Executive Summary: It is of vital importance to understand and appreciate that the risks of the banking industry is increasing vary

rapidly now-a-days. Though there are several core risks management guidelines are available so that banks can develop a sound risk management practice while carrying out their daytoday activities. But the recent financial turmoil in the Worlds financial system has augmented the importance of establishing more developed risks management regime in the financial industry. Stress testing is one of them. Financial institutions around the world are increasingly employing stress testing to determine the impact on the financial institution under a set of exceptional, but plausible assumptions through a series of battery of tests. In this report we have done stress testing of Rupali bank limited. Firstly-we have collected the guideline of stress testing from the Bangladesh Bank and then relevant data of the Rupali bank limited for doing stress testing. Secondly we have done analysis based on guideline in respective of all risk factors. Finally we can see that the condition of Rupali bank in risk management condition is so good regarding almost all risk factors. For completing the report properly we divide the whole report into some chapters. In first chapter we provide the introduction and in chapter two we give a brief idea of stress testing about its different risk factors or shocks which are Interest rate shock, Exchange rate shock, Credit shock (includes six factors), Equity price shock and Liquidity shock. Chapter three shortly describes the company overview consists of its establishment, objectives and overall risk management. We attach all the calculations of stress testing of the bank for three years in appendix separately.

Stress Testing: Stress testing is a simulation technique, which are used to determine the reactions of different financial institutions under a set of exceptional, but plausible assumptions through a series of battery of tests. At institutional level, stress testing techniques provide a way to quantify the impact of changes in a number of risk factors on the assets and liabilities portfolio of the institution. For instance, a portfolio stress test makes a rough estimate of the value of portfolio using a set of exceptional but plausible events in abnormal markets. However, one of the limitations of this technique is that stress tests do not account for the probability of occurrence of these exceptional events. For this purpose, other techniques, for example VAR (value at risks) models etc, are used to supplement the stress tests. These tests help in managing risk within a financial institution to ensure optimum allocation of capital across its risk profile. At the system level, stress tests are primarily designed to quantify the impact of possible changes in economic environment on the financial system. The system level stress tests also complement the institutional level stress testing by providing information about the sensitivity of the overall financial system to a number of risk factors. These tests help the regulators to identify structural vulnerabilities and the overall risk exposure that could cause disruption of financial markets. Its prominence is on potential externalities and market failures.

2. Techniques of Stress Testing a) Simple Sensitivity Analysis (single factor tests) measures the change in the value of portfolio for shocks of various degrees to different independent risk factors while the underlying relationships among the risk factors are not considered. b) Scenario Analysis encompasses the situation where a change in one risk factor affects a number of other risk factors or there is a simultaneous move in a group of risk factors. Scenarios can be designed to encompass both movements in a group of risk factors and the changes in the underlying relationships between these variables (for example correlations and volatilities). c) Extreme Value/ Maximum Shock Scenario measures the change in the risk factor in the worstcase scenario, i.e. the level of shock which entirely wipes out the capital.

3. Scope of Stress Testing: As a starting point the scope of the stress test is limited to simple sensitivity analysis. Five different risk factors namely; interest rate, forced sale value of collateral, non performing loans (NPLs), stock prices and foreign exchange rate have been identified and used for the stress testing. Moreover, the liquidity position of the institutions has also been stressed separately. Though the decision of creating different scenarios for stress testing is a difficult one, however, to start with, certain levels of shocks to the individual risk components have been specified considering the historical as well as hypothetical movement in the risk factors.

Stress test shall be carried out assuming three different hypothetical scenarios:

Minor Level Shocks: These represent small shocks to the risk factors. The level for different risk factors can, however, vary.

Moderate Level Shocks: It envisages medium level of shocks and the level is defined in each risk factor separately.

Major Level Shocks: It involves big shocks to all the risk factors and is also defined separately for each risk factor.

