Stress Testing of

Janata Bank Limited

 Stress Testing
• 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.
 Different Techniques of Stress testing

 Simple Sensitivity Analysis (single factor tests) 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. Scenarios can be designed to encompass both movements in a group of
risk factors and the changes in the underlying relationships between these variables.
 Extreme Value/ Maximum Shock Scenario measures the change in the risk factor
in the worst‐case scenario, i.e. the level of shock which entirely wipes out the capital.
Different types of Shocks or risk factors

Interest Rate Risk

Exchange Rate Risk
Credit Risk
Equity Price Risk
Liquidity Risk

Stress test is carried out assuming three different

hypothetical scenarios:

Minor Level Shocks

Moderate Level Shocks
Major Level Shocks
Capital Adequacy Ratio (CAR) of Janata Bank
Limited
a) Core Capital (Tier I) 2014 2013 2012

Paid-up Capital 19,140,000,000.00 19,140,000,000 11,000,000,000

Statutory Reserve 8,969,194,381.00 7,919,183,534 5,968,200,039

Legal Reserve 116,977,583.00 99,903,232 89,813,933
Retained earnings 353,385,827.00 933,410,452 11,167,830,000

Total Eligible Tier-I Capital 28,579,557,791.00 26,225,676,314.00 5,890,183,972.00

b) Supplementary Capital (Tier II)

General Provision maintained against 3,765,582,543.00 4,072,893,165 3,366,818,253

Unclassified Loans/Investments
asset evaluation reserve 3,187,743,469.00 3,187,191,996 3,204,407,963
revaluation reserve for securities 606,051,848.00 454,574,547 148,515,506
revaluation reserve for equity instruments 329,439,449.00 360,699,310 373,063,582
Total Eligible Tier-II Capital 7,888,817,309.00 8,075,359,018.00 7,092,805,304.00

A. Total Eligible Capital 36,468,375,100.00 34,301,035,332.00 12,982,989,276.00

Total risk-weighted assets (RWA) 354,202,500,000.00 333,923,300,000 318,980,320,000
B. Total Required capital (10% RWA) 35,420,250,000.00 33,392,330,000.00 31,898,032,000.00
Capital Surplus / (Shortfall) [A-B] 1,048,125,100.00 908,705,332.00 18,915,042,724.00 • Sayma Sadia 16-113
Capital adequacy ratio 10.30% 10.27% 4.07%
 Interest Rate Risk

2014
Duration of Assets 2.2907
Duration of Liabilities 2.9882

Duration GAP -1.8991

Regulatory Capital 36468375100.00
RWA 354202500000.00
CAR (%) 10.30%
Scenario 1 Scenario 2 Scenario 3
Magnitude of Shock 1% 2% 3%
Weighted Average yield on asset (%) 6.85% 6.85% 6.85%
Total Assets in Mkt Value 625,875,433,607.06 625,875,433,607.06 625,875,433,607.06
Duration Gap -1.8991 -1.8991 -1.8991
Fall in MVE (on balance sheet) -11124604675.06 -22249209350.12 -33373814025.18
Tax Adjusted Loss -6396647688.16 -12793295376.32 -19189943064.48
Revised regulatory Capital 42,865,022,788.16 49,261,670,476.32 55,658,318,164.48
Revised risk weighted asset 360,599,147,688.16 366,995,795,376.32 373,392,443,064.48
Revised CAR 11.89% 13.42% 14.91%
Fall in CAR -1.59% -3.13% -4.61%

• Sayma Sadia 16-113

 Exchange Rate Risk
Exchange Rate Risk 2014
Regulatory Capital 36,468,375,100.00
RWA 354,202,500,000.00
CAR (%) 10.30%
FC Assets 13,284,597,070.00
FC Liabilities 61,246,630,948.00
Net exposure 47,962,033,878.00
Adverse Movement 5% 10% 15%
Exchange rate loss 2,398,101,693.90 4,796,203,387.80 7,194,305,081.70
Tax Rate 42.50% 42.50% 42.50%
Tax adjusted loss 1,378,908,473.99 2,757,816,947.99 4,136,725,421.98
Revised Capital 35,089,466,626.01 33,710,558,152.02 32,331,649,678.02
Revised risk weighted assets 352,823,591,526.01 351,444,683,052.02 350,065,774,578.02
Revised CAR (%) 9.945% 9.592% 9.236%
Fall in CAR (%) 0.351% 0.704% 1.060%

