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 43. CAPITAL ADEQUACY 43.1 The Basel II Framework is applicable to the Bank whereby the Standardized Approach for reporting Capital Adequacy is currently implemented. Under this approach, credit risk and market risk exposures are measured using the Standardized Approach and operational risk is measured using the Basic Indicator Approach. The Bank’s capital adequacy is reported using the rules and ratios provided by the State Bank of Pakistan. The capital adequacy ratio is a measure of the amount of a Bank's capital expressed as a percentage of its risk weighted assets (RWAs). Measuring RWAs requires risk mitigants to be applied to the amount of assets shown on a Bank's statement of financial position and assignment of weightages according to the degree of inherent risk. The Bank has developed an Internal Capital Adequacy Assessment Process (ICAAP) as per the guidelines provided by the SBP. This framework has been approved by the Bank’s Board of Directors and submitted to the SBP. The Bank additionally covers risks not yet included under Pillar I, so as to carry adequate capital to cater for any future business requirements. The Bank reviews the ICAAP framework on an annual basis and changes/updates are recommended to the Basel II committee for onward submission to the Board of Directors. The Bank plans to move towards the Advanced Approach for Basel II, including the Foundation Internal Ratings Based Approach for credit risk, Internal Models Approach for market risk and the Alternate Standardized Approach for operational risk. 43.2 Capital Management The objective of managing capital is to safeguard the Bank's ability to continue as a going concern. It is the policy of the Bank to maintain a strong capital base so as to maintain investor, creditor and market confidence and to sustain future development of the business. The impact of the level of capital on shareholders’ return is also recognized and the Bank maintains a balance between the higher returns that might be possible with greater gearing and the advantages and security afforded by a sound capital position. Statutory minimum capital and capital adequacy requirements The SBP through its BSD Circular No. 07 dated April 15, 2009 has prescribed the minimum paid-up capital (net of accumulated losses) for Banks to be raised to Rs.10 billion by the year ending December 31, 2013. The paid-up capital of the Bank for the year ended December 31, 2012 stood at Rs.12,241.798 million (2011: Rs.12,241.798 million) and is in compliance with SBP requirements. Banks are also required to maintain a minimum Capital Adequacy Ratio (CAR) of 10% of the risk weighted exposure of the Bank. The Bank’s CAR as at December 31, 2012 was 14.81% (2011: 14.28%). The Bank and its individually regulated operations have complied with all capital requirements throughout the year. Tier 1 capital includes fully paid-up capital, balance in share premium account, general reserves as per the financial statements and net un-appropriated profits after deduction of the book value of goodwill / intangibles, deficit on revaluation of available for sale investments and 50% of investments in equity and other regulatory capital of majority owned securities or other financial subsidiaries not consolidated in the statement of financial position as per the guidelines laid under the Basel II framework. Tier 2 capital includes general provisions for loan losses, surplus on the revaluation of fixed assets and equity investments, foreign exchange translation reserves and subordinated debts (upto a maximum of 50% of Tier 1 capital) after deduction of 50% of investments in equity and other regulatory capital of majority owned securities or other financial subsidiaries not consolidated in the statement of financial position as per the guidelines laid under the Basel II framework. Tier 3 capital has also been prescribed by the SBP for managing market risk; however, the Bank does not have any Tier 3 capital. Banking operations are categorized as either Trading Book or Banking Book and RWAs are determined according to specified requirements of the SBP that seek to reflect the varying levels of risk attached to assets and off-balance sheet exposures. The total RWAs comprise of credit risk, market risk and operational risk. 41
