BASEL III PILLAR 3

Market Discipline of The City Bank Ltd.

Disclosure on Risk Based Capital

Annual Disclosure for the year ended December 31, 2015
 The City Bank Ltd

Basel III Pillar 3: Disclosures on Risk Based Capital

Introduction

Capita management is considered as an integral part of the risk management of the bank as capital
ensures cushion against any loss suffered by the bank and saves bank from running off. Banking
Industry of Bangladesh entered into the Basel III from Basel II regime from 1 January 2015. Since
then, City Bank Limited (CBL) has applied the Basel III framework as part of its capital management
strategy. Like Basel II, Basel III accord is also made up of three pillars:
• Pillar 1 (Minimum Capital Requirement) covers the calculation of risk-weighted assets and
minimum capital requirement for credit risk, market risk and operational risk
• Pillar 2 (Supervisory Review Process) intends to ensure that the Banks have adequate
capital to address all the risks in their business
• Pillar 3 speaks of ensuring market discipline by disclosing adequate information to the
stakeholders

Disclosures are intended to inform the general market participants about the scope of application
of new capital adequacy framework, capital of the Bank, risk exposures of the Bank, Bank’s risk
assessment processes, its risk mitigation strategies and practices and capital adequacy of the bank
through disclosure format in line with the Bangladesh Bank BRPD Circular no. 35 of December 29,
2010 as to Guidelines on ‘Risk Based Capital Adequacy for Banks’ and subsequent BRPD Circular 18
dated December 21, 2014 on ‘Guideline on Risk Based Capital Adequacy’.

The report is prepared once a year, except in exceptional circumstances, according to Disclosure
Policy of CBL and Bangladesh Bank’s guidelines. For the ease of stakeholders, it is also made
available at CBL web site (www.thecitybank.com).

Key Metrics:

Capital to Risk Weighted Asset Common Equity Tier I Capital ratio Leverage Ratio
14.03% 10.08% 7.06%
2014: 15.42% 2014: 9.97% 2014: 8.40%

Total Eligible Capital Common Equity Tier I Capital Tier II Capital

Tk 2,257.49 crore Tk 1,623.15 crore Tk 634.34 crore
2014: Tk 2,348.41 crore 2014: Tk 1,518.45 crore 2014: Tk 829.96 crore

Total Risk Weighted Asset Credit Risk RWA Credit Risk RWA density
Tk 16,094.99 crore Tk 13,310.83 crore 82.70%
2014: Tk 15,229.15 crore 2014: Tk 12,413.62 crore 2014: 81.51%

Presentation of information

In this report, CBL information is presented on a solo and consolidated basis. All amounts in the
tables of this Pillar 3 disclosure are denominated in Bangladeshi Taka, unless stated otherwise.
Certain figures in this document have been calculated using rounded figures.

Disclosure on Risk based Capital (Basel III) ii


Table 1: SCOPE OF APPLICATION
a) The name of the top
corporate entity in the
group to which this
guidelines applies.
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;
(c) That are neither
consolidated nor deducted
(e.g. where the investment
is risk-weighted).
Disclosure on Risk based Capital (Basel III)
The City Bank Ltd
Qualitative Disclosures
a) Name of the Bank is The City Bank Ltd (CBL). However, the bank does not
belong to any group.
b) Presently CBL does not have any Associates and/or Joint Venture, but has
three subsidiaries. These are
a. The City Brokerage Limited: The City Brokerage Limited was
incorporated in Bangladesh as a private limited companies on 31
March 2010 vide registration no. C-83616/10 under the Companies Act
1994. The legal status of the Company has been converted into public
limited company from private limited company in June 2012 in
compliance with Bangladesh Securities and Exchange Commission
Rules 2000. Previously CBL launched its brokerage division on 4 August
2009 which was subsequently separated from the Bank on 15
November 2010. On 31 December 2015 the Bank held 99.99% shares
of the Company.
b. City Bank Capital Resources Limited: City Bank Capital Resources
Limited (CBCRL) was incorporated in Bangladesh as a private limited
company on 17 August 2009 vide registration no. C-79186/09 under
the Companies Act, 1994. The legal status of the Company has been
converted into public limited company from private limited company in
September 2013. The registered office of CBCRL is at 10 Dilkusha
Commercial Area, Jibon Bima Tower, Dhaka-1000. CBCRL delivers a
whole range of investment banking services including merchant
banking activities such as issue management, underwriting, portfolio
management and corporate advisory. On 31 December 2015 the Bank
held 99.99% shares of CBCRL.
c. CBL Money Transfer SDN BHD: CBL Money Transfer Sdn. Bhd. (CMTS)
is a private company limited by shares incorporated under the laws of
Malaysia and registered with the Companies Commission of Malaysia
with Registration No. 769212M carrying on money services business
under the Money Services Business Act 2011 under a Class B License
No. 00127 from the Bank Negara Malaysia. CMTS is principally engaged
as inbound and outbound remittance service provider. CBL entered
into an agreement on 4 April 2013 to purchase 75% of ordinary shares
of CMTS with an agreement to acquire 100% shares of CMTS ultimately
and the company became and started as subsidiary of the Bank since 5
August 2013. On 31 December 2014 the Bank held 87.20% shares of
CMTS.
The financials are fully consolidated of all the subsidiaries, which have been
prepared in accordance with BAS 27: Consolidated Financial Statements
and Accounting for investment in subsidiaries. Intercompany transaction
and balances are eliminated; minority interest of Tk. 0.25 crore has been
added in the Tier-1 capital.
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 The City Bank Ltd

c) Any restrictions, or
other major
impediments, on c) Not applicable
transfer of funds or
regulatory capital
within the group.

Quantitative Disclosures
The aggregate amount of
surplus capital26 of Not Applicable
insurance subsidiaries
(whether deducted or
subjected to an alternative
method) included in the
capital of the consolidated
group.

