UBL Financial Statements - United Bank Limited

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NOTES TO AND FORMING PART OF THE UNCONSOLIDATED FINANCIAL STATEMENTSFOR THE YEAR ENDED DECEMBER 31, 2011Types of exposures and ECAI's usedJCR-VIS PACRA FITCH Moody's S & P ECA scoresCorporate - - -Banks -Sovereigns - - - - - Public sector enterprises - - - -Credit exposures subject to Standardized ApproachExposuresRatingcategory /riskweightsAmountoutstandingDeductionCRMAmountoutstandingDeductionCRMCash and cash equivalents - 23,088,337 - 23,088,337 14,266,546 - 14,266,546Claims on Government of Pakistan(Federal or Provincial Governments) andSBP, denominated in PKR - 121,016,072 - 121,016,072 121,556,124 12,686,226 108,869,898Foreign currency claims on the SBP arisingout of statutory obligations inPakistan - 5,175,221 - 5,175,221 5,043,830 - 5,043,830Claims on other sovereigns and on 1 1,432,766 - 1,432,766 207,144 - 207,144Government of Pakistan or provincial 2 2,076,447 - 2,076,447 3,063,371 - 3,063,371governments or SBP denominated in 3 7,583,570 - 7,583,570 7,766,882 - 7,766,882currencies other than PKR 4,5 1,883,061 - 1,883,061 - - -6 15,353,848 - 15,353,848 9,046,552 2,332 9,044,220Unrated - - - - - -28,329,692 - 28,329,692 20,083,949 2,332 20,081,617Corporates 0 - - - - - -1 42,570,159 2,522 42,567,637 24,189,772 2,437,971 21,751,8012 19,831,207 8,940 19,822,267 22,955,606 191 22,955,4153,4 350,906 1 350,905 1,081,533 - 1,081,5335,6 650,243 - 650,243 1,456,141 75,002 1,381,139Unrated 216,878,069 13,725,850 203,152,219 219,662,847 17,775,900 201,886,947280,280,584 13,737,313 266,543,271 269,345,899 20,289,064 249,056,835Banks 0 - - - - - -1 65,915,937 28,242,244 37,673,693 46,327,423 17,890,757 28,436,6662,3 28,676,942 - 28,676,942 36,295,927 2,470,749 33,825,1784,5 9,187,990 - 9,187,990 7,171,065 1,162,030 6,009,0356 3,333,656 - 3,333,656 - - -Unrated 5,982,615 - 5,982,615 6,722,706 - 6,722,706Claims on banks with maturity less than 3 monthsand denominated in foreign currency113,097,140 28,242,244 84,854,896 96,517,121 21,523,536 74,993,5851,2,3 1,991,733 - 1,991,733 - - -4,5 - - - - - -6 - - - - - -Unrated 4,128 - 4,128 - - -1,995,861 - 1,995,861 - - -Public sector enterprises 0 - - - - - -1 1,597,643 299 1,597,344 89,861 193 89,6682,3 - - - 4,666 2,678 1,9884,5 - - - - - -6 - - - - - -Unrated 49,823,364 32,565,331 17,258,033 81,359,035 55,690,508 25,668,52751,421,007 32,565,630 18,855,377 81,453,562 55,693,379 25,760,183Retail portfolio 75% 36,865,824 2,372,983 34,492,841 48,894,320 3,179,795 45,714,52535% 4,708,661 - 4,708,661 4,983,571 - 4,983,57141,574,485 2,372,983 39,201,502 53,877,891 3,179,795 50,698,096Equity investments- Listed 100% 1,340,416 - 1,340,416 9,009,323 - 9,009,323- Unlisted 150% 17,254,530 - 17,254,530 555,382 - 555,38218,594,946 - 18,594,946 9,564,705 - 9,564,705Past due loans- Less than 20% 150% 5,903,702 - 5,903,702 4,923,887 1,450,172 3,473,715- Between 20% to 50% 100% 7,707,316 - 7,707,316 11,360,230 - 11,360,230- More than 50% 50% 3,463,203 - 3,463,203 3,677,090 - 3,677,09017,074,221 - 17,074,221 19,961,207 1,450,172 18,511,035Past due loans secured against mortgageof residential property:- past due for more than 90 days 100% 178,257 - 178,257 560,433 - 560,433- past due by 90 days 50% 536,227 - 536,227 946,757 - 946,757714,484 - 714,484 1,507,190 - 1,507,190Fixed assets 100% 21,378,291 - 21,378,291 20,983,246 - 20,983,246Others 8,032,224 - 8,032,224 5,303,299 - 5,303,299Total 731,772,565 76,918,170 654,854,395 719,464,569 114,824,504 604,640,066Credit Risk: Disclosures with respect to Credit Risk Mitigation for Standardized ApproachNo credit risk mitigation benefit is taken in the Trading Book.2011-------------------Rupees in '000------------------Net amount2010-------------------Rupees in '000------------------Net amountThe Bank has adopted the Comprehensive Approach of Credit Risk Mitigation for the Banking Book. Under this approach, cash, lien on deposits, governmentsecurities and eligible guarantees etc. are considered as eligible collateral. The Bank has in place detailed guidelines with respect to valuation andmanagement of each of these types of collateral. Where the Bank’s exposure to an obligor is secured by eligible collateral, the Bank reduces its exposure forthe calculation of capital requirement by the realizable amount of the collateral, adjusted for any applicable haircuts.44
