidity (Annexure I) shall be prepared by placing all cash inflows and outflows in the maturity ladder according to the expected timing of cashflows. A maturing liability will be a cash outflow while a maturing asset will be a cash inflow. While determining the likely cash inflow/outflow, every financial institute has to make a number of assumptions according to its asset-liability profiles. While determining the tolerance levels, the Company should take into account all relevant factors based on its asset-liability base, nature of business, future strategies, etc. The ALCO must ensure that the tolerance levels are determined keeping all necessary factors in view and further refined with experience gained in Liquidity Management.

(f) Short-term Dynamic Liquidity

In order to enable the Company to monitor its short-term liquidity on a dynamic basis over a time horizon spanning from 1 day to 6 months, ALCO should estimate short-term liquidity profiles on the basis of business projections and other commitments for planning purposes. An indicative format (Annexure II) for estimating short-term Dynamic liquidity is enclosed. The format should be reviewed and revised over time based on the future requirements.

5.3.2 Interest Rate Risk Management

(a) Gap Analysis

The Gap is the difference between Rate Sensitive Assets (RSA) and Rate Sensitive Liabilities (RSL) (Appendix II) for each time bucket. The positive gap indicates that it has more RSAs than RSLs whereas the negative Gap indicates that it has more RSLs. The GAP reports indicate whether the institute is in a position to benefit from rising interest rates by having a positive Gap (RSA>RSL) or whether it is in a position to benefit from declining interest rates by a negative Gap (RSL>RSA). The Gap can, therefore, be used as a measure of interest rate sensitivity.

The Treasury Department should set prudential limits on individual Gaps in various time buckets with the approval of the ALCO. Such prudential limits should have a relationship with the Total Assets, Earning Assets or Equity. In addition to the interest rate gap limits, the Treasury Department may set the prudential limits in terms of Earnings at Risk (EaR) or Net interest margin based on their views on interest rate movements with the approval of the ALCO.

(b) Gap Report

The Gap Report should be generated by grouping rate sensitive liabilities, assets and off-balance sheet positions (Annexure III) into time buckets according to residual maturity or next re-pricing period, whichever is earlier. All investments, advances, deposits, borrowings, purchased funds, etc. that mature/re-price within a specified time-frame are interest rate sensitive. Similarly, any principal repayment of loan is also rate sensitive if the Company expects to receive it within the time horizon. This includes final principal repayment and interim installments. Certain assets and liabilities carry floating rates of interest that vary with a reference rate and hence, these items get re-priced at pre-determined intervals. Such assets and liabilities are rate sensitive at the time of re-pricing. While the

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interest rates on term deposits are generally fixed during their currency, the tranches of advances are basically floating. The interest rates on advances could be re-priced any number of occasions, corresponding to the changes in PLR (Performing Loan Ratio).

The interest rate gaps may be identified in the following time buckets:

i) 1 day to 30/31 days (one month) ii) Over one month and upto two months iii) Over two months and upto three months iv) Over three months and upto six months v) Over sixth months and upto one year vi) Over one year and upto three years vii) Over three years and upto five years viii) Over five years and upto seven years ix) Over seven years and upto ten years x) Over ten years xi) Non-sensitive

The various items of rate sensitive assets and liabilities and off-balance sheet items shall be classified into various time-buckets.

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6.0 Conclusion and Recommendation

Every financial institute must have a committee comprising of the senior management to make important decisions related to the Balance Sheet Risk management process. The committee should meet at least once in every month to analyze, review and formulate strategy to manage the Balance Sheet Risk.

6.1 Action Plan

In every ALCO meeting, the key points of the discussion should be minuted and the action points should be highlighted to better position the Balance Sheet. In every ALCO meeting, action points taken in the past ALCO meeting should be reviewed to ensure implementation. The ALCO takes decisions for implementation of any/all of the following issues:

i) Need for Deposit mobilization or Asset growth in right buckets to minimize asset-liability mismatch.

ii) Both short and long term Cashflow plan should be based on market interest rates & liquidity. iii) Need for change in Fund Transfer Pricing and /or customer rates in line with strategy

adapted.iv) Address to the limits that are in breach (if any) or are in line of breach and provide detailed

plan to bring all limits under control. v) Address to all regulatory issues that are under threat to non-compliance. vi) Call special ALCO meeting when any contingency situation arises.

