AfrAsia Bank - Annual Report 2015

AfrAsia Bank Limited and its Group Entities

Annual Report 2015

page 111

The ICAAP certificate for FY 2014 had been prepared in line with the guidelines and showed that the Bank has adequate capital to

sustain targeted growth. This ICAAP exercise for FY 2014 had taken into account all unexpected scenarios to assess the impact of

various operational risks on capital and potential risks associated with the Bank’s strategy. This report also showed that the Bank’s

capital adequacy ratios compare well with those of domestic peers, and the highlighted growth in risk-weighted assets will support

the Bank in complying with further regulatory requirements, as well as in maintaining investor confidence. It also demonstrates that

chosen internal capital targets are well-founded and those targets are consistent with the Bank’s overall risk profile and current

operating environment.

BASEL III

BASEL III is a new global regulatory standard on bank capital adequacy and liquidity agreed by the members of the Basel Committee

on Banking Supervision in December 2010. Basel III strengthens the Bank’s capital requirements and introduces new regulatory

requirements on the Bank’s liquidity and leverage. It proposes many newer capital, leverage and liquidity standards to strengthen

the regulation, supervision and risk management of the banking sector. The capital standards and new capital buffers will require

the Bank to hold more capital and higher quality of capital than under current Basel III rules. The new leverage and liquidity ratios

introduce a non-risk based measure to supplement the risk-based minimum capital requirements and measures to ensure that

adequate funding is maintained in case of crisis. As per the recommendations, the Bank is expected to be compliant by 1

January

2018. Our local supervisor has issued guidelines and recommendations as to measures to be taken by the Bank in line with Basel III.

The Bank is geared to implement the proposed Basel III requirements.

RELATED PARTY TRANSACTIONS, POLICIES AND PRACTICES

The Bank adheres to the Guideline on Related Party Transactions issued by the Bank of Mauritius in January 2009. In line with this

Guideline, the Board of Directors appointed a Conduct Review Committee to review and approve all related party transactions.

The Board has also adopted a policy which sets out the rules governing the identification of related parties, the terms and conditions

applicable to transactions entered into with them, and reporting procedures to the Conduct Review Committee.

The Conduct Review Committee (“CRC”) comprises three Independent Directors and one Independent Advisor who are not officers

or employees of the Bank. This Committee is responsible for the approval of all Category 1 and Category 2 related party transactions,

which are not exempted as per Bank of Mauritius guidelines (falling below 2% of Tier 1 capital).

All related party transactions are reviewed at the level of the Conduct Review Committee, which ensures that market terms and

conditions are applied to such transactions. Those exceeding the 2% of Tier 1 capital, as and when request is sent for approval and

for those exempted transactions i.e. below the 2% of Tier 1 capital; these are reviewed in the quarterly meetings. Furthermore all

facilities granted to minority shareholders of the Bank and exceeding 2% of Tier 1 capital, even not classified as Related Party as per

Bank of Mauritius guidelines, are reviewed by the CRC on a quarterly basis.

During the normal course of business in the year, the Bank entered into a number of banking transactions with its related parties.

These include placements or loans to/from banks, deposits as well as other normal banking transactions. As at 30 June 2015,

related party exposure was within regulatory guidelines at 37.6% (Cat 1 and Cat 2). However, the Bank has made a provision of

MUR 100.2m on a facility granted to one of its subsidiaries, which has been considered as impaired.

The Bank has complied in all respects with the Bank of Mauritius Guideline on Related Party Transactions. Related party reporting

to the Bank of Mauritius is made on a quarterly basis. Moreover, all related party transactions (including those transactions which

are exempted as per the Guideline on Related Party Transactions) are monitored and reported to the Conduct Review Committee

on a quarterly basis.