Chapter 1 Introduction

1.0 : Introduction

Risk is an integral part of financial services. Since Sonali bank provides financial services so
it must be faced risks. Risk arises when there is a possibility of more than one outcome and
ultimate outcome is unknown. Though all business faces uncertainty, Sonali Bank faces some
special kinds of risks. In banking organization has possibility that the outcome of an action or
events bring up adverse impact. Such outcome could either result in a direct loss of
earning/capital or may result in a direct result in imposition of constraints on bank's ability to
meet its business objectives. Such constraints pose a risk as these could hinder a bank's ability
to conduct its ongoing business risk management is a discipline at the core of every financial
institution and encompasses all the activities that affect its risk profile. It involves
identification, measurement, monitoring, and controlling risk to ensure that risk taking
decisions are in line with the business strategy and objectives set by BOD. Risk management
of banking sector in Bangladesh is comparatively newer practice, but increase efficiency is
being found in governance of these banks. Bangladesh banking sector has been making great
advancements in technology, quality, quantity, as well as stability and such, they have started
to expand and diversify at a rapid pace. In Basel-1 only credit risk was considered, but in
Basel-2 along with credit risk, operation risk, and market risk have been brought into
consideration. Besides this risk, there are some other risks in banking sector viz. financial risk,
concentration risk, interest rate risk, currency risk, equity risk, liquidity risk, reputation risk,
and profit risk etc. risks are found. Nowadays, the education system of the world is to
understand the real world and apply the knowledge for better of the society as well as
company. From education the theoretical knowledge is obtained from the courses of which is
half way of subject matter practical knowledge has no alternative. An internship program in
an organization like Sonali Bank Limited for three moth is a great opportunity for me to
gather knowledge practically about risk and risk management systems of Sonali Bank
Limited.

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 1.1 : Background of the study

This report has prepared as a requirement for the conclusion of the MBA program. As per
requirement of MBA program Department of Accounting and Information Systems as a
student has to complete three months internship program. For the completion of this
internship program, I have chosen a bank named "Sonali Bank Limited" and my internship
report is based on "risk management system of Sonali Bank limited" has prepared by the
direction of Lamina Binta Jahan, Assistant Professor, Department of Accounting and
Information Systems Comilla University, Comilla. After completing of three months job
experience in Sonali Bank Limited I have completed this report.

1.2 : Rationale of the study

Success of commercial banks are much depend on systems of managing their risks. Though
risks cannot be completely avoided, banks and financial institutions invest huge wisdom,
energy and skill in lessening risk exposures. Obviously, it is so vital for their very existence in
the industry.

The most important risk procures from banks wrong dealings regarding its lending operations
as well as when the obligator fails to meet terms and conditions, they previously gave consent
for those. Even though they may fail even after bank officials did their responsibilities with
due diligence the situation of the obligator may not remain the same as it was at the time of
approving the credit proposal.

Banks has a separate department for managing credit risk exposures; credit risk management
department tries to ensure a dynamic procedure and foreseeing plan for managing its credit
portfolio aiming to optimize returns. A multidimensional process is essential as world
economy is changing rapidly and the credit risk management requires to be more forward
looking and responsive approach. Sonali Bank Limited is one of the top ranked commercial
banks in Bangladesh. It is operating and contributing significantly in the banking industry
since its inception. As business studies student I have interest in risk and its management
systems, so I decided to know as much I can during my internship in Sonali Bank Limited.
This report is an effort to portray an opaque knowledge about their strategies, policies, plans
and actions relating to different types of risk management system or process.

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 1.3 : Motivation of the Study

Nowadays, bank faces a number of problems, among the problems risk is one of the most
important issue. So, managing risk is the way to mitigate or minimize the risk If there is a
possibility of occurring risk then it is not possible to gain ultimate output. The topic "Risk
Management Systems of Sonali Bank Limited" is very fruitful if it is studied properly. For
maximizing profit or achieving ultimate goal banks must be managed properly otherwise it is
totally impossible to reach its goal. Since a number of subjects must be considered so risk
management is also be considered. Because, risk management is the most important issue
among other issues which must be managed. There are different types of risk are found such
as credit risk,interst rate risk,foreign exchange risk, operational risk, compliance risks etc. I
think Risk Management system is the most important issues among other manageable issues.
If risk does not managed then different types of risk which are given above also not be
managed as a result the bank will be vain to reach its goal.