Disclosure on Risk based Capital (Basel III) iv

 The City Bank Ltd

Table 2: CAPITAL STRUCTURE

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 CET 1,
Additional Tier 1 or Tier 2.
Qualitative Disclosures
Regulatory capital base is quite different from Accounting capital. As per
Bangladesh Bank guidelines based on Basel III accord, regulatory capital is
classified into two broad category namely Tier I Capital also known as going
concern capital and Tier II Capital also known as gone concern capital.
Additionally, Tier I Capital is further divided into two categories namely Common
Equity Tier 1 (CET1) and Additional Tier 1 (AT1).
 Common Equity Tier-1 capital of CBL consists of Fully Paid-up Capital,
Statutory Reserves, Share Premium, General Reserve, Retained Earnings and
Minority Interest in its subsidiary in case of consolidation.
 Tier-2 capital of CBL consists of general provision, applicable percentage of
revaluation reserves (50% for fixed asset, 50% for securities and 10% for
shares) and subordinated debt.
 At present, CBL doesn’t hold any AT 1 Capital.

Quantitative Disclosures
Eligible Regulatory Capital Base as on 31 December 2015 (Tk in crore):
Sl. No. Particulars Solo Consolidated
(a) Common Equity Tier I Capital (CET- 1)
a.1 Fully Paid-up Capital 875.80 875.80
a.2 Statutory Reserve 500.28 500.28
a.3 Non-repayable Share Premium account 66.09 66.09
a.4 General Reserve 1.14 1.14
a.5 Retained Earnings 308.77 215.97
a.6 Minority interest in subsidiaries 0.25
a.7 Sub-total Common Equity Tier I Capital (CET- 1) 1,752.08 1,659.53
(b) Deductions from CET-1
b.1 Book value of goodwill which are shown as assets (0.86)
b.2 Deferred Tax Asset (68.42) (68.83)
b.3 Excess investment in equity of other banks, FI and Insurance company (60.51) (66.83)
(c) Total Common Equity Tier I Capital 1,623.15 1,523.01
(d) Additional Tier I Capital - -
(e) Total Tier I Capital 1,623.15 1,523.01
(f) Tier II Capital
f.1 General Provisions (provisions for UC + SMA + OBS exposure) 166.39 163.94
f.2 Revaluation Reserves (50% of Fixed Assets & Security, 10% Equity)* 284.94 285.27
f.5 Tier II Subordinated Bond 300.00 300.00
f.6 Sub-Total of Tier II Capital 751.32 749.21
(g) Deduction from Tier II Capital
g.1 Phase-in deduction of Revaluation Reserves as per Basel III guidelines (56.99) (57.05)
g.2 20% of Tier II Subordinated Bond (60.00) (60.00)
(h) Total Tier II Capital 634.34 632.16
(i) Total Eligible Regulatory Capital 2,257.49 2,155.17
* As on 31 December 2014

Disclosure on Risk based Capital (Basel III) v


Table 3: CAPITAL ADEQUACY
A summary discussion of the
bank’s approach to assessing
the adequacy of its capital to
support current and future
activities.
Disclosure on Risk based Capital (Basel III)
The City Bank Ltd
Qualitative Disclosures
Approaches followed by Bank for Capital Calculation:
Banking industry of Bangladesh made the transition to Basel III from Basel II
since the beginning of 2015. In this regard, Bangladesh Bank, in line with the
Basel Committee on Banking Supervision (BCBS) recommendations and
international best practices, issued revised guideline on Risk Based Capital
Adequacy based on Basel III with the purpose of fully implementing it by the end
of 2019. Accordingly, CBL applied the Basel III framework as part of its capital
management strategy and remained fully capital compliant throughout 2015.
Also as per BB directive, CBL is applying following approaches for its risk wise
capital calculation.
 Credit Risk: Standard Approach (SA)
 Market Risk: Standard Approach (SA)
 Operational Risk: Basic Indicator Approach (BIA)
Risk Weighted Assets of the Bank:
As on 31 December 2015, Total Risk Weighted Asset (RWA) of the bank was Tk
16,094.99 crore on solo basis and Tk 16,058.15 crore on consolidated basis
where Credit risk accounted for 83% of RWA followed by Operational risk for
10% and Market risk for 7%. Subsequently, RWA for credit risk generates the
maximum capital requirement of the bank. In order to improve the capital
requirement under credit risk, CBL continuously pursue for external credit rating
of its client base. At the end of 2015, CBL managed cover around 68% of its total
eligible loans under valid external credit rating.
Compliance with Regulatory Requirements:
As per Basel III guideline, Minimum Capital Requirement (MCR) for the banks in
Bangladesh is currently 10% of its total RWA with the addition of Capital
Conservation Buffer which shall be applicable from 2016. CBL is well ahead of
this minimum target both in Consolidated and in Solo basis as of December
2015. CBL maintained
 Capital to Risk Weighted Asset Ratio (CRAR) of 14.03% on solo basis and
13.42% on consolidated basis
 Tier I capital ratio of 10.08% on solo basis and 9.48% on consolidated
basis against the required level of 6.00%.
 Tier II capital of 39% of CET I on Solo basis and 42% of CET I on
consolidated basis against the maximum limit of 88.89%.
Buffer Capital to Support Current and Future Activities:
As a result, CBL managed to maintain surplus capital of 4.03% on solo basis and
3.42% on consolidated basis. The surplus capital maintained by CBL will act as
buffer to absorb all material risks under Pillar II and to support the future
activities of the bank. Furthermore to ensure the adequacy of capital, the bank
draws assessment of capital requirements periodically considering future
business growth.
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Quantitative Disclosures
Capital Requirement under Credit, Market and Operational Risk (Tk in crore)
Sl. No. Particulars Solo Consolidated
1.0 Capital requirements for Credit Risk: 1,331.08 1,311.53
1.1 Portfolios subject to standardized approach-Funded 1,177.02 1,157.47
1.2 Portfolios subject to standardized approach-Non-Funded 154.06 154.06
2.0 Capital requirements for Market Risk 116.55 130.01
2.1 Interest rate risk (Standardized Approach) 9.23 9.23
2.2 Foreign exchange risk (Standardized Approach) 98.46 111.93
2.3 Equity risk (Standardized Approach) 8.85 8.85
3.0 Capital requirements for Operational Risk (Basic Indicator Approach) 161.86 164.27
4.0 Total Capital Required 1,609.50 1,605.82