4. about Rupali Bank Limited: Rupali Bank Ltd. was constituted with the merger of 3 (three) erstwhile commercial banks i.e. Muslim Commercial Bank Ltd., Australasia Bank Ltd. and Standard Bank Ltd. operated in the then Pakistan on March 26, 1972 under the Bangladesh Banks (Nationalization) Order 1972 (P.O. No. 26 of 1972), with all their assets, benefits, rights, powers, authorities, privileges, liabilities, borrowings and obligations. Rupali Bank worked as a nationalized commercial bank till December. Rupali Bank Ltd. emerged as the largest Public Limited Banking Company of the country on December 14, 1986.::Present Capital Structure::Authorized Capital:Tk. 7000 million (US$ 120.70 million)Paid up Capital:Tk. 1250 million (US$ 21.55 million)::Break up of paid up Capital::Government shareholding:93.11%Private shareholding:06.89 %::Present Share Structure::Total Number of share (Each lot 10):1,25,00,000Share Demated by shareholders as on 31.03.2010:749306 ::Number of Branches:: Rupali Bank operates through 492 branches. It is linked to its foreign correspondents all over the world. ::Number of Zones and Corporate Offices:: The Corporate Head Office of the Bank is located at Dhaka with one local office (Main Branch), four corporate branches at Dhaka, one in Chittagong and twenty-five zonal offices all over the country. ::Number of Employees:: The total number of employees is 4293. ::Mission of the Bank:: The bank participates actively in socio-economic development of the country by performing commercially viable and socially desirable banking functions. ::Board of Directors:: The Board of Directors is composed of eight members headed by a Chairman and the directors comprised of representatives from both public and private sectors and shareholders. ::Chief Executive:: The Bank is headed by the Managing Director (Chief executive) who is a reputed professional Banker.

Mission To provide quality services to customers. To set high standards of integrity. To make quality investment. To ensure sustainable growth in business. To ensure maximization of Shareholders' wealth.

Strategies To strive for customers best satisfaction & earn their confidence. To manage & operate the Bank in the most effective manner. To identify customers needs & monitor their perception towards meeting those requirements. To review & updates policies, procedures & practices to enhance the ability to extend better services to the customers. To train & develop all employees & provide them adequate resources so that the customer needs are reasonably addressed.

5. Capital Adequacy Ratio of Rupali Bank Ltd. - As per BASEL II

C alculation of R eg ulatory C apital 2 009 a) Core capital (Tier I) Fully Paid-up Capital/Capital Deposited with BB Share deposit Statutory Reserve Genereal Reserve Retained earnings Total Eligible Tier-I Capital b)Supplementary capital (Tier II) General Provision for Unclassified loans & Off Balance Sheet (Limited to 1.25%of RWA) Assets revaluation reserves Exchange equalization account Total Eligible Tier-II Capital A. Total Eligible Capital Total assets including off-Balance Sheet items Total risk-weighted assets (RWA) B. Total required capital (10%of Total RWA) Capital Surplus / (Shortfall) [A-B] Capital adequacy ratio 1,250 352 916 13 -12,921 -10,390 1,250 74 1,250 513 -12,086 -8,999 1,375 74 1,535 1,013 315 5,258 2,010 2 ,0 11