1.4 :- Objectives of the study

♦To identify the risk faced by the Sonali Bank Limited.

♦Awareness of bank personnel according to various types of risk management techniques.

♦To know the methods of risk identification and mitigation.

♦To identify risk management practices by the information of Sonali Bank Limited.

♦To know the risk management practices. Finally, to recommended suggestion for the
successful risk management practices of Sonali Bank limited.

1.5 :- Contribution of the study

The report is helpful for There are a number of graduates who have to complete internship
Programme. I think it is a great chance for getting useful information besides practical
knowledge. Since the graduates join for internship Programme, so they must be completed
their internship report. There are a number of report or study are found. But I think my report
is totally exceptional from other's report or study. In my report I try to make 10 questions on
the basis of my topic. Then I give the reasons for raising the questions, table, pie chart etc.
which are not found others report.

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 Chapter-2:
Literature Review and Theoretical Background

2.0 : Literature Review

A number of studies have been published about risk management all over the world.
However, the number of empirical studies on risk management practices in the context of
Bangladesh found to be relatively small.

Jaohan R. and Neil, H [2003] in their study on banking and industry development :- A case
study Bangladesh examined the difficulties hampering efficient functioning of the banking
system in promoting economic and industrial development in Bangladesh. The findings
include :-

(a) Legal environment in which bank's function is relatively poor.

(b)Despite financial perform programmed of the government there is a back of credit

discipline.

(c) Loan sanctioning is dictated by political decisions.

(d)Loan taking entrepreneurs are not genuinely serious in utilizing the loan for purposes for
which for which these granted. Banking systems in Bangladesh is not properly equipped with
trained manpower to perform its job.

Al-Tamimi investigate UAE commercial bank and their risk management techniques. The
study revealed that the credit risk was their high concern. The significant findings of the study
are inspection by managers and financial analysist was the main risk identification method
establishing standards. Credit score, credit worthiness analysis, risk rating and collateral
seems popular risk measurement techniques. The study also highlighted the willingness to use
the most sophistically risk management techniques in those banking.

Risk measurement and evaluation remain critical aspects of investment analysis. Extensive
literature exists on single factors as well as multifactor models of risk management estimation

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 for traditionalband alternative investment analysis, [Elton and Gruber, 1995; Daglioglu and
Gupta, 2003].

Anthony M. Santomero reveal that the banking industry has long viewed the problem of risk
management as the need to four of the above risks which make up most if not all pf their risk
exposure viz. credit,interest rate,foreign exchange and liquidity risks. While they recognise
counterparty and legal risks they view them as less central to their concerns.Where
counterparty risk is significat, it is evaluated using standard credit risk procedures, and often
within the credit decisions or, more likely, proper process not employeed in financial
contradicting.Accordingly the study of bank risk management prcesses is essentially on
investigation of how they manage their four risks. In each case, the procedure outlined above
is adopted to the risk considered so as to standardize, measure, constrain, and manage each of
these risks. To illustrate how this is achieved, this review of firm-level risk management
controls in each area.The more difficult issue of summing over these risks and adding still
other, more amorphous, ones such as legal, regulatory or other reputational risk, will be left to
the end.

Ninima ki(2004) mentioned that the attitude of risk loving of the investors depends on the
structure of bank risk management. In addition, if bankers do work in monopoly market
seems take higher risk that of a competitive market operator. In contrast, banks which have
deposit insurance seem taking higher risk, if it is found that banks are competing for deposita.
As a result, the rate of interest for deposit account became higher than normal which in result
increases banks risk taking attitude to be profitable in competition.

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 2.1: Theoritical Background

2..1.0: Definition of Risk

Risk can be defined as the variability of unexpected outcomes. It is usually measured by

standard deviation of historic outcomes. Risk can also be said as an interaction with
uncertainty.

21.1: Types of risk

Credit risk:- Credit risk is the most significant and inherent risk in banking business. Every
loan transactions with counterparty involves the bank to some degree of credit risks. Credit
risk can be classified into Sovereign Risk and Settlement Risk. Sovereign risk usually arises
due to difficult foreign exchange policies risk and settlement risk.

