ï»¿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 ...view middle of the document...
Stress testing is a number of quantitative simulation techniques used to assess the potential risks of a FI under a set of exceptional but plausible assumptions through a series of battery of tests. This procedure can be conducted at both the institutional level and the system level. 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. For instance, a portfolio stress test makes a rough estimate of the value of portfolio using a set of exceptional but plausible events in abnormal markets. At the system level, stress tests are primarily designed to quantify the impact of possible changes in economic environment on the financial system. The system level stress tests also complement the institutional level stress testing by providing information about the sensitivity of the overall financial system to a number of risk factors. (Bangladesh Bank, 2010).
Techniques of stress testing include Simple Sensitivity Analysis (single factor tests), Scenario analysis and extreme value/maximum shock analysis. Here, the simple sensitivity analysis measures the impact of the shock in terms of different risk factors but the relationship among the risk factors is not considered. The scenario analysis shows interconnected changing phenomena where a change in a particular risk factor affects other risk factors. Finally, extreme value shock analysis measures the impact of worse case scenarios and thus provides a comprehensive view about the aftermath of such situation.
This report includes a complete stress testing analysis for Agrani Bank Limited. Here, all of the key risk parameters are thoroughly analyzed and tested for two different scenarios. The results show the effect of such shocks on ABLâ€™s financial stance and also ABLâ€™s capability of sustaining such shocks is thoroughly scrutinized throughout the report. For going through the testing procedures, Bangladesh Bankâ€™s guideline on Stress Testing 2010 is carefully followed. And the necessary information required for the analysis is retrieved from Agrani Bankâ€™s 2014 Annual Report. Tests are examined on the basis of balance sheet for the first quarter ended at March 31, 2015
2.0 Overview: Agrani Bank Ltd.
With a vision to serve the nation and being one of the largest nationalized commercial bank in Bangladesh, Agrani Bank Limited, a leading commercial bank with 924 outlets strategically located in almost all the commercial areas throughout Bangladesh, overseas Exchange Houses and hundreds of overseas Correspondents, came into being as a Public Limited Company on May 17, 2007 with a view to take over the business, assets, liabilities, rights and obligations of the Agrani Bank which emerged as a nationalized commercial bank in 1972 immediately after the emergence of Bangladesh as an independent state. Agrani Bank Limited started functioning as...