Ê
a To monitor performance
g sset quality
g anagement
g arnings
g iquidity
g ensitivity to market
m
a Operational
a Managerial
a Õ indicates strong performance×
½
a Õ reflects satisfactory performance.
a Õ represents performance tat is flawed to some
degree.
a Õ refers to marginal performance and is significantly
below average and
a Õ
is considered unsatisfactory× Ê
.
a Based on te ratings of eac element, a composite rating of 1
troug 5 is assigned to te bank. All te factors reflected in
te key components ratings are considered in assigning te
composite rating.
m%& m
m
m
a Nature and volume of problem assets in relation to total
capital and adequacy of LLR and oter reserves
a Balance seet structure including off balance seet items,
market and concentration risk
a Nature of business activities and risks to te bank
a Asset and capital growt experience and prospects
a Earnings performance and distribution of dividends
a apital requirements and compliance wit regulatory
requirements
a Access to capital markets and sources of capital
a Ability of management to deal wit above factors
&
m
a Molume of problem of all assets
a Molume of overdue or resceduled loans
a Ability of management to administer all te assets of te bank
and to collect problem loans
a Large concentrations of loans and insiders loans,
diversification of investments
a Loan portfolio management, written policies, procedures
internal control, Management Information System
a Loan Loss Reserves in relation to problem credits and oter
assets
a Growt of loans volume in relation to te bankǯs capacity
m
½
a uality of te monitoring and support of te activities by te board and
management and teir ability to understand and respond to te risks
associated wit tese activities in te present environment and to plan for te
future
a Development and implementation of written policies, procedures, MIS, risk
monitoring system, reporting, safeguarding of documents, contingency plan
and compliance wit laws and regulations controlled by a compliance officer
a Availability of internal and external audit function
a Sources and volume of liquid funds available to meet sort term
obligations
a Molatility of deposits and loan demand
a ontingency plan
m
a Sensitivity to adverse canges in interest rates, foreign excange
rates, commodity prices, fixed assets
ȄNature of te operations of te bank
ȄTrends in te foreign currencies exposure
Ȅ anges in te value of te fixed assets of te bank
ȄImportance of real estate assets resulting from loans write off
a Ability of management to identify, measure and control te
market risks given te bank exposure to tese risks
m
½
m
ë m
a m
m
a m
a Te iger te RAR, te stronger is considered a bank, as it
ensures ig safety against bankruptcy
a
m
!
g Equity capital
g Disclosed reserves
a
m
!!
g Undisclosed Reserves
g Revaluation Reserves
g General Provisions
g Hybrid Instruments
g Subordinated Term Debt
'( '(
a It is te more important of te two, consists largely of sareolders'
equity.
a Sareolders equity and retained earnings are now commonly
referred to as " ore" Tier 1 capital
a
g Invested money tat, in contrast to debt capital, is not repaid to
te investors in te normal course of business. It represents te
risk capital staked by owners troug purcase of te firm's
common stock. Its value is computed by estimating te current
market value of everyting owned by te firm from wic te
total of all liabilities is subtracted. On te balance seet of
firm, equity capital is listed as stockoldersǯ equity or owners'
equity.
'( '(
a
g created or increased by appropriations of retained earnings or
oter surplus, e.g. sare premiums, retained profit,
general reserves
g "
* Te sare premium account of a company is te capital tat a
company raises upon issuing sares tat is in excess of te
nominal value of te sares.
g
"
* Profit attributable to ordinary equity sareolders less
dividends paid. Retained profit is te profit/loss for te
financial year transferred to/from reserves.
g r
* Te amounts are set aside so tat wen te future profits are
low, te company can utilize te reserves for distribution of
profits
'( "
)
'(
a
g Undisclosed reserves are not common, but are accepted by some
regulators were a bank as made a profit but tis as not
appeared in normal retained profits or in general reserves of te
bank.
g Suc reserves consist of tat part of te accumulated after-tax
surplus of retained profits wic banks in some countries may be
permitted to maintain as an undisclosed reserve.
a
g A revaluation reserve is a reserve created wen a company as an
asset revalued and an increase in value is brougt to account. A
simple example may be were a bank owns te land and building
of its ead-offices and bougt tem for $100 a century ago. A
current revaluation is very likely to sow a large increase in value.
Te increase would be added to a revaluation reserve.
'( "
)
'(
a r "
g A general provision is created wen a company is aware
tat a loss may ave occurred but is not sure of te
exact nature of tat loss.
a 6
!
g It includes a range of instruments wic combine
caracteristics of equity capital and of debt. An example
of tis is umulative preference sares
'( "
)
'(
a
g includes conventional unsecured subordinated debt
capital instruments wit a minimum original fixed term
to maturity of over five years and limited life
redeemable preference sares.
g Suc debt is referred to as subordinate, because te
debt providers (te lenders) ave subordinate status in
relationsip to te normal debt.
g Subordinated debt as a lower priority tan oter bonds
of te issuer in case of liquidation during bankruptcy
g Subordinated loans typically ave a iger rate of
return tan senior debt due to te increased inerent
risk
* "
ü A
is a loan tat is in default or close to
being in default. Many loans become non-performing after being
in default for 3 monts, but tis can depend on te contract
terms
ü An asset, including a leased asset, becomes nonperforming wen
it ceases to generate income for te Bank
ü !$
ü Total of Loans Delinquent / Total Loans
ü A loan tat is 30 to 60 days past due wit no payments being made
ü r"
ü r"%
ü "
ü "%
ü ©
ü (Total Income-Total Expenditure)
ü Tis sould be positive
ü
&
ü ( ! ! & !