663 1,072 27 1,762 -8,628 99,309 49,070 4,907 -13,535 -17.58%

770 1,072 28 1,870 -7,129 99,425 56,632 5,663 -12,792 -12.59%

1,763 4,996 224 6,982 12,241 124,687 73,914 7,391 4,849 16.56%

6. Methodology and Calibration of Shocks:

6.1. Interest Rate Risk

Interest rate risk is the potential that the value of the onbalance sheet and the off-balance sheet positions of the bank/DFI would be negatively affected with the change in the interest rates. The vulnerability of an institution towards the adverse movements of the interest rate can be gauged by using duration GAP analysis. The banks and FIs shall follow the following steps in carrying out the interest rate stress tests: Estimate the market value of all on balance sheet rate sensitive assets and liabilities of the bank/DFI to arrive at market value of equity Calculate the durations of each class of asset and the liability of the on balance sheet portfolio Arrive at the aggregate weighted average duration of assets and liabilities Calculate the duration GAP by subtracting aggregate duration of liabilities from that of assets. Estimate the changes in the economic value of equity due to change in interest rates on on balance sheet positions along the three interest rate changes. Calculate surplus/(deficit) on offbalance sheet items under the assumption of three different interest rate changes i.e. 1%, 2%, and 3% Estimate the impact of the net change (both for onbalance sheet and offbalance sheet) in the market value of equity on the capital adequacy ratio (CAR).

The following assumptions are taken at the time of calculating the interest rate shocks on Rupali Bank Limiteds financial position because of some lack of disclosures about the term to maturity, market value and interest rates of various rate sensitive assets and liabilities: Market value and book value of Balance with other banks and financial institutions and loans and advances are assumed to be same. Yield to maturity for different Govt. Treasury Bonds are taken from the cut-off yields of respective years (2009, 2008, 2010) December auction.
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 Deposit and lending rates are taken from the Banks current deposit and lending rate. Market value and book value of deposits and borrowing are assumed to be same.

The Duration GAP has been calculated by using the following formula: DGAP = DA (MVL/MVA) X DL DA = Weighted average duration of assets

MVL = Market value of liabilities MVA = Market value of assets DL = Weighted average duration of liabilities

The change in market value of equity has been calculated using the following formula:

MVE i y

(DGAP) X i / (1+y) X Total Assets

= Change in the interest rate = Effective yield to maturity of all the assets

The impact of interest rate shocks on the CAR of Rupali Bank Limited are given below

Magnitudeof Shock 1% Fall in MVE (on-balance sheet) 727.273843 Net Fall in MVE (on-off balance sheet) 727.273843 Tax 42.50% Tax adjusted loss 418.18246 Revised Capital -9,046.18 Revised risk weighted assets 48,651.82 Revised CAR (%) -18.59% Fall in CAR (%) 1.01%

2009 2% 1454.54769 1454.54769 42.50% 836.364919 -9,464.36 48,233.64 -19.62% 2.04%

2010 3% 1% 2% 2181.822 888.33984 1776.68 2181.822 888.33984 1776.68 42.50% 45% 45% 1254.547 488.58691 977.1738 -9,882.55 -7,617.59 -8,106.17 47,815.45 56,143.41 55,654.83 -20.67% -13.57% -14.57% 3.09% 0.98% 1.98%

3% 2665.02 2665.02 45% 1465.761 -8,594.76 55,166.24 -15.58% 2.99%

1% 835.40972 835.40972 43% 476.18354 11,764.57 73,437.62 16.02% 0.54%

2011 2% 3% 1670.81944 2506.22916 1670.81944 2506.22916 43% 43% 952.367081 1428.550621 11,288.38 10,812.20 72,961.43 72,485.25 15.47% 14.92% 1.09% 1.64%

The rise in interest rate would lower the CAR in all three years because the duration gapnk of Rupali Ban is positive. As a result the increase in interest rate would decrease the value of assets more than the value of liabilities.

6.2. Exchange Rate Risk

The stress test for exchange rate assesses the impact of change in exchange rate on the value of equity. To assess foreign exchange risk the overall net open position of the bank/FI including the onbalance sheet and offbalance sheet exposures shall be charged by the weight-age of 5%, 10% and 15% for minor, moderate and major levels respectively. The overall net open position is measured by aggregating the sum of net short positions or the sum of net long positions; whichever is greater. The taxadjusted loss if any arising from the shocked position will be adjusted from the capital. The revised CAR will then be calculated after adjusting total loss from the riskweighted assets of the bank/FI.
Bangladesh Bank