Market risk:- Market risk is the risk of losses in when and off balance sheet position arising
from movement in market price such as changes in interest rate, prices in equity, foreign
exchange and commodity etc.

Operational risk:- Operational risk is the risk of loss resulting from fuilure of internal
process, systems, and people or from external events.

Interest rate risk:- Interst rate risk is potential reduction in net interst income caused by
changes in the level of interest rate.

Liquidity risk:- Liquidity risk is the risk that we may not meet our finacial policy of the bank
to maintain adequate liquidity at times and in both local and foreign exchange currencies. It is
managed in short, medium, or long term basis.

Foreign exchange risk:- Foreign exchange risk is potential loss arising from changes in
foreign currency exchange rate in either direction. Assets and liabilities denominated in
foreign currencies hace foreign exchange risk.

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 2.1.2 : Risk management system

Risk management system is a discipline by which an organization manages employees,

clients, roles, relations and processes of its business in order to achieve its ultimate values and

2.1.3 Objective : Risk identification methods can be included

 Evidence based methods, Examples of which are check-lists and reviews of historical
data.

 Systematic team approaches: Where a team experts follow a system process to identify
risks by means of a structural set of prompts for questions.

Risk Management principles

Risk management principles for effective risk management, Sonali Bank Limited ia
following, at all levels, some principles which are given below:

a) Risk management contributes to the demonstrable achievement of objective and

improvements of performance, governance of reputations.

b) Risk management is not stand-alone activity that is separate form the main activities and
processes of the bank.

c) Risk management is a part of the responsibilities of management an integral part of all

organizational processes, including straregic planning.

d) Risk management helps in decisions making, decision makers making informed choices,
prioritize actions and distinguish among alternative courses of action.

e) Risk management explicity takes account of uncertainty, the nature of that uncertainty, and
how it can be adressed.

f) Risk management is based on best available information.

g) Risk management is transparent and inclusive.

h) Risk management is dynamic, responsive to change

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 2.1.4 : Risk Management Component

After assessing every individual risk associated with any one or more of customers, products,
and services. Business practices methods or changes and country or jurisdiction, bank is
required to have proper risk mangement guidlines or proceduresis place. Following risk
magement components should be emphasized at branch level.

a) Risk management strategy and policy of the bank.

b) Ongoing risk monitoring.

c) Higher and lower risk scenarios.

d) Risk variables.

2.1.5 : Specific High Risk elements and recommendation for CDD

Some of the relatively high-risk elements identified by Sonali Bank Limited and recommended
action for CDD/EDD given below:-

S/L No. Customers Recommendations for CDD/EDD

1 NPOs/NGOs,ch In relation to these customers, banks may:-

arities,trusts, clubs,
soceities,
 Obtain an undertaking from Governing Body,
and association etc.
BOT,executive committee to inform the bank about
any change of control or ownership during
operation of the account.
 Obtaining a declaration from Governing Body,
BOT, executive committee, sponsors or ultimate
control, purpose and source of funds etc.
(iii) Obtainig a fresh resolution of the Governing
Body, Executive committee of the entity in case of
change in person's authorised to operate account.

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2 Housewife In relation to housewife accounts banks may be:-
Accounts

 Obtain a self-declaration for source and beneficial

ownership funds.
 Identify and verify funds provides if monthly credit
turnover exceeds an appropriate household to be
decided to bank
 Update details of funds provides if any along with
customer's profile.

3 Propietorships In relation to these accounts following measures may

and self- be taken by banks:-
employeed
individuals/prof  (i) The business transactions in personal
essionals
accounts of proprietorship's may only be
permitted by linking it with
acvounts/business turnover. For example:-
Such customers having monthly credit
turnover of taka 20 million or above be
required to open a separate account for
business related transaction

4 Landlords In relation such customers, banks may apply any

recommendations for assessment of sources of
fund/income e.g. pasbook of landholding records.

5 Online In relation such transactions, bank should pay special

transactions attention to geographical factors/locations for
movement funds.

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 2.1.6 : High Risk Factors

Following high risk factors with regards to customers, products and services delivery channel,
and geographic locations are to be considered:-

Customers (i)Non resident customers.

(ii)Correspondent bank account.

(iii)Customers with links to offshore tax haven.

(iv)Customers in high volue earns.

