Liquidity Management, National Bank Limited

Contents
Executive Summary ............................................................................................... 1

Part- 1 ................................................................................................................ 4
Internship experience .............................................................................................. 4
Part-2 .................................................................................................................10
Report Part ............................................................................................................ 10
Chapter - 1 ......................................................................................................11
Introduction ...................................................................................................11
1.1 Scope and Objectives ............................................................................................................. 12
1.2 Methodology ......................................................................................................................... 13
I. Sources of the Data: ............................................................................................................... 13
II. Research Design: .................................................................................................................... 13
III. Sample selection: ............................................................................................................... 13
IV. Data Collection: .................................................................................................................. 13
1.3 Limitations of the Report........................................................................................................ 14
Chapter-2 .........................................................................................................15
Theoretical Development and Previous Studies ..........................15

2.1 Liquidity Management ........................................................................................................... 15
2.2 Measurement of Liquidity ...................................................................................................... 15
2.3 Importance of Liquidity Management .................................................................................... 16
2.4 Objectives of Liquidity Management ...................................................................................... 16
2.5 Sound Practices for Managing Liquidity in Banking ................................................................. 17
2.6 Liquidity of a Bank .................................................................................................................. 17
2.7 Liquidity Management by Banks: Steps and Principles ............................................................ 20
2.8 Estimating Liquidity Needs ..................................................................................................... 25
2.9 Optimum Bank Liquidity ......................................................................................................... 27
2.10 Previous Studies ..................................................................................................................... 29
1|P a g e
An Overview of Liquidity Management of Private Commercial Bank: A Case Study of National Bank Limited
Chapter-3 .........................................................................................................31
An Overview of the Banking System of Bangladesh ..................31
3.1 Money Market ....................................................................................................................... 33
3.2 Taka Treasury Bond Market.................................................................................................... 33
3.3 Deposit Insurance System ...................................................................................................... 33
3.4 Core Policies of Central Bank .................................................................................................. 33
3.5 Current Bank Deposit and Credit ............................................................................................ 35
3.6 Central Bank Regulation in Liquidity Management ................................................................. 36
3.7 Central Bank’s Liquidity Management Framework .................................................................. 36
Chapter-4 .........................................................................................................37
Empirical Analysis ......................................................................................37

4.1 Current Assets of National Bank Limited................................................................................. 37
4.2 Current Liabilities of National Bank Limited ............................................................................ 37
4.3 Estimated Liquidity Needs of National Bank Limited ............................................................... 42
4.4 Structure of Deposit Method .................................................................................................. 44
4.5 Meeting Liquidity Needs......................................................................................................... 46
4.6 Liability Management............................................................................................................. 51
4.7 Performance Analysis ............................................................................................................. 52
Return on Equity: ........................................................................................................................... 52
Return on Asset: ............................................................................................................................ 53
Earnings per share: ........................................................................................................................ 54
Debt to Equity Ratio: ...................................................................................................................... 55
Chapter-5 .........................................................................................................57
Summary and Conclusion ........................................................................57
References .....................................................................................................59
2|Pa ge
Executive Summary
Banking is business that operates on the trust and confidence of individual. This confidence
allows the bank to mobilize funds from different sources. The prime function of bank might
broadly be classified into two categories. Firstly, borrowing cash from public by accepting
deposits and second, lending the money to people for development. Profitability of a bank
depends on the sound management of fund and exploring the genuine area in which its resources
are invested to produce the maximum income. To ensure, that these activities can run properly, a
bank must efficiently manage its liquid assets & liabilities.
I have described the liquidity management method of National Bank Limited. So, in whole
through this report I concentrated on the liquidity management & its correspondent aspects.
I divided my report in some chapters according to the necessity & similarity of the topics. The
report has six major parts that will serve objectives of the report.
1. The first section is about the internship experience where all the pros and cons of my
internship experience are written. While doing the internship I worked in several departments
of National Bank Limited and I am happy to say that my internship experience was very
satisfactory and I will remember it for a long time.
2. After the internship the first chapter starts that is named after Paper Background. This
chapter is basically the introductory chapter of the whole report. In paper background firstly
a brief introduction is given then some more discussion is available about the past researches
on this particular topic. After that the objectives of the report, scopes of the report and
limitations of the report are given. To have the understanding of a particular management
process of a bank, it’s important to have a basic understanding about that I basically
described the background & necessity of making this report, the strategies used to prepare it
& the scope & limitation I encountered during preparing this reports etc. Other than these,
additionally expressed some introductory speech to introduce the topic I’ve chosen. It
contains the description & analysis of various activities of National Bank Limited.
1|P a g e
3. The next chapter is named after Theoretical development & Previous Studies where the
theoretical issues of this topic are discussed. As my main focus is on the liquidity
management method, so it’s required to have the fundamental ideas & definitions of the basic
issues concerning liquidity management process. The theoretical descriptions & ideas
covering the liquid assets & liability of a bank, which sort of assets & liabilities we might
name liquid assets & liquid liability, kinds of liquid assets & some other issues have been
illustrated. It additionally contains the description of the liquidity management requirements
of central bank & central bank’s liquidity management process. I also have collected all
attainable information to describe the liquidity management of National Bank Limited. The
information about the SLR & CRR positions of National Bank Limited has been collected &
also made a graph of the liquidity gap.
4. The third chapter of the report that is named Overview of the Banking System of Bangladesh
where the discussions are about the Financial & Banking System Of Bangladesh, their rules
& regulations etc. The “liquidity management” of a bank is defined as the framework, set of
instruments and especially the rules the central bank follows in steering the amount of bank
reserves in order to control their price consistently with its ultimate goals. Maintaining the
liquidity risks mostly depends on how the credit is being handled. National Bank Ltd. ensures
that the loan or credit they lend is given to the right person. For this, National Bank Limited
follows a strict rules and regulation. Lending operation starts from selection of borrower
from field level and ends with disbursing sanctioned amount after proper credit analysis and
documentation. For all these National Bank Limited follows strict regulation which is
approved by the Bangladesh Bank. However, I’ve done a lot of calculations, observed
financial reports of the institutions. I gathered knowledge about their administrative process
of managing several issues.
5. The fourth chapter includes the Empirical Analysis Of National Bank Limited where I did
some empirical analysis on Liquidity management from year 2013-2017. For this purpose I
have used different mathematical tools & techniques. After preparing the report, I had some
findings concerning the liquidity management & other aspects of the banks activities. As an
inexperienced individual I might have made several mistakes in those findings, but whatever
I felt from my point of viewpoint, I only figured out those.
2|Pa ge
6. The final chapter is the concluding part of the report where the results are discussed. At the
same time results and suggestions of some past studies are also discussed for the sake of
comparing the results of this study. After that some references of past studies attached.
3|Pa ge
Part- 1
Internship experience
4|Page
For the successful completion of BBA every student has to complete at least a six week
internship under any organization that is operated in Bangladesh. Students are bound to join the
internship program by the university so that they can learn how the things they learn in
classrooms take place in real world. To fulfill the criteria of BBA I attended a 66 days internship
in National Bank Limited, Elephant Road Branch, Dhaka. While working as an intern in the
bank I learned many things most importantly I have learned how the bankers deal with theirs
clients in real life situations.
While describing my internship experience it is relevant to describe the organization where I

worked during my internship period. National Bank Limited is a very well-known bank in our
country. In fact it is called the first generation bank in Bangladesh.
National Bank Limited was born as the first hundred percent Bangladeshi owned Bank in the
private sector. From the very inception, it was the firm determination of National Bank Limited
playing a vital role in the national economy. We are determined to bring back the long forgotten
taste of banking services and flavors. We want to serve each one promptly and with a sense of
dedication and dignity.
Then the President of the People's Republic of Bangladesh Justice Ahsanuddin Chowdhury
inaugurated the bank formally on March 28, 1983, but the first branch at 48, Dilkusha
Commercial Area, Dhaka started commercial operation on March 23, 1983. The 2nd Branch was
opened on 11th May 1983 at Khatungonj, Chittagong.
At present, National Bank Limited has been carrying on business through its 200 branches &
Agri Branches spread all over the country. Since the very beginning, the bank has exerted much
emphasis on overseas operations and handled a sizable quantum of homebound foreign
remittance. It has drawing arrangements with 415 correspondents in 75 countries of the world, as
well as with 37 overseas Exchange Companies located in 13 countries. National Bank Limited
was the first domestic bank to establish agency arrangements with the world famous Western
Union in order to facilitate quick and safe remittance of the valuable foreign exchanges earned
by the expatriate Bangladeshi nationals. This has meant that the expatriates can remit their hard-
earned money to the country with much ease, confidence, safety and speed.
5|Page
National Bank Limited was also the first among domestic banks to introduce international
Master Card in Bangladesh. In the meantime, National Bank Limited has also introduced the
Visa Card and Power Card. The Bank has in its use the latest information technology services of
SWIFT and REUTERS. National Bank Limited has been continuing its small credit program for
disbursement of collateral free agricultural loans among the poor farmers of Barindra area in
Rajshahi district for improving their livelihood.
During the working period with National Bank Limited I learned many things about the bank’s
internal structure. Actually two types of branches operated under the umbrella of National bank
and all the banking activities are classified into these two major types. One type is corporate
branch and the other is general branch. In whole Bangladesh lots of general and corporate
branches of National Bank are available to support the banking industry. I am fortunate that I
completed my internship under an A grade branch of National Bank. The branch is managed by
Imam Hossain. I want to express honor to all the Executives and Officers of National Bank
Limited, Elephant road Branch, who have helped me by giving various information in preparing
this report. Of them, I would like to mention the name of:
1.Imam Hossain (SVP & Branch Manager )
2.Luthfun Nahar (SAVP)
3.Rina Akter (Senior Principal Officer)
4.Nadia Amin (Junior Officer)
5.Shahid kaabir (Junior Officer)
6.Minhaz Uddin Khan (Junior Officer)
7.Shameem ahamed (Senior Principal Officer)
8.Asraf
9.Helal Uddin
10.Ruhin Hussain (Exceutive Officer)
While working as an intern with National Bank Limited the interns need to perform several
responsibilities in synchronized way. The basic duty of the intern is to follow the employees of
the bank so that he can learn the ways of working of the employees. During my internship period
I have learned a lot from different employees of the bank and I am fortunate that most of the
employees were so friendly to me. While working as an intern I worked under several
departments like opening A/c, Card division, disbursement, administration, bills and accounts,
6|Pa ge
loans and advances, cash and foreign remittance. The most interesting part of my internship
period is that I learned a lot from every department and working with them was really enjoyable.
Job Rotation Plan for an Internee of National Bank Limited is given below:
Sl No. Departments/ Works assigned to be done Days