Net foreign exchange exposure of Rupali bank has been calculated by subtracting the foreign exchange liabilities from the foreign exchange assets. Foreign exchange liabilities include both on-balance sheet and off-balance sheet foreign exchange liabilities. Foreign currency (FC) held in hand and FC held in BB and NOSTRO account are considered as foreign currency assets. Borrowing from outside Bangladesh is considered as on- balance sheets liabilities and Irrevocable LC as off-balance sheet.
Adverse Movement Net Exposure Exchange rate loss Tax Rate Tax adjusted loss Revised Capital Revised risk weighted assets Revised CAR (%) Fall in CAR (%) 5% -156 -7.8 42.50% -4.485 -8,623.52 49,074.49 -17.57% -0.01% 2,009 10% -156 -15.6 42.50% -8.97 -8,619.03 49,078.97 -17.56% -0.02% 15% -156 -23.4 42.50% -13.455 -8,614.55 49,083.46 -17.55% -0.03% 5% 0 0 45.00% 0 -7,129.00 56,632.00 -12.59% 0.00% 2,010 10% 0 0 45.00% 0 -7,129.00 56,632.00 -12.59% 0.00% 15% 0 0 45.00% 0 -7,129.00 56,632.00 -12.59% 0.00% 5% 111 5.55 47.50% 2.91375 12,237.84 73,910.89 16.56% 0.00% 2,011 10% 111 11.1 47.50% 5.8275 12,234.92 73,907.97 16.55% 0.01% 15% 111 16.65 47.50% 8.74125 12,232.01 73,905.06 16.55% 0.01%

Net exposure in foreign currency including off-balance sheet liabilities was negative for Rupali Bank Ltd at 2009 but zero for 2010 and positive for 2011. It means, the bank was in net short position. As a result currency depreciation would harm the bank. The Bank would able to maintain required Capital Adequacy level in both minor and moderate level shock in all the years.

6.3. Credit Risk

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The stress test for credit risk assesses the impact of increase in the level of nonperforming loans of the bank/FI. This involves six types of shocks: The first deals with the increase in the NPLs and the respective provisioning. The three scenarios shall explain the impact of 1%, 2% and 3% of the total performing loans directly downgraded to bad/loss category having 100% provisioning requirement. The second deals with the negative shift in the NPLs categories and hence the increase in respective provisioning. The three scenarios shall explain the impact of 50%, 80% and 100% downward shift in the NPLs categories. For example, for the first level of shock 50% of the SMA shall be categorized under substandard, 50% of the substandard shall be categorized under doubtful and 50% of the doubtful shall be added to the bad/loss category. The third deals with the fall in the forced sale value (FSV) of mortgaged collateral . The forced sale values of the collateral shall be given shocks of 10%, 20% and 40% decline in the forced sale value of mortgaged collateral for all the three scenarios respectively. The fourth deals with the increase of the NPLs in particular 1 or 2 sector i.e. garments & Textiles and the respective provisioning. The three scenarios shall explain the impact of 5%, 7.5% and 10% performing loans of particular 1 or 2 sectors directly downgraded to bad/loss category having 100% provisioning requirement. The fifth deals with the increase of the NPLs due to default of Top 10 large borrowers and the respective provisioning. The three scenarios shall explain the impact of 5%, 7.5% and 10% performing loans of Top 10 large borrowers directly downgraded to bad/loss category having 100% provisioning requirement. The sixth deals with extreme events in which due to increase in the certain percentage of NPLs, the whole capital position of a bank will be wiped out to offset the increased amount of provision due to cover respective loan losses. The forced sale value of the collaterals and tax adjusted impact of the additional required provision (if any) will be calibrated in the CAR for the each scenario under all categories.

