Stress testing involves simulating the impact of exceptional but plausible risk factor changes on a bank's financial position. BASIC Bank uses stress testing techniques to quantify the effects of changes in credit, interest rate, exchange rate, equity price, liquidity, and other risks. Scenarios are developed to assess the bank's resilience under various adverse conditions, such as increases in non-performing loans, falls in collateral values, or defaults by major borrowers.

1. Stress testing
on
BASIC Bank Limited

2. Stress testing is a simulation technique, which are used to determine the reactions of different
financial institutions under a set of exceptional, but plausible assumptions through a series of
battery of tests.
At institutional level, stress testing techniques provide a way to quantify the impact of changes
in a number of risk factors on the assets and liabilities portfolio of the institution
Stress Testing

3. Simple Sensitivity Analysis
(single factor tests)
Scenario Analysis Extreme Value/ Maximum
Shock Scenario
Techniques of stress testing
It measures the change in the value
of portfolio for shocks of various
degrees to different independent risk
factors while the underlying
relationships among the risk factors
are not considered.
Scenario Analysis encompasses
the situation where a change in
one risk factor affects a number
of other risk factors or there is a
simultaneous move in a group of
risk factors.
It measures the change in the risk
factor in the worst‐case scenario,
i.e. the level of shock which
entirely wipes out the capital.

4. Methodology and Calibration of Shocks
Credit Risk Interest Rate Risk
Exchange Rate Risk Equity Price Risk
Equity Price Risk

5. 50% of the SMA shall be categorized under substandard, 50% of the substandard shall be categorized under
doubtful and 50% of the doubtful shall be added to the bad/loss category.
fall in the forced sale value (FSV) of mortgaged collateral by 10%, 20% and 40%
increase of the NPLs in particular 1 or 2 sector if 5%, 7.5% and 10% performing loans of that 1 or 2 sectors
directly downgraded to bad/loss category having 100% provisioning requirement.
increase of the NPLs due to default of Top 10 large borrowers and the respective provisioning if 5%, 7.5%
and 10% performing loans of Top 10 large borrowers directly downgraded to bad/loss category having 100%
provisioning requirement
increase in the certain percentage of NPLs, the whole capital position of a bank will be wiped out to offset
the increased amount of provision due to cover respective loan losses. The forced sale value of the
collaterals and tax‐adjusted impact of the additional required provision (if any) will be calibrated in the CAR
for the each scenario under all categories.
Credit Risk

6. Estimate the market value of all on‐balance sheet rate sensitive assets and liabilities of the bank/DFI to
arrive at market value of equity
Calculate the durations of each class of asset and the liability of the on‐balance sheet portfolio Arrive at the
aggregate weighted average duration of assets and liabilities
Calculate the duration GAP by subtracting aggregate duration of liabilities from that of assets.
Estimate the changes in the economic value of equity due to change in interest rates on on‐balance sheet
positions along the three interest rate changes.
Calculate surplus/ (deficit) on off‐balance sheet items under the assumption of three different interest rate
changes i.e. 1%, 2%, and 3%
Estimate the impact of the net change (both for on‐balance sheet and off‐balance sheet) in the market
value of equity on the capital adequacy ratio (CAR).
Interest Rate Risk

7. The stress test for exchange rate assesses the impact of change in exchange rate on the value of equity. To
assess foreign exchange risk the overall net open position of the bank/FI including the on‐balance sheet and
off‐balance sheet exposures shall be charged by the weightage of 5%, 10% and 15% for minor, moderate and
major levels respectively. The overall net open position is measured by aggregating the sum of net short
positions or the sum of net long positions; whichever is greater.
Exchange Rate Risk

8. The stress test for equity price risk assesses the impact of the fall in the stock market index.
Appropriate shocks will have to be absorbed to the respective securities if the current market value of all
the on balance sheet and off balance sheet securities listed on the stock exchanges including shares, NIT
units, mutual funds etc. falls at the rate of 10%, 20% and 40% respectively. The impact of resultant loss will
be calibrated in the CAR.
Equity Price Risk