'%
ü !
ü It is usually expressed as a percentage of wat te
financial institution earns on loans in a time period
and oter assets minus te interest paid on
borrowed funds divided by te average amount of
te assets on wic it earned income in tat time
period
·
ü
a
( '
Te dollar amount of interest earning assets tat will ave a rate cange due to
maturity, re pricing or principal pay down witin a predefined time period.
a
('
Te dollar amount of interest paying liabilities tat will ave a rate cange due to
maturity, re pricing, principal decay, or early witdrawals witin a predefined time
period.
a
%
Reveals te mismatc between earning assets and paying liabilities witin a
particular time frame. An equilibrium will be acieved wen te ratio equals 100,
wic implies tat rate sensitive assets are equal to rate sensitive liabilities.
m
Ê!
m
"
)
' %'
$
ü (BID) is one of te core departments at SBP. Its mission
is to strive for soundness & stability of te financial
system and safeguard interest of stakeolders troug
proactive inspection, compatible wit best
international practices
ü BID plays a pivotal role in meeting SBPǯs main
responsibility of supervising te financial institutions to
maintain soundness of te system and protection of te
interest of depositors, tereby ensuring public
confidence in te system.
' %'
$
ü During te decade of 1990s, te Bank undertook a number of
measures to strengten its supervisory and regulatory
capabilities. In 1997, services of an international consultant were
acquired by te Bank6 to undertake an in-dept review of te
banking supervisory system and monitoring tecniques. Te
consultants recommended risk-based inspection of financial
institutions and AMELS ( apital, Asset quality, Management
soundness, Earnings, Liquidity & Sensitivity to oter risks)
system of off-site surveillance. Te training of Bank officials
(bot in te country and abroad) and up-gradation of
information tecnology system is a continuing process for
effective implementation of te consultant's recommendations.
' %' $
ü Te present supervisory structure at te department is
institution focused wereby concerned Desk In-carges
ave been assigned specific institutions for effective
monitoring troug on-site examination, off-site reports
from Banking Supervision Department and various market
reports
ü Te regular on-site inspection is conducted on te basis of
AMELS dramework. ( apital, Asset uality,
Management, Earnings, Liquidity, Sensitivity and System
& ontrols). AMELS is an effective rating system for
evaluating te soundness of financial institutions on a
uniform basis and for identifying tese institutions
requiring special attention or concern.
' %' $
ü Here te focus of inspection is generally on risk
assessment policies & procedures of te banks and
control environment to keep attaced risks witin
acceptable limits and compliance wit laws, regulations
and supervisory directives
ü BID conducts te regular full scope examination of
banks pursuant to an inspection scedule; owever,
flexibility exists in policy for frequency of inspections
depending upon te need to maintain safety &
soundness.
ü AMELS rating is a criteria to determine te frequency
of inspection of banks as weak institutions are given
greater attention.
ë m
ë m
u
·
·
a "
½ Tis is a rating system developed for credit unions by te
World ouncil of redit Unions (WO U). Te rating system includes a
certification process called dinance Organization Acieving ertified redit Union
Standards (dO US).
a r
½ Developed by PlaNetdinance.
a "
Te drenc Banking ommission introduced te annual
Organization and Reinforcement of Preventive Action (ORAP) Rating System in
1997 as a multi-factor analysis system for individual institutions.
a "
½ Te Bank of Italy as introduced te annual PATROL
rating system in 1993 as an off-site supervision tool to give a systematic
representation of te financial ealt of individual banks and provide support in
prioritization of te use of supervisory resources in sceduling on-site
examinations.
a
½ Developed by Damian von Stauffenberg of MicroRate.
a "
m
½ Developed a set of
performance standards to serve as guidelines or bencmarks to assess te
operations of Pilippine NGOs involved in Micro-finance.
a !
" " Developed by te ommittee of
Donor Agencies for Small Enterprise Development and Donor's Working Group on
dinancial Sector Development, United Nations apital Development dund.
$
a ttp×//www.ncua.gov/letters/Prior1996/E-LET161.tml
a ttp×//www.sbp.org.pk/about/banks_nbfis/capitalbanks/creq1.tm
a ttp×//www.federalreserve.gov/boarddocs/press/general/1996/199
61224/default.tm
a ttp×//www.ibtra.com/pdf/ amel%20Rating_IBTRA%20Journal.pd
f
a ttp×//www.ncua.gov/letters/2000/00- U-08.pdf
a ttp×//www.bank-ratings.net/camels/
a ttp×//www.sbp.org.pk/departments/bid.tm
a ttp×//www.sbp.org.pk/reports/annual/ard 01/cap6.pdf
a ttp×//www.sbp.org.pk/ecodata/NPL.pdf
a ttp×//webcace.googleusercontent.com/searcq=cace×q WJ5L
oy9k0J×riskinstitute.c/00007080.tm+difference+between+undis
closed+reserves+and+disclosed+reserves&cd=1&l=en&ct=clnk&g
l=pk