Sections Allotted
1 Despatch Inward Mail: Opening Of closed Envelopes-
Marking the concerned Department-Entry of
Registered Letters inward Mail Register-
Delivery against acknowledgement of receipt
Outward Mail: Hand Delivery-Entry in Peon
Book-Mail bag of Peon-Ordinary post-Entry in
Despatch Register-Registered Post Separate 5
Mail Registered -Voucher against Stamps
Purchased & Postage Consumed-Balancing Of
Stock of Stamp-Refund & Passing of Entries in
Month End5
2 Cash Department Opening of Cash, Maintenance of Receive &
Payment Registers, getting familiarized with
issue torn, mutilated & Soiled notes ,Cash 5
remittance procedures, Closing of Cash etc
3 A/C Opening Different types of Customers, Opening of
SB/CD/FDR & Others different types of Current & Savings A/C-
STD/MSS Joint A/Cs-Club, Societies etc. - Private
Individual, Firms & Partnership-
Proprietorship Firms - Accounts of Limited Co
& NGO- Procedure for Opening of A/C for
Foreigners ,ladies, Minor, Bankrupt, Illiterate
Person of Official Receiver & Assignee - A/C
of Trust Executor, Administrator, Govt &
Semi Govt A/C
7|Page
Getting the A/C introduced & fix up of his 10
responsibility- Know Your Customer (KYC)
Opening FDR A/C - Joint or Single - Either or
Survivor- Minor , Calculation of Interest on
Maturity- Pre-mature encashment – Keeping
Interest Provisions – Payment on Death –
Duplicate FDR Issue – Indemnity Bond – FDR
Block- Scanning in Computer – Keeping Due
date diary – Renewal & Closure of FDR A/Cs
Opening of STD & MSS A/C – Keeping
Record of Notice 5for STD & MSS A/C –
Closings of A/Cs 10
4 Local Remittance Issue & Payment of TT, DD, PO, PS,SDR,
Cancellation & Issuance of Duplicate 5
Instruments.
5 Bills & Clearings Collection & Payment of LBC, OBC, IBC, 5
IDBC, ODBC
6 Accounts & Functions of Accounts Department, Cash
Reconciliation Voucher, Clearing Voucher & Transfer Book,
Cash Book, Income Ledger, Expenditure 5
Ledger, Subsidiary Ledger, General Ledger –
its Operational Guidelines.
7 Foreign Remittance Issuance & Payment of TC, FDD, FTT, etc
including voucher.
An Overview on Western Union Money
Transfer. 7
Different types of FC A/Cs – NFCD – RFCD
& Convertible & Non-Convertible A/Cs,
Blocked A/Cs
8 Loans & Advances Borrower selections – Forms of Advances –
8|P age
Security – Different Methods for Creating
Charge over Securities – Credit Investigations
– Balance Sheet Analysis – Advance against 12
Pledge & Hypothecation of Goods – Advance
against Lien on FRD – Advance Against Real
Estate – Financial Ration Analysis to
Determine Liquidity, Solvency, Profitability &
Efficiency of the Organization – Risk Analysis
in Borrowings & Lendings.
9 Foreign Exchange Advising of L/C through SWIFT Insurance
Operations Coverage of Import & Export
Document used in Foreign Trade, Transport
Document & Other Documents
Lodgment of Import Documents & handling of
Discrepant Documents.
Export Policy Order & its main objectives. 12
Export registration & Export Procedures.
Export Finance in the form of Export Credit &
Packing Credit – its supervision & Control
An overview on Foreign Guarantee –
Procedure & Policies
9|Pa ge
Part-2
Report Part
10 | P a g e
Chapter - 1
Introduction
Banks are financial intermediaries that operate as depository institutions. They maintain deposits;
and make loans. As financial intermediaries, banks match up lenders and borrowers, using
deposits for loans. Banks are also accountable to maintain liquid checkable deposits that are used
as money for the economy.
Bank liquidity is one of the most important factors that should be considered while studying the
banking sector. Liquid assets of a Bank include mainly cash, deposits which are collected from
people and institutions in various forms. One of the main challenges to a bank is ensuring its own
liquidity under all reasonable conditions. The fundamental task of any bank is to keep the value
of the assets equal to the value of the liabilities. The bases of this problem are a reflection of the
characteristics of the banking business. The banker holds a few assets and at the same time owes
very large sums to the public in the form of time and demand deposits. The demand deposit
carries the obligation to pay cash whenever it is requested. It is essential that the resources of the
bank provide demand deposits at all time. Failure to remain in a position to meet all claims as
they are presented loses confidence of its customers. Banks try to ensure that they have sufficient
liquidity to meet all relevant regulatory requirements and to reduce the likelihood that liquidity
falls below these thresholds.
Liquidity is described as the degree to how fast an asset or security can be bought or sold in the
market without affecting the asset price. Bank needs liquidity because they always cannot control
the timing of their needs for funds. Cash is the most liquid asset which can be used easily and
immediately. Certificates of deposit are less liquid than cash because there is usually a penalty to
convert them into cash before their maturity date. In general, liquidity management consists of
two interrelated parts. First, management must estimate fund’s needs, which is based on deposit
inflows and outflows and varying levels of loan commitments. The second part of liquidity
management involves meeting liquidity needs.
11 | P a g e
Banks face two central issues regarding liquidity. Banks are liable for managing liquidity
creation and liquidity risk. Banks create liquidity to help depositors and companies for staying
liquid, for companies especially when other forms of financing become difficult. Liquidity risk
are managed to ensure the banks own liquidity so that the bank can continue to serve its function.
Banks balance between its own liquidity and its role as a liquidity creator, especially in times of
financial distress or crisis.
A bank’s liquidity situation will be affected by much more than just the reserve of cash and
highly liquid securities, particularly in a crisis. The time limit of its less liquid assets will also
matter as some of them may mature before the cash crisis passes, thereby providing an additional
source of funds. The requirement to pay back demand deposits at any time that the depositor
wants is the biggest contingent commitment in most cases.
The formality and sophistication of the process that is used for managing liquidity depends on
the size and sophistication of the bank, as well as the nature and complexity of its activities.
While the report focuses on Islamic bank, the principles have broad applicability to all banks.
Specifically, crucial elements of strong liquidity management at a bank of any size or scope of
operations are good management information systems, analysis of net funding requirements
under alternative scenarios, diversification of funding sources, and contingency planning. The
report has been undertaken with consideration of this fact.
1.1 Scope and Objectives

The scope of the study is very broad. It covers many aspects of bank liquidity like cash, different
types of deposits, bills payable, and borrowings from other banks and financial institutions and
off balance sheet activities. It also covers the processes of managing liquidities.
The main objective of the study is to focus on liabilities of bank and to cope up with corporate
environment and also gathering knowledge from the expert who are leading and making strategic
decisions to enhance the growth of a financial institution. The objectives of the report can be
summarized as follows:
The objectives of the study are:
12 | P a g e
• To give an overview of theoretical development and previous studies.
• To focus and highlight the banking system of Bangladesh.
• To analyze the framework of liquidity management of National Bank Limited.
• To estimate the liquidity need of National Bank Limited.
• To give a Summary & Conclusion of the Study.
1.2 Methodology
The objective of the report is to find out the liquidity management process of the National Bank
Limited. For preparing this report secondary data has been used. The study has been performed
based on the information extracted from the different sources collected by using a specific
methodology. This report is analytical in nature. Discussion with the staffs of selected
commercial banks have generated benchmark information for the study as a comprising tool and
enhanced it towards a holistic point of view. I have also received important instructions from my
project supervisor.
I. Sources of the Data:

Source of Data of this Study can be divided into two categories:
II. Research Design:

A thesis study was conducted aiming to manage the liquidity from National Bank Limited.
Quantitative data were collected through questionnaires & Financial Statements of National
Bank Limited. Individual interviews of the different staffs who are involving in liquidity
management were conducted to obtain qualitative data.
III. Sample selection:

Secondary sources:
 Annual reports of National Bank Limited of the year 2013, 2014, 2015, 2016, 2017
 Related files study provided by the officers concerned
 Official website of National Bank Limited
 Bank record
 Different books, articles etc. regarding liabilities management.
IV. Data Collection:

Data were collected within a certain time. Qualitative data were collected through focus group
and in-depth interviews. Since workplace violence is a sensitive issue, the privacy,
13 | P a g e
confidentiality, and safety of the subjects were protected throughout the processes of qualitative
data collection. Most of the individual interviews were conducted at the participant’s workplaces.
For the quantitative data I contacted the relevant authorities for permission to collect data.
1.3 Limitations of the Report

Every study has some limitations. I faced some usual restrictions during the course of my
preparation for the report. The major limitations are as follows:
• There were not huge guidelines about liquidity management of the bank.
• Lack of knowledge: I believe I don’t have enough knowledge about how to prepare a
report on this sort of analysis. So I have faced some problems by this side.
• Scarcity of primary data: I mainly depended on the secondary data in order to
prepare the whole report. So the report has some shortage of information from
primary data source.
• Lack of strong analytical ability: In order to insure the maximum quality of the
report strong analytical ability is needed. So my lack of strong analytical ability
created some limitations.
I hope that my respected teacher and internship supervisor will overlook the limitations and
overview the report with a positive view.
14 | P a g e
Chapter-2
Theoretical Development and Previous Studies
In this chapter, I have given an overview of the theoretical development and previous studies
about liquidity management.
Liquidity describes the degree to which a security or an asset can be quickly bought or sold in the
market without affecting the asset's price and the availability of funds, or assurance that funds are
going to be available, for honoring all cash outflow commitments (both on- and off-balance
sheet) as they fall due. Cash inflows, supplemented by assets which are readily convertible to
cash or through the institution’s capacity to borrow generally met these commitments. There
might arise the probability of illiquidity if principal and interest cash flows associated with
assets, liabilities and off-balance sheet items aren’t matched.
2.1 Liquidity Management