6.2 Feedback

All ALCO members are provided with the minutes of the meeting within the next day. The main points of consideration are as under:

i) The issues addressed. ii) The recommendations of the meeting. iii) The action points that were decided in the meeting. iv) The ALCO members communicate the action points to their respective divisions to

implement the strategies undertaken. v) The results of the action points. vi) Refer for future use.

APPENDIX I

MATURITY PROEILE –LIQUIDITY

HEADS OF ACCOUNTS A. OUTFLOWS

1. Capital funds(a) Equity capital, Non-redeemable or perpetual preference capital, Reserves, Funds and Surplus(b) Preference capital – redeemable/non perpetual

2. Notes, Bonds and debentures(a) Plain vanilla bonds/debentures

(b) Bonds/debentures with embedded call/put options (including zero/coupon/deep discount bonds)(c) Fixed rate notes

3. Deposits:(a) Term deposit from public(b) Term deposits from Banks/FIs

4. BORROWINGS:(a) Term money borrowings(b) Bank borrowings (SOD)

5. Current liabilities and provisions: (a) Sundry creditors

(b) Expenses Payable (other than interest)(c) Advance income received

(d) Interest payable on bonds/deposits

(e) Provision for NPAs

(f) Provision for Investments portfolio

TIME-BUCKET CATEGORY

In the 'over 5 years' time bucket

As per the residual maturity of the shares.

As per the residual maturity of the instrumentsAs per the residual period for the earliest exercisedate for the embedded option.

As per the residual maturity

As per the residual maturityThese, being institutional/wholesale deposits, should be slotted as per their residual maturity

As per the residual maturity Over six months and up to one year

As per the due date or likely timing of cash outflows. A behavioral analysis could also be made to assess the trend of outflows and the amounts slotted accordingly.

As per the likely time of cash outflow.In the 'over 5 years' Time-bucket as these do not involve any cash outflow.In respective lime buckets as per the due date of payment.The amount of provision may be netted out from the gross amount of the NPA portfolio and the net amount of NPAs belated time-buckets

The amount may be netted from the gross value of investments portfolio and the net investments be shown as inflow in the prescribed lime-slots. In case provisions are not held security-wise, the provision may be shown on “over 5 yrs” time slot.

B. INFLOWS

1.Cash

2. Remittance in transit

3. Balances with banks (a) Current account

(b) Deposit accounts/short term deposits

4. Investments [net of provisions)

5. Advances (performing) (a) Term loans

(b) Corporate loans/short term loans

6. Assets on lease

7. Fixed assets (excluding leased assets}

8. Other assets

C. CONTINGENT LIABILITIES(a) Letters of credit/guarantees (outflow through devolvement)

(b) Loan commitments pending disbursal (outflow)

(c) Lines of credit committed to/by otherInstitutions (outflow/inflow)

In 1 to 30/31 day time-bucket.

-do-

The stipulated minimum balance be shown in 6 months to 1 year bucket. The balance in excess of the minimum balance be shown in 1 to 30 day time bucket.As per residual maturity.

As suitable to the FIs "1 day to 30/31 days (One month)" "Over one month and up to 2 months" and "Over two months and up To 3 months" buckets depending upon the defeasance period proposed by the FIs

The cash inflows on account of the interest andprincipal of the loan may be slotted in respective time buckets as per the timing of the cash flows as stipulated in the original/revised repayment schedule.

As per the residual maturity.

Cash flows from the lease transaction may be slotted in respective time buckets as per the timing of the cash flow.

In the 'over 5 year1 time-bucket.

In the 'over 5 year' time-bucket.

Based on the past trend analysis of the evolvementsvis-a-vis the outstanding amount of guarantees (net of margins held), the likely evolvements should be estimated and this amount could be distributed in various time buckets on judgmental basis. The assets created out of evolvements may be shown under respective maturity buckets on the basis of probable recovery dates.In the respective time buckets as per the sanctioneddisbursement schedule.

As per usance of the bills to be received under the lines of credit.

NOTE:

(a) Any event-specific cash flows (e.g. outflow due to wage settlement arrears, capital expenses, income-tax refunds, etc.) should be shown in a time bucket corresponding to timing of such cash flows.

