Table of Contents
Executive summary: 1
1.0 Introduction: 2
2.0 Overview: Agrani Bank Ltd. 3
3.0 Interest Rate Risk: 3
3.1 Stress Testing (Interest Rate Risk) 4
4.0 Credit Shock: 5
4.1 Increases in NPL: 6
4.2 Fall in the FSV of Mortgage Collateral: 7
4.3 Increase in NPL in 1 or 2 sector: 8
4.4 Increase in NPLs due to default of Top 10 large loan borrowers: 9
4.5 Increase in NPLs up to That Position in Which Whole Capital will be Wiped Out: 11
5.0 Equity Price Shock: 13
6.0 Exchange Rate Shock 14
6.1 Management of Foreign Exchange Risk 15
7.0 Liquidity Shock 16
8.0 Findings: 18
9.0 Conclusion: 18
In this report we carried out the stress testing of Agrani Bank Limited (ABL), a leading state owned bank of Bangladesh. Stress testing means For Bangladesh, an analysis conducted under unfavorable economic scenarios which is designed to determine whether a bank has enough capital to withstand the impact of adverse developments. These tests are meant to detect weak spots in the banking system at an early stage, so that preventive action can be taken by the banks and regulators.
Here stress testing is conducted based on the guidelines of Bangladesh Bank, the central bank of Bangladesh. According to the guidelines there are five specific type of risk which will be considered for stress testing. They are Credit risk, Interest Rate Risk, Exchange Rate Risk, Equity Price Risk and Liquidity Risk. There are also some parts of these risk criteria. IN this report all the risks suggested by Bangladesh Bank are considered and analyzed to see how much the bank in exposed to the risk. The data used for this report is latest, for the first quarter of 2015, directly gotten form the bank.
There are three risk categories for each risk, the minor, moderate and major. We considered two risk categories, the minor and the major. All possible scenarios have been exposed and possible inference has been given in this report.