5.0 Capital Ratios

5.1 Total Capital Ratio 14.03% 13.42%
5.2 CET I Capital Ratio 10.08% 9.48%
5.3 Total Tier I Capital Ratio 10.08% 9.48%
5.4 Tier II Capital Ratio 3.94% 3.94%

6.0 Capital Conservation Buffer 4.03% 3.42%

7.0 Available Capital under Pillar II requirement 647.99 549.35

Disclosure on Risk based Capital (Basel III) vii


Table 4: CREDIT RISK
The general qualitative
disclosure requirement with
respect to credit risk
 Definitions of past due and
impaired (for accounting
purposes)
 Description of approaches
followed for specific and
general allowances and
statistical methods
 Discussion of the bank’s
credit risk management
policy
Disclosure on Risk based Capital (Basel III)
The City Bank Ltd
Qualitative Disclosures
Credit Risk:
Credit risk refers to the probability of loss due to a borrower’s failure to make
payments on any type of debt. For most banks, loans are the largest and most
obvious source of credit risk. However, there are other sources of credit risk
both on and off the balance sheet. Off-balance sheet items include letters of
credit unfunded loan commitments, and lines of credit. Credit risk management
is the process of mitigating those losses by understanding the adequacy of both
a bank’s capital and loan loss reserves at any given time.
Credit Risk Management at CBL:
In CBL credit is originated from three business segments: Corporate, Commercial
and Branch Banking (SME and Retail). Credit of Corporate, Commercial and
Branch Banking (SME-M) business are being processed by Credit Risk
Management Division (CRMD), while SME-S and Retail credit are processed by
Credit & Collection Division (Retail & Small Business Credit). After approval
Credit Administration Division (CAD) disburses the credit approved by CRMD,
while Asset Operation team of Credit & Collection disburses for the SME-S and
Retail Credits. Classified credit is handled by Special Asset Management Division
(SAMD) where the same of Retail & SME-S business is handled by Collection
team of Credit & Collection, while both of them are supported by Legal Division.
Additionally, Internal Control and Compliance Division (ICCD) conducts on-site
and off-site audit for all credits.
CBL has a structured Credit Risk Management Policy known as Credit Policy
Manual (CPM) approved by the Board of Directors in 2008 and which is reviewed
annually. The CPM defines organization structure, role and responsibilities and,
the processes whereby the credit risks carried by the Bank can be identified,
quantified and managed within the framework that the Bank considers
consistent with its mandate and risk tolerance.
Besides the CPM, CBL also frames Credit Instruction Manuals (CIMs) as and when
necessary to address any regulatory issues or establish control points. Bank also
has a system of identifying and monitoring problem accounts at the early stages
of their delinquency through implementation of ‘Sales Routine’, a customized
tool for Past Due management, so that timely corrective measures are initiated.
Retail and SME-S segment offer some customized products and there are
separate PPGs approved by the Board for each type of customized products.
Loan Classification Criterion:
Loan products are broadly divided in the following types: continuous loan,
demand loan, short term loan and term loan. CBL is following the BB guideline
for classification of its loans products. Presently, we have 5 categories of
classification on objective criterion, they are: Standard (STD), Special Mention
Account (SMA), Sub-standard (SS), Doubtful (DF) and Bad-loss (BL). The objective
criterion for classification is different for different types of loan products.
Amongst these 5 categories, impaired loan encompasses the loans classified as
SS, DF and BL.
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 The City Bank Ltd

Guidelines for Loan Loss Provisions:

Loan loss provisions are made as per BB guideline. General provision is made for
STD and SMA clients at 0.25% - 5% rate (differs for home loan, loan to stock
dealers, credit cards and personal loan products). Specific provision is made for
SS, DF and BL accounts at 20%, 50% and 100% rate respectively on calculated on
base for provision.

Quantitative Disclosures
Total gross credit risk Types of Credit Exposure (Tk in crore) 2015 2014
exposures broken down by Corporate 6,641.36 6,674.49
major types of credit exposure Commercial 738.91 461.82
Retail 952.73 903.35
SME M 1,798.46 1,321.20
SME S 710.61 629.55
Staff Loan 284.34 227.29
Islami Banking 1,658.64 152.88
Off-shore Banking Unit 959.82 785.12
Cards 563.88 506.37
Total Exposure 14,308.75 11,662.06

Geographical distribution of Geographical Exposure (Tk in crore) 2015 2014

exposures, broken down in 1. Overseas: Nil Nil
significant areas by major 2. Domestic: 14,308.75 11,662.06
types of credit exposure 2.1. Urban 14,083.49 11,369.18
Dhaka 11,193.40 8,611.10
Chittagong 2,053.93 2,056.99
Sylhet 44.51 38.24
Rajshahi 327.22 337.73
Khulna 164.43 127.88
Rangpur 274.67 174.28
Barisal 25.32 22.96
2.2. Rural 225.26 292.88
Dhaka 152.87 177.68
Chittagong 57.65 76.72
Sylhet 9.36 34.39
Rajshahi 5.38 4.09
Total Exposure 14,308.75 11,662.06

Industry or counterparty type Industry wise Exposure 2015 2014

distribution of exposures, Agricultural & Agro based 483.60 448.63
broken down by major types Assembling 229.26 279.57
of credit exposure Construction and Real Estate 530.84 506.25
Financial Institutes 273.63 264.28
Food and Related Sectors 784.57 242.05
Infrastructure 631.27 890.03
Manufacturing Sector 2,261.00 1,800.75
Personal service 1,836.23 1,669.06
RMG & Textile 2,607.65 1,690.68
Service Related Sector 765.37 699.10
Steel, Ship breaking & building 1,374.34 1,008.57

Disclosure on Risk based Capital (Basel III) ix

 The City Bank Ltd

Traders 2,047.62 1,722.70

Others 483.36 440.39
Total Exposure 14,308.75 11,662.06

Residual contractual maturity Residual Maturity wise (Tk in crore) 2015 2014
breakdown of the whole Repayable on Demand 660.43 918.48
portfolio, broken down by Over 1 month but not more than 3 months 3,594.08 3,890.43
major types of credit exposure Over 3 months but not more than 1 year 5,210.92 3,021.31
Over 1 year but not more than 5 years 3,765.80 3,163.73
Over 5 years 1,077.52 668.11
Total Exposure 14,308.75 11,662.06