(b) Overdue receivables on account of interest and installments of standard loans/hire purchase assets/leased rentals should be slotted as below:

(i) Overdue for less than one month. In the 3 to 6 month bucket

(ii) Interest overdue for more than one month but less than seven months

In the 6 to 12 month bucket without

(i e) before the relative amount becomes past

due for six months)

reckoning the grace period of month

( i i i ) Principal installments overdue for

7 months but less than one year

In 1 To 3 year bucket

D. FINANCING OF GAPS:

The negative gap (i.e. where outflows exceed inflows) in the 1 to 30/31 days time-bucket should not exceed the prudential limit of 15% of outflows of each time-bucket and the cumulative gap up to the one-year period should not exceed 15% of the cumulative cash outflows upto one year period. In case these limits are exceeded, the measures proposed for bringing the gaps within the limit, should be shown by a footnote in the relative statement.

APPENDIX II

INTEREST RATE SENSITIVITY

HEADS OF ACCOUNTSLIABILITIES

1. Capital, Reserves and Surplus

2. Notes, Bonds and debentures (a) Floating rate

(b) Fixed rate (plain vanilla) including zero coupons

(c) Instruments with embedded options

3. Deposits:(a) Deposits/Borrowings

(i) Fixed rate

(ii) Floating rate

(b) Corporate deposits

4. Borrowings(a) Term Loan borrowings

(b) Borrowings from others (i) Fixed rate

(ii) Floating rate

RATE SENSITIVITY OF TIME BUCKET

Non-sensitive

Sensitive; reprice on the roll-over/reprising date, should be slotted in respective time buckets as per the repricing dates.

Sensitive; reprice on maturity of such instruments.

Sensitive; could reprice on the exercise date of the option particularly in rising interest rate scenario. To be placed in respective time bucketsas per the next exercise date.

As per the residual maturity

Sensitive; could reprice on maturity or in case of premature withdrawal being permitted, after the lock-in period, if any, stipulated for such withdrawal. To be slotted in respective time buckets as per residual maturity or as per residual lock-in period, as the case may be. The prematurely withdrawable deposits with no lock-in period or past such lock-in period should be slotted in the earliest/shortest time bucket.

Sensitive reprice on the contractual rollover date. To be slotted in the respective time-buckets as per the next repricing date.

Sensitive; reprice on maturity. To be slotted as per the residual maturity in the respective time buckets.

Sensitive; reprices on maturity. To be placed as per residual maturity in the relative time bucket.

Sensitive; repricing on maturity. To be placed asper residual maturity in the relative time bucket

Sensitive; reprice on the roll-over/ repricingdate To be placed es per residual peiod tothe repricjng date in the relative timebucket

5. Current liabilities and provisions:(a) Sundry creators

(b) Expenses Payable (other than interest)

(c) Swap adjustment a/c

(d) Interest payable on bonds/deposits

(e) Provisions

ASSETS:1. Cash

2. Remittance in transit

3. Balances with banks (in India only)(a) In current a/c

(b) In deposit accounts, Money at call and be places short notice and other placements

4. Investments(a) Fixed income securities (e.g. govt. securities zero coupon bends, bonds, debentures, cumulative non-cumulative, redeemable preference shares etc,)

(b). Floating rate securities.

(c) Equity shares, convertible preference shares,shares of subsidiaries / joint ventures, venture capital units.

5. Advances (performing)

Term loans/corporate loans/ Short Term Loans

(i) Fixed rate

(ii) Floating rate

6. Assets on lease

7. Fixed assets (excluding assets on lease)

8. Other assetsIntangible assets and items not representingcash inflows.

Non-sensitive

Non-sensitive

Non-sensitive

Non-sensitive

Non-sensitive

Non -sensitive

Non-sensitive

Non-sensitive

Sensitive, reprices on maturity.

Sensitive on maturity. To be slotted as perresidual maturity.

Sensitive; reprice on the next repricingdate. To be slotted as per residual time tothe repricing date.

Non-sensitive.

Sensitive on cash flow/maturity.

Sensitive only when PLR or risk premium ischanged by the FIs.

The cash flows on lease a sets are sensitive tochanges in interest rates. The leased asset cash flows be slotted in the time buckets as per timing of the cash flows.

Non-sensitive.

