muhammad mairaj asim 8865 term report-tfm fall 2011
TRANSCRIPT
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2011
[ROLE OF ASSETLIABILITY COMMITTEE
INMITIGATION OF RISK]
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Course- Treasury and Fund Management
Instructor- Sir Maqbool-Ur-Rehman
Student- Muhammad Mairaj Asim
Program- BBA(H)
ID- 8865
Risk Management Framework:
In order to comply with SBP guidelines on risk management, the Bank had prepared the Basic
framework & policy guidelines, which were approved by the Board. Recognizing the facts
that policies and procedures are imperative to strengthen the internal control systems and to
ensure smooth functioning of any department of an institution, the Bank prepared several
Guidelines and Manuals, which have been approved by the Board of Directors, including
Credit Manual, KYC & Anti Money Laundering Policy & Procedures, Policy for
Acquisition & Disposal of Fixed Assets, Policy for Maturity-wise Distribution of Rate
Sensitive Deposits & Other Accounts, Consumer Credit Policy, Accounting Policy,
Country Risk Management Policy, IT Security Policy, Treasury Manual and Investment
Policy .
OVERVIEW OF ALCO
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At First Women Bank Limited, risk management framework comprises of a Risk Management
Committee (RMC) and a Risk management group. RMC. The center of risk management is
implementation of policies; strategies and creating awareness that every employee is a risk
manager at his / her Job thus invoke the significance of the role in the overall risk structure of the
Bank.
The following are the duties of Alco committee and shall review it in every quarterly meetings of
theirs.
DUTIES
1. Local and national economic forecasts
2. Interest rate forecasts and spreads including a consensus interest rate forecast for the
Bank developed by Bank management
3. Internal cost of funds (recent pricing)
4. Mismatches in the balance sheet
5. Year-to-date operating results
6. Anticipated funding needs
7. Anticipated loan demands
8. Liquidity position
9. Maturity distribution of certificates of deposit of $100,000
10. (GAP) Rate Sensitivity measures
11. Net Interest Margin/Interest Rate Risk Measures
12. Simulation
13. Capital Positions
14. Ratio of loan loss reserves to outstanding risk loans
15. Tax position
16. Fed funds position
17. Investment portfolio
18. Current loan investment and funding strategies
REPORTING REQUIREMENTS
The ALCO shall provide the following to the Board of Directors on a quarterly basis:
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Average daily balance sheet
Interest income and interest expense statements
Non-interest income and non-interest expense statements
Interest spread statement and GAP Report Relevant ratios (detailed above)
Net interest change analysis attributable to dollar volumes, earning, paying and market
rates as well as time (simulation) compared to policy limits.
Investment portfolio and loan activity report
A summary approximating investment portfolio values
Duration analysis to approximate investment portfolio values for different rate
scenarios (annual)
Projected flow of funds analysis
Recommended Asset/Liability Management plan including a quarterly strategy or the
management of interest rate risk and liquidity risk
Assessment of performance against the prior quarter's strategy
Board of Directors
Ms. Shafqat Sultana
President/Chairperson
First Women Bank Limited
Mr. Qamar Hussain
President
National Bank of Pakistan
Ms. Batool Iqbal Qureshi
Secretary, Ministry of Women
Development, Govt. of Pakistan
Mr. Atif R.Bokhari
President
United Bank Limited
Mr. M. Usman Ali Usmani
President
MCB Bank Limited
Mr. Zakir Mehmood
President
Habib Bank Limited
Mr. Khalid A. Sherwani
President
Allied Bank Limited
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Management Team
Charmaine Hidayatullah
Head of Legal, Security & Stationery
Shawana Yamin
Head of Int Division & Company Secretary
Shahid Mughal
Head of Finance & Planning
Mohammad Khalid
Treasurer
Tauqir A. Siddiqui
CIO / Head of Information Technology &
Reconciliation
Naushaba Shahzad
Head of Risk Management
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Agha Shujat Ali
Head of Operations
Feroze Ali Hussaini
Head of Credit Division
Shaheen Zamir
Head of Marketing, PR & Spokesperson
Mehwish Khan
Head of Audit & Secretary Audit Committee
Farhan Ahmed
Head of Treasury Operations
Shahida Mannan
Head of HR
The Role of AlCo
A risk-management committee in first women bank comprises of the senior-management levels of thebank. The ALCO's primary goal is to evaluate, monitor and approve practices relating to risk due to
imbalances in the capital structure. The Asset Liability Management Committee (ALCO) in
First Women Bank takes steps to maximize returns while keeping risks within
acceptable levels. The Committee undertakes regular measurement and monitoring of
the various risks that includes credit risk, market risks, operational risk and others. All
the risks are evaluated in the light of the changing market dynamics. The strategies are
formulated and adjusted to mitigate any rising risk. The Bank uses a range of
monitoring and measurement methods for e.g. interest rate gap analysis and scenario
analysis. The Bank incurs no securitization risk because it does not indulge in any
securitization process.