By major industry or Industry wise Impaired Loans and General Specific

SMA NPL
counterparty type: Provisions (Tk in crore) Provision Provision
 Amount of impaired loans Agricultural & Agro based 0.12 25.84 5.50 5.42
and if available, past due Assembling 0.00 0.00 2.15 0.00
loans Construction and Real Estate 27.06 17.51 4.51 3.99
 Specific and general Financial Institutes 0.69 0.00 5.28 0.00
provisions; and Food and Related Sectors 0.37 10.09 6.92 1.51
 Charges for specific Infrastructure 0.00 0.00 6.31 0.00
allowances and charge- Manufacturing Sector 9.50 85.89 17.11 19.41
offs during the period Personal service 59.42 125.22 56.79 81.13
RMG & Textile 13.57 133.35 28.32 49.03
Service Related Sector 87.06 43.37 5.26 15.95
Steel, Ship breaking & building 28.29 325.23 12.59 171.85
Traders 19.03 276.35 6.55 95.74
Others 0.38 41.62 3.88 10.78
Total Exposure 245.49 1084.48 161.17 454.79

 Gross Non-Performing Non-Performing Assets 2015 2014

Assets Gross Non-Performing Assets (NPAs) 1,084.48 685.86
 Non-Performing Assets to NPAs to outstanding loans and advances 7.58% 5.88%
Outstanding Loans & Movement of NPAs (Gross)
advances Opening balance 685.86 725.10
 Movement of Non- Additions 1,253.77 923.81
Performing Assets (NPAs) Reductions (Cash Recovery, Rescheduling, W/O) (855.16) (963.05)
 Movement of Specific Closing balance 1,084.48 685.86
provisions for NPAs Movement of specific provisions for NPAs
Opening balance 297.19 364.52
Less: Fully provided debts written off during year (120.60) (160.49)
Less: Fully waived during the year - -
Add: Recoveries of amounts previously written off 36.58 15.12
Add: Specific provision made during the year for 214.75 78.03
other accounts
Add: Excess amount transferred from provision for 34.77
unclassified accounts
Less: Excess amount transferred to provision for
unclassified accounts
Closing balance 462.69 297.19

Disclosure on Risk based Capital (Basel III) x

 The City Bank Ltd

Table 05: EQUITIES – DISCLOSURES FOR BANKING BOOK POSITIONS

Qualitative Disclosures
The general qualitative disclosure  Investment in equity securities are broadly categorized into two
requirement with respect to equity risk, parts:
including: a) Quoted Securities: Quoted Securities are traded in the
 Differentiation between holdings secondary market and categorized as Trading Book Assets.
on which capital gains are These securities include Common shares, Mutual funds
expected and those taken under listed with Dhaka Stock Exchange and Chittagong Stock
other objectives including for Exchange.
relationship and strategic reasons; b) Unquoted Securities: As there is no secondary market for
and unquoted securities, these instruments are categorized as
 Discussion of important policies banking book assets.
covering the valuation and
accounting of equity holdings in  Quoted shares are reported in market price while the unquoted
the banking book. This includes shares are reported in cost price or Net Asset Value (NAV) per
the accounting techniques and share whichever is lower.
valuation methodologies used,
including key assumptions and
practices affecting valuation as
well as significant changes in
these practices
Quantitative Disclosures
 Value disclosed in the balance
sheet of investments, as well as the Particulars Solo Basis Consolidated Basis
fair value of those investments; for (Tk in crore) Cost Market Cost Market
quoted securities, a comparison to Price value Price Value
publicly quoted share values where Value of Quoted shares 202.47 492.30 270.32 557.40
the share price is materially Value of Unquoted shares 12.84 - 25.74 -
different from fair value.
 The cumulative realized gains Particulars Consolidated
Solo Basis
(losses) arising from sales and (Tk in crore) Basis
liquidations in the reporting period. The cumulative realized gains (losses)
arising from sales and liquidations in the 5.59 11.54
reporting period
 Total unrealized gains (losses)
Total unrealized gains (losses) 289.84 289.84
 Total latent revaluation gains
Total latent revaluation gains (losses) - -
(losses)
Any amounts of the above included in
 Any amounts of the above included 22.34 22.62
Tier-2 capital
in Tier 2 capital.
 Capital requirements broken down
Solo Consolidated
by appropriate equity groupings, Risk Weighted Assets
Basis Basis
consistent with the bank’s and Capital Charge for Risk
Balance Balance
methodology, as well as the Unquoted shares Weight
Sheet RWA Sheet RWA
aggregate amounts and the type of (Tk in crore)
Amount Amount
equity investments subject to any Unquoted shares 125% 11.04 13.80 23.94 29.93
supervisory provisions regarding Unquoted shares 150% 1.80 2.70 1.80 2.70
regulatory capital requirements. (venture capital)
Total Unquoted Shares 12.84 16.50 25.74 32.63
Capital requirement @ 10% of RWA 1.65 3.26