Cash and liquidity management is concerned about predicting the company’s cash which is
required to operate its businesses and then to manage the group wise cash flows, short-run
borrowings and cash in the most efficient manner to make sure that cash requirements can be
met. IT and communications systems assist in pooling cash internationally and used to best
advantage. Funding and liquidity needs have a connection with understanding and managing
working capital and the payments and cash reporting systems to best advantage. The liquidity
position of a bank can be analyzed by evaluating some ratios.
2.2 Measurement of Liquidity

Liquidity ratios are used to identify a company's ability to pay off its short-terms debts
obligations. It is a category of financial metrics. The higher the value of the ratio the larger the
margin of safety the corporation possesses to cover short-run obligations. Some of the liquidity
ratios are given below:
Current Ratio: Liquidity ratio that assesses a company's ability to pay short-run obligations The
ratio provide an idea of the company's worth to repay its short-run liabilities (debt and payables)
15 | P a g e
with its short-term assets (cash, inventory, receivables). The higher the current ratio, the more
ability the company has paying off its obligations. The formula of Current Ratio is:
Current Ratio=Current Assets/Current Liabilities.
Total debt-to-asset: A measurement which is used to estimate a company's financial risk to

determine what quantity of the company's assets is financed by debt is known as total debt-to-
asset ratio. The ratio is calculated by adding short-run and long-run debt and then dividing by the
total assets of the company.
Total Debt to Total Assets= (Short term debt+ Long Term Debt)/Total Assets
2.3 Importance of Liquidity Management

Managing liquidity is a necessary component in the safe and sound management of all financial
entities. Sound liquidity management includes managing assets and liabilities (on- and off-
balance sheet) efficiently, both as to cash flow and concentration, to make sure that cash inflows
have an acceptable relationship for balancing cash outflows. A method of liquidity planning is
required to support this which predicts potential future liquidity requirements by taking changes
in economic, regulatory or other operating conditions into account. Such planning requires
distinguishing known and potential cash outflows and weighing alternative asset/liability
management strategies to make sure that the organization has sufficient cash inflows to meet the
requirements.
2.4 Objectives of Liquidity Management

The objectives of liquidity management are:
 To honor all cash outflow commitments (both on- balance sheet and off-balance sheet) on
an ongoing, daily basis
 To maintain public confidence on the bank
 To avoid raising funds at market premiums or through the forced sale of assets; and
 To satisfy statutory liquidity and statutory reserve requirements
 To meet loan demand
 To meet administrative expenses in various sectors like payment of salary, rent,
electricity charge, telephone bill etc.
 To resolve economic fluctuations as banks are highly dependent upon the current
16 | P a g e
economic situation.
2.5 Sound Practices for Managing Liquidity in Banking

A perpetual viability of any banking organization is the capability to increase funds in assets and
meet obligations as they become due. However, the individual bank is transcended by the
importance of liquidity since a liquidity shortage at a single organization can have systemic
repercussions. The management of liquidity is thus among the essential activities operated at
banks. Over time, a declining ability is seen to depend on core deposits and an increased reliance
on wholesale funding. Banks are provided with recent financial and technological innovations
with new ways to fund their activities and to manage their liquidity, however recent turmoil in
international financial markets has posed new challenges for liquidity management. In these
cases, there are some necessary practices for managing liquidity in banks that are indicated
below:
 Developing a structure for managing liquidity

 Measuring, observing and monitoring net funding requirements
 Managing market access
 Contingency plan
 Foreign currency liquidity management
 Internal controls for liquidity risk management
 Public disclosure in improving liquidity
2.6 Liquidity of a Bank

Liquidity means how quickly an asset can be converted into cash without affecting the value of
the asset. The most liquid asset is money in cash form. Assets that normally can be sold after a
long and comprehensive search for a buyer are treated as illiquid. Liquidity is differentiated by a
high level of trading activity. Assets which is easily bought or sold are called liquid assets which
are also known as "marketability". There has no specific liquidity formula to be used; but in
general liquidity is calculated by using liquidity ratios. Invest in liquid assets is more safe than
illiquid ones because it’s easier for an investor to get money out of the investment. Assets which
17 | P a g e
are easily converted into cash include money market securities. For banks and large institutions,
liquidity management is about getting a large return on cash that they might be required at short
notice. They do it by borrowing and lending between each other by using either money market
securities or deposits and loans - in what is called the interbank market. Just as the interbank
market permits commercial banks to involve in liquidity management, Central Banks also use
money markets for managing their reserves, and in doing thus can have an effect on the
prevailing money market rates. This is generally achieved by handling the one market section
over which they have direct control, the Treasury bill market.
High liquidity suggests there is a handsome amount of cash as interest rates are low, and so
capital is easy to attain. However, there might require a liquidity glut to be developed if there is
really excessive amount of money looking for too few investments. This is normally a precursor
to a recession, as a lot of capital becomes invested in unhealthy ventures. As the ventures go
defunct and don't pay out their promised return, investors are left holding unworthy assets. Often
a panic may ensue, causing withdrawal of investment money. This is what occurred throughout
the 2007 Banking Liquidity Crisis. Bank lending finances investments in relatively illiquid
assets, but it fund its loans with mostly short term liabilities. SO, one of the most challenging
task to a bank is ensuring its own liquidity under all reasonable conditions.
Liquid Assets of a Bank: An asset that might be converted into cash quickly and with minimal
loss to the price received. To be a liquid asset it requires an established market with sufficient
participants for absorbing the selling without materially impacting the price of the asset. Most
stocks, money market instruments and government bonds include liquid assets. Cash and other
financial assets which banks possess can easily be liquidated and paid out as part of operational
cash flows. Cash, government bonds and money market funds are examples of core liquid assets.
Banks typically use forecasts to measure the amount of cash that account holders will be in need
to withdraw, but it is necessary that banks don’t over-estimate the amount of cash and cash
equivalents required for core liquidity because unused cash left in core liquidity can’t be
managed by the bank to earn high returns.
Cash in hand: Quantity of cash of a bank, that stays in hand of that bank to meet
recent needs. Normally, bank keeps sufficient money in hand and liquidity risk is
18 | P a g e
minimized.
Items within the process of collection: Some quantity of money which is kept in the
process of making cash.
Reserve in Bangladesh Bank: Each schedule bank has reserve requirement wherever
every bank keeps 5.5% cash on his total capital to the central bank. If a bank is in need
of money, he can withdraw money from BB’s reserve amount.
Balance with other banks: Each commercial banking concern has an account in other
commercial banks as customer. If a bank requires money, he can withdraw money from
the account. As a result, risk of liquidity is minimized.
Figure-1
Liquid Assets of a bank
Cash in hand
Items within the process of collection
Reserve in Bangladesh Bank
Balance with other banks
19 | P a g e
Characteristics of Liquid Assets:
There are three characteristics found in liquid assets that are ready market, stable price and
reversible.
a) Ready Market: A liquid asset should have a ready market so that it might be converted into
cash without delay.
b) Stable Market: Liquid asset should have a reasonable stable price so that no matter how
quickly the asset should be sold or how large amount the sale is the market is deep enough to
soak up the sale while not a big decline in worth.
c) Reversible: The seller may recover his or her original investment with very little risk of loss.
2.7 Liquidity Management by Banks: Steps and Principles

In order to retain the customer base the banks must adopt a liquidity/investment policy to be able
to repay to depositors on demand. Incase bank deploys its maximum funds in loans/investment
without caring for the requisite amount of liquidity to able to meet the immediate financial
requirements particularly towards demand depositors, it may tarnish its image which can be a
fatal event for any bank.
Yes if a bank under the fear of protecting its image to be able to meet all the demand
requirements instantly keeps a large portion of its funds in liquid form either in cash with itself
or deposits with the Central Bank i.e. RBI without earning sufficient returns or at low level of
interest, naturally may face a situation of loss.
Investments by banks are its assets and demand and term deposits are liabilities. Derived from
above discussion it may be observed that an investment policy of a Bank should be a balanced
approach for managing its assets and liabilities. In case of enhancing or increasing assets without
taking into account the proportion of liabilities may bring more profit or income but the bank
may likely fail in meeting its obligations.
In reverse position of quantum of liquidity is more than the required limit it may be a cause of
losses. It may please be understood that Profitability and Liquidity stand against each other and
are required to be managed in a planned manner.
20 | P a g e
Steps in Cash and Liquidity Management:
For cash and liquidity management by banks following steps are adopted:
1) Cash:
Cash is complete liquidity consisting of cash in hand held by the bank itself or deposited with
Central Bank (RBI). The quantum of cash to be kept by a bank is regulated by statutory
requirements known as SLR (Statutory liquidity Ratio) and CRR (Current Reserve Ratio). In
addition to rules and regulations the practical experiences of bankers also play a vital role in
deciding the quantum of cash to be kept as cash in hand. Any idle cash kept earns no income.
It is therefore every bank adopts a system of complete cash management and investment
management in order to measure and manage the liquidity needs. Measuring liquidity is a
ticklish task and mostly gauged by Assets and Liability management system.
(2) Investments:
Investment by banks is largely regulated by specific guidelines as discussed above in portfolio