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2009 1. Increasein NPLs Magnitudeof Shock Total Loan (in million) Total PerformingLoan Total NPLs NPLsto Loan(%) Increase in NPLs Increase in Provisions Taxadjusted Provision (Not Yet Applicable) Revised Capital Revised riskweightedassets Revised CAR(%) Fall in CAR(%) Revised NPLs Revised NPLsto Loans(%) 1% 49,030 48,393 637 1.30% 6.3739 6.3739 6.3739 -8,634.37 49,063.63 -17.60% 0.02% 644 1.31% 2% 49,030 48,393 637.39 1.30% 12.75 12.75 12.75 (8,640.75) 49,057.25 -17.61% 0.03% 650.14 1.33% 3% 49,030 48,393 637.39 1.30% 19.12 19.12 19.12 (8,647.12) 49,050.88 -17.63% 0.05% 656.51 1.34% 1% 52,344 51,664 680 1.30% 6.80472 6.80472 6.80472 -7,135.80 56,625.20 -12.60% 0.01% 687 1.31%

2010 2% 52,344 51,664 680 1.30% 13.60944 13.60944 13.60944 -7,142.61 56,618.39 -12.62% 0.03% 694 1.33% 3% 52,344 51,664 680 1.30% 20.41416 20.41416 20.41416 -7,149.41 56,611.59 -12.63% 0.04% 701 1.34% 1% 76,525 48,393 28,132 1.50% 281.32 281.32 281.32 11,959.43 73,632.48 16.24% 0.32% 28,413.64 37.13%

2011 2% 76,525 48,393 28,132 1.50% 562.65 562.65 562.65 11,678.10 73,351.15 15.92% 0.64% 28,694.96 37.50% 3% 76,525 48,393 28,132 1.50% 843.97 843.97 843.97 11,396.78 73,069.83 15.60% 0.96% 28,976.28 37.87%

6.3.2 Shift in NPLs Categories The forced sale value (FSV) is not considered in provisioning the classified loans. Provisions of classified loans have been considered as per the guideline of Bangladesh Bank.

Magnitudeof Shock Weightedamount of provision Fall in CAR(%)

50% 30,536.80 -27.87%

80% 100% 30,536.80 30,536.80 -27.82% -27.79%

50% 21777.7 -18.12%

80% 100% 50% 80% 100% 21777.7 21777.7 8988.1245 8988.125 8988.125 -18.07% -18.03% -4.74% -4.68% -4.64%

Shift in NPLs categories would definitely reduce the CAR of Rupali bank Limited all the years but the CARs in major shock were higher than the required CAR level.

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6.3.2 Increase of NPLs in particular 1 or 2 sector Agriculture sector has been chosen to identify the impact of increase in NPLs in this sector on the CAR of Rupali Bank Ltd.
2009 2010 3. Increase of NPLsin particular 1 or 2sectors Ag riculture 7.50% 10.00% 5.00% 7.50% 12730 12730 13000 13000 954.75 1273 650 975 954.75 1273 650 975 -9,582.75 -9,901.00 -7,779.00 -8,104.00 48,115.25 47,797.00 55,982.00 55,657.00 -19.92% -20.71% -13.90% -14.56% 2.33% 3.13% 1.31% 1.97% 2011

S ector Magnitude of S hock Total Loansin Agriculturesector Increasein NPLsunder B/Lcategory Increasein provision Revised Capital Revised riskweighted assets Revised CAR(% ) Fall in CAR(% )

5.00% 12730 636.5 636.5 -9,264.50 48,433.50 -19.13% 1.55%

10.00% 5.00% 7.50% 13000 14121 14121 1300 706.05 1059.075 1300 706.05 1059.075 -8,429.0 11,534.70 11,181.67 55,332 73,208 72,855 -15.23% 15.76% 15.35% 2.65% 0.80% 1.21%

10.00% 14121 1412.1 1412.1 10,829 72,502 14.94% 1.63%

6.3.2 Increase of the NPLs due to default of Top 10 large borrowers The disclosure about the top 10 large borrowers was not provided by Rupali Bank Ltd. in their audited financial statements and notes. As a result the following assumption was taken to identify the top 10 large borrowers of Rupali Bank Ltd.
2009 4. Increas ein NP L sdue to default of Top 10 Group total Averag e Mag nitudeof S hock 5.00% Total L oan to Top 10 larg e borrowers 9,806.00 Increas e in NP L sunder B/LC ateg ory 490.3 Increas e in P rovis ions(after 490.3 Taxadjus ted P rovis ion (Not Yet Applicable) 490.3 R evis ed C apital -9,118.30 R evis ed ris kweig hted as s ets 48,579.70 R evis ed C AR(% ) -18.77% F all in C AR(% ) 1.19% 20.00% 20.00% 7.50% 9,806.00 735.45 735.45 735.45 -9,363.45 48,334.55 -19.37% 1.79% 2010 2011