Disclosure on Risk based Capital (Basel III) xi


Table 06: INTEREST RATE RISK IN THE BANKING BOOK (IRRBB)
The general qualitative disclosure
requirement including the nature of
Interest Rate Risk in Banking Book
(IRRBB) and key assumptions, including
assumptions regarding loan
prepayments and behavior of non-
maturity deposits, and frequency of
IRRBB measurement.
Disclosure on Risk based Capital (Basel III)
The City Bank Ltd
Qualitative Disclosures
Interest Rate Risk:
Interest Rate Risk is the risk which affects the Bank’s financial condition
due to changes of market interest rates. Changes in interest rates affect
both the current earnings (earnings perspective) as also the net worth
of the Bank (economic value perspective). Bank assesses the interest
rate risk both in earning and economic value perspective.
Interest Rate Risk Management:
Interest Rate Risk Management Policy, Targets and Controls are
comprehended in Asset Liability Management (ALM) Policy of the Bank
in a separate section which is approved by Board of Directors. Interest
rate risk in banking book is measured through the following approaches
i. Interest Rate Sensitivity analysis (Gap Analysis):
Interest Rate Sensitivity (or Interest Rate Gap) Analysis is used to
measure and manage interest rate risk exposure specifically,
bank’s repricing and maturity imbalances. Gap reports stratify
bank’s rate sensitive assets, liabilities, and off-balance-sheet
instruments into maturity segments (time bands) based on the
instrument’s next repricing or maturity date.
ii. Duration Analysis on Economic Value of Equity:
A weighted maturity/repricing schedule is used to evaluate the
effects of changing interest rates on bank’s economic value by
applying sensitivity weights to each time band. Such weights are
based on estimates of the duration of the assets and liabilities
that fall into each time band.
iii. Stress Testing:
This testing is used for measuring the Interest rate risk on its
Balance Sheet exposure for estimating the impact on the Capital
to Risk Weighted Assets Ratio (CRAR).
Board has also set a prudent limit on interest rate risk such as changes
in Net Interest Income or Net Asset Value in the event of an interest
rate shock in the section: Interest Rate Risk Management of ALM Policy
as follows:
 The change in the Net Income as a percentage to the budgeted
Net Income, should not exceed 5% based on a scenario of
parallel shift of 50 bps
 The impact on the Economic Value of Equity (EVE) as a
percentage to the Equity, should not exceed 5% based on a
scenario of parallel shift of 100 bps. In addition, a limit of 15%
drop in equity value based on a scenario of parallel shift of 200
bps would be considered
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 The City Bank Ltd

Quantitative Disclosures
The increase (decline) in earnings or The plausible Interest rate risk in Banking book as of Dec 31, 2015 is
economic value (or relevant measure calculated as below:
used by management) for upward and
downward rate shocks according to Interest Rate Sensitivity Analysis:
management’s method for measuring Interest rate change 1% 2% 3%
IRRBB, broken down by currency (as Change in Net Interest Income in (28) (56) (83)
relevant). short term bucket (Tk in crore)

Duration Gap Analysis:

Interest rate change 1% 2% 3%
Change in market value of equity (147.10) (294.21) (441.31)
(Tk in crore)

Stress Test for Interest Rate Risk: (Tk in crore)

Shock Level Minor Moderate Major
Interest Rate change 1% 2% 3%
Regulatory capital 2,110.38 1,963.28 1,816.18
(after shock)
Risk Weighted Asset 15,947.89 15,800.78 15,653.68
(after shock)
Capital to Risk Weighted 13.23% 12.43% 11.60%
Assets (after shock)

Disclosure on Risk based Capital (Basel III) xiii


Table 07: MARKET RISK – DISCLOSURES RELATING TO MARKET RISK IN TRADING BOOK
a) Views of BOD on
trading/investment activities
b) Market Risk Management system
c) Policies and processes for
mitigating market risk
d) Methods used to measure Market
risk
Disclosure on Risk based Capital (Basel III)
The City Bank Ltd
Qualitative Disclosures
Market risk is the risk of potential losses in the on-balance sheet and
off-balance sheet positions of a bank, steams from adverse movements
in market rates or prices such as interest rates, foreign exchange rates,
equity prices, credit spreads and/or commodity prices. Market risk
exposure may be explicit in bank’s trading book and banking book. The
objective of the market risk management is to minimize the impact of
losses on bank’s earnings and shareholders’ equity.
Governance: Bank follows a market risk management process that
allows risk-taking within well-defined limits in order to create and
enhance shareholder value and to minimize risk. Regular market risk
reports are presented to the Board Risk Management Committee
(BRMC), Assets & Liabilities Management Committee (ALCO), Risk
Management Unit (RMU) and Investment Committee (IC).
Board of Directors and Board Risk Management Committee (BRMC)
have the superior authority to set market risk management strategy but
have delegated its technical functions to the Assets & Liabilities
Management Committee (ALCO), Risk Management Unit (RMU) and
Investment Committee(IC) of the bank. To administer technical policies
concerning financial models and risk management techniques and to
implement bank’s market risk management policies, procedures and
systems is delegated to Asset Liability Management desk, Market Risk
Management desk and Treasury Middle Office.
Policy, strategy and risk tolerance: Bank has Foreign Exchange Risk
Management Policy, Asset Liability Management Policy and Investment
Policy duly approved by the Board of Directors which covers the
management process of Market Risk Factors. The Bank has reinstated
and reviewed Asset Liability Management (ALM) Policy for effective
management of interest rate risk, liquidity risk. Additionally, various
processes and policies including Investment Policy and Value at Risk
(VaR) and Stress Testing policy are in place.
Bank measures it market risk exposure using Value at Risk (VaR) Model
which is a quantitative approach to measure potential loss for market
risk. Stress Testing is used on asset and liability portfolios to assess
sensitivity on bank’s capital in different situations including stressed
scenario. This test also evaluates resilience capacity of the bank.
Risk tolerance limit, Management Action Triggers (MAT) and Stop loss
limit are in place to limit and control loss from trading assets. Notional
limit and Exposure limits are set for Trading portfolios and Foreign
Exchange Open Position. Other different control mechanism is primed
to monitor foreign exchange open positions. Foreign exchange risk is
computed on the sum of net short positions or net long positions,
whichever is higher, of the foreign currency positions held by the Bank.
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Quantitative Disclosures
The capital requirements for: Capital Allocation for Market Risk is calculated using Standardized
 interest rate risk; Approach as below:
 equity position risk;
 foreign exchange risk; and Solo Basis (Tk in crore):
 Commodity risk. Particulars 2015 2014
Interest rate risk 9.23 38.20
Equity position risk 98.46 95.78
Foreign Exchange risk 8.85 4.87
Commodity risk 0.00 0.00
Total capital requirement 116.55 138.84

Consolidated Basis (Tk in crore):

Particulars 2015 2014
Interest rate risk 9.23 38.68
Equity position risk 111.93 111.26
Foreign Exchange risk 8.85 4.87
Commodity risk 0.00 0.00
Total capital requirement 130.01 154.81

