“Final exam Assignment 1”

Course Title: Money and Banking

Course Code: FIN 321

Submitted For :

S.M. Akber

Lecturer
Department of Business Administration

Submitted By :

Irfan Uddin Bhuiyan

ID No : 18300016

Department of Business Administration

Date of Submission
January 15, 2021

Ranada Prasad Shaha University

 Assignment
Introduction:
With a firm commitment of the economic and social development of Bangladesh,
United Commercial Bank (UCB) started its journey in mid 1983 and has since
been able to establish itself as one of the largest first generation banks in the
country.

An Overview of United Commercial Bank Ltd. (UCBL):

Sponsored by some dynamic and reputed entrepreneurs and eminent industrialists

of the country and also participated by the Government, UCB started its operation
in mid 1983 and has since been able to establish one of the largest networks of 98
branches among the first generation banks in the private sector. With its firm
commitment to the economic development of the country, the Bank has already
made a distinct mark in the realm of Private Sector Banking through personalized
service, innovative practices, dynamic approach and efficient Management. The
Bank, aiming to play a leading role in the economic activities of the country, is
firmly engaged in the development of trade, commerce and industry thorough a
creative credit policy.

Types of assets and liabilities:

Assets:

• Receivable
• Share capital

• Balance with other Banks and financial institutions

• Money at call on short notice

• Investment

• Loans and Advances

• Fixed assets including premises, furniture and fixtures

• Other assets

• Non-Banking assets

Liabilities:

• Borrowing from Bangladesh Bank, Other Banks, financial institutions and agents

• Deposits & Other Accounts

• Non Convertible Subordinated Bond

• Other liabilities

• Bills Payable

• Savings Bank Deposits

As a partner of economic development, UCB is collaborating & patronizing RMG

sector to mobilize wheel of national economy. Due to our prudent credit
administration, rationale assessment requirement & prompt customer service,
RMG export business has been mushroomed to more than US$1.71 billion) in
2014 recording a growth of 55% over the year 2013. In 31st December 2014,
UCB's of credit exposure in RMG sector stood at BDT 52,680.30 million (both
funded and non-funded) from BDT 36,948 20 milion over the corresponding
period of 2013. At present total 220 no. Direct & Deemed export customers
executing-export business through UCB.

How UCB deals their liabilities with their assets?

For a bank, the assets are the financial instruments that either the bank is holding
(its reserves) or those instruments where other parties owe money to the bank like
loans made by the bank and U.S. government securities, such as U.S. Treasury
bonds purchased by the bank. Liabilities are what the bank owes to others.

Specifically, the bank owes any deposits made in the bank to those who have made
them. The net worth, or equity, of the bank is the total assets minus total liabilities.
Net worth is included on the liabilities side to have the T account balance to zero.
For a healthy business, net worth will be positive. For a bankrupt firm, net worth
will be negative. In either case, on a bank’s T-account, assets will always equal
liabilities plus net worth.

When bank customers deposit money into a checking account, savings account, or
a certificate of deposit, the bank views these deposits as liabilities. After all, the
bank owes these deposits to its customers, and are obligated to return the funds
when the customers wish to withdraw their money. In the example shown in Figure
1, the Safe and Secure Bank holds $10 million in deposits.
The second category of bank asset is Treasury securities, which are a common
mechanism for borrowing used by the federal government. Treasury securities
include short term bills, intermediate term notes and long term bonds. A bank takes
some of the money it has received in deposits and uses the money to buy bonds—
typically bonds issued by the U.S. government. Government bonds are low-risk
because the government is virtually certain to pay off the bond, albeit at a low rate
of interest. These bonds are an asset for banks in the same way that loans are an
asset: The bank will receive a stream of payments in the future. In our example, the
Safe and Secure Bank holds bonds worth a total value of $4 million.

The final entry under assets is reserves, which is money that the bank keeps on
hand, and that is not loaned out or invested in bonds—and thus does not lead to
interest payments. The Federal Reserve requires that banks keep a certain
percentage of depositors’ money on “reserve,” which means either in the banks’
own vaults or as deposits kept at the Federal Reserve Bank. This is called a reserve
requirement. (Later, when you learn more about monetary policy, you will see that
the level of these required reserves is one policy tool that governments have to
influence bank behavior.) Additionally, banks may also want to keep a certain
amount of reserves on hand in excess of what is required. The Safe and Secure
Bank is holding $2 million in reserves.
Identify different types of risks faced UCB while doing its business?

Credit Risk Management of United Commercial Bank

United Commercial Bank offers all kinds of corporate and personal banking
services including corporate banking, retail banking and consumer banking service
for every customer. UCBL provides every kind of facilities to its customers
regarding account, loan, deposit scheme, UCB earning plus, Ucash, UCB
multimillionaire etc. which are different kind of services that attracts to the
customers. The bank can handle a good number of customers and help them when
they have any queries. Before making a customer’s account, the bank verifies all
the documents for further process.

Every customer account is very sensitive issue for the bank because there may be a
number of transactions happen. The general banking section has different kinds of
department for customer service. They have account opening section (Savings,
FDR, MSS, Bills, Detch pecth etc), clearing section, deposit section, cash
department, cash management section. Besides this, the credit risk management
department includes CAD (Credit Administration Department), foreign remittance
section, corporate credit department etc.

