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About SJIBL » Risk Management
Market Discipline
Disclosures on Risk Based Capital (Basel II) as on 31.12.2010
The purpose of Market Discipline in (Basel II) is to establish more transparent and more disciplined financial market so that stakeholders can assess the position of a bank regarding holding of assets and to identify the risks relating to the assets and capital adequacy to meet probable loss of assets. For the said purpose, this "Disclosures on Risk Based Capital (Basel II)" is made as per Bangladesh Bank's Guideline.
1. Scope of Application
Qualitative Disclosures
a) The name of the top corporate entity in the group to which this guidelines applies: - Shahjalal Islami Bank Limited
b) An outline of differences in the basis of consolidation for accounting and regulatory purposes, with a brief description of the entities within the group (a) that are fully consolidated; (b) that are given a deduction treatment; and (c) that are neither consolidated nor deducted (e.g. where the investment is risk - weighted). The Financial Statements of the bank include the financial statements of Shahjalal Islami Bank Limited

A brief description of the Bank are given below:

The Shahjalal Islami Bank Limited (hereinafter called 'the Bank'-'SJIBL') was established as a Public Limited Company (Banking Company) as on the 1st day of April 2001 under the Companies Act 1994 as interest free Islamic Shari'ah based commercial bank and commenced its operation on the 10th day of May 2001 with the permission of Bangladesh Bank. Presently the Bank is operating its business through head office having 63 branches, 06 (six) SME centers and 14 (fourteen) ATM booths all over Bangladesh.

The Bank is listed with both the Stock Exchanges of the country, i.e. Dhaka Stock Exchange Limited and Chittagong Stock Exchange Limited.

The principal activities of the bank all kinds of commercial banking services to its customers through its branches following the provisions of the Bank Companies Act 1991, Bangladesh Bank's Directives and the principles of the Islamic Shari'ah.
c) Any restrictions, or other major impediments, on transfer of funds or regulatory capital within the group - Not applicable.
Quantitative Disclosures
d) The aggregate amount of capital deficiencies in all subsidiaries not included in the consolidation i.e. that are deducted and name(s) of such subsidiaries.
- Not applicable.
2. Capital Structure
Qualitative Disclosures
a) Summary information on the terms and conditions of the main features of all capital instruments, especially in the case of capital instruments eligible for inclusion in Tier 1 or Tier 2. As per the guidelines of Bangladesh Bank, Tier-1 Capital of SJIBL consists of i. Fully Paid-up Capital, ii. Statutory Reserve and iii. Retained Earnings .

Tier-2 Capital consists of applicable amount of i. General Provision (aginst unclassified Investments, Off-Ballance Sheet exposure)
Quantitative Disclosures
b) The amount of Tier-1 capital, with separate disclosure of
Particulars Taka in million
i. Fully paid-up Capital 3,425.12
ii. Statutory Reserve 1,774.63
iii) Non-repayable Share Premium account -
iv General Reserve -
v Retained Earnings 1,548.60
vi Minority interest in Subsidiaries -
vii Non-cumulative irredeemable preference shares -
viii Dividend equalization account -
ix Other (if any item approved by Bangladesh Bank) -
Sub-Total (A) 6,748.35
C) The total amount of Tier-2 and Tier-3 capital -
i) Amount of Tier-2 capital 998.48
ii) Amount of Tier-3 capital -
Sub-Total amount of Tier-2 and Tier-3 capital (B) 998.48
d) Other deductions from capital -
e) Total Eligible Capital (A+B) 7,746.83
3. Capital Adequacy
Qualitative Disclosures
a) A summary discussion of the bank's approach to assess the adequacy of its capital to support current and future activities. The Bank has adopted Standardized Approach (SA) for computation of capital charge for investment risk and market risk, and Basic Indicator Approach (BIA) for operational risk. Assessment of capital adequacy is carried out in conjunction with the capital adequacy reporting to the Bangladesh Bank.