NOTES TO AND FORMING PART OF THE UNCONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2012 43.3 Capital Adequacy Ratio The capital adequacy ratio, calculated in accordance with the SBP's guidelines on capital adequacy was as follows: 2012 2011 --------- (Rupees in '000) --------- Regulatory capital base Tier 1 Capital - Fully paid-up capital 12,241,798 12,241,798 - Statutory reserves 17,797,537 15,996,864 - Un-appropriated profit 36,341,135 33,534,116 Total Tier 1 Capital 66,380,470 61,772,778 Deductions: - Book value of intangibles 1,626,018 1,603,587 - Shortfall in provisions irrespective of relaxation provided 738,125 756,000 - Reciprocal cross holdings by banks 19,498 5,998 - 50% of investments in equity and other regulatory capital of majority owned securities or other financial subsidiaries not consolidated in the statement of financial position 2,301,714 1,224,465 4,685,355 3,590,050 Total eligible Tier 1 Capital 61,695,115 58,182,728 Supplementary Capital Tier 2 Capital - General provisions or general reserves for loan losses - upto a maximum of 1.25% of risk weighted assets 1,262,832 1,008,694 - Revaluation reserves up to 45% 9,167,301 5,701,125 - Foreign exchange translation reserves 11,267,676 8,912,150 - Subordinated loans - upto a maximum of 50% of total eligible Tier 1 capital 6,115,067 6,783,480 - Cash flow hedge reserve (32,298) (95,377) Total Tier 2 Capital 27,780,578 22,310,072 Deductions: - 50 % of investments in equity and other regulatory capital of majority owned securities or other financial subsidiaries not consolidated in the statement of financial position 2,301,714 1,224,465 Total eligible Tier 2 Capital 25,478,864 21,085,607 Total eligible Capital 87,173,979 79,268,335 Risk weighted exposures Capital requirements Risk weighted assets 2012 2011 2012 2011 Credit risk --------------------------------- (Rupees in '000) --------------------------------- Claims on: Federal and Provincial Governments, SBP and other sovereigns – in foreign currency 4,974,474 2,912,091 49,744,740 29,120,906 Public Sector Enterprises 1,088,721 894,849 10,887,206 8,948,485 Banks 4,019,364 3,945,216 40,193,636 39,452,164 Corporates 22,434,817 22,290,315 224,348,168 222,903,149 Retail portfolio 2,355,548 2,586,963 23,555,479 25,869,631 Secured by residential property 155,967 164,803 1,559,671 1,648,031 Past due loans 1,856,233 1,874,084 18,562,333 18,740,841 Listed equity investments 182,635 134,042 1,826,351 1,340,416 Unlisted equity investments 1,677,854 2,588,180 16,778,535 25,881,796 Investments in fixed assets 2,280,505 2,137,829 22,805,050 21,378,291 Other assets 1,042,511 803,222 10,425,110 8,032,224 42,068,629 40,331,594 420,686,279 403,315,934 Market risk Interest rate risk 4,555,843 3,580,837 56,948,038 44,760,466 Equity exposure risk 1,117,071 955,828 13,963,390 11,947,850 Foreign exchange risk 144,654 627,128 1,808,180 7,839,103 5,817,568 5,163,793 72,719,608 64,547,419 Operational risk 7,621,902 6,992,693 95,273,778 87,408,658 55,508,099 52,488,080 588,679,665 555,272,011 Capital adequacy ratio Total eligible regulatory capital held 87,173,979 79,268,335 Total risk weighted assets 588,679,665 555,272,011 Capital adequacy ratio 14.81% 14.28% 42
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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
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U N I T E D B A N K L I M I T E D B
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U N I T E D B A N K L I M I T E D n
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U N I T E D B A N K L I M I T E D
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U N I T E D B A N K L I M I T E D A
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U N I T E D B A N K L I M I T E D d
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U N I T E D B A N K L I M I T E D T
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Page 23 and 24: UNCONSOLIDATED STATEMENT OF FINANCI
Page 25 and 26: UNCONSOLIDATED STATEMENT OF COMPREH
Page 27 and 28: UNCONSOLIDATED STATEMENT OF CHANGES
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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
Page 111 and 112: Disposals of operating fixed assets
Page 113 and 114: Disposals of operating fixed assets
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