Year 2014 2013 2012

Present CAR 10.30% 10.27% 4.07%
Adverse 5% 10% 15% 5% 10% 15% 5% 10% 15%
Movement
Revised CAR 9.945% 9.592% 9.236% 9.669% 9.058% 8.438% 3.396% 2.712% 2.019%
(%)
Fall in CAR 0.351% 0.704% 1.060% 0.603% 1.214% 1.834% 0.674% 1.358% 2.052%
(%)
• Sayma Sadia 16-113
 Equity Price Risk
Equity Price Risk 2014

Regulatory Capital 36,468,375,100.00

RWA 354,202,500,000.00
CAR (%) 10.30%
10% 20% 40%
Total Exposure in Stock 11,052,600,000.00 11,052,600,000.00 11,052,600,000.00
market
Fall in Stock Prices 1,105,260,000.00 2,210,520,000.00 4,421,040,000.00
Tax 42.5% 42.5% 42.5%
Tax adjusted loss 635,524,500.00 1,271,049,000.00 2,542,098,000.00
Revised Capital 35,832,850,600.00 35,197,326,100.00 33,926,277,100.00
Revised risk weighted assets 353,566,975,500.00 352,931,451,000.00 351,660,402,000.00

Revised CAR (%) 10.13% 9.97% 9.65%

Fall in CAR (%) 0.16% 0.32% 0.65%
Year 2014 2013 2012
Present CAR 10.30% 10.27% 4.07%
Adverse 10% 20% 40% 10% 20% 40% 10% 20% 40%
Movement
Fall in CAR 0.16% 0.32% .65% .17% .34% .68% 0.02% .05% .10%
(%)
Revised CAR 10.13% 9.97% 9.65% 10.10% 9.93% 9.59% 4.05% 4.02% 3.97%
(%) • Sayma Sadia 16-113
 Credit Risk: Increase in NPL
2014
CAR (%) 10.30% 10.30% 10.30%
1% 2% 3%
Total Loan (in million) 319,773,246,472.00 319773246472.00 319773246472.00
Total Performing Loan 282,397,576,472.00 282,397,576,472.00 282,397,576,472.00
Total NPLs 37,375,670,000.00 37,375,670,000.00 37,375,670,000.00
NPLs to Loan(%) 11.69% 11.69% 11.69%
Increase in NPLs 2,823,975,764.72 5,647,951,529.44 8,471,927,294.16
Increase in Provisions 2,823,975,764.72 5,647,951,529.44 8,471,927,294.16
Tax adjusted Provision (no tax) 2,823,975,764.72 5,647,951,529.44 8,471,927,294.16
Revised Capital 33,644,399,335.28 30,820,423,570.56 27,996,447,805.84
Revised risk weighted assets 351,378,524,235.28 348,554,548,470.56 345,730,572,705.84
Revised CAR (%) 9.57% 8.84% 8.10%
Fall in CAR (%) 0.72% 1.45% 2.20%
Revised NPLs 40199645764.72 43023621529.44 45847597294.16
Revised NPLs to Loans (%) 12.57% 13.45% 14.34%
Year 2014 2013 2012
1% 2% 3% 1% 2% 3% 1% 2% 3%
CAR 10.30% 10.30% 10.30% 10.27% 10.27% 10.27% 4.07% 4.07% 4.07%
NPL Ratio 11.69% 11.69% 11.69% 11.12% 11.12% 11.12% 17.42% 17.42% 17.42%
Revised CAR 9.57% 8.84% 8.10% 9.58% 8.89% 8.18% 3.13% 2.53% 1.74%
(%)
Revised NPL to 12.57% 13.45% 14.34% 12.01% 12.89% 13.78% 18.25% 19.08% 19.90%
Loans(%)
Fall in 0.72% 1.45% 2.20% 0.69% 1.39% 2.10% 0.76% 1.54% 2.53% • Sayma Sadia 16-113
CAR(%)
 Credit Risk: Downward Shift in NPL Categories
2. Downward Shift in NPLs 2014
Categories
SMA SS DF Bad/Loss
Loans 282,397,580,774.00 5,183,245,643.00 4,212,102,563.00 27,980,317,492.00
FSV of Mortgage Collateral 0.00 0.00 0.00 0.00
282,397,580,774.00 5,183,245,643.00 4,212,102,563.00 27,980,317,492.00
Percentage of provision 5% 20% 50% 100%
Provision 14,119,879,038.70 1,036,649,128.60 2,106,051,281.50 27,980,317,492.00
50% 80% 100%
Weighted amount of provision 45,242,896,940.80 45,242,896,940.80 45,242,896,940.80
Provision after shift in categories 61,193,288,466.70 79,235,450,805.46 91,263,559,031.30
Increase in Provision 15,950,391,525.90 33,992,553,864.66 46,020,662,090.50
Tax adjusted Provision (no tax) 15,950,391,525.90 33,992,553,864.66 46,020,662,090.50
Revised Capital 20,517,983,574.10 2,475,821,235.34 9,552,286,990.50
Revised risk weighted assets 338,252,108,474.10 320,209,946,135.34 308,181,837,909.50
Revised CAR (%) 6.07% 0.77% -3.10%
Fall in CAR (%) 4.23% 9.52% 13.40%