Non –sensitive

ANNEXURE I

Name of Financial Institution (FI):

Statement of Structural Liquidity as on:

(Amount in crore)A. Outflows 1 to

30/31day (one month)

Over one

monthto 2

months

Over 2 months

to 3 months

Over 3 months

to 6 months

Over6monthsto one year

Overone

year to 3 years

Over 3years to 5 years

Over 5 years Total

1. Capital

(a) Equity and perpetual preference shares

(b) Non -perpetual preference shares

2. Reserves and surplus

3. Notes, bonds & debentures

(a) Plain vanilla bonds/debentures

(b) Bonds/debentures with embedded options

4. Deposits (a) Term deposits from public

(b) Term deposits from Banks/FIs

5. Bank Borrowings

(a) SOD

(b) Long term loans

6. Current Liabilities and provisions :

(a) Short term loans

(b) Accounts payable

(c) Advance income received

(d) Interest payable on bonds/ deposits(e) Provisions 7.Contingent Liabilities

(a) Letters of credit/guarantees

(b) Loan commitments, pending disbursal(c) Lines of credit committed to other institutions

8. Others

A. TOTAL OUTFLOWS (A)

B. INFLOWS

1.Cash

2. Remittance in transit

3. Balances with banks

(a) Current account

(b) Deposit/ short-term deposits

(c) Money at call & short notice

4. Investments (net of provisions) 5. Lease Finance & Loans (performing)

(a) Lease finance

(b) Home Loans

(c) Term loan

(d) Corporate loans/short term loans

6. Non-performing loans 7. Fixed assets (excluding assets on lease)

8. Other assets :

(a) Intangible assets & other non-cash flow items

(b) Interest and other income receivable (c) Others9. Others B .TOTAL INFLOWS (B)C. MISMATCH (B-A)D. CUMULATIVE MISMATCH E. C AS PERCENTAGE OF A

ANNEXURE II

Name of the Financial Institution (FI):

Statement of short-term Dynamic Liquidity as on:

(Taka in crore)

Outflows

1 -14 days

15-28days

29 days to 3

months

3 - 6m o n t h s

1. Increase in loans & Advances2. Net increase in investments(i) Govt. /approved securities(ii) Bonds/debentures/shares(iii) Others3. Net decrease in public deposit4. Net decrease in borrowings from various sources/net increase in market lending5. Outflow on account of off-balance sheet items6. Other outflowsTOTAL OUTFLOWS (A)

INFLOWS

1. Net cash position

2. Net increase in deposits

3. Interest inflow on investments

4. Interest inflow on performing Advances

5. Net increase in borrowings from various sources

6. Inflow on account of off-balance sheet items

7, Other inflows

TOTAL INFLOWS (B)

C. MISMATCH (B-A)

D. CUMULATIVE MISMATCH

E. C AS PERCENTAGE TO TOTAL OUTFLOWS

ANNEXURE III

Name of Financial Institution (FI):

Statement of Interest Rate Sensitivity as on:

(Amount in crore of Taka)

A. Outflows

1 to30/31day(one

month)

Overone

month to 2

months

Over 2 month s

to 3 months

Over 3months

t o 6months

Over 6 months to one year

Overoneyearto3

years

Over3

yearsto 5

years

Over5

yearsTotal

1. Capital(a) Equity and perpetual preferenceshares(b) Non-perpetual preference shares

2. Reserves and surplus3. Notes, bonds & debentures(a) Plain vanilla bonds/debentures

(b) Bonds/debentures with embedded options4. Deposits

(a) Term deposits from public

(b) Term deposits from Banks/FIs5. Bank Borrowings

6. Current Liabilities and provisions:

(a) Short term loans(b) Accounts payable(c) Advance income received(d) Interest payable on bonds/deposits

(e) Provisions

7. Contingent Liabilities (a) Letters of credit/guarantees(b) Loan commitments, pending disbursal(c) Lines of credit committed to other institutions 8. Others A. TOTAL OUTFLOWS (A)

B. INFLOWS

1. Cash

2. Remittance in transit3. Balances with banks(a) Current account(b) Deposit/short-term deposits (c) Money at call a short notice 4. Investments (net of provisions)

5. Lease Finance & Loans

(a) Lease Finance (b) Home Loans (C) Term loan (d) Corporate loans/short term loans6. Non-performing loans 7. Fixed assets (excluding assets on lease)8. Other assets: (a) Intangible assets and other non-cash flow items(b) Interest and other income receivable(c) Others

9. Others

B. TOTAL INFLOWS (B)

C. MISMATCH (B-A)

D. CUMULATIVE MISMATCH

E. C AS PERCENTAGE OF A