NOTES TO AND FORMING PART OF THE UNCONSOLIDATED FINANCIAL STATEMENTSFOR THE YEAR ENDED DECEMBER 31, 201144. RISK MANAGEMENTThis section presents information about the Bank’s exposure to and its management and control of risks, in particular, theprimary risks associated with its use of financial instruments such as credit, market, liquidity, and operational risks.Managing risk is one of the major challenges for the banking industry. The main goal is not to eliminate risk, but rather to beproactive in identifying, assessing and managing risks to the organisation’s strategic advantage.The Bank has an integrated risk management structure in place. The Board Risk Management Committee (BRMC) oversees theentire risk management process of the Bank. The Risk and Credit Policy Group is responsible for the implementation of policiesas approved by the BRMC. The group is organized into the functions of Market and Treasury Risk, Commercial and FIRMUCredit Policy, Consumer and Retail Credit, Credit Risk Management and Operational Risk and Basel II. Each risk function isheaded by a senior manager who reports directly to the Group Executive, Risk and Credit Policy. The role of the Risk and CreditPolicy Group includes:- Determining guidelines relating to the Bank’s appetite for risk.-Recommending risk management policies in accordance with the Basel II framework and international best practices.- Reviewing policies/ manuals and ensuring that these are in accordance with BRMC approved risk management policies.- Developing systems and resources to review the key risk exposures of the Bank.- Approving credits and granting approval authority to qualified and experienced individuals- Reviewing the adequacy of credit training across the Bank.- Organizing portfolio reviews focusing on quality assessment, risk profiles, industry concentrations, etc.- Setting systems to identify significant portfolio indicators, problem credits and level of provisioning required.44.1 Credit riskCredit risk is the risk that a customer or counterparty may not settle an obligation for full value, either when due or at any timethereafter. This risk arises from the potential that a customer or counterparty’s willingness to meet an obligation or its ability tomeet such an obligation is impaired, resulting in an economic loss to the Bank.The credit risk management process is driven by the Bank's Credit Policy, which provides policies and procedures in relation tocredit initiation, approval, documentation and disbursement, credit maintenance and remedial management.Individual credit authorities are delegated to credit officers by the Board according to their seasoning/maturity. Approvals forCorporate and Consumer loans are centralized, while approval authorities for Commercial and SME exposures are delegated toa Regional level. All credit policy functions are centrally organized.The Bank manages, limits and controls concentrations of credit risk to individual counterparties and groups, and to industries,where appropriate. Concentrations of credit risk exist if clients are engaged in similar activities, or are located in the samegeographical region, or have comparable economic characteristics such that their ability to meet contractual obligations wouldbe similarly affected by changes in economic, political or other conditions. Limits are also applied to portfolios or sectors wherethe Bank considers it appropriate to restrict credit risk concentrations or to areas of higher risk, or to control the rate of portfoliogrowth.45
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UBL Financial Statements - United Bank Limited

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