management. Likewise cash management is also subject to SLR and CRR norms.
(3) Loans and Advances:
Commercial Banks function as financial intermediaries. They mobilize funds through various
deposit schemes and a large portion of these funds are deployed as bank credit in various sectors
of economy. In a way banks also function like trustee of savings and idle funds of the society.
The quality of the credit portfolio decides their efficiency of discharging their duty. In providing
loans to different sectors of society is best suited method of managing excess cash by banks as
this sector is more secure than making investment in capital market.
(4) Inter Relationship of Cash, Liquidity, Asset and Liability Management:
If the management of cash, liquidity and liabilities are put under one umbrella it would be seen
as a process where all of them are inter linked and no single item can be managed separately
without having look on other items.
21 | P a g e
Following brief description about these items may help to understand the position:
(A) Asset and Liability Management: It is a process of effectively managing a bank

portfolio mix of assets, liabilities and when applicable off-balance sheet contracts. This
process involves two primary financial risks, interest rate and foreign exchange, and
directly relates to sound over all liquidity management.
(B) Interest Rate Risk: It is the process of the exposure of a bank’s financial condition to
adverse movements in interest rates. Changes in interest rates can have significant impact
on a bank earnings as well as the underlying economic value of a bank assets, liabilities
and off balance sheet items.
(C) Liquidity: The ability to fund all contractual obligations of the bank. Notably lending
and investment commitments and deposit withdrawals and liability maturities, in the
normal course of business that is the ability to fund increases in assets and meet
obligations as they come due.
(D) Liquidity Management: It is an on-going process to ensure that cash needs can be met
at reasonable cost in order for a bank to maintain the required level of reserves with RBI
(CRR) and to meet expected and contingent cash needs. Required CRR/SLR with the
RBI should not be considered to be a routine source of liquidity. Good management
information systems, analysis of net funding requirements under alternative scenarios,
diversification of funding sources, and contingency planning are crucial elements of
sound liquidity management.
(E) Liquidity Risk: It is a risk of loss to a bank resulting from its liability to meet its needs
for cash or from inadequate liquidity levels, which must be covered by funds, at excess
cost.
(F) Net Funding Requirements: The liquid assets necessary to fund a bank cash obligations
and commitments going forward determined by performing a cash flow analysis, all cash
inflows against all cash outflows, to identify potential net shortfalls.
22 | P a g e
Principles of Liquidity Management:
The Bank for International settlements’ Basel Committee on Banking Supervision in its
document No. 69 February, 2000 has provided principles and details of key elements for
effective management of liquidity.
Banks should formally adopt and implement these principles for use in overall liquidity
management process:
A. Banks must develop a structure for liquidity management:
1. Each bank should have an agreed strategy for day-to-day liquidity management. This
strategy should be communicated throughout the organization.
2. A Bank Governing board should approve the strategy and significant policies related to
liquidity management. The governing board should also ensure that senior management
of the bank takes the steps necessary to monitor and control liquidity risk. The Governing
Board should be informed regularly of the liquidity situation of the bank and immediately
if there are any material changes in the bank current or prospective liquidity position.
3. Each Bank should have a management structure in place to effectively execute the
liquidity strategy. This structure should include the on-going involvement of members of
senior management. Senior management must ensure that liquidity is effectively
managed, and that appropriate policies and procedures are established to control and limit
liquidity risk. Banks should set and regularly review limits on the size of their liquidity
positions over particular time horizons.
4. Banks must have adequate information systems for measuring, monitoring, controlling
and reporting liquidity risks. Reports should be provided on a timely basis to the banks
governing board, senior management and central bank. (In case of India Reserve Bank of
India)
B. Banks must measure and monitor net funding requirements:
1. Each bank should establish a process for the ongoing measurement and monitoring of net
funding requirements.
2. Banks should analyze liquidity utilizing a variety of scenarios.
23 | P a g e
3. Banks should frequently review the assumptions utilized in managing liquidity to
determine that they continue to be valid.
C. Banks should Manage market access:
Each bank should periodically review its efforts to establish and maintain relationships with
liquidity holders, to maintain the diversification of liabilities, and aim to ensure its capacity to
sell assets.
D. Banks should have contingency plans:
Banks should have contingency plans in place that address the strategy for handling liquidity
crises and which include procedures for making up cash flow shortfalls in emergency situations.
E. Banks should manage their foreign currency Liabilities:

1. Each bank should have measurement, monitoring and control system for its liquidity
positions in the major currencies in which it is active. In addition to assessing its
aggregate foreign currency liquidity needs and the acceptable mismatch in combination
with its domestic currency commitments, a bank should also undertake separate analysis
of its strategy for each currency individually.
2. Subject to analysis undertaken, a bank should, where appropriate, set and regularly
review limits on the size of its cash flow mismatches over particular time horizons for
foreign currencies in aggregate and for each significant individual currency in which the
bank operates.
F. Each bank must have an adequate system for internal controls over its liquidity risk
management process. A fundamental component of the internal control system involves
regular independent reviews and evaluations of the effectiveness or enhancements to
internal controls are made.
G. Each bank should have in place a mechanism for ensuring that there is an adequate level
of disclosure of information about the bank in order to manage public perception of the
organization and its soundness
24 | P a g e
2.8 Estimating Liquidity Needs
The first step in any analysis of bank liquidity is the estimation of liquidity needs. These needs
primarily arise from deposit withdrawals and loan demands (including off-balance sheet
commitments) and to estimate them, the bank must forecast the level of future deposit and loan
activity. Although loan growth generally will not exceed deposit growth in a community,
differences can arise temporarily, especially in urban areas. There are two methods of estimating
liquidity needs. They are described below:
A. Sources and Uses of Funds Method:
One method of estimating future liquidity needs is to develop a sources and uses of funds
statement. To do this, bank management must evaluate potential future changes in its individual
assets and liability accounts. For example, the loan portfolio can be divided into its component
parts-commercial and industrial loans, residential real estate loans, consumer loans, agricultural
loans, and other loans. The demand for funds by businesses and individuals in these different
lending areas are estimated from past loan histories and future economic projections.
Commercial and industrial loan demand, for instance, would be influenced by the production and
growth of the business sector in the past and future. Similarly, deposit levels are influenced by
economic and competitive market conditions. As interest rates rise, corporate treasurers move
funds out of demand deposits and into interest bearing assets and therefore, banks will tend to
experience increasing competition for deposit funds from nonbank financial service companies
such as money market mutual funds. As an example, Table 1 gives a hypothetical sources and
uses funds statement for a bank overall six-month period. The expected increase in total loan
demand and subsequent decline is a common seasonal trend in agricultural banking. When loan
demands increase, deposit balances often decline, as many bank customers obtain both deposit
and loan services from the same bank. Decreases in loan and increases in deposits are sources of
funds; conversely, increases in both loans and deposit withdrawals are uses of funds. Subtracting
deposit changes from loan changes provides an estimate of liquidity needs. In regard to sources
and uses of funds, it should be recognizes that there are discretionary items versus
nondiscretionary items, based on the ability of management to control the flow of funds. Deposit
withdrawals are nondiscretionary because the bank cannot control depositors’ activities; loans
25 | P a g e
are discretionary for the most part due to the fact that management can play an active role in their
quantity.
Table-1
Estimating Liquidity Needs based on a Sources and Uses of Funds Statement
End of Estimated Estimated Estimated Changes Estimated

Month Total Loans Total Liquidity
Deposits Loans Deposits Need
December 68,000 85,000 - - -

January 70,000 90,000 2,000 5,000 (3,000)
February 79,000 86,000 9,000 (4,000) 13,000
March 89,000 83,000 10,000 (3,000) 13,000
April 96,000 78,000 7,000 (5,000) 12,000
May 95,000 79,000 (1,000) 1,000 (2,000)
June 88,000 80,000 (7,000) 1,000 (8,000)
Source: Benton E. Gup& James W. Kolari, “Commercial Banking, The Management of

Risk”
B. Structure of Deposits Method:
Another way to estimate liquidity needs is the structure of deposits method. The basic idea of
this approach is to list the different types of deposits that the bank is using to acquire funds and
then assign a probability of withdrawal to each type of deposit within a specific planning
horizon. High risk, or unstable, deposits require substantial liquidity to support them, whereas
low risk, or stable, deposits require relatively less liquidity. Core funds represent deposits of
loyal, local depositors and tend to be relatively stable. A strong and positive relationship
typically exists between the bank and these depositors. Non core deposits tend to be unstable
sources of funds, as these depositors are likely very price sensitive and influenced primarily by
the interest rate on their funds. If other competing banks post higher interest rates, these funds
26 | P a g e
can rapidly be withdrawn and thereby cause liquidity demands on the bank. As a simple
example, suppose that bank management structured its deposit sources as shown in table 2. The
bank has relatively low amounts of short term and long term deposits. The major deposit source
is medium term small time and savings deposits, which are relatively stable components of core
deposits. In this case liquidity demands from deposit withdrawals should be fairly modest. This
same structuring method may be applied to non-deposit funds sources also, particularly if these
sources are important to the bank. In any application the evaluation of the probability of
withdrawal or volatility of various sources of funds must be determined on a case by case basis.
Table-2
Deposit Sources
Probability of Expected Withdrawal(in

Amount Held(in Withdrawal in Next millions)
millions) Three Months
Short-term (unstable):
Demand deposits 4 .90 3.6
Other transaction 12 .70 8.4
accounts
Medium-term:
Small time and 50 .30 15.0
savings deposits
Long-term (stable):
Large time deposits 15 .20 3.0
Expected deposit 30
withdrawals
2.9 Optimum Bank Liquidity

Banks always try to maintain optimum level liquidity. The management of the bank must
ultimately face whether the liquidity ratio is optimal. Optimal liquidity is achieved by balancing
risks and returns. Higher liquidity prevents banks to invest in higher earning assets to generate
more return and it also increases cost of maintaining liquidity. At some point an optimum
liquidity level is reached at which liquidity costs are minimized. Because of reliance on
forecasted needs and sources, a reasonable margin error should be considered. Greater
27 | P a g e
uncertainty increases the cost of maintain liquidity. As such optimum quantity of liquidity needs
is increased by uncertainty. So there should be an optimum return between liquidity and
profitability.
Figure-1
Optimum Bank Liquidity
Source: Benton E. Gup& James W. Kolari, “Commercial Banking, The Management of