The Bank has maintained capital adequacy ratio at 10.08% as against the minimum regulatory requirement of 9.00%. Tier-I capital adequacy ratio is 8.78% as against the minimum regulatory requirement of 5%. The Bank’s policy is to manage and maintain strong Capital Adequacy Ratio with high rating grade of investment clients. The Bank maintains adequate capital that is sufficient to absorb all material risks associated with the Bank. The Bank also ensures that the levels of capital comply with regulatory requirements and satisfy the external rating agencies and other all stakeholders including depositors.
Quantitative Disclosures
b) Capital requirements for Investment (Credit) Risk: 7,003.58
c) Capital requirements for Market Risk 119.69
d) Capital requirements for Operational Risk 564.96
e) Total and Tier-1 capital ratio:
Minimum capital requirement 7,688.23
Total Risk Weighted Assets (RWA) 76,882.30
Total and Tier-1 capital ratio:
Tier-1 CAR 8.78%
Tier-2 CAR 1.30%
Total CAR 10.08%
Qualitative Disclosures
a) i) The general qualitative disclosure requirement with respect to credit risk, including: Definitions of past due and impaired (for accounting purposes)
- As per relevant Bangladesh Bank guidelines, depending on type of the investments, it is considered past due from the following date of the expiry date or after six months of expiry date. If the investment is past due for three months or beyond then it is considered Special Mention Account (SMA). Again depending on type of the investment, if the investment is overdue for 6 months or beyond or if defaulted installment is equal to or more than the installment(s) due within six months /12 months then it is considered sub-standard. Then if the investment is overdue for 9 months or beyond or if defaulted installment is equal to or more than the installment(s) due within 12 months / 18 months then it is considered doubtful. Then if the investment is overdue for 12 months or beyond or if defaulted installment is equal to or more than the installment (s) due within 18 /24 months then it is considered bad / loss.
ii) Description of approaches followed for specific and general allowances and statistical methods; The Bank is following the general and specific provision for investments on the basis of Bangladesh Bank guidelines issued from time to time.

Rates of provision are noted below:
- As per relevant Bangladesh Bank guidelines, 1% to 5% provision is maintained against unclassified investments, 5% provision is maintained against SMA investments, 20% provision is maintained against sub-standard investments, 50% provision is maintained against doubtful investments and 100% provision is maintained against bad/loss investments after deducting value of eligible security, if any, as per Bangladesh Bank guidelines.
iii) Discussion of the Bank's investment risk management policy The Board approved the Investment Risk Manual (IRM) keeping in view relevant Bangladesh Bank guidelines to ensure best practice in investment risk management and maintain quality of assets. Authorities are properly delegated ensuring check and balance in investment operation at every stage i.e. screening, assessing risk, identification, management and mitigation of investment risk as well as monitoring, supervision and recovery of investments with provision for Early Warning System. There is a separate investment risk management division for mitigation of investment risk , separate investment administration division for ensuring perfection of securities and investment monitoring and recovery division for monitoring and recovery of irregular investments. Internal control & compliance division Independently assess quality of investments and compliance status of investments at least once in a year. Adequate provision is maintained against classified investments as per Bangladesh Bank guidelines. Status of investments is regularly reported to the Board /Executive Committee of the Board.
Quantities Disclosures
b) Total gross investment risk exposures broken down by major types of investment exposures. Major type of investment exposures as per disclosure in the audited financial statements as of 31st December 2010 of the Bank
Particulars Taka in million
Agriculture & Fishing 269.90
Cotton & Textile 9,053.80
Garments 7,403.41
Cement 589.20
Pharmaceuticals & Chemicals 763.70
Real Estate 5,697.80
Transport 2,230.50
Information Technology 87.91
Non Banking Financial Institutions 1,544.04
Steel & Engineering 3,116.30
Paper & Paper Products 954.53
Services Industries 2,500.20
Trading 6,369.80
Import Financing 6,320.10
Consumer Financing 423.27
Share business 4,380.64
Staff Investment 481.78
Others 9,253.20
Total 61,440.08
Quantities Disclosures
c) Geographical distribution of exposures, broken down in significant areas by major types of investment exposure. Geographical distribution of exposures, broken down in significant areas by major types of investment exposure
Particulars Taka in million
Urban 3,314.70
Rural 58,125.38
Total 61,440.08
Division- wise
Dhaka 51,620.66
Chittagong 6,898.00
Sylhet 1,230.60
Rajshahi 559.10
Khulna 1,055.20
Barisal 76.52
Total 61,440.08
Quantities Disclosures
d) Industry or counterparty type distribution of exposures, broken down by major types of investment exposure. Industry or counterparty type distribution of exposures, broken down by major types of investment exposure.
Particulars Taka in million
Investments to allied concern of Directors 93.10
Investments to Executives/Officers 481.78
Investments to Customer Groups 28,918.88
Industrial Investment 25,222.01
Others 6,724.31
Total 61,440.08
e) Residual contractual maturity break down of the whole portfolio, broken down by major types of investment exposure. Residual contractual maturity break down of the whole portfolios, broken down by major types of investment exposure of the Bank:
Particulars Taka in million
Repayable on Demand -
Up to 1 month 9,807.59
Over 1 month but not more than 3 months 6,005.61
Over 3 months but not more than 1 year 22,402.19
Over 1 year but not more than 5 years 14,774.44
Over 5 years 8,450.25
Total 61,440.08
Quantities Disclosures
f) By major industry or counterparty type: Particulars Taka in million
Amount of impaired investments and if available, past due investments, provided separately 1,173.12
Specific and general provisions 988.49
Charges for specific allowances and charge – offs during the period 520.00
g) Gross Non Performing Assets (NPAs) 1,173.12
Non Performing Assets (NPAs) to outstanding Investments 1.91%
Movement of Non Performing Assets (NPAs) Opening balance 413.00
Additions 760.12
Reductions -
Closing balance 1,173.12
Movement of specific provisions for NPAs Opening balance 118.00
Provisions made during the period 150.00
Write-off/Write-back of excess provisions -
Recovery from write-off -
Closing Balance 268.00
5. Equities: Disclosures for Banking Book Position
Qualitative disclosures
a)The general qualitative disclosures requirement with respect to equity risk, including:
Differentiation between holdings on which capital gains are expected and those taken under other objectives including for relationship and strategic reasons; and Investment in equity securities are broadly categorized into two parts:

i) Quoted Securities that are traded in the secondary market (Trading Book Assets).

ii) Unquoted securities are categorized as banking book equity exposures which are further sub-divided into two groups: unquoted securities which are invested without any expectation that these will be quoted in near future

i.e. held to maturity (HTM). And securities those are acquired under private placement or IPO and are going to be traded in the secondary market after completing required formalities Unquoted securities are valued at cost.
Discussion of important policies covering the valuation and accounting of equity holdings in the banking book. This includes the accounting techniques and valuation methodologies used, including key assumptions and practices affecting valuation as well as signi?cant changes in these practices The primary objective is to investment in equity securities for the purpose of capital gain by selling them in future or held for dividend income. Dividends received from these equity securities are accounted for as and when received and right to receive when established. Both Quoted and Un-Quoted equity securities are valued at cost and necessary provisions are maintained if the prices fall below the cost price.
Quantitative Disclosures
Particulars Taka in million
b) Value disclosed in the balance sheet of investments, as well as the fair value of those investments; for quoted securities, a comparison to publicly quoted share values where the share price is materially different from fair value. 501.30
c) The cumulative realized gains (losses) arising from sales and liquidations in the reporting period. 988.04
d) Total latent revaluation gains (losses) -
Any amounts of the above included in Tier – 2 capital. -
Specific Market Risk 41.50
General Market Risk 41.50
6. Profit (Interest) Rate Risk in the Banking Book (PRRBB)
Qualitative disclosures
a) The general qualitative disclosure requirement including the nature of PRRBB and key assumptions, including assumptions regarding investment prepayments and behavior of non-maturity deposits, and frequency of PRRBB measurement. Profit rate risk is the risk where changes in market profit rates might adversely affect bank’s ?nancial condition. Changes in profit rates affect both the current earnings (earnings perspective) as well as the net worth of the bank (economic value perspective). Re-pricing risk is often the most apparent source of profit rate risk for a bank and is often gauged by comparing the volume of a bank’s assets that mature or re-price within a given time period with the volume of liabilities that do so.
The short term impact of changes in profit rates is on the bank’s Net Interest Income (NII). In a longer term, changes in profit rates impact the cash flows on the assets, liabilities and off-balance sheet items, giving rise to a risk to the net worth of the bank arising out of all re-pricing mismatches and other profit rate sensitive position.
Quantitative Disclosures
b)The increase (decline) in earnings or economic value (or relevant measure Used by management) for upward and downward rate shocks according to management’s method for measuring PRRBB, broken down by currency (as relevant).
Profit Rate Risk Analysis
Quantitative Disclosures Taka in million
Particular 1-90 days Over 3 month - Upto 6 months Over 6 months - Upto 9 months Over 9 month - Upto 1 Years
RSA 19,424.41 14,500.19 10,712.00 24,526.26
RSL 15,527.76 13,313.56 10,000.00 23,663.00
GAP 3,896.65 1,186.63 712.00 863.26
Cumulative Gap 3,896.65 5,083.28 5,795.28 6,658.54
Adjusted profit rate changes (PRC) 1.00% 1.00% 1.00% 1.00%
Quarterly earnings impact (Cum. Gap*PRC) 974.16 1,270.82 1,448.82 1,664.64
Accumulate earning impact to date 974.16 2,244.98 3,693.80 5,358.44
Earning impact/Avg. Quarterly Net Profit 1.10% 1.44% 1.64% 1.89%
RSA: Rate Sensitive Assets
RSL: Rate Sensitive Liabilities
7. Market risk
Qualitative disclosures
a) i)Views of BOD on trading / investment activities The Board approved all policies related to market risk, sets limits and reviews compliance on a regular basis. The objective is to provide cost effective funding to finance asset growth and trade related transactions.
