Risk Management Division

THE CHIEF RISK OFFICER

Presently the Chief Risk Officer (CRO) of the Bank is the Chairman of Executive Risk Management Committee. RMD is working as secretary of Executive Risk Management Committee (ERMC) (which is comprised of heads of all core risk owners) of the bank. Members (by designation) of Executive Risk Management Committee are as given below:

Executive Risk Management Committee (ERMC)

Functional Designation Members of the Committee
CRO, the Chairman of ERMC
Head of ICT
Head of Finance
Head of ICC
Head of Operations
Head of CRM
Head of AML
Head of Recovery (SAMD)
Head of CAD (CPC)
Head of Business(Corporate)
Head of Treasury
Head of ID
Invitees:
Managing Director & CEO
Additional Managing Director
Deputy Managing Director-Ops.
Deputy Managing Director-IB
Head of Consumer Banking
Head of RMG
Head of HRD
Head of SSFU
Head of any other Division/Unit (As and when required)
Member Secretary of ERMC :
Deputy CRO, Risk Management Division
Risk Manager, Risk Management Division

Stress Testing

Stress testing is a risk management technique used to evaluate the potential effects on an institution’s financial condition of a specific event and/or movement of a set of financial variables. This involves several shocking events e.g. increase of NPLs, change of interest rates, change of exchange rates, market price changes, decrease in forced sale value of collaterals etc. Each shocking events contains Minor, Moderate and Major levels of shock.

OBJECTIVE OF STRESS TESTING

The Stress Testing report provides a structured way of assessing the vulnerability of a Bank to extreme but plausible market condition. The Stress Testing report also enable Banks to accurately assess the impact of risks and define the ‘risk appetite’ of the organization and also provide critical information to the top Management as well to Board of Directors for decisions around capital allocation and contingency planning.

Our stress testing framework is designed to

Contribute to the setting and monitoring of risk appetite
Identify key risks to our strategy, financial position and reputation
Examine the nature and dynamics of the risk profile and assess the impact of stresses on our profitability and business plans
Ensure effective governance, processes and systems are in place to co-ordinate and integrate stress testing
Inform senior management
Ensure adherence to regulatory requirements

Reporting by Risk Management Division

In compliance with Bangladesh Bank directives, Risk Management Division conducted the following reporting and takes actions accordingly:

Sl.	Deliverables	Format/Method	Compliance Status	Remarks
1	Nomination of Recognized ECAIs	As In BRPD Circular # 12/2012	Complied
2	Stress Testing Report	Bangladesh Bank Guideline	Complied	Stress Testing Report is submitted on a quarterly basis starting from June 2010.
3	Risk Management Paper	Bangladesh Bank Guideline	Complied	Monthly reporting to Bangladesh Bank
4	Comprehensive Risk Management Report	Bangladesh Bank Guideline	Complied	Half yearly reporting to Bangladesh Bank

CREDIT ASSESSMENT INSTITUTES

Dhaka Bank has nominated 8 (eight) recognized External Credit Assessment Institutes operate in Bangladesh namely:

Credit Rating Information & Services Ltd. (CRISL)
Credit Rating Agency of Bangladesh (CRAB)
National Credit Rating Limited
Emerging Credit Rating Limited.
ARGUS Credit Rating Service Limited (ACRSL)
WASO Credit Rating Company (BD) Limited
Alpha Credit Rating Ltd and
The Bangladesh Rating Agency Limited (BDRAL).

BASEL III

Apart from risk management activities, RMD is also responsible to implement Basel accords in the Bank as per the guidelines of Bangladesh Bank time to time.