Disclosure on Risk based Capital (Basel III) xv


Table 08: OPERATIONAL RISK
a) Views of BOD on System to
reduce Operational risk
b) Performance gap of
executive and staffs
c) Potential external events
d) Policies and processes for
mitigating operational risk
Disclosure on Risk based Capital (Basel III)
The City Bank Ltd
Qualitative Disclosures
a) Operational risk refers to the risk of loss because of inadequate or failed
internal processes, staff and systems or external events, and also includes
legal risk. Board of Directors of the bank has established operational risk
management process and system to control operational risk. Bank’s
operational risk is largely managed through internal controls and audit
system and operational risk management segment. Bank has dedicated risk
management associates who consistently work for managing the
Operational Risks using effective tools and techniques implemented
through polices and processes. The policy for operational risks is approved
by the BOD following relevant guidelines of Bangladesh Bank.
b) CBL demonstrates commitment to achieve the team objectives and is
always dedicated to develop and make individual confident enough to push
their limits. It mobilizes human resources effectively to ensure that strong
corporate performance is delivered. CBL aims to create a workplace which
rewards individuals for their efforts, promotes work-life balance, offers
employees the opportunities to grow by facilitating personal development
through different types of learning intervention. To carry out the aim CBL
offers competitive, performance-based compensation, a generous benefits
program, and several employee assistance programs. Performance
management policy of City Bank ensures fair and transparent work
evaluation for all employees.
c) CBL strives to achieve its goals while keeping in mind that there is no
room for compromise when it comes to risks. The following potential
external events pose the bank into operational risk and are managed to
keep within tolerable limit:
i. External Fraud: Acts by a third party, of a type intended to deceive,
embezzle property or circumvent the law may raise external
operational risk for the bank. For instance, money laundering, terrorist
financing, theft, forgery, cyber-crime etc.
ii. Risk associated with law and litigation: Legal risk may include Bank’s
losses due to non-compliance with the requirements of the legal
regulations, making legal mistakes in carrying out activities, breach of
legal regulations, terms and conditions of concluded agreements by
the counterparties, changes in law of taxation etc.
iii. Damage of physical asset specially delivery channels: Loss or
damage to physical assets owned by bank from natural disaster or
other events for instance terrorism, vandalism, earthquakes, fires, etc.
iv. Others: External events relate to the changes in national and global
economic conditions and political situation.
d) Operational risk, defined as any risk that is not categorized as market or
credit risk, is the risk of loss arising from inadequate or failed internal
processes, people and systems or from external events. It is inherent in
every business organization and covers a wide spectrum of issues. In order
to properly mitigate this, CBL has dedicated risk management associates
who consistently work for managing the Operational Risks using effective
tools and techniques implemented through polices and processes which
includes
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 The City Bank Ltd

i. Operational Manual for General Banking covering policies and

guidelines for Branch operation, card operation and Treasury
operation,
ii. Foreign Exchange Risk Management Policy
iii. Policy Document on Know Your Customers (KYC)
iv. Anti-Money Laundering & Terrorist Financing guideline
v. ICT security policy
vi. Disaster Recovery and Business Continuity Management Policy
vii. Fraud Detection and Prevention Policy
viii. Insurance Coverage on Assets Financed by CBL

Moreover, CBL has a Risk Management Unit (RMU), comprising of member

of senior management of various risk functions, headed by CRO to
regularly oversee various risks of the banks including operational risk.
Activities of RMU are implemented through independent Risk
Management Division (RMD) of the bank. Additionally, CBL has Internal
Control and Compliance Division (ICCD) to monitor and control operational
procedure of the bank by undertaking periodic and special audit of the
branches and departments at the Head Office for review of the operation
and compliance of statutory requirements. The reports are submitted
subsequently reviewed by the Audit Committee of the Board (ACB) who
directly oversees the activities of Internal Control and Compliance Division
to protect against all operational risks.

e) CBL has adopted Basic Indicator Approach (BI) to assess the capital under
e) Approach for calculating operational risk as of the reporting date. Accordingly, Bank’s operational
capital charge for risk capital charge has been assessed at 15% of positive annual average
operational risk gross income over the previous three years as defined by RBCA.

Quantitative Disclosures
Capital Requirement for Operational Risk (Tk in crore):
Sl. No. Particulars 2015 2014
01 Capital Charge for Operational Risk under MCR (Solo Basis) 161.86 142.71
02 Capital Charge for Operational Risk under MCR (Consolidated Basis) 164.27 144.38

Disclosure on Risk based Capital (Basel III) xvii


Table 09: LIQUIDITY RATIO
a) Views of BOD on System
to reduce liquidity risk
b) Liquidity risk management
system
c) Methods used to measure
liquidity risk
d) Policies and process for
mitigating liquidity risk
Disclosure on Risk based Capital (Basel III)
The City Bank Ltd
Qualitative Disclosures
Liquidity risk is the risk to the bank's earnings and capital arising from its inability
to timely meet obligations when they come due without incurring unacceptable
losses. Liquidity risk primarily arises due to the maturity mismatch associated
with assets and liabilities of the bank. Therefore, The Board of Directors of the
bank set policy, different liquidity ratio limits, and risk appetite for liquidity risk
management.
The Board of Directors of the bank set policy, different liquidity ratio limits, and
risk appetite for liquidity risk management. Asset and Liability Management
Committee (ALCO), chaired by MD and CEO, is responsible for both statutory and
prudential liquidity management. Ongoing liquidity management is discussed as
a regular item at ALCO meeting, which takes on a monthly basis. At the ALCO
meeting, bank’s liquidity position, limit utilization, changes in exposure and
liquidity policy compliance are presented to the committee. Asset Liability
Management Desk (ALM) in the treasury division closely monitors and controls
liquidity requirements on a daily basis.
Liquidity is assessed either through stock approach or cash flow approach. Stock
approach assesses the liquidity condition based on certain liquidity indicators.
Under the Cash Flow approach, gap between cash outflow and inflow in each
time bucket and cumulative gaps across time buckets indicates liquidity
condition on As-on-date basis. Cash flow approach is useful for measuring short-
term liquidity and involves bucketing assets and liabilities into different maturity
buckets. Key liquidity metrics on both local currency and foreign currency
balance sheets are monitored to evaluate the liquidity mismatches and
prudential limits such as:
 Cash Reserve Ratio (CRR)
 Statutory Liquidity Requirement (SLR)
 Advance to Deposit Ratio (ADR)
 Structural Liquidity Profile (SLP)
 Maximum Cumulative Outflow (MCO)
 Medium Term Funding Ratio (MTF)
 Liquidity Coverage Ratio (LCR)
 Net Stable Funding Ratio (NSFR)
 Volatile Liability Dependency Ratio
 Liquid Asset to Total Deposit Ratio
 Liquid Asset to Short Term Liabilities
Liquidly Risk Management is guided by Asset Liability Management (ALM) Policy
of the bank. Liquidly Risk management and Liquidity Contingency Plan are the
two major aspects in the ALM policy. The Bank is equipped with a Liquidity
Contingency Plan (LCP), which is in line with the regulatory guidelines. The LCP
clearly defines the responsibilities of the Liquidity Management Team and
ensures the business continuity through close monitoring of the Bank’s liquidity
position against the pre-defined liquidity Management Action Triggers (MAT).
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 The City Bank Ltd