9. The stress test for liquidity risk evaluates the resilience of the banks towards the fall in liquid liabilities. The
ratio “liquid assets to liquid liabilities” shall be calculated before and after the application of shocks by
dividing the liquid assets with liquid liabilities. Liquid assets are the assets that are easily turned into cash
without the threat of loss. They include cash, balances with Bangladesh Bank and balances with banks, call
money lending, lending under repo and investment in government securities. Liquid liabilities include the
deposits and the borrowings. Appropriate shocks will have to be absorbed to the liquid liabilities if the
current liquidity position falls at the rate of 10%, 20% and 30% respectively. The ratio of liquid assets to liquid
liabilities shall be re‐calculated under each scenario.
Liquidity Risk

10. Date of Permission from Bangladesh Bank September 22, 1999
Date of Opening of First Branch January 21, 1989
Head Office Sena Kalyan Bhaban (5th Floor)
195 Motijheel C/A, Dhaka-1000
Line of Business Banking
Authorized Capital Tk. 5,000 Million
Paid up Capital Tk.2947 Million
BASIC Bank Limited

11. Credit Risk 1: Increase in NPLs
Year 2013
Calibration in CAR: Scenario 1 Scenario 2 Scenario 3
Increase in NPLs (%) 1% 2% 3%
CAR 10.05% 10.05% 10.05%
Risk weighted assets 69,838,400,000 69,838,400,000 69,838,400,000
Regulatory capital 7,018,759,200 7,018,759,200 7,018,759,200
Total Loan 28,808,976,423 28,808,976,423 28,808,976,423
NPL ratio 1.37% 1.37% 1.37%
Total Non-Performing Loans (NPLs) 394682977 394,682,977 394,682,977
Total Performing Loans 28,414,293,446 28,414,293,446 28,414,293,446
Magnitude of Shock 1% 2% 3%
Increase in NPLs 3,946,830 7,893,660 11,840,489
Increase in provisions (after adjustment of eligible securities; if any)
3,946,830 7,893,660 11,840,489
Tax Adjusted Provision (not yet applicable) 3,946,830 7,893,660 11,840,489
Revised Regulatory Capital 7,014,812,370 7,010,865,540 7,006,918,711
Revised risk weighted assets 69,834,453,170 69,830,506,340 69,826,559,511
Revised CAR (%) 10.045% 10.040% 10.035%
Fall in CAR (%) 0.005% 0.010% 0.015%
Revised NPLs 398,629,807 402,576,637 406,523,466
Revised NPLs to Loans (%) 1.38% 1.40% 1.41%
Excel

12. Year 2013
Calibration in CAR: Scenario 1 Scenario 2 Scenario 3
Shift in NPLs Categories (%) 50% 80% 100%
CAR 10.05% 10.05% 10.05%
Risk weighted assets 69,838,400,000 69,838,400,000 69,838,400,000
Regulatory capital 7,018,759,200 7,018,759,200 7,018,759,200
Total Non-Performing Loans (NPLs) 394,682,977 394,682,977 394,682,977
Special Mention Account or SMA (10% of NPLs) 39,468,298 39,468,298 39,468,298
Substandard (10% of NPLs) 39,468,298 39,468,298 39,468,298
Doubtful (20% of NPLs) 78,936,595 78,936,595 78,936,595
Loss (60% of NPLs) 236,809,786 236,809,786 236,809,786
Provision for SMA 0% 0% 0%
Provision for Substandard 20% 20% 20%
Provision for Doubtful 50% 50% 50%
Provision for Loss 100% 100% 100%
Magnitude of Shock 50% 80% 100%
Weighted Amount of Provision 284,171,743 284,171,743 284,171,743
Provision After Shift in Catagories 313,772,967 331,533,701 343,374,190
Increase in Provision 29,601,223 47,361,957 59,202,447
Tax Adjusted Provision (not yet applicable) 29,601,223 47,361,957 59,202,447
Revised Regulatory Capital 6,989,157,977 6,971,397,243 6,959,556,753
Revised risk weighted assets 69,808,798,777 69,791,038,043 69,779,197,553
Revised CAR (%) 10.01% 9.99% 9.97%
Fall in CAR (%) 0.04% 0.06% 0.08%
Credit shock 2 : Shift in NPLs Categories
Excel

