APPENDIX 15 UNSECURED LOANS

Individually assess loans and other credit accommodation  31-90 days

10%
Classification: Substandard under
SECURED performing
 31-90 days past due  91-120 days
10% required ACL 25%
Classification: Substandard under Classification: Substandard Non-
performing performing
 91-180 days past due  121-180 days
10% required ACL 50%
Classification: Substandard Non- Classification: Doubtful
performing  181 days - Over a year
 181-365 days past due 100%
25% required ACL Classification: Loss
Classification: Substandard Non-
performing Special Mention
 Over a year-5 years past due  5%
50% required ACL  Regardless whether secured or unsecured
Classification: Doubtful
 Over 5 years Performing - No payment for the past 90 days
100% Non-Performing - Without payment for more than 90 days
Classification: Loss
When there is imminent possibility of foreclosure and
expectation of loss ACL (Allowance for Credit Losses) should
be increased for 25%.

STRESS TEST SCENARIO

1. All credit classification are downgraded.
Example: Doubtful to loss; Substandard to doubtful

2. Increase total loan provisioning

3. Total loan is 100% loss (determining capital adequacy ratio) purpose

The following data were extracted from the financial statement and other financial records of Malayan Bank:

December 31, 2020

Capital Accounts:
Paid-up Capital Common 100,000,000.00
Retained Earnings - Free 43,479,366.70 Additional Information:
Undivided Profits 4,609,206.65 a. Minimum qualifying capital is 10% of
Loans and Discounts RWA.
Performing Past Due Loans 1,678,008.43 b. Minimum capital under Circular 354 is
Non-Performing Past Due Loans 33,474,557.59 P30,000,000.00
Items in Litigation - Loans and Discounts 1,892,002.00 c. Allowance fro credit losses as of
December 31, 2021 amounted to
Items in Litigation - Agricultural Credits 3,000,000.00
P10,285,940. (Existing Allowance)
Housing Loans 341,972.42
d. Allowance for credit losses if all loans are
General Loan Loss Provision 893,400.70
downgraded to substandard, doubtful and
Asset Accounts loss amounted to P17,293,530.00
Cash on Hand 3,473,152.82 e. Gross Loss Portfolio amounting to
Due from BSP 3,832,037.30 P162,690,070.00
Investment in Bonds & Other Debt Investments 4,668,276.24
Real & Other Properties Owned or Acquired (ROPA) 1,300,516.44 Required:
Accumulated Depreciation - ROPA 439,154.64 1. Compute for the CAR for December 31,
Total Assets 245,379,178.68 2020.
Total Operational Risk Weighted Assets: 2. Prepare Stress Testing Scenario 1
Average Gross Income for the past 3 yrs. 21,447,643.01 3. Prepare Stress Testing Scenario 2
Multiply by 12% Capitalization Rate 12% 4. Prepare Stress Testing Scenario 3
Capital Charge 2,573,717.16
Multiply by 125% 125%
Adjusted Capital Charge 3,217,146.45
Multiply by 10 times 10
Total Operational RWA 32,171,464.52
SOLUTION:
Malayan Bank
Risk Based Capital Adequacy Ratio
31-Dec-20

Paid-up Capital 100,000,000.00

Retained Earnings - Free 43,470,366.70
Undivided Profits 4,609,206.65
1% of Risk Weighted Assets (1% General Loan Loss Provision) 893,400.70
Total Gross Qualifying Capital 148,972,974.05

150%
RWA
Non-Perfoming Loans 38,366,559.59
ROPA (net) 861,361.80
Total 39,227,921.39 150% 58,841,882.09 1/

0%
RWA
Due from BSP 3,832,037.30
Investment in Bonds & Other Debt Investments 4,668,276.24
Cash on Hand 3,473,152.82
11,973,466.36 0%

50%
RWA
Housing Loan 341,972.42 50% 170,986.21 2/

100%
RWA
Total Assets 245,379,178.68
Add: General Loan Loss Provision 893,400.70
Total Adjusted Assets 246,272,579.38
Less: RWAs:
150% RWA 39,227,921.39
0% RWA 11,973,466.36
50% RWA 341,972.42
Total 51,543,360.17
Total Risk Asset 194,729,219.21 100% 194,729,219.21 3/ 253,742,087.51

Less: Excess of General Loan Loss Permitted -

Sub-Total 253,742,087.51
Total Operational RWA 4/ 32,171,464.52
Gross Risk Weighted Assets 285,913,552.03

Risk Based Capital Adequacy ratio = Tier 1 + Tier 2 = 148,972,974.05 = 52.10%

Gross RWA 285,913,552.03

BSP Industry Ratio as January 4, 2021 19.82%

Malayan Bank
Stress Testing Scenario No. 1
 31-Dec-20

(A) Qualifying Capital 148,972,974.05 148,972,974.05

Risk Weighted Assets 285,913,552.03
Capital Adequacy Ratio 52.10%
(B) Minimum Qualifying Capital 28,591,355.20
(C) Minimum Capital Under Circular 854 30,000,000.00
Minimum Capital: Higher of B or C 30,000,000.00

Stress Event No.1:

Downgrade of all Credit Classification
Existing allowance for probable losses 10,285,940.00
Allowance for probables losses if all loans are downgraded 17,293,530.00 -7,007,590.00
to Substandard, Doubtful and Loss 141,965,384.05
(D) Total qualifying Capital after Stress Event No. 1
CAR after Stress Event No. 1:
Risk Weighted Assets Prior to Stress Event No. 1 285,913,552.03
Less: Increase in Loss Provisions -7,007,590.00 278,905,962.03

Capital Adequacy Ratio after Stress Event No. 1 = 141,965,384.05 50.90%

278,905,962.03

Components:
The bank remain well-capitalized at 50.90% even after taking into consideration Stress Event No. 1

(A) Qualifying Capital 148,972,974.05 148,972,974.05

Risk Weighted Assets 285,913,552.03
Capital Adequacy Ratio 52.10%
(B) Minimum Qualifying Capital 28,591,355.20
(C) Minimum Capital Under Circular 854 30,000,000.00
Minimum Capital: Higher of B or C 30,000,000.00

Stress Event No. 2

30% Increase in Total Loan Loss Provision: 10,285,940.00
Existing allowance for probable losses 30% -3,085,782.00
Increase in Allowance for probable losses 145,887,192.05
to Substandard, Doubtful and Loss

(D) Total Qualifying Capital after stress Event No.2

CAR after Stress Event No. 2:
Risk Weighted Assets Prior to Stress Event No. 2 285,913,552.03
Less: Increase in Loss Provisions -3,085,782.00 282,827,770.03

Capital Adequacy Ratio After Stress Event No. 2 145,887,192.05 = 51.58%

282,827,770.03

Components:
The bank remain well-capitalized at 51.58% even after taking into consideration Stress Event No. 2

(A) Qualifying Capital 148,972,974.05 148,972,974.05

Risk Weighted Assets 285,913,552.03
 Capital Adequacy Ratio 52.10%
(B) Minimum Qualifying Capital 28,591,355.20
(C) Minimum Capital Under Circular 854 30,000,000.00
Minimum Capital: Higher of B or C 30,000,000.00

Stress Event no. 3:

Total Minimum Capital -30,000,000.00
Buffer against Losses 118,972,974.05

Buffer against Losses 118,972,974.05 73.13%

Gross Loan Portfolio 162,690,070.00

Components:
The bank has significant buffer against losses such that it would take the loss of 73.13% of its gross loan portfolio to
adversely impact its Capital Adequacy Ratio.