10.00% 9,806.00 980.6 980.6 980.6 -9,608.60 48,089.40 -19.98% 2.40%

5.00% 10,468.80 523.44 523.44 523.44 -7,652.44 56,108.56 -13.64% 1.05%

20.00% 20.00% 7.50% 10,468.80 785.16 785.16 785.16 -7,914.16 55,846.84 -14.17% 1.58%

10.00% 10,469 1,047 1,047 1,047 -8,176 55,585 0 0

5.00% 18,366 918 918 918 11,322 72,996 0 0

24.00% 24.00% 7.50% 18,366 1,377 1,377 1,377 10,863 72,536 0 0

10.00% 18,366 1,837 1,837 1,837 10,404 72,077 0 0

Average of the peer companies ratio of loans to top 10 borrowers to total loans has been taken as the applicable ratio of Rupali Bank Ltd. The default of top 10 large borrowers would harm the year 2009 badly as it would have been affected by moderate shock. The CAR in 2010 would go below 14% at moderate shock

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6.4 Equity Price Risk

The stress test for equity price risk assesses the impact of the fall in the stock market index. Appropriate shocks will have to be absorbed to the respective securities if the current market value of all the on balance sheet and off balance sheet securities listed on the stock exchanges including shares, NIT units, mutual funds etc falls at the rate of 10%, 20% and 40% respectively. The impact of resultant loss will be calibrated in the CAR.

Equity price of the listed securities is very volatile in our country. The adverse and sudden changes in share price are very much detrimental for financial institutions especially for banking corporations.

At the time of calculating the equity price risk, equity price was taken at balance sheet date from cost price or market value which one is lower. In all the years the cost price was below the market value. So the cost price was taken to measure the shock.
Regulatory Capital RWA CAR (%) Magnitude of Risk Total Exposure in Stock market Fall in Stock Prices Tax Tax adjusted loss Revised Capital Revised risk weighted assets Revised CAR (%) Fall in CAR (%) 10% 639 63.9 42.50% 36.7425 -8,664.74 49,033.26 -17.67% 0.09% 2009 -8,628.00 49,070.00 -17.58% 2010 -7,129.00 56,632.00 -12.59% 2011 12,240.75 73,913.80 16.56%

20% 40% 10% 20% 40% 10% 20% 40% 639 639 1,458 1,458 1,458 3,280 3,280 3,280 127.8 255.6 145.80 291.60 583.20 328.04 656.08 1,312.16 42.50% 42.50% 45.00% 45.00% 45.00% 42.50% 42.50% 42.50% 73.485 146.97 80.19 160.38 320.76 188.62323 377.24645 754.492902 -8,701.49 -8,774.97 -7,209.19 -7,289.38 -7,449.76 12,052.13 11,863.50 11,486.26 48,996.52 48,923.03 56,551.81 56,471.62 56,311.24 73,725.18 73,536.55 73,159.31 -17.76% -17.94% -12.75% -12.91% -13.23% 16.35% 16.13% 15.70% 0.18% 0.35% 0.16% 0.32% 0.64% 0.21% 0.43% 0.86%