Risk”
28 | P a g e
2.10 Previous Studies
In this report, there are substantial researches which have been made with regard to bank
liability. Among them,
Eljelly (2004) mentioned Liquidity is the ability of a deposit money bank to pay its short-term
obligations to its depositors and creditors. He also argued that the crucial part in managing
working capital is required maintaining its liquidity in day-to-day operation to ensure its smooth
running and meets its obligation.
Bhunia, (2010) argues that Liquidity plays a significant role in the successful functioning of a
business firm. A firm should ensure that it does not suffer from lack-of or excess liquidity to
meet its short-term compulsions. A study of liquidity is of major importance to both the internal
and the external analysts because of its close relationship with day-to-day operations of a
business.
According to Raheman et el (2007) dilemma in liquidity management is to achieve desired
tradeoff between liquidity and profitability and Zeng Lin (2012) stated the following definition
in his research: for a commercial bank, the source of liquid funds are mainly customer deposits,
non-deposit service income, loans due for repayment by the customers, assets sold by the bank
and bank’s borrowed funds from the money market; and the liquid funds are ready to be used to
fulfill the demand for customer withdrawal, demand for bank loans, loan demand besides
repayment of loans and demand for investment.
Francis (2007) argues that, the stability of commercial banks as whole in the economy depend on
proper asset liquidity management structures. Better liquidity management has the tendency to
absorb risks and shocks that commercial banks can face. Moreover, liquidity management is the
perquisite condition for the efficiency and growth of commercial banks. Liquidity management
in commercial banks is determined by the ability of the banks to retain capital, absorb loan
losses, support future growth of assets and provide return to investors. The largest source of
income to the bank is interest income from lending activity less interest paid on deposits and
debt. For a bank to attain the same objectives it has to ensure proper liquidity management,
including liquidity risk management, interest rate risk management and credit risk management.
According to Metwally(1997) Liquidity refers to the ability of the bank to meet up deposit
withdrawals, maturing loan request and liabilities without setback. Banks defends its customers
aligned with troubles of liquidity by captivating in financial liabilities that can be drained on
29 | P a g e
demand, on the added side of the balance sheet, offering dedicated lending services. The
arrangement of balance sheets banks usually illiquid loans are financed by extremely liquid
deposits.
Vento and Ganga (2009) said that liquidity in financial market has multiple connotations.
Liquidity signifies the aptitude of a financial firm to keep up all the time a balance between the
financial inflow and outflow over time.
Ghannadian and Goswami (2004) observed the performance of an Islamic banks and how
Islamic banking scheme can offer liquidity and support in the process of money creation from
side to side contribution transactions accounts and found that in all developing economies
investing funds on basis of profits and losses is an attractive choice for the banks.
Gabbi (2004) emphasized about the reliance of risks on organization’s place in the market. The
study explained that liquidity risk can be controlled in the course of practices that are severely
connected to the scale and scope of financial measures, seeing as large banks are capable both to
manage additional market information and to influence monetary policy functions.
Sawada (2010) investigated that in the times of crises, due to the liquidity shock persuaded by
the depositors, banks increase their cash holdings by selling their securities in the financial
market, not by liquidating their loans. As they adjust their portfolio dynamically through selling
and buying their securities in financial market.
Anurag and Priyanka argue that, the commercial banking sector plays an important role in
mobilization of deposits and disbursement of credit to various sectors of the economy. A sound
efficient banking system is a sine qua non for maintaining financial stability.
30 | P a g e
Chapter-3
An Overview of the Banking System of Bangladesh
In this chapter, I have focused on the overview of the banking system of Bangladesh.
Bangladesh is a third world country with an underdeveloped banking system, particularly in

terms of the services and customer care. A strong banking system is critical to economic growth
and development in a developing country like Bangladesh. A set of acts, laws, regulations and
guidelines have been enacted and promulgated time to time since Bangladesh Bank’s
establishment which helped Bangladesh bank to perform its role as a central bank particularly, to
control and regulate country’s monetary and financial system.
The financial system of Bangladesh is comprised of three board fragmented sectors:
1. Formal sector
2. Semi-formal sector
3. Informal sector
Formal Sector: The formal sector includes all regulated institutions like Banks, Non-Bank
financial institutions, Insurance companies, capital market intermediaries like brokerage houses,
merchant banks etc. Now, banks in Bangladesh are mainly of two categories:
1. Scheduled Banks are banks that get license to operate under Bank Company Act, 1991
2. Non-scheduled Banks are established for special and definite objective and operate under
the acts which are enacted to meet up those objectives. All functions of scheduled banks
cannot be performed by these banks.
The semi-formal sector: Semi formal sector includes those institutions which are regulated otherwise but
do not fall under the jurisdiction of Central Bank, Insurance Authority, Securities and Exchange Commission or
any other enacted financial regulator. This sector is mainly represented by Specialized Financial Institutions like
House Building Finance Corporation (HBFC), Palli Karma Sahayak Foundation (PKSF), Samabay Bank,
Grameen Bank etc., Non-Governmental Organizations (NGOs and discrete government programs.
31 | P a g e
The informal sector includes private intermediaries which are completely unregulated.
Figure-2
Financial System of Bangladesh
Source: Bangladesh Bank
32 | P a g e
3.1 Money Market
The money market consists of banks and financial institutions as intermediaries, 20 of them are
primarily dealers in treasury securities. Interbank clean and repo based lending, Bangladesh
Bank’s repo, reverse repo auctions, Bangladesh bank bills auctions are primary operations in the
money market.
3.2 Taka Treasury Bond Market

The taka Treasury bond market is comprised of primary issues of treasury bonds of different
maturities (2, 5, 10, 15 and 20 years) and secondary trade through primary dealers. 20 banks
which are working as primary dealers participate directly in the primary auction. Other bank and
non-bank investors can take part in primary auction and in secondary trading through their
nominated primary dealers.
3.3 Deposit Insurance System

A sound and competitive banking system is necessary to a nation’s economic strength. Every
scheduled bank plays a significant role as the medium of funds from depositors to consumers and
investors as well as in the transmission of monetary policy. So, public confidence is a very
crucial issue in banking sector. Deposit insurance system is the key element to maintain
confidence and to promote financial stability through increasing saving in the banking sectors. It
is a measure to protect bank depositors, in full or in part, from losses caused by a banks inability
to pay its debt when it is owning.
3.4 Core Policies of Central Bank

Core Policies of Central Bank are-
1. Monetary Policy: Bangladesh Bank declares the monetary policy by issuing monetary policy
statement twin (January and July) in a year. The tools and instruments for implementation of
monetary policy in Bangladesh are bank rate, open market operation, and repurchase agreements
and reverse Repo, statutory reserve requirements.
2. Reserve Management Strategy: Bangladesh Bank maintains the foreign exchange reserve of
the country in different centuries for minimizing the risk that emerges from widespread
fluctuation in exchange rate of major currencies and very irregular movement in interest rates in
33 | P a g e
the global money market. A separate department of Bangladesh Bank performs the operational
functions considering investment guided by investment policy set by the Bangladesh Bank’s
investment committee and headed by a deputy governor. The underlying principle of the
investment policy is to ensure the optimum return on investment with minimum market risk.
3. Interest Rate Policy: Under the financial sector reform program a flexible interest policy was
formulated. According to that, banks are free to charge/fix their deposit and lending rates other
than export credit. At present, there is no interest rate cap on lending for banks except pre-
shipment export credit and agricultural lending. Yet, banks can differentiate interest rate up to
3% considering comparative risk elements involved among borrowers in the same lending
category.
4. Capital Adequacy for Banks: Basel-3 has been introduced in Bangladesh with a view to
strengthening the capital base of banks with a goal to promote a more resilient banking sector.
The Basel 3 regulation will be adopted in a phased manner starting from January 2015, with full
implementation of capital ratios from the beginning of 2019. Now, scheduled banks in
Bangladesh are instructed to maintain minimum capital to risk weighted assets ratio 10%
whichever is higher. In addition to minimum CRAR capital conversation buffer of 2.5% of the
total risk weighted assets is being introduced which will be maintained. Besides the minimum
requirements all banks have a process for assessing overall capital adequacy in relation to their
risk profile and a strategy for maintaining capital at an adequate level.
34 | P a g e
3.5 Current Bank Deposit and Credit
Table-3
Deposits held in Deposit Money Banks
(TK In Millions)
Items December 2018 November 2018 December 2017 Percentage Change

December 2018 December 2018
over November over November
2018 2017
Demand 1100763 1043611 1039701 5.48 5.87
Deposits
Time Deposits 8999047 8873293 8222092 1.42 9.45
Total 10099810 9916904 9261793 1.84 9.05
Source: Statistics Department, Bangladesh Bank.