13. Year 2013
Calibration in CAR: Scenario 1 Scenario 2 Scenario 3
Fall in FSV of Mortgaged Collateral (%) 10% 20% 40%
CAR 10.05% 10.05% 10.05%
Risk weighted assets 69,838,400,000 69,838,400,000 69,838,400,000
Regulatory capital 7,018,759,200 7,018,759,200 7,018,759,200
Total value of Mortgaged Collateral 13,268,661,018 13,268,661,018 13,268,661,018
Total FSV of Mortgaged Collateral (80% of total value) 10,614,928,814 10,614,928,814 10,614,928,814
Special Mention Account or SMA (10% of FSV) 1,061,492,881 1,061,492,881 1,061,492,881
Substandard (10% of FSV) 1,061,492,881 1,061,492,881 1,061,492,881
Doubtful (20% of FSV) 2,122,985,763 2,122,985,763 2,122,985,763
Loss (60% of FSV) 6,368,957,289 6,368,957,289 6,368,957,289
Provision for SMA 0% 0% 0%
Provision for Substandard 20% 20% 20%
Provision for Doubtful 50% 50% 50%
Provision for Loss 100% 100% 100%
Magnitude of Risk 10% 20% 40%
Weighted FSV of Collateral 7,642,748,746 7,642,748,746 7,642,748,746
Increase in provision (Fall in the FSV of Collateral) 764,274,875 1,528,549,749 3,057,099,499
Tax Adjusted Provision (not yet applicable) 764,274,875 1,528,549,749 3,057,099,499
Revised Regulatory Capital 6,254,484,325 5,490,209,451 3,961,659,701
Revised risk weighted assets 69,074,125,125 68,309,850,251 66,781,300,501
Revised CAR (%) 9.05% 8.04% 5.93%
Fall in CAR (%) 1.00% 2.01% 4.12%
Credit Risk 3 : Fall in the forced sale value
(FSV) of mortgaged collateral.
Excel

14. Year 2013
Calibration in CAR: Scenario 1 Scenario 2 Scenario 3
Increase in NPLs (%) 5% 7.5% 10%
CAR 10.05% 10.05% 10.05%
Risk weighted assets 69,838,400,000 69,838,400,000 69,838,400,000
Regulatory capital 7,018,759,200 7,018,759,200 7,018,759,200
Total Loan in Textiles sector 6,635,300,000 6,635,300,000 6,635,300,000
Magnitude of Risk 5% 7.5% 10%
Increase in NPLs under bad/loss (B/L) category 331,765,000 497,647,500 663,530,000
Increase in provisions (after adjustment of eligible securities; if any)
331,765,000 497,647,500 663,530,000
Tax Adjusted Provision (not yet applicable) 331,765,000 497,647,500 663,530,000
Revised Regulatory Capital 6,686,994,200 6,521,111,700 6,355,229,200
Revised risk weighted assets 69,506,635,000 69,340,752,500 69,174,870,000
Revised CAR (%) 9.62% 9.40% 9.19%
Fall in CAR (%) 0.43% 0.65% 0.86%
Credit Risk 4 : Increase In NPL In
Particular 1 Or 2 Sectors
Excel