BASEL III

Basel III reforms are the response of Basel Committee on Banking Supervision (BCBS) to improve the banking sector’s ability to absorb shocks arising from financial and economic stress, whatever the source, thus reducing the risk of spillover from the financial sector to the real economy. Basel III reforms strengthen the bank-level i.e. micro prudential regulation, with the intention to raise the resilience of individual banking institutions in periods of stress. Besides, the reforms have a macro prudential focus also, addressing system wide risks, which can build up across the banking sector, as well as the procyclical amplification of these risks over time. These new global regulatory and supervisory standards mainly addressed the following areas:

raise the quality and level of capital to ensure banks are better able to absorb losses on both a going concern and a gone concern basis;
increase the risk coverage of the capital framework;
introduce leverage ratio to serve as a backstop to the risk-based capital measure;
raise the standards for the supervisory review process (Pillar 2); and
Public disclosures (Pillar 3) etc.

Consequently, Basel III capital regulations would be fully implemented as on January 1, 2019. The framework of Basel III Capital Accord consists of three pillars:

1st Pillar: Minimum Capital Requirements

Provide approaches to the calculation of Minimum Capital Requirements (MCR). MCR is based on credit risk, market risk and operational risk to:

reduce risks of failure by cushioning against losses;
provide continuing access to financial markets to meet liquidity need; and
provide incentives to prudent risk management

2nd Pillar: Supervisory Review Process
Provides the framework to ensure that each Bank has sound internal processes to enable it to perform a thorough evaluation of its risks and therefore assess the required capital. The Supervisory Review Process (SRP) recognizes the responsibility of Bank management in developing an internal capital assessment process and setting capital targets that are commensurate with the Bank’s risk profile and control environment.

The Basel Committee has identified four key principles of supervisory review:

Banks should have a process for assessing their overall capital adequacy in relation to their risk profile and a strategy for maintaining their capital levels;
Supervisors should review and evaluate Bank’s internal capital adequacy assessments and strategies, as well as their ability to monitor and ensure their compliance with regulatory capital ratios;
Supervisors should expect Banks to operate above the minimum regulatory capital ratios and should have ability to require Banks to hold capital in excess of the minimum; and
Supervisors should seek to intervene at an early stage to prevent capital from falling below the minimum levels required to support the risk characteristics of a particular Bank and should require rapid remedial action if capital is not maintained or restored.

3rd Pillar: Market Discipline

The purpose of Pillar-3, market discipline, is to complement the minimum capital requirements (Pillar-1) and the supervisory review process (Pillar-2). The Basel Committee aims to encourage market discipline by developing a core set of disclosure requirements which will allow market participants to assess key pieces of information on the scope of application, capital, risk exposure, risk assessment process, and hence the capital adequacy of the institution.

In principle Banks’ disclosure should be consistent with how senior management and the Board of Directors (BoDs) of the Bank assesses and manage different risks of the Bank.

Capital Charge Method For Risks

As per the requirement of Basel III accords, Banks have to determine minimum capital for three major types of risks faced by the banking industry as described below :

Credit Risk – risk of losses resulted from debtor’s non-payment of a loan, double default etc.
Operational Risk – risk of losses resulted from inadequate and failed internal processes, systems, people and external events like information technology, fraud & forgery, money laundering, legal contracts etc.
Market Risk – risk of losses in on- and off-balance sheet items arising from movements in the market prices of interest rate, foreign exchange rate, equity securities, commodities etc.

Rationale For Basel III

To cope with the international best practices and to make the Bank’s capital more risk-sensitive as well as more shock-resilient, Bangladesh Bank has made it mandatory to comply with Risk Based Capital Adequacy (RBCA) under Basel III. Accordingly, capital requirement for Banks those hold risky assets in their investment portfolio shall be higher compared to Banks that hold safer portfolio.

BASEL III: DHAKA BANK PERSPECTIVE

Dhaka Bank believes that stepping into the Basel III regime, the new capital accord, is sincere and most appropriate decision of Bangladesh Bank. This changeover is justified in order to make Bank’s capital more risk-sensitive and shock-absorbent in changed scenario of banking industry of our country which is characterized by increased complexity, increased use of information technology and diversity in the asset portfolio of the Banks.

Accordingly, Dhaka Bank has taken the issue of Risk Based Capital Adequacy for Banks under Basel III accord, as one of its topmost priorities.