Quantitative Disclosures
Sl. No. Particulars Solo Consolidated
01 Liquidity Coverage Ratio 161.34% 163.34%
02 Net Stable Funding Ratio (NSFR) 100.15% 100.99%
03 Stock of High Quality Liquid Assets (Tk in crore) 3.50 3.50
04 Total net cash outflows over the next 30 calendar days (Tk in crore) 2.17 2.14
05 Available amount of stable funding (Tk in crore) 13.43 13.44
06 Required amount of stable funding (Tk in crore) 13.41 13.31

Disclosure on Risk based Capital (Basel III) xix

 The City Bank Ltd

Table 10: LEVERAGE RATIO

a) Views of BOD on System
to reduce excessive
leverage
Qualitative Disclosures
a) Basel III guidelines introduced a simple, transparent, non-risk based ratio
known as leverage ratio in order to avoid building-up excessive on and off
balance sheet leverage in the banking system. CBL has embraced this ratio
along with Basel III guideline as it act as a credible supplementary measure
to risk based capital requirement and assess the ratio periodically in order
properly address the issue.

b) Policies and processes for b) Revised guideline of RBCA based on Basel III as provided by BRPD of
maintaining excessive on Bangladesh Bank is followed by the bank while managing excessive on and
and off-balance sheet off-balance sheet leverage of the bank. As per RBCA leverage ratio shall be
leverage Tier I Capital divided by Total Exposure after related deductions.

c) Approach for calculating
exposure
c) CBL follows the approach mentioned in the revised RBCA for calculating
exposure of the bank. The exposure measure for the leverage ratio generally
follows the accounting measure of exposure. In order to measure the
exposure consistently with financial accounts, the following are applied by
the bank:
a. On balance sheet, non-derivative exposures will be net of specific
provisions and valuation adjustments.
b. No Physical or financial collateral, guarantee or credit risk mitigation
is considered.
c. No Netting of loans and deposits is considered

Quantitative Disclosures
Sl. No. Particulars Solo Consolidated
01 Leverage Ratio 7.06% 6.64%
02 On balance sheet exposure (Tk in crore) 20,969.18 20,902.10
03 Off balance sheet exposure (Tk in crore) 2,164.05 2,164.05
04 Total exposure (Tk in crore) 23,004.31 22,929.63

Disclosure on Risk based Capital (Basel III) xx

 The City Bank Ltd

Table 11: REMUNARATION

Qualitative Disclosure
a) Information relating to the Governing body of Remuneration Policy and Process:
bodies that oversee CBL has a board approved Compensation and Benefit Policy that outlines the
remuneration. rules relating to compensation structure and the benefit package of the
organization and gives detailed procedures for exercising them in order to
promote fair treatment and consistency within the Bank. The policy is approved
by Board, while it is the Management that implements the same across the
organization. However, operational aspects of the policy are being taken care by
Human Resources Division of the bank.

External consultants whose advice has been sought, the body by which they
were commissioned, and in what areas of the remuneration process:
CBL takes help of external consultant for certain areas during designing the
remuneration under Compensation and Benefit Policy. Assignment of any
consultancy services is carried out in line with Board approved Procurement
Policy of CBL, while each consultant is appointed by Management/Board, as
appropriate. At CBL we have practice to appoint following consultants, as and
when required:
 Tax advisors on salary and benefits
 Actuary for valuation of gratuity
 Auditor for provident fund and gratuity
 Salary survey vendors
 Head hunters etc.

Scope of the CBL Remuneration Policy:

Policy applies to all the permanent employees of the bank. Additionally, separate
Compensation and Benefit Package is usually approved for temporary and casual
staffs on case basis. Any other benefit is guided by the contract agreement with
individual employees.

Material Risk Takers and Senior Management of CBL:

At CBL, Chief Executive Officer and other members of Management Committee
(Mancom) hold the prime authority to take key decisions and ultimate
implementation. As such, CEO and MANCOM are considered as material risk
takers and Senior Management. However, in course of implementation Division
Heads also play a pivotal role in banking business.

b) Information relating to the Objectives and key features of Remuneration Policy:

design and structure of Compensation and Benefits policy of CBL outlines the rules relating to
remuneration processes compensation structure and the benefit package of the organization and gives
detailed procedures for exercising them with the objective of promoting fair
treatment and consistency across the Bank. Additionally, Compensation to be
commensuration to individual’s performance, desired role in the organization,
quality of past experience, quality of training received, technical competency.
Key features of the policy besides the base salary are
 Provident Fund
 Gratuity Benefit
 Group Term Life Insurance
 Bonuses
 Medical Benefits
Disclosure on Risk based Capital (Basel III) xxi
 The City Bank Ltd

 Various Allowances
 Financial Assistance Schemes
 Advance Salary
 House building loan facility
 Car loan facility etc.