15. Credit Risk 5 : Increase of the NPLs due to
default of Top 10 large borrowers
Year 2013
Calibration in CAR: Scenario 1 Scenario 2 Scenario 3
Increase in NPLs (%) 5% 7.5% 10%
CAR 10.05% 10.05% 10.05%
Risk weighted assets 69,838,400,000 69,838,400,000 69,838,400,000
Regulatory capital 7,018,759,200 7,018,759,200 7,018,759,200
Total Outstanding Loan to Top 10 large borrowers (Funded)
9,579,400,000 9,579,400,000 9,579,400,000
Magnitude of Risk 5% 7.5% 10%
Increase in NPLs under bad/loss (B/L) category 478,970,000 718,455,000 957,940,000
Increase in provisions (after adjustment of eligible securities; if any)
478,970,000 718,455,000 957,940,000
Tax Adjusted Provision (not yet applicable) 478,970,000 718,455,000 957,940,000
Revised Regulatory Capital 6,539,789,200 6,300,304,200 6,060,819,200
Revised risk weighted assets 69,359,430,000 69,119,945,000 68,880,460,000
Revised CAR (%) 9.43% 9.12% 8.80%
Fall in CAR (%) 0.62% 0.93% 1.25%
Excel

16. Year 2013 2012 2011
CAR (%) 10.05% 10.13% 9.41%
Risk Weighted Assets 69,838,400,000 60,304,500,000 53,907,000,000
Total Regulatory Capital 7,018,759,200 6,108,845,850 5,072,648,700
Total Loan 28,808,976,423 25,935,567,835 20,822,595,023
NPL ratio 1.37% 1.23% 1.29%
Total Non-Performing Loans (NPLs) 394,682,977 319,007,484 268,611,476
Increase in NPLs 7,018,759,200 6,108,845,850 5,072,648,700
Increase in provisions (after adjustment of eligible securities; if any)
7,018,759,200 6,108,845,850 5,072,648,700
Revised Regulatory Capital 0 0 0
Revised risk weighted assets 62,819,640,800 54,195,654,150 48,834,351,300
Revised CAR (%) 0% 0% 0%
Fall in CAR (%) 10.05% 10.13% 9.41%
Revised NPLs 7,413,442,177 6,427,853,334 5,341,260,176
Revised NPLs to Loans (%) 25.73% 24.78% 25.65%
Increase In NPL Up to that Position in Which
Whole Capital Will be Wiped Out
Excel

17. Year 2013
Calibration in CAR: Scenario 1 Scenario 2 Scenario 3
CAR
10.05% 10.05% 10.05%
Risk weighted assets 69,838,400,000 69,838,400,000 69,838,400,000
Regulatory capital 7,018,759,200 7,018,759,200 7,018,759,200
Cumulative Impact of Credit Shock ( aggregate of 5 types of credit shock) 1,608,557,928 2,799,907,866 4,749,612,434
Tax Adjusted Provision (not yet applicable) 1,608,557,928 2,799,907,866 4,749,612,434
Revised Regulatory Capital 5,410,201,272 4,218,851,334 2,269,146,766
Revised risk weighted assets 68,229,842,072 67,038,492,134 65,088,787,566
Revised CAR (%) 7.93% 6.29% 3.49%
Fall in CAR (%) 2.12% 3.76% 6.56%
Cumulative credit shock
Excel

18. Year 2013
Calibration in CAR: Scenario 1 Scenario 2 Scenario 3
Fall in the stock prices (%) 10% 20% 40%
Tax Rate 42.50% 42.50% 42.50%
CAR 10.05% 10.05% 10.05%
Risk weighted assets 69,838,400,000 69,838,400,000 69,838,400,000
Regulatory capital 7,018,759,200 7,018,759,200 7,018,759,200
Magnitude of Risk 10% 20% 40%
Total exposure in stock market 189,458,134 189,458,134 189,458,134
Fall in the stock prices 18,945,813 37,891,627 75,783,254
Tax adjusted loss 10,893,843 21,787,685 43,575,371
Revised Regulatory Capital 7,007,865,357 6,996,971,515 6,975,183,829
Revised risk weighted assets 69,827,506,157 69,816,612,315 69,794,824,629
Revised CAR (%) 10.036% 10.02% 9.99%
Fall in CAR (%) 0.014% 0.03% 0.06%
Equity Price Risks
Excel