Dhaka Bank has established an independent Basel Unit (BU) at Head Office on January 10, 2016 for effective implementation of the new capital accord and ensuring Board & Senior Management oversight. The BU, is exclusively responsible for planning & reviewing the implementation of Basel III accord as per Bangladesh Bank’s Road Map, for liaison about issues of Basel III with top management of DBL, for capacity building of concerned Bank personnel and for planning & developing process for assessing overall capital adequacy.

Dhaka bank has formed an exclusive body, named SRP Team to ensure that Dhaka Bank has a process for assessing overall capital adequacy in relation to their risk profile and a strategy for maintaining their capital at an adequate level. Accordingly DBL is ensuring compliance under Pillar-2: Supervisory Review Process of Basel III Accord.

REPORTING UNDER BASEL III BY DHAKA BANK LIMITED

Sl.	Deliverables	Compliance Status	Remarks
1	Quantitative Impact Analysis (QIS)	Complied	–
2	Nomination Of Recognized ECAIs	Complied	–
3	Pillar-1: MCR Reporting	Complied	MCR Report is submitted on a quarterly basis
4	Pillar-2: Statement Of Capital Adequacy Under SRP (ICAAP)	Complied	ICAAP is submitted on a yearly basis
6	Pillar-3: Market Discipline A Disclosure Framework (Qualitative & Quantitative)	Complied	Market Disclosure is given on a yearly basis started from the year- 2009.

BASEL UNIT (BU)

Dhaka Bank has a14-member Basel Unit, having cross-functional representations, to ensure effective implementation of Risk Based Adequacy requirements under the new capital accord named Basel III. However, to supervise the implementation more closely and sincerely a Core Team for Basel III was formed on January 10, 2016 with members from the existing Basel Unit. It is presently headed by the Managing Director & CEO of the Bank.

The Basel Unit consists of the following members representing Senior Management from different cross-functional Divisions:

Designation	Position in the Committee
Managing Director & CEO	Chairman
Additional Managing Director	Member
DMD – RM	Member
DMD – IT & Operations	Member
Chief Risk Officer (CRO)	Member
Chief Financial Officer (CFO)	Member
Head of ICC Division	Member
Head of CRM Division	Member
Head of CPC- Credit Operations Division	Member Secretary
Head of Treasury Division	Member
Deputy Head, RMD	Member Secretary
Working Team:
Desk Officer-1, Basel Unit	Member
Desk Officer-2, Basel Unit	Member

The BU members meet on regular basis, to monitor the implementation status of Risk Based Capital Adequacy for the Bank and, also to discuss issues which may directly influence capital requirement.

SUPERVISORY REVIEW PROCESS (SRP) TEAM

The SRP Team, responsible for assessing overall capital adequacy in relation to their risk profile and capital planning, consisting of following members representing Senior Management and different cross-functional Divisions of the Bank:

Designation	Position in the Team
Managing Director & CEO	Chairman
Additional Managing Director	Member
DMD – RM	Member
DMD- IT & Operations	Member
Chief Risk Officer (CRO)	Member
Chief Financial Officer (CFO)	Member
Head of ICC Division	Member
Head of CRM Division	Member
Head of CPC- Credit Operations Division	Member
Deputy Head, RMD	Member Secretary

The SRP Team will review and assess overall capital adequacy in line with the Bank’s risk profile and strategy for maintaining Bank’s capital at an adequate level, i.e., enough capital to compensate all the risks in the Bank’s business, and to develop & practice better risk management techniques in monitoring and managing risks. The SRP Team of the Bank is responsible to ensure that the Bank has adequate capital to support its risks beyond the minimum regulatory requirements.
The Team with the help of Basel Unit is presently working closely to develop and finalize the process document called Internal Capital Adequacy Assessment Process (ICAAP) for assessing Bank’s overall risk profile.
The SRP Team is entrusted with responsibility to move gradually towards more advanced approaches of calculating risk-weighted assets against credit risk, capital charge against market risk and operational risk.

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