Review of Remuneration Policy:

As per the policy, compensation structure of the Bank will be reviewed as and
when management deem appropriate to allow for adjustments in the Cost of
Living and market forces pertaining to the Banking industry. The HR Division is
responsible for initiating the review process and their recommendations are
approved/ disapproved or amended by the Governing Body. In the latest review
of 2015, CBL incorporated House Building Loan Insurance, and upgraded as well
as enhanced the scope of Group Hospitalization Plan, Car Purchase Plan.

Independence of Risk & Compliance employees from businesses they oversee:

Evaluation process of all risk professionals are independent to respective
business functions as all risk professionals report to Chief Risk Officer who
subsequently reports to MD of the Bank. On the other hand, all compliance
professionals report to Head of Internal Control and Compliance (ICC) who
directly report to Board’s Audit Committee. Hence, their evaluation process is
also independent of the Businesses they oversee.

c) Information relating to the Key risks taken into account when implementing remuneration measures:
design and structure of In the competitive financial sector like Bangladesh, remuneration system is
remuneration processes basically driven by market dynamics. Due to huge competition in a crowded
market with substantial number of participants, restructuring of compensation
package is more frequent than other industries. However, such revisions
sometimes may lead to market distortion, excessive profit motive and
imbalanced work-life balance. Nevertheless, CBL always strives to design the
remuneration strategies so that the competitive staffs are rewarded
compensation package they really deserve. On top of it, CBL is committed to
ensure maintaining internal equity and fair treatment in its compaction system
across the organization.

Key measures used to take account of these risks:

To make the compensation package judicious, market survey is conducted as
and when felt required so that the package logically compensates employee for
their expertise, time, mental and social engagement with the organization.

Ways in which these measures affect remuneration:

These measures ensure that the remuneration process of CBL is
 Commensuration to individual’s performance, desired role in the
organization, quality of past experience, quality of training received,
technical competency.
 Fair and Equal for different position of the bank
 In line with the market dynamics and practices

Changes in the nature and type of these measures over the past year:
No significant amendment of the remuneration system took place other than
that mentioned above.

Disclosure on Risk based Capital (Basel III) xxii


d) Description of the ways in
which the bank seeks to
link performance during a
performance
measurement period with
levels of remuneration
e) Description of the ways in
which the bank seek to
adjust remuneration to
take account of longer-
term performance
f) Description of the
different forms of variable
remuneration that the
bank utilizes and the
rationale for using these
different forms
Disclosure on Risk based Capital (Basel III)
The City Bank Ltd
Overview of main performance metrics of CBL:
At CBL, we believe in a performance based management culture. We believe
that all employees working with us must be evaluated in a fair and transparent
manner and the Performance Management Policy of CBL ensures this. As per
policy, performance evaluation is done for all permanent employees once every
year. Additionally, to make the process more structured and to provide a
direction to the employee on his/her performance, a midyear review is also
performed. These evaluation are done based on two main parameters
 Performance objectives of the employee
 Behavioral indicators of the Values of CBL
Linkage between remuneration and performance:
The overall rating of an individual will be based on the cumulative rating of
above mentioned two parameters. In order to translate performance into
remuneration, CBL associates this overall rating of an individuals with different
features of remuneration policy such as yearly increment, bonuses etc. In CBL
case, Club 1 is the highest rating whilst Club 5 is the lowest.
Adjustment of remuneration in the event that performance metrics are weak:
The Performance Management Policy of CBL is dynamic in nature that considers
overall performance scenario of the bank while ensuring fair and transparent
evaluation of individuals.
CBL believes that the individual and team effort and performance should be
regularly appreciated and recognized so as to keep our employees motivated to
give in their best efforts. And more importantly by recognizing these
performances, we reinforce, with our chosen means of recognition, the actions
and behaviors we want CBL employees to repeat most.
CBL considers yearly overall rating of individuals which is based on their
performance with individuals with different features of remuneration policy such
as yearly increment, bonuses etc. Additionally, two or more years of rating is also
considered for promotion recommendation of individuals in order to capture
their long term performance. Besides, in recognition of outstanding performance
CBL presents following one-time cash or non-cash awards.
 Staff Appreciation Program
 Golden Spirit Award
 The Chairman’s Excellence Award
CBL recognizes the effort and performance of its employees based on its
Compensation and Benefit policy which consist of base salary and different
benefit packages mentioned earlier. Therefore, the bank does not use any form
of variable remuneration in its remuneration process. However, CBL occasionally
practice commission based remuneration process for temporary and casual
staffs as per their Compensation and Benefit Package
xxiii
 The City Bank Ltd

Quantitative Disclosure
Number of meetings held by the main body overseeing remuneration during 2015 and NA*
remuneration paid to its member
Number of employees having received a variable remuneration award during 2015 NA**
Number and total amount of guaranteed bonuses awarded during 2015 2 Festival Bonus
(Worth round Tk
20 crore)
Number and total amount of sign-on awards made during 2015 NA**
Number and total amount of severance payments made during 2015 NA**
Total amount of outstanding deferred remuneration, split into cash, shares and share-linked NA**
instruments and other forms.
Total amount of deferred remuneration paid out in 2015.
Breakdown of amount of remuneration awards for 2015 to show: NA
 Fixed and Variable
 Deferred and Non-deferred
 Different forms used (cash, shares and share linked instruments, other forms)
Quantitative information about employees’ exposure to implicit and explicit adjustments of NA
deferred remuneration and retained remuneration:
 Total amount of outstanding deferred remuneration and retained remuneration exposed
to ex post explicit and/or implicit adjustments
 Total amount of reductions during the financial year due to ex post explicit adjustments
 Total amount of reductions during the financial year due to ex post implicit adjustments.

Note:
* In CBL, no separate and exclusive meeting of the governing body takes place to oversee the
remuneration. Rather, HR is assigned to initiate any proposal on remuneration as per the
Compensation and Benefit Policy of the bank and upon consent of the management committee same is
also placed to regular Board meeting for approval and further actions.
** Till 2015, Compensation and Benefit Policy of CBL does not have provision of any kind of variable
remuneration, deferred remuneration, severance payment, sign-on awards or other forms of
remuneration as mentioned above for its permanent staff. However, CBL provides commission based
remuneration to its temporary and casual staffs which doesn’t fall under the scope of above mentioned
policy.

Disclosure on Risk based Capital (Basel III) xxiv