Financial Statements - United Bank Limited

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NOTES TO AND FORMING PART OF THE UNCONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2012 - Review the Derivatives Business Policy and recommend approval to the BRMC / BoD - Review and approve derivatives product programs - Authorize changes in procedures and processes regarding derivatives and structured products Overall responsibility for derivatives trading activity lies with the Treasury and Capital Markets Group. Measurement & monitoring of market and credit risk exposure and limits and its reporting to the senior management and the BoD is done by Treasury Middle Office (TMO), which also coordinates with the business regarding approvals for derivatives risk limits. Treasury Operations records derivatives activity in the Bank’s books, and handles its reporting to the SBP. Derivatives risk management There are a number of risks undertaken by the Bank, which need to be monitored and assessed. Credit risk Credit risk refers to the risk of non-performance or default by a party to a derivatives transaction, resulting in an adverse impact on the Bank’s profitability. Credit risk associated with derivatives transactions is categorized into settlement risk and pre-settlement risk. Credit proposals for derivatives transactions are approved by the Credit Committee. The credit exposure of each counterparty is estimated and monitored by Treasury Middle Office on a daily basis. Market risk The Bank, as a policy, hedges back-to-back all Options transactions. In addition, the Bank does not carry any exchange risk on its Cross Currency Swaps portfolio as it hedges the exposure in the interbank market. To manage the interest rate risk of Interest Rate Derivatives, the Bank has implemented various limits which are monitored and reported by Treasury Middle Office on a daily basis. Liquidity risk Derivatives transactions, usually being non-funded in nature, do not carry a specific funding liquidity risk. The liquidity risk arises from the fact that in Pakistan interest rate derivatives generally have a uni-directional demand, and no perfect hedge is available. The Bank mitigates its risk by limiting the portfolio in terms of tenor, notional and sensitivity limits, and can also hedge its risk by taking on and off balance sheet positions in the interbank market, where available. Operational risk The staff involved in the trading, settlement and risk management of derivatives are carefully trained to deal with the complexities involved in the process. Adequate systems and controls are in place to carry out derivatives transactions smoothly. Each transaction is processed in accordance with the product program or a transaction memo, which contains detailed accounting and operational aspects of the transaction to further mitigate operational risk. In addition, the Treasury Middle Office and the Compliance and Control Department are assigned the responsibility of monitoring any deviation from policies and procedures. The Bank’s Audit and Inspection Group also reviews this function, which covers regular review of systems, transactional processes, accounting practices and end-user roles and responsibilities. The Bank uses a derivatives system which provides an end-to-end valuation solution, supports the routine transactional process and provides analytical tools to measure various risk exposures, carry out stress tests and sensitivity analysis. Treasury Middle Office produces various reports on a periodic basis which are reviewed by senior management. These reports provide details of the derivatives business profile containing outstanding positions, profitability, risk exposures and the status of compliance with limits. 29
NOTES TO AND FORMING PART OF THE UNCONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2012 23.1 Product analysis 2012 Interest rate swaps Cross currency swaps FX options Forward sale contracts of government securities Number of Notional Number of Notional Number of Notional Number of Notional Total Notional contracts principal contracts principal contracts principal contracts principal (Rupees in '000) (Rupees in '000) (Rupees in '000) (Rupees in '000) (Rupees in '000) With banks for Hedging 4 3,444,084 3 9,546,350 4 37,234 - - 13,027,668 Market making 2 1,291,449 1 2,365,750 - - - - 3,657,199 6 4,735,533 4 11,912,100 4 37,234 - - 16,684,867 With other entities Market making 4 3,323,884 6 578,516 4 37,234 1 308,867 4,248,501 Total Hedging 4 3,444,084 3 9,546,350 4 37,234 - - 13,027,668 Market making 6 4,615,333 7 2,944,266 4 37,234 1 308,867 7,905,700 10 8,059,417 10 12,490,616 8 74,468 1 308,867 20,933,368 2011 Interest rate swaps Cross currency swaps FX options Forward sale contracts of government securities Number of Notional Number of Notional Number of Notional Number of Notional Total Notional contracts principal contracts principal contracts principal contracts principal (Rupees in '000) (Rupees in '000) (Rupees in '000) (Rupees in '000) (Rupees in '000) With banks for Hedging 4 3,479,100 4 15,273,700 - - - - 18,752,800 Market making 3 1,579,801 1 2,191,250 - - - - 3,771,051 7 5,058,901 5 17,464,950 - - - - 22,523,851 With other entities Market Making 4 3,385,550 9 17,576,889 - - - - 20,962,439 Total Hedging 4 3,479,100 4 15,273,700 - - - - 18,752,800 Market making 7 4,965,351 10 19,768,139 - - - - 24,733,490 11 8,444,451 14 35,041,839 - - - - 43,486,290 30
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United Bank Limited UNCONSOLIDATED
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U N I T E D B A N K L I M I T E D i
Page 5 and 6: U N I T E D B A N K L I M I T E D B
Page 7 and 8: U N I T E D B A N K L I M I T E D n
Page 9 and 10: U N I T E D B A N K L I M I T E D
Page 11 and 12: U N I T E D B A N K L I M I T E D A
Page 13 and 14: U N I T E D B A N K L I M I T E D d
Page 15 and 16: U N I T E D B A N K L I M I T E D T
Page 17 and 18: BOO EBRAHIM a: CO. CHARTERED ACCOUN
Page 19 and 20: U N I T E D B A N K L I M I T E D m
Page 21 and 22: BOO EBRAHIM ft CO. CHARTERED ACCOUN
Page 23 and 24: UNCONSOLIDATED STATEMENT OF FINANCI
Page 25 and 26: UNCONSOLIDATED STATEMENT OF COMPREH
Page 27 and 28: UNCONSOLIDATED STATEMENT OF CHANGES
Page 29 and 30: NOTES TO AND FORMING PART OF THE UN
Page 55: NOTES TO AND FORMING PART OF THE UN
Page 87 and 88: Annexure 'A' as referred to in note
Page 95 and 96: Sr. No. 1 Commercial Reprsentation
Page 97 and 98: Sr. No. Annexure 'B' as referred to
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Sr. No. Annexure 'B' as referred to
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Sr. No. Annexure 'B' as referred to
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Disposals of operating fixed assets
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Disposals of operating fixed assets
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Financial Statements - United Bank Limited

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