Note: * Excludes Interbank Deposits and Government Deposits.
Table-4
Bank Credit
(TK In Millions)
Items December 2018 November 2018 December 2017 Percentage Change
December 2018 December 2018
over November over November
2018 2017
Advances 9326783 9146447 8126155 1.97 14.77
Bills(Import and 277837 276059 318201 0.64 -12.69
Inland Bills)
Investments 1756223 1795805 1638051 -2.17 7.21
Total 11360843 11218311 10082407 1.28 12.68
35 | P a g e
Source : Statistics Department, Bangladesh Bank.
Note:
1. Advances include Loans &Advance, Money at Call, Balances & R. Repo with NBFI's &
Accrued Interest.
2. Investments include Treasury Bills, Treasury Bonds, Share & Securities with accrued
interest.
3.6 Central Bank Regulation in Liquidity Management

Bangladesh bank has the specific guidelines regarding statutory reserve which ensures the
minimum liquidity position of the bank and also safeguards the depositors. Every Commercial
Bank has to maintain 6% CRR with Bangladesh Bank and 5.5% SLR. And every scheduled
conventional bank must have to keep at least 19.5% statutory liquidity reserve and 6% cash
reserve ratio. National Bank Limited maintains excess amount SLR and CRR beyond the actual
requirement.
3.7 Central Bank’s Liquidity Management Framework

The liquidity management of a central bank is defined as the frame work, set of instrument and
the rules the central bank follows in steering the quantity of bank reserves to manage their price
(i.e. short term interest rates) continuously with its final goals.(e.g. price stability). It presents a
basic theory of liquidity management in a very framework of substantial reserve requirement and
averaging, looking on the relationship between quantities (Central bank balance sheet items) and
overnight rates and the involved signal extraction problems. Some components of a normative
theory of liquidity management are recommended. The sales purchase and rediscount of bill of
exchange and promissory notes drawn on and payable in Bangladesh are included in the activity
of the bank. The bank acts as the lender of last resort for the government as well as for the
country’s scheduled banks. All scheduled banks are required to maintain a minimum reserve
with the Bangladesh Bank. All Islamic banks are required to maintain 5.5% statutory liquidity
ratio on time and demand liabilities and a minimum credit balance with the Bangladesh Bank at
6.50% on time and demand liability on fortnight basis and 6.00% on daily basis.
36 | P a g e
Chapter-4
Empirical Analysis
In this chapter, I have made an attempt to analyze the liquidity position of National Bank
Limited. For this purpose, I have used different mathematical tools and techniques.
4.1 Current Assets of National Bank Limited

Current assets are all assets that a person can convert readily to cash to pay outstanding debts and
cover liabilities without having to sell fixed assets. It includes cash on hand, bank accounts and
marketable securities that are not tied up in long-term investments. The current assets of National
Bank Limited are:
1. Cash
2. Balance with other banks and financial institution
3. Placement with banks and financial institution
4. General Investment
5. Investment in shares and securities
4.2 Current Liabilities of National Bank Limited

Current liabilities are a bank's debt or obligations payable within one year. Current liabilities
appear on the bank's balance sheet and include short-term debt, accounts payable, accrued
liabilities and other debts. Essentially, these are bills that are due to creditors and suppliers
within a short term. Normally, banks withdraw cash or liquidate current assets to pay their
current liabilities. The current liabilities of National Bank Limited are:
01) Placement from banks and other financial institutions.
02) Deposits and other accounts.
03) Other liabilities and provision.
37 | P a g e
Table-5
Cash Position
Year Cash % Changes
2017 22,628,888,704 7.65%
2016 21,020,835,955 12.01%
2015 18,766,874,352 5.35%
2014 17,813,280,687 19.88%
2013 14,859,504,681
Table-5 and Chart-3 depicts that from 2013 the cash position of National Bank Limited is
increasing. It is a good sign for the commercial bank. But increased cash flow utilization in
profitable sources is a challenge for National Bank Limited. The increased cash flow may be
come from opening New Account. The bank’s Century Accounts & DPS’s deposit rate is higher
comparing with other Banks. They give around 9% for Century deposit Scheme where other
banks give about 4% to 5%.
Chart: 3
Cash position
Cash Position
25,000,000,000 22,628,888,704
21,020,835,955
20,000,000,000 18,766,874,352 17,813,280,687
14,859,504,681
15,000,000,000
10,000,000,000
5,000,000,000
0
2017 2016 2015 2014 2013
38 | P a g e
Table-6
Balance with Other Banks
Year Balance with other Banks % Changes
2017 7,446,025,979 143.34%
2016 3,059,969,383 -63.22%
2015 8,318,634,416 135.26%
2014 3,535,896,025 -37.13%
2013 5,624,337,221
Table-6 and Chart-4 show the balances with other banks and financial institutions from year
2013-2015 which is inside & outside of Bangladesh. In that table & chart we can see that the
balance on other banks in National Bank Limited in 2015 is the highest but in 2016 it lower after
that in 2017 again it is increasing. So after seeing the situation we can say that the balance on
other banks & financial institutions of National Bank Limited is mixed in position. Some years it
is increasing and some years it is decreasing.
Chart: 4
Balance with Other Banks
Balance with other Banks

10,000,000,000
8,318,634,416
8,000,000,000 7,446,025,979
6,000,000,000 5624337221
4,000,000,000 3,059,969,383 3,535,896,025
2,000,000,000
0
2017 2016 2015 2014 2013
39 | P a g e
Table-7
Deposits Condition
Year Deposits % Changes
2017 272,771,315,415 13.03%
2016 241,329,876,862 8.65%
2015 222,112,905,248 9.26%
2014 203,296,182,435 4.99%
2013 193,642,968,836
Table-7 and chart-5 shows the Deposits conditions of National Bank Limited from year 2012-
2017. In these table & chart we can see that the deposits condition of that bank is satisfactory.
Increased deposit is a sign of healthy liquid position but utilization of funds is also important to
ensure profitability. The increased cash flow may be come from opening New Account. The
bank’s Century Accounts & DPS is higher comparing with other Bank because their interest rate
is higher about 9% for Century Account where other banks give 6% to 7%.
Chart: 5
Deposits Conditions
Deposits Conditions
300,000,000,000 272,771,315,415
250,000,000,000 241,329,876,862
222,112,905,248
203,296,182,435
200,000,000,000 193,642,968,836
150,000,000,000
100,000,000,000
50,000,000,000
0
2017 2016 2015 2014 2013
40 | P a g e
Table-8
Net Liquidity Gap
Year Net Liquidity Gap % Changes
2017 40,370,822,938 11.51%
2016 36,202,874,856 7.88%
2015 33,557,964,916 24.45%
2014 26,963,948,574 12.68%
2013 23929637133
Table-8 and Chart-6 shows that net liquidity gap is gradually increasing over the years. It is
defined as a gap of liquid assets and volatile liabilities of National Bank Limited should figure
out a way to bridge the gap from convenient source.
Chart: 6
Net Liquidity Gap
Net Liquidity Gap

45,000,000,000
40,370,822,938
40,000,000,000 36,202,874,856
35,000,000,000 33,557,964,916
30,000,000,000 26,963,948,574
23929637133
25,000,000,000
20,000,000,000
15,000,000,000
10,000,000,000
5,000,000,000
0
2017 2016 2015 2014 2013
41 | P a g e
4.3 Estimated Liquidity Needs of National Bank Limited
National Bank Limited estimates liquidity from its deposits inflows and outflows and varying
levels of investment. Deposits are affected by movement of interest rate related to other financial
institutions. Here, we show estimated liquidity needs of National Bank Limited through sources
and uses of funds methods.
I) Sources and Uses Method: This method consists of the following steps:
a. Forecasting changes in loan demand.

b. Forecasting changes in deposit demand.
c. Adjusting the forecasts for various factors.
d. Finding out surplus and deficit.
Factors that affect deposit of a bank:
i. Increase in national income: Deposit increases as national income increases. As we know

national income is the summation of consumption, investment, and government expenditure.
The equation is shown below: Y=C+I+G. Here, savings is embedded in investment portion.
The more income a person has, the more he has to consume and save. Eventually Savings
turn into investment flow through financial intermediaries such as banks, non-bank financial
institutions, insurance company etc.
GDP growth rate averaged 5.76% from 1994 until 2017. For the year 2017, it expanded
7.39%. From that trend, it can be reasonably forecasted that people will have saving at
increasing manner provided that GDP growth prevails. So, increase in GDP will affect
deposit of National Bank Limited positively.
ii. Expansion of Banking Facility: Banking facilities in Bangladesh is also increasing.

Several newer banks get license for establishment. Hence, competition is getting fierce
among the competitors. As the saver has many more option to deposit, there is
competition among the peer banks to convince the customer to deposit with them.
iii. Increase of Banking Habit: It is for our greater hope that majority of the poor people of
Bangladesh get excess to financial service through microcredit financial institution such
as BRAC, Grameen Bank etc. Newly emerged mobile banking service of BRAC Bank
that is BKash has been successful to include people in the banking activities. Credit card
42 | P a g e
is used as an alternative of cash. So, it can be concluded that deposit will grow as people's
banking habit is increasing. It has been reported in the last annual report that deposit
grows at 13.03% and investment grows at 18.36% per year. Based on the average growth
rate of last 5 years and historic pattern I have estimated the loan & Advances (uses of
funds) and deposits (Sources of funds) of National Bank Limited. Then applying the
sources and uses of funds method, surplus and deficit are calculated
Table: 9
Sources & uses Of Fund Method
Sources and Uses of Fund Method (Tk in Millions)
Year Estimated total Estimated total deposit Estimated Estimated Liquidity
loan changes in loan Changes in needs
Deposit
2018 294,085.719 308,313.423 - - -
2019 348,079.857 348,486.662 53,994.138 40,173.239 13,820.899
2020 411,987.318 393,894.474 63,907.462 45,407.812 18,499.650
2021 487,628.190 445,218.924 75,640.872 51,324.450 24,316.422
2022 577,156.726 503,230.950 89,528.536 58,012.026 31,516.510
The table-9 & chart-7 shows the estimation of total loans & deposits of National Bank Limited
for the next 5 years. From that table & chart we can see that the bank needs more liquidity in the
upcoming years as it investment growths more than the deposit growth. National Bank Limited
follows a conversion principle in trading off between liquidity and profitability. But if it
continues to hold some growth rate for investments and deposits, liquidity of the bank will be
hampered.
43 | P a g e
Chart: 7
Liquidity Needs
Liquidity needs
35,000.000
30,000.000
25,000.000
20,000.000
15,000.000
10,000.000
5,000.000
0.000
2018 2019 2020 2021 2022
4.4 Structure of Deposit Method

Structure of deposit method is one of the liquidity estimating methods. National Bank Limited
classifies its deposits according to
a. Short Term: Current deposits.

b. Medium Term: Saving deposits and Term deposits.
c. Long Term: Fixed deposits.
Probability of deposits is considered based on historical experience. High risk or unstable
deposits require substantial liquidity to support them, whereas low risk or stable deposits require
relatively less liquidity.
This method consists of the following steps:
a. Listing the different types of deposits.