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RISK MANAGEMENT
Risk Management is a process consisting of defined steps, which support better decision
making by contributing to a greater insight into risks and their impacts. The Bank has in place
the Basic Framework & Policy Guidelines, which cover organizational set up and functions
of Risk Management Department (RMD). Risk management processes help to improve safety,
quality and performance of activities. The Bank intends to further augment its RMD in line
with the regulatory requirements, etc.
Market RiskMarket risk is the risk of loss arising from movements in market variables, such as interest
rates, exchange rates and equity indices, etc. Concentration limits and other controls are
applied through various checks and controls.
The Asset and Liability Management Committee (ALCO) of the Bank is responsible forreviewing policies relating to risk assets, primarily in lending and treasury related transactions
as well as in reviewing / approving the procedures, setting of limits, monitoring and
implementation as per Boards approved policies.
Procedural guidelines for covering the risks involved in various types of financing and
customers transactions are being followed to ensure customers due diligence.
A number of developments are underway more particularly for operational and credit risk
areas. Information technology infrastructure is being developed so as to strengthen the
monitoring capacity as well as to keep pace with the modern banking facilities.
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The management ensures all policies and procedures are regularly reviewed with a view to
have full compliance with SBP guidelines as far as feasible and practicable with a view to
ensure an efficient and effective system.
Credit riskCredit risk is the possibility that a borrower or counter party will fail to meet its obligations in
accordance with agreed terms. The Banks Credit Manual contains detailed procedures and
guidelines to address credit risk methodology for identifying, assessing, monitoring and
mitigating the risk factors. The credit manual is under process of implementation and it will be
followed in conjunction with risk based lending approach.
The Banks policies and procedures on Country Risk Management have been approved by theBoard of Directors.
Concentration of credit and deposit
Credit risk is the risk that one party to a financial instrument will fail to discharge an obligation
and cause the other party to incur a financial loss. Credit risk is monitored, reviewed and
analysed by Asset and Liability Management Committee (ALCO), which has established
credit lines and credit limits to control exposure to counter parties. Investments are made onlyin instruments with good credit ratings.
Out of the total financial assets of Rs. 12,360.020 million (2009: 9,924.878 million), the
financial assets which were subject to credit risk amounted to Rs. 7,877.775 million (2009: Rs.
5,224.265 million). To manage credit risk the Bank applies credit limits to its customers and
obtains adequate collateral.
Credit Risk is managed by monitoring credit exposures, restricting transactions with specific
parties with greater likelihood of default and regularly assessing the creditworthiness of such
clients.
Collateral used by the Bank for Credit Risk Mitigation (CRM) in the simple approach are.
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Cash margin
Government Securities
Government Securities (for repo-style transactions)
Guarantees of Government, Banks, PSEs and rated Corporate
Foreign Exchange RiskForeign exchange risk management Main objective of foreign exchange risk management is to
ensure that foreign exchange exposure of the Bank remains within the defined risk appetite
(20% of the paid up capital). Daily reports are generated to evaluate the exposure in different
currencies. Details of the Bank's currency risk
Exposure is as follows:
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Equity position Risk
Equity price risk arises, primarily in trading book, due to changes in process of individualstocks or levels of equity indices. The Bank's existing equity book primarily comprises of
available for sale portfolio, which is maintained with a medium term view of capital gains and
higher dividend yields. Equity price risk is managed by applying nominal limits on individual
scrips. The portfolio is also diversified to minimize the risk.
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Yield / Interest Rate Risk
Yield risk is the risk of decline in earnings due to adverse movement of the yield curve.
Interest rate risk is the risk that the value of the financial instrument will fluctuate due to
changes in the market interest rates.
The reconciliation of:
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- total assets and total financial assets; and
- total liabilities and total financial liabilities is as follows:
Liquidity Risk
Liquidity risk is defined as the potential loss arising from the Banks inability to meet its owncontractual obligations, when due. The liquidity risk is managed through a frameworkof liquidity policies, controls and limits. These policies and controls ensure that the Bankmaintains diversified sources of funding to meet its contractual obligations.
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Operational Risk
Operational risk is the risk resulting from inadequate or failed internal processes, people
system or from external events. This risk arises from operational risk is the risk of inadequate
documentation, legal or regulatory incapacity and uncertainty in enforcement of contracts.
Procedural guidelines have been issued down the line. Necessary information / guidelines for
Know Your Customer (KYC) compliance have also been issued by the Bank. Every staff is
required to get do a self assessment of him self .
ADDRESSING TECHNOLOGY RISK
The Bank has commenced the most ambitious and challenging project in its history, of
upgrading the entire technology platform. Bank has acquired Oracle Financial Services
Software (OFSS) (previously flexcube) as the core banking software with the key objectives to
improve business management,
upgrade customer service,
Strengthen the internal control environment, and improve quality and timing of
financial and non-financial information.
In addition the Bank is also implementing Oracle Financial as MIS and Supply Chain
Management software, PeopleSoft as human resource management software, Reveleus as risk
management software and Siebel as customer relationship management software. These
softwares will be fully integrated with OFSS and collectively strengthen the product and
service delivery capacity while improving the overall operational and internal control
standards