Usually, the bank makes credit for corporate customers (RMG sector) the most for
their business purpose. Moreover, they have individual loan system such as home
loan, car loan, utility loan, furniture loan etc. The bank plays an important role in
international trade by providing credit and facilitating payment, against trade with
other countries. UCBL cuts a good figure in their foreign exchange department by
giving credit of exporting and being a part of international business. In this regard,
UCBL is well positioned to meet the challenges that it faced.
Credit Risks

Credit risk is the risk that arises from the possibility of non-payment of loans by
the borrowers. Although credit risk is largely defined as risk of not receiving
payments, banks also include the risk of delayed payments within this category.

Often times these cash flow risks are caused by the borrower becoming insolvent.
Hence, such risk can be avoided if the bank conducts a thorough check and
sanctions loans only to individuals and businesses that are not likely to run out of
income over the period of the loan. Credit rating agencies provide adequate
information to enable the banks to make informed decisions in this regard.

Market Risks

Apart from making loans, banks also hold a significant portion of securities. Some
of these securities are held because of the treasury operations of the bank i.e. as a
means to park money for the short term. However, many securities are also held as
collateral based on which banks have given loans to their customers. The business
of banking is therefore intertwined with the business of capital markets.

Banks face market risks in various forms. For instance if they are holding a large
amount of equity then they are exposed to equity risk. Also, banks by definition
have to hold foreign exchange exposing them to Forex risks. Similarly banks lend
against commodities like gold, silver and real estate which exposes them to
commodity risks as well.
Operational Risks

Banks have to conduct massive operations in order to be profitable. Economies of

scale work in the favor of larger banks. Hence, maintaining consistent internal
processes on such a large scale is an extremely difficult task.
Operational risk occurs as the result of a failed business processes in the bank’s
day to day activities. Examples of operational risk would include payments
credited to the wrong account or executing an incorrect order while dealing in the
markets. None of the departments in a bank are immune from operational risks.

Moral Hazard

The recent bailout of banks by many countries has created another kind of risk
called the moral hazard. This risk is not faced by the bank or its shareholders.
Instead, this risk is faced by the taxpayers of the country in which banks operate.
Banks have become accustomed to taking excessive risk. If their risk pays off, they
get to keep the returns. However, if their risk backfires, then the losses are borne
by taxpayers in the form of bailouts. This too big to fail model has caused banks to
become reckless in their pursuit of profit. Although central banks are using audits
to ensure that safe business practices are followed, banks nowadays indulge in
risky business the moment they are not under regulatory oversight.

Liquidity Risk

Liquidity risk is another kind of risk that is inherent in the banking business.
Liquidity risk is the risk that the bank will not be able to meet its obligations if the
depositors come in to withdraw their money. This risk is inherent in the fractional
reserve banking system. Therefore, in this system, only a percentage of the
deposits received are held back as reserves, the rest are used to create loans.
Therefore, if all the depositors of the institution came in to withdraw their money
all at once, the bank would not have enough money. This situation is called a bank
run. This has happened countless times over the history of modern banking.

Business Risk

The banking industry today is considerably advanced and diversified. Banks today
have a wide variety of strategies from which they have to choose. Once such
strategy is chosen, banks need to focus their resources on obtaining their strategic
goals in the long run.

Reputational Risk

Reputation is an extremely important intangible asset in the banking business.

Banks like JP Morgan bank, Chase bank, Citibank, Bank of America etc have all
been in the business for hundreds of years and have stellar reputations. These
reputations enable them to generate more business more profitably.

Systemic Risk

Systemic risk arises because of the fact that the financial system is one intricate
and connected network. Hence, the failure of one bank has the possibility to cause
the failure of many other banks as well. This is because banks are counterparties to
each other in a lot of transactions. Hence, if one bank fails, the credit risk event for
the other banks becomes a reality.
If I hired as a chief risk officer (CRO) of that company what different
strategies would you take to deal with these risks.

To bring better transparency, synergy and prudence into risk management structure
in the UCB bank, the role and responsibilities of the CRO is of paramount
significance. The CRO leading the independent risk management department shall
have sufficient stature, authority and seniority.

When I am a Chief Risk Officer (CRO) is responsible for implementing policies

and procedures to minimize or manage operational risks. They are also tasked with
coming up with mitigating processes to help minimize or avoid losses that may
arise when the systems, procedures, or policies in place are found to be inadequate
– or if they fail entirely.

Aside from these, the responsibilities of a CRO include:

*Developing risk maps and formulating strategic action plans to help minimize,
manage, and mitigate primary risks and then monitor the progress of these efforts.

*Creating and disseminating risk analysis reports and progress reports to different
stakeholders, including employees, board members, and C-suite executives.

*Ensuring that risk management priorities are reflected in the company's strategic
plans.

*Formulating and implementing risk assurance strategies that are related to the
transmission, storage, and use of information and data systems.
*Evaluating possible operational risks that may arise from human error or system
failures, which might disrupt or affect business processes. The CRO also develops
different strategies to minimize risk exposure and designates appropriate responses
for when human errors or system failures occur.

*Measuring the organization's risk appetite, and setting the amount of risk that the
organization is able – and willing – to take on.

*Developing budgets for risk-related projects and supervising their funding

*Conducting risk assurance and due diligence on behalf of the organization in the
events of mergers, acquisitions, and business deals.

THE END