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6.5 Liquidity Risk

The stress test for liquidity risk evaluates the resilience of the banks towards the fall in liquid liabilities. The ratio liquid assets to liquid liabilities shall be calculated before and after the application of shocks by dividing the liquid assets with liquid liabilities. Liquid assets are the assets that are easily turned into cash without the threat of loss. They include cash, balances with Bangladesh Bank and balances with banks, call money lending, lending under repo and investment in government securities. Liquid liabilities include the deposits and the borrowings. Appropriate shocks will have to be absorbed to the liquid liabilities if the current liquidity position falls at the rate of 10%, 20% and 30% respectively. The ratio of liquid assets to liquid liabilities shall be recalculated under each scenario. As per the guideline of BB, only cash, balances with Bangladesh Bank and balances with banks, call money lending, lending under repo and investment in government securities are considered as liquid assets and the deposits and the borrowings are considered as liquid liabilities.
L iquidity S hock Y ear Liquid Assets (LA) Liquid Liabilities (LL) Mag nitude of R is k Liquidity Ratio Fall in Liquid Liabilities Revised Liquid Assets Revised Liquid Liabilities Revised Liquidity Ratio 2009 39,274 46,755 20% 84% 9351 29,923 37,404 80% 20 10 14,589 54,878 2 0% 27% 10975.6 3,613 43,902 8% 2011 34,209 108,839 20% 30% 31% 31% 21767.78 32651.68 12,441 1,558 87,071 76,187 14% 2%

10% 84% 4675.5 34,599 42,080 82%

30% 84% 14026.5 25,248 32,729 77%

10 % 27% 5487.8 9,101 49,390 18%

30% 10% 27% 31% 16463.4 10883.89 -1,874 23,325 38,415 97,955 -5% 24%

Liquidity crisis of the bank would have been severe in major shock. The year 2010 would suffer the most. Any bank suffers the most in liquidity shock because banks the borrower of short term and lender of long term.

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A. Cumulative impact of all shock

Reg ulatoryC apital RWA C AR(% ) 2009 2010 (8,628.00) (7,129.00) 49,070.00 56,632.00 -17.58% -12.59% C um ulative im pact of all C redit S hock -12584.19 3956.19 61654.19 6.42% -10451.81 1823.81 59521.81 3.06% -6804.52 -8591.87 -1823.48 1,462.87 55874.52 65,223.87 -3.26% 2.24% -6873.04 -4077.47 -2095.87 (255.96) (3,051.53) 14,336.62 63,505.04 60,709.47 76,009.67 -0.40% -5.03% 18.86% 2011 12,240.75 73,913.80 16.56%

Tax Adjusted Provision Revised Capital Revised risk weighted assets Revised CAR (% )

-492.32 12,733.07 74,406.12 17.11%

1540.42 10,700.33 72,373.38 14.78%

Tax Adjusted Provision Revised Capital Revised risk weighted assets Revised CAR (% )

C um ulative im pact of all s hock (12,133.75) (9,550.93) (5,416.46) (8,023.09) (5,735.49) (2,290.95) (1,428.15) 3,505.75 922.93 (3,211.54) 894.09 (1,393.51) (4,838.05) 13,668.90 61,203.75 58,620.93 54,486.46 64,655.09 62,367.49 58,922.95 75,341.95 5.73% 1.57% -5.89% 1.38% -2.23% -8.21% 18.14%

843.12 11,397.63 73,070.68 15.60%

3,732.20 8,508.55 70,181.60 12.12%

Cumulative impact of all the shocks is extremely rare and almost impossible event.

7. Conclusion
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Simple stress testing results of Rupali Bank Ltd. reveals that the banks overall CAR would stay above the required level in minor and moderate shocks. But in major shocks the bank is exposed to risk to losing capital adequacy according to the required CAR.

Stress tests cover a range of methodologies. Complexity can vary, ranging from simple sensitivity tests to complex stress tests, which aim to assess the impact of a severe macroeconomic stress event on measures like earnings and economic capital. Most risk management models, including stress tests, use historical statistical relationships to assess risk. They assume that risk is driven by a known and constant statistical process and historical relationships constitute a good basis for forecasting the development of future risks. The recent financial turmoil has revealed serious flaws with relying solely on such an approach.

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