b. Assigning a probability of withdrawal to cash.
c. Finding out the amount of withdrawal by multiplying deposits into probability of
withdrawal.
44 | P a g e
Table-10
Estimation of liquidity using probability of withdrawal method
Year Deposit Deposit amount Probability of Withdrawals

withdrawal
2018 Current 26995.92332 0.9 24296.331
Deposits
Bills Payable 4026.573304 0.6 2415.94398
Savings 50492.48928 0.4 20196.9957
Deposits
Fixed Deposits 139875.6337 0.3 41962.6901
Term Deposits 117754.1456 0.5 58877.0728
Expected 147749.0336
Withdrawal
2019 Current 30513.49213 0.9 27462.14291
Deposits
Bills Payable 4551.235806 0.6 2730.741484
Savings 57071.66064 0.4 22828.66426
Deposits
Fixed Deposits 158101.4288 0.3 47430.42865
Term Deposits 98248.84462 0.5 49124.42231
Withdrawal
2020 Current 34489.40015 0.9 31040.46013
Deposits
Bills Payable 5144.261831 0.6 3086.557099
Savings 64508.09802 0.4 25803.23921
Deposits
Fixed Deposits 178702.045 0.3 53610.6135
Term Deposits 111050.6691 0.5 55525.33454
Withdrawal
2021 Current 38983.36899 0.9 35085.03209
Deposits
Bills Payable 5814.559148 0.6 3488.735489
45 | P a g e
Savings 72913.50319 0.4 29165.40128
Deposits
Fixed Deposits 17685.97484 0.3 5305.792453
Term Deposits 125520.5713 0.5 62760.28563
Withdrawal
2022 Current 44062.90197 0.9 44062.90197
Deposits
Bills Payable 6572.196205 0.6 6572.196205
Savings 82414.13266 0.4 82414.13266
Deposits
Fixed Deposits 228305.8173 0.3 228305.8173
Term Deposits 141875.9017 0.5 141875.9017
Withdrawal
Note: It is assumed
 Current Deposit rate is 8.756%

 Bills Payable rate is 1.306%
 Savings Deposits 16.377%
 Fixed Deposit 45.368%
 Term Deposit 28.193%
That assumption is considered based on immediate years deposit & withdrawal conditions.
4.5 Meeting Liquidity Needs

National Bank uses two types of liquidity available to meet potential liquidity requirements -
asset management and liability management.
 Asset Management: National Bank Limited meets its liquidity needs by using near cash
assets, including net funds sold other banks, money market securities and asset backed
securities.
46 | P a g e
Role of asset liquidity:-
i. Serve as alternative sources of funds: When interest rate is high to meet

liquidity needs bank sells treasury securities rather than issuing certificate
of deposit (CD).
ii. Serve as a reserve: If financial market loss confidence on bank safety and
soundness, it is likely that borrowed funds become inaccessible. In this
case bank depends on its liquidity reserve to run its operation if there
arises liquidity needs. Asset liquidity is a reserve to forestall problems that
threaten bank solvency.
Primary Reserve:
Most primary reserves are cash assets held to satisfy legal reserve requirements Cash Reserve
Ratio (CRR) and Statutory Liquidity Reserve (SLR) have been calculated and maintained in
accordance with the section 33 of the bank company’s act 1991. National Bank Limited has been
maintaining its CRR and SLR according to policy.
Secondary Reserves:
These are near money financial instruments that have no formal regulatory requirements and
provide and additional reserve of liquid assets to meet cash needs.
Principle of Financial Market Instruments:
Bank uses treasury bills and treasury bonds and price bonds for meeting immediate liquidity
needs.
Aggressive liquidity Approach
Although timing securities to mature in order to meet liquidity need is the most common
approach to managing liquidity, there may be an opportunity to take advantage of yield curve
relationships by using an upward sloping and expected to remain at the same level in the near
future, the purchase of long term securities would not only offer higher yields than shorter term
securities but also could offer the realization of capital gains if they were sold before maturity to
meet the liquidity needs.
47 | P a g e
Table: 11
Deposit ratio & Investment to Deposit ratio
Year 2013 2014 2015 2016 2017
Deposit Ratio 0.780296749 0.850801624 0.838221065 0.869884285 0.9108991
Investestment to 0.293465443 0.269978118 0.268595463 0.251381553 0.221205257
Deposit Ratio
Table-11 shows the Deposit ratio & Investment to Deposit ratio. Total deposits are 91.09% of
total assets which are increasing slightly over the years. The higher the total deposit ratio, the
lower is the liquidity risk because deposits are less sensitive to a change in interest rates or a
minor deterioration in business performance. Approximately 30% of all deposits are distributed
as investment which is gradually decreasing over the years.
48 | P a g e
Table: 12
Loan & Advances to Deposits Ratio
2013 2014 2015 2016 2017

Deposits 193642.97 203296.18 222112.91 241329.88 272771.32
loans & 151098.98 172964.72 186179.72 209929.07 248467.15
Advances
Loan & 0.7803 0.8508 0.8382 0.8699 0.9109
Advances to
Deposits
Ratio
Table-12 & Chart-8 shows the Loan & Advances to Deposits ratio of National Bank Limited
from year 2013-2017. From that we find that that ratio is much more satisfactory because the
bank use its deposits money converting it as loan & advances. That can increase the bank’s
profitability.
Chart: 8
Loan & advances to Deposits Ratio
Loan & Advances to Deposits

95.00%
91.09%
90.00%
86.99%
85.08% 83.82%
85.00%
80.00%
78.03%
75.00%
70.00%
2013 2014 2015 2016 2017
49 | P a g e
Table: 13
Investment to Deposits Ratio
Particulars 2013 2014 2015 2016 2017

Deposits 193642.97 203296.18 222112.91 241329.88 272771.32
Investments 56827.52 54885.52 59658.52 60665.88 60338.45
Investment to Deposit 0.293465443 0.269978118 0.268595463 0.251381553 0.221205257
Ratio
Table-13 & Chart-9 shows the investment to deposit ratio of National Bank Limited from 2013-
2017. The range of that ratio is approximately 22% to 30%. That means that bank use about 22%
to 30% deposits use in different kinds of investments.
Chart: 9
Investment to Deposits Ratio
Investestment to Deposit Ratio

35.00%
29.35%
30.00% 26.86%
25.00%
27.00% 25.14% 22.12%
20.00%
15.00% Investestment
to Deposit
10.00% Ratio
5.00%
0.00%
2013 2014 2015 2016 2017
50 | P a g e
4.6 Liability Management
An alternative approach to liquidity management is to purchase the funds necessary to meet
liquidity needs. The primary advantage of liability management is that assets can be shifted from
lower earning money market instruments to higher earning loans and longer term securities. The
downside risks of liability management relates to:
a) The increase in cost of funds if interest rates rise

b) The increase in the expense to interest rate risk
c) The increase in financial risk
d) The increase in capital market risk
National Bank Limited borrows short term funds and invests in long term funds. But it involves-
i. Financial Risks: Financial risk is the increases in the vulnerability of earnings per share that is
associated with an increase in the debt with the proportion of total assets.
ii. Capital market risks: Now a day’s non-bank financial institutions offer higher for saving.
National Bank Limited needs to provide higher yield to attract people.
iii. Fund Management of Liquidity: Management of liquidity is best handled by combining

asset liquidity and liability liquidity which has come to be known as funds management
approach. Funds management involves comparing total liquidity needs with total liquidity
sources. Ratios used to understand current liquidity position includes-
a) Loans/Deposits
b) Loans/Non-deposit Liabilities
c) Unencumbered liquid assets/Non-deposit Liabilities
d) Near-cash assets/Large-denomination liabilities
51 | P a g e
4.7 Performance Analysis
In order to have a better understanding I have analyzed the performance of the bank. Financial
ratios are useful indicators of a firm's performance and financial situation. Financial ratios can be
used to analyze trends and to compare the firm’s financial to those of other firms as well as to
interpret strengths and weakness of a firm.
Return on Equity:
Return on equity (ROE) is the amount of net income returned as a percentage of

shareholders equity. Return on equity measures a corporation's profitability by revealing how
much profit a company generates with the money shareholders have invested. The formula for
ROE is:
ROE = Net Income/Shareholders' Equity
Table: 13
Return on Equity
Year ROE
2013 9.14%
2014 10.45%
2015 12.74%
2016 15.96%
2017 12.27%
Table-13 & Chart-10 shows the return on equity of National bank Limited of the last 5 years. A
rising ROE of National Bank Limited suggests that the bank is increasing its ability to
generate profit without needing as much capital. It also indicates how well a bank's management
is handling the shareholders' capital. In other words, the higher the ROE of the bank the better
52 | P a g e
the bank performance is considered. But in 2017 ROE is decreasing in comparing with other 4
years ROE condition is satisfying.
Chart: 10
Return on Equity
ROE
20.00%
15.96%
15.00%
10.45% 12.27%
12.74%
10.00%
ROE
9.14%
5.00%
0.00%
2013 2014 2015 2016 2017
Return on Asset:
Return on assets (ROA) is an indicator of how profitable a company is relative to its total assets.
ROA gives a manager, investor, or analyst an idea as to how efficient a company's management
is at using its assets to generate earnings. Return on assets is displayed as a percentage and its
calculated as:
ROA = Net Income / Total Assets
53 | P a g e
Table: 14
Return on Asset
Year ROA
2013 0.96%
2014 1.08%
2015 1.43%
2016 1.90%
2017 1.43%
Table-14 & Chart-11 shows the condition of Return on Assets of National Bank Limited from
the year 2013-2917. The ROA figure gives an idea of how effective the bank is in converting the
money it invests into net income. The higher the ROA number, the better, because the bank is
earning more money on less investment. Though the ratio is not increasing over the years, it is in
a relatively stable position.
Chart: 11
Return on Asset
ROA
2.00% 1.90%
1.50% 1.43%
1.08% 1.43%
1.00%
0.96% ROA
0.50%
0.00%
2013 2014 2015 2016 2017
Earnings per share:
Earnings per share (EPS) are the portion of an organization's profit allocated to each outstanding
share of common stock. Earnings per share serve as an indicator of a company's profitability.
EPS is calculated as:
54 | P a g e
EPS = (Net Income - Dividends on Preferred Stock) / Average Outstanding Shares
Table: 15
Earnings per Share
Year EPS
2013 1.36
2014 1.55
2015 1.95
2016 2.35
2017 1.98
Table-15 & Chart-12 shows earnings per share of National Bank Limited. A higher EPS means
that the bank is profitable enough to payout more money to its shareholders. The EPS range of
National Bank Limited is between1% to 3%. The EPS is increasing year after year but in 2017 it
is slightly decreasing.
Chart: 12
Earnings per Share
Earning per Share