Year 2014 2013 2012

Shift in NPL 50% 80% 100% 50% 80% 100% 50% 80% 100%
Categories
CAR 10.30% 10.30% 10.30% 10.27% 10.27% 10.27% 4.07% 4.07% 4.07%
Revised CAR 6.07% 0.77% -3.10% 6.10% 0.97% -2.77% -1.19% -7.40% -11.99%
(%)
Fall in 4.23% 9.52% 13.40% 4.17% 9.30% 13.04% 5.26% 11.47% 16.06%
CAR(%)
• Sayma Sadia 16-113
 Credit Risk: Increase of NPL in particular 1 or 2 Sectors
3. Increase of NPLs in particular 1 or 2 2014
sectors
textile & jute industry
5.0% 7.5% 10.0%
Total Loans 25,324,600,000.00 25,324,600,000.00 25,324,600,000.00
Increase in NPLs under B/L category 1,266,230,000.00 1,899,345,000.00 2,532,460,000.00

Increase in provision 1,266,230,000.00 1,899,345,000.00 2,532,460,000.00

Revised Capital 35,202,145,100.00 34,569,030,100.00 33,935,915,100.00

Revised risk weighted assets 352,936,270,000.00 352,303,155,000.00 351,670,040,000.00

Revised CAR (%) 9.97% 9.81% 9.65%

Fall in CAR (%) 0.32% 0.48% 0.65%

Year 2014 2013 2012

Magnitude of 5.0% 7.5% 10.0% 5.0% 7.5% 10.0% 5.0% 7.5% 10.0%
Shock
CAR 10.30% 10.30% 10.30% 10.27% 10.27% 10.27% 4.07% 4.07% 4.07%
Revised CAR 9.97% 9.81% 9.65%
(%) 9.92% 9.74% 9.56% 3.72% 3.55% 3.37%
Fall in
0.32% 0.48% 0.65% 0.35% 0.53% 0.71% 0.35% 0.52% 0.70%
CAR(%)

• Sayma Sadia 16-113

 Credit Risk: Increase in NPLs due to default of Top 10
4. Increase in NPLs due to 2014
default of Top 10
5.0% 7.5% 10.0%
Total Loan to Top 10 large 138,101,300,000.00 138,101,300,000.00 138,101,300,000.00
borrowers
Increase in NPLs under B/L 6,905,065,000.00 10,357,597,500.00 13,810,130,000.00
Category
Increase in Provisions 6,905,065,000.00 10,357,597,500.00 13,810,130,000.00
Tax adjusted Provision (no tax) 6,905,065,000.00 10,357,597,500.00 13,810,130,000.00
Revised Capital 29,563,310,100.00 26,110,777,600.00 22,658,245,100.00
Revised risk weighted assets 347,297,435,000.00 343,844,902,500.00 340,392,370,000.00
Revised CAR (%) 8.51% 7.59% 6.66%
Fall in CAR (%) 1.78% 2.70% 3.64%

Year 2014 2013 2012

Magnitude 5.0% 7.5% 10.0% 5.0% 7.5% 10.0% 5.0% 7.5% 10.0%
of Shock
CAR 10.30% 10.30% 10.30% 10.27% 10.27% 10.27% 4.07% 4.07% 4.07%
Revised 8.51% 7.59% 6.66% 8.36% 7.37% 6.37% 1.27% -0.19% -1.69%
CAR (%)
Fall in 1.78% 2.70% 3.64% 1.91% 2.90% 3.91% 2.80% 10.48% 11.99%
CAR(%)

• Sayma Sadia 16-113

 Credit Risk: Increase in NPLs up to extreme position
5. Increase in NPLs up 2014 2013 2012
to extreme position

Total Loan (in millions) 319,773,246,472.00 285,747,654,328.00 305,339,578,715.00

Total Performing Loan 282,397,576,472.00 253,980,794,328.00 252,137,878,715.00
Total NPLs 37,375,670,000.00 31,766,860,000.00 53,201,700,000.00
NPLs to Loan(%) 11.69% 11.12% 17.42%
Total Capital 36,468,375,100.00 34,301,035,332.00 12,982,989,276.00
Increase in NPL 36,468,375,100.00 34,301,035,332.00 12,982,989,276.00
Revised Capital 0.00 0.00 0.00
Revised RWA 317,734,124,900.00 299,622,264,668.00 305,997,330,724.00
Revised CAR (%) 0 0 0
Fall in CAR (%) 10.30% 10.27% 4.07%
Revised NPLs 73,844,045,100.00 66,067,895,332.00 66,184,689,276.00
Revised NPLs to Loans 23.09% 23.12% 21.68%
(%)