ii) Methods used to measure Market risk Standardized approach has been used to measure the Market risk. The total capital requirement in respect of market risk is the aggregate capital requirement calculated for each of the risk sub-categories. For each risk category minimum capital requirement is measured in terms of two separately calculated capital charges for "specific risk" and "general market risk".
iii) Market Risk Management system The Treasury Division manage market risk covering liquidity, profit rate and foreign exchange risks with oversight from Asset-Liability Management Committee (ALCO) comprising senior executives of the Bank. ALCO is chaired by the Managing Director. ALCO meets at least once in a month.
iv) Policies and processes for mitigating market risk There are approved limits for credit deposit ratio, liquid assets to total assets ratio, maturity mismatch, commitments for both on-balance sheet and off-balance sheet items and borrowing from money market and foreign exchange position. The limits are monitored and enforced on a regular basis to protect the market risks. The exchange rate of the Bank is monitored regularly and review the prevailing market Condition, exchange rate, foreign exchange position and transactions to mitigate foreign exchange risks.
b) The capital requirements for
Particulars Taka in Million
Interest rate risk -
Equity position risk 82.90
Foreign Exchange risk and 24.80
Commodity risk -
Total Capital Requirement 107.70
8. Operational risk
Qualitative disclosures
a) i) Views of BOD on system to reduce Operational Risk Operational risk is the risk of loss or harm resulting from inadequate or failed of internal processes, people and systems or from external events. Capability to carry out a large number of transactions effectively and accurately while complying with applicable laws and regulations constitute operational risk management activities of the bank.

The policy for operational risks including internal control & compliance risk is approved by the Board taking into account relevant guidelines of Bangladesh Bank. Audit Committee of the Board directly oversees the activities of Internal Control & Compliance to protect against all operational risk.
ii) Performance gap of executives and staffs SJIBL has a policy to provide competitive package and best working environment to attract and retain the most talented people available in the industry. SJIBL's strong brand image plays an important role in employee motivation. As a result, there is no significant Performance gap.
iii) Potential external events No potential external events are expected to expose the Bank to significant operational risk.
iv) Policies and processes for mitigating operational risk The policy for operational risks including internal control & compliance risk is approved by the Board taking into account relevant guidelines of Bangladesh Bank. Policy guidelines on Risk Based Internal Audit (RBIA) system is in operation. As per RBIA branches are rated according to their risk grading/ scoring audit procedure and required frequent audit to the Branches are operating by the Audit Division. In addition there is a Vigilance Cell established in the bank to reinforce operational risk management of the Bank and to minimize the same. Bank's Anti - Money laundering activities are headed by CAMLCO and their activities are devoted to protect against all money laundering and terrorist finance related activities. Apart from that, there is adequate check & balance at every stage of operation, authorities are properly segregated and there is at least dual control on every transaction to protect against operational risk.
v) Approach for calculating capital charge for operational risk Basic Indicator Approach was used for calculating capital charge for operational risk as of the reporting date.
Quantitative Disclosures
Particulars Taka in million
The capital requirements for
Operational risk 50.85
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