2.5 2.35
2 1.95 1.98
1.55
1.5
1 1.36 EPS
0.5
0
2013 2014 2015 2016 2017
Debt to Equity Ratio:
The debt/equity ratio is a leverage ratio that represents what amount of debt and equity is being
used to finance a company's assets. It is considered a key financial metric because it indicates
potential financial risk. The debt/equity ratio is calculated as
55 | P a g e
Debt to equity ratio= Total liabilities/Total shareholders' equity.
Table: 16
Debt to Equity Ratio
Year Debt to Equity (times)

2013 8.83
2014 8.51
2015 7.39
2016 7.44
2017 7.69
Table-16 & Chart-13 shows the Debt to Equity ratio of National Bank Limited from 2013-2017.
Banks carry greater debt amounts because the money they borrow is also the money they lend.
To put it another way, the major product that banks sell is debt. The Debt to Equity ratio of
National Bank Limited is decreasing. In 2013 it is highest 8.83times then other years it is
decreasing.
Chart: 13
Debt to Equity Ratio
Debt to Equity
9 8.83
8.5 8.51
8
7.44 7.69 Debt To Equity
7.5
7.39
7
6.5
2013 2014 2015 2016 2017
56 | P a g e
Chapter-5
Summary and Conclusion
Finally it can be said that liquidity management is one of the most essential part of all banks.
Like other banks, National Bank Limited also gives emphasis on this section. Through properly
handling this section a large problem is solved which is holding customer confidence. On this the
image of the bank is highly correlated.
In Theoretical and Previous studies where the theoretical issues of liquidity management is
discussed. Banks face two central issues considering liquidity. Banks are accountable for
managing liquidity creation and liquidity risk. Liquidity creation helps depositors and companies
for staying liquid, for companies especially when other form of financing is difficult. Banks can
ensure its own liquidity by managing liquidity risk so that the bank can continue to serve its
function. Banks own liquidity is affected by many factors and in turn the amount of liquidity are
also affected they can create. These factors have a varying degree of influence on the balance
between liquidity risk and liquidity creation, or a bank’s liquidity management. National Bank
Limited follows all the steps and principals according to Bangladesh bank rules & regulations. .
A bank’s balance sheet plays a central role in their balancing of liquidity risk and creation. A
bank’s liabilities include all the banks sources of funds. Banks have three main sources of funds:
deposit accounts, borrowed funds, and long term funds. The amounts and sources of funds have a
clear effect on how much liquidity risk a bank has and how much liquidity it can make. The
easier a bank can access funds the less risk it has and the higher amount of funds it holds the
more liquidity it can create, if willing to do so.
In third chapter an overview of the Banking system of Bangladesh is discussed. Bangladesh bank
has particular instructions regarding statutory reserve which establishes the minimum liquidity
position of the bank and also protects the depositors. Every Bank has to maintain 6.5% CRR with
Bangladesh Bank and 19.5% SLR. The liquidity management of a central bank is defined as the
frame work, set of instrument and the rules the central bank follows in steering the quantity of
57 | P a g e
bank reserves to manage their price (i.e. short term interest rates) continuously with its final
goals.(e.g. price stability).
Last chapter of the report some empirical analysis of National Bank Limited is discussed. For
that some mathematical tools & techniques are used. With the help of those mathematical tools
we can find out liquidity conditions & their uses of the last 5 years. Throughout the report it is
seen that liquidity management position is strong and satisfactory. But National Bank Limited
should give more importance in adopting competitive strategy and employee efficiency. If the
employees are satisfied then the banks’ performance will be more spontaneous and smooth and
consistent. Though National Bank Limited is a huge collector of deposit, it should be more
careful about its investment opportunity.
Activities of the asset liability management of the bank depend on proper liquidity planning & in
matching of assets liability gap despite the existence of volatile money market. From the above
analysis we have seen that National Bank Limited is maintaining a good liquidity position. It
always maintains SLR and CRR above the requirement ratio. So it never faces any liquidity
crisis. But in spite of National Bank Limited has some short comings in the liquidity
management.
National Bank Limited has been able to establish its own presence with a continued expansion
geared by increasing acceptance by the people. To continue this dynamic expansion National
Bank Limited needs to adopt modern strategy in every banking department to cope with the
competitive banking sector. As National Bank Limited maintains significant growth in
investment, it should emphasize more on collection of deposit to maintain optimum liquidity. It
should expand lines of communication to make sure that the timely dissemination of the liquidity
& funding policies & procedures to all individuals involved in the liquidity management process.
It should also monitor economic & other operating conditions to forecast potential liquidity
needs.
58 | P a g e
References
 Benton E. Gup & James W. Kolari, Commercial Banking, 3rd Edition.

 www.nbl-bd.com/
 Annual Reports of National Bank Limited
 www.investopedia.com
 www.bb.org.bd
 Abuzar M.A. Eljelly, (2004) "Liquidity ‐ profitability tradeoff: An empirical
investigation in an emerging market", International Journal of Commerce and
Management, Vol. 14 Issue: 2, pp.48-61
 M.M. Metwally, (1997) "Differences between the financial characteristics of interest‐
free banks and conventional banks", European Business Review, Vol. 97 Issue: 2,
pp.92-98
 Giampaolo Gabbi, (2004) "Measuring liquidity risk in a banking management
framework", Managerial Finance, Vol. 30 Issue: 5, pp.44-58
 Adel Ahmed, (2010) "Global financial crisis: an Islamic finance
perspective", International Journal of Islamic and Middle Eastern Finance and
Management, Vol. 3 Issue: 4, pp.306-320
 Nevine Sobhy Abdel Megeid, (2017) "Liquidity risk management: conventional
versus Islamic banking system in Egypt", Journal of Islamic Accounting and Business
Research, Vol. 8 Issue: 1, pp.100-128
 Simplice A. Asongu, (2013) "Post‐crisis bank liquidity risk management
disclosure", Qualitative Research in Financial Markets, Vol. 5 Issue: 1, pp.65-84
 Ahmad Al-Harbi, (2017) "Determinants of banks liquidity: evidence from OIC
countries", Journal of Economic and Administrative Sciences, Vol. 33 Issue: 2, pp.164-
177
59 | P a g e
60 | P a g e

Liquidity Management, National Bank Limited

Uploaded by

Document Information

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Liquidity Management, National Bank Limited

Uploaded by

Copyright:

Available Formats

Contents

Executive Summary ............................................................................................... 1

Theoretical Development and Previous Studies ..........................15

Empirical Analysis ......................................................................................37

While describing my internship experience it is relevant to describe the organization where I

Sl No. Departments/ Works assigned to be done Days

1.1 Scope and Objectives

The objectives of the study are:

I. Sources of the Data:

II. Research Design:

III. Sample selection:

IV. Data Collection:

1.3 Limitations of the Report

Theoretical Development and Previous Studies

2.1 Liquidity Management

2.2 Measurement of Liquidity

Total debt-to-asset: A measurement which is used to estimate a company's financial risk to

2.3 Importance of Liquidity Management

2.4 Objectives of Liquidity Management

2.5 Sound Practices for Managing Liquidity in Banking

 Developing a structure for managing liquidity

2.6 Liquidity of a Bank

Liquid Assets of a bank

Items within the process of collection

Reserve in Bangladesh Bank

Balance with other banks

2.7 Liquidity Management by Banks: Steps and Principles

Investment by banks is largely regulated by specific guidelines as discussed above in portfolio

(3) Loans and Advances:

(4) Inter Relationship of Cash, Liquidity, Asset and Liability Management:

(A) Asset and Liability Management: It is a process of effectively managing a bank

A. Banks must develop a structure for liquidity management:

D. Banks should have contingency plans:

E. Banks should manage their foreign currency Liabilities:

A. Sources and Uses of Funds Method:

End of Estimated Estimated Estimated Changes Estimated

December 68,000 85,000 - - -

Source: Benton E. Gup& James W. Kolari, “Commercial Banking, The Management of

B. Structure of Deposits Method:

Probability of Expected Withdrawal(in

2.9 Optimum Bank Liquidity

Source: Benton E. Gup& James W. Kolari, “Commercial Banking, The Management of

An Overview of the Banking System of Bangladesh

Bangladesh is a third world country with an underdeveloped banking system, particularly in

The financial system of Bangladesh is comprised of three board fragmented sectors:

Source: Bangladesh Bank

3.2 Taka Treasury Bond Market

3.3 Deposit Insurance System

3.4 Core Policies of Central Bank

Items December 2018 November 2018 December 2017 Percentage Change

Source: Statistics Department, Bangladesh Bank.

3.6 Central Bank Regulation in Liquidity Management

3.7 Central Bank’s Liquidity Management Framework

4.1 Current Assets of National Bank Limited

4.2 Current Liabilities of National Bank Limited

01) Placement from banks and other financial institutions.

02) Deposits and other accounts.

03) Other liabilities and provision.

Year Cash % Changes

2017 22,628,888,704 7.65%

2016 21,020,835,955 12.01%

2015 18,766,874,352 5.35%

2014 17,813,280,687 19.88%

2017 7,446,025,979 143.34%