• Sayma Sadia 16-113

 Cumulative Impact of All Credit Shock
2014

CAR (%) 10.30%

1% 2% 3%
Tax Adjusted Provision 26,945,662,290.62 51,897,447,894.10 70,835,179,384.66
Revised Capital 9,522,712,809.38 15,429,072,794.10 34,366,804,284.66
Revised risk weighted assets 327,256,837,709.38 302,305,052,105.90 283,367,320,615.34

Revised CAR (%) 2.91% -5.10% -12.13%

2013

CAR (%) 10.27%

Tax Adjusted Provision
Revised Capital
Revised risk weighted assets
Revised CAR (%)
1% 2%
25,650,363,959.98 48,848,328,283.30
8,650,671,372.02 14,547,292,951.30
308,272,936,040.02 285,074,971,716.70
2.81% -5.10%
3%
66,539,575,479.94
32,238,540,147.94
267,383,724,520.06
-12.06%

2012

CAR (%) 4.07%

Tax Adjusted Provision
Revised Capital
Revised risk weighted assets
Revised CAR (%)
1% 2%
29,282,174,504.20 54,405,179,286.52
16,299,185,228.20 41,422,190,010.52
289,698,145,495.80 264,575,140,713.48
-5.63% -15.66%
3%
73,692,622,070.45
60,709,632,794.45
245,287,697,929.55 • Sayma Sadia 16-113
-24.75%
 Liquidity Shock
Liquidity Shock 2014
Liquid Assets (LA) 236,184,621,245.00
Liquid Liabilities (LL) 520,876,402,573.00
Liquidity Ratio 45.34%

10% 20% 30%

Fall in Liquid Liabilities 52,087,640,257.30 104,175,280,514.60 156,262,920,771.90
Revised Liquid Assets 184,096,980,987.70 132,009,340,730.40 79,921,700,473.10
Revised Liquid Liabilities 468,788,762,315.70 416,701,122,058.40 364,613,481,801.10
Revised Liquidity Ratio 39.27% 31.68% 21.92%
Fall in Liquidity Ratio 6.07% 13.66% 23.42%

Year 2014 2013 2012

Liquidity Ratio 45.34% 45.98% 34.14%
Fall in Liquid 10% 20% 30% 10% 20% 30% 10% 20% 30%
Liabilities
Revised 39.27 31.68% 21.92% 39.98% 32.48% 22.83% 26.82% 17.68% 5.92%
Liquidity Ratio %
Fall in 6.07% 13.66 23.42 6.00% 13.50% 23.15% 7.32% 16.46% 28.23%
Liquidity % %
Ratio • Sayma Sadia 16-113
 Cumulative Impact of all shock

2014

Tax Adjusted Provision 32,098,438,097.89 62,202,999,508.64 86,929,031,306.47

Revised Capital 4,369,937,002.11 25,734,624,408.64 50,460,656,206.47
Revised risk weighted assets 322,104,061,902.11 291,999,500,491.36 267,273,468,693.53
Revised CAR (%) 1.36% -8.81% -18.88%

2013

Tax Adjusted Provision 28,510,851,813.17 52,340,108,636.49 73,523,136,186.31

Revised Capital 7,957,523,286.84 15,871,733,536.49 37,054,761,086.31
Revised risk weighted assets 325,691,648,186.84 301,862,391,363.52 280,679,363,813.69
Revised CAR (%) 2.44% -5.26% -13.20%

2012

Tax Adjusted Provision 36,050,726,997.14 59,019,612,387.22 76,242,737,920.96

Revised Capital 417,648,102.86 22,551,237,287.22 39,774,362,820.96
Revised risk weighted assets 318,151,773,002.86 295,182,887,612.78 277,959,762,079.04
Revised CAR (%) 0.13% -7.64% -14.31%
• Sayma Sadia 16-113
 Findings

Liquidity
In minor,
position is not And in case of
Janata Bank moderate and
strong. It will Cumulative
has sustained major level of So the CAR of
experience a credit shock
the required shock CAR Janata bank is
huge decline in and extreme
level of Capital could not not quite strong
liquidity ratio situation the
adequacy ratio sustain above to infer a better
in case of CAR could not
in the previous the required sustainability
minor, sustain above
years except level except for against shocks
moderate and the required
2012. interest rate
of course major level.
risk.
shock.