19. Year 2013
Calibration in LR: Scenario 1 Scenario 2 Scenario 3
Fall in Liquid Liabilities (%) 10% 20% 30%
Liquid Asset (LA) 31,368,396,528 31,368,396,528 31,368,396,528
Liquid Liability (LL) 96,163,079,485 96,163,079,485 96,163,079,485
Liquidity Ratio 32.62% 32.62% 32.62%
Magnitude of Shock 10% 20% 30%
Fall in liquid liabilities 9,616,307,949 19,232,615,897 28,848,923,846
Revised Liquid Asset 21,752,088,580 12,135,780,631 2,519,472,683
Revised Liquid Liability 86,546,771,537 76,930,463,588 67,314,155,640
Revised Liquidity Ratio (%) 25.13% 15.78% 3.74%
Fall in Liquidity Ratio (%) 7.49% 16.85% 28.88%
Liquidity Risk
Excel

20. Year 2013
Change in market Value of Equity: Scenario 1 Scenario 2 Scenario 3
Duration of Assets (DA) 0.63 0.63 0.63
Duration of Liabilities (DL) 0.72 0.72 0.72
Market Value of Assets (MVA) 107,207,242,174 107,207,242,174 107,207,242,174
Market Value of Liabilities (MVL) 98,663,079,485 98,663,079,485 98,663,079,485
Duration GAP (DGAP) -0.03 -0.03 -0.03
(- DGAP) 0.03 0.03 0.03
Change in interest rate (Δi) 1% 2% 3%
Effective Yield to Maturity of assets (y) 12.88% 12.88% 12.88%
Market Value of total Assets (MVA) 107,207,242,174 107,207,242,174 107,207,242,174
Change in market Value of Equity (ΔMVE) 29,252,645 58,505,290 87,757,936
Calibration in CAR: Scenario 1 Scenario 2 Scenario 3
Tax (%) 42.50% 42.50% 42.50%
Capital Adequacy Ratio (CAR) (%) 10.05% 10.05% 10.05%
Total risk weighted assets (RWA) 69,838,400,000 69,838,400,000 69,838,400,000
Regulatory Capital 7,018,759,200 7,018,759,200 7,018,759,200
Magnitude of shock 1% 2% 3%
Fall in MVE (on Balance sheet) -29,252,645 -58,505,290 -87,757,936
Tax Adjusted Loss -16,820,271 -33,640,542 -50,460,813
Revised Regulatory Capital 7,035,579,471 7,052,399,742 7,069,220,013
Revised RWA 69,855,220,271 69,872,040,542 69,888,860,813
Revised CAR (%) 10.07% 10.09% 10.11%
Fall in CAR (%) -0.02% -0.04% -0.06%
Interest rate risk
Excel

21. Year 2013
Calibration in CAR: Scenario 1 Scenario 2 Scenario 3
CAR 10.05% 10.05% 10.05%
Risk weighted assets 69,838,400,000 69,838,400,000 69,838,400,000
Regulatory capital
7,018,759,200 7,018,759,200 7,018,759,200
Cumulative Impact of All Shocks (Credit, interest rate, Exchange rate, and Equity ) 1,604,328,543 2,791,449,098 4,755,870,095
Tax Adjusted Provision (not yet applicable) 1,606,126,032 2,795,044,074 4,753,210,589
Revised Regulatory Capital 5,412,633,168 4,223,715,126 2,265,548,611
Revised risk weighted assets 68,232,273,968 67,043,355,926 65,085,189,411
Revised CAR (%) 7.93% 6.30% 3.48%
Fall in CAR (%) 2.12% 3.75% 6.57%
Cumulative All Shocks Calculation
Excel

22. Findings and conclusions
Duration gap, is negative in 2013 which indicates that the bank was facing re-financing risk
Cumulative duration gap was positive in each year
Lowering the CAR in 2013 by 10.04%, 10.02% and 9.99% respectively under the three scenarios i.e.
minor, moderate & major.
The percentage of liquidity mismatch fell in case of major shocks for 2013 are 28.88%, 16.85% and 7.49%
respectively

23. Thanks
for
being with me