(v) High net worthiness customers with no clearly identifiable source of

income.

(vi) There is a doubt about the adequacy of available identification.

(vii)Companies that has nominee shareholders in bearers form.

(viii)Legal persons asset holding vehicle.

Products and (i)Not face to face business relationships or transactions.

services
delivery (ii)Cash intensive or other forms of anonymous transactions.
channel (iii)Payment received from unknown or unassociated third parties.

Geographic (i) The jurisdiction which have been identified for ineduquate CFT
Location measures by FATF for taking counter measures.

(ii) Countries identified by credible sources such as mutual evalations or

detailed assessment reports,as having ineduquate CFT standards.

(iii) Countries subjects to sanctions, embargoes,for example the

United Nations,OAFC list.

(iv) Countries identified by credible sources as having significant levels of

corruption, or other criminals activity.

(v) Countries or geographic areas identified by credible sources as providing

funding or support for terrorism activity.

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 In respect of general high risk elements brach of Sonali Bank Limited has to conduct EDD
measures which are effective and commensurate to level of risks. In particulars branch may
increase the degree and nature of ongoing monitoring of the business relationship in order to
determine whether those transaction or activities appear unusual or suspicious.Example of
such EDD measures may include:-

♦Obtaining additional information on the cusomers(occupation, volume of assets, adress,

information).
♦Reducing interval for updating the identification data of customer and beneficial owners.

♦Obtaining additional information on the intended nature of the business relationship.

♦Obtaining additional information on the sources of funds or sources of wealth of the

customer.

♦Obtaining the approval of senior management to commence or continue the business

relationship e.g. PEPs account.

♦Documentary evidence may be sought to support transaction where possible, e.g. purchase of
property.

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 2.1.7 : Low risk factors

There may be circumstances where the risk of money laundering or financing of terrorism
may be low, for example where information on the identity of the customers and the
beneficial ownership is publicly available.In such circumstances and provided there has been
an adequate analysis of the risk by the branches of the bank,SDD measures be applied.
Examples of the such low risk factors are given belows:

Customers 1. A financial institutions regulated or supervised by

BB.

2. A NBFI regulated or supervised by BSEC unless an

entity is notified for application of the requirements.

3. A government entity.

4. A foreign government entity.

(v)Public administrations of
enterprise.
5. An entity listed on any stock exchange of Bangladesh.

6. An entity listed on a stock exchange outside of

Bangladesh that is subject to regulatory
disclosure requirements and its information is
publicly available.

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 Products and services (i) Basic banking accounts.

(ii) Low value accounts having monthly credit turnover

below taka 50000.

(iii) Salary accounts of individuals subjects to the conditions

that account is not used for other than salary purposes.

(iv) Pension accounts for direct credit of pensions.

(v) Remittance card restricted to receive inward

remittance only.

(vi) Other financial products /services that provide

appropriately defined and limited services to certain types
of customers so as to increase access to financial
services.

Geographical Locations (i) Country identified by credible sources such as mutual

evaluation or detailed assessment reports, as adequately
complying with and having efficiently implemented by the
FATF recommendations

(ii) Country identified by credible sources as having a low

levelvof corruption, or other criminal activities.

In respects of general low risks elements mentioned earlier, bank has to performed such SDD
measures as it considers adequate to effectively established the identify of the customer, a
natural person appointed to act on behalf of the customer and any beneficial owner.The SDD
measures should be in accordance with pre-defined criteria within AML /CFT policy of
BFIU.It should have commensurate with the low risk factors e.g. the SDD measures should
relate only to customer acceptance measures or to aspects of ongoing monitoring. Examples
of such SDD measures may include:-

♦Decreasing the frequency of customer identification updates

♦Reducing the degree of ongoing monitoring, scrutinizing transaction based on a reasonable

monetary theresold.

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 Chapter:3

Organizational profile of sonali bank limited

3.0 Banking sector situation in Bangladesh

Banking sector in Bangladesh has been playing an important role in promoting economic
development of the country and extending financial services to the general people. It consists of 59
banks contributing to about 3.0 percent to GDP with 10,286 bank branches in June 2019 has been
showing resilience in the face of vulnerability and instability in the world financial system. Out of
these branches, about 52 percent are located in the urban areas and the rest in rural areas in June
2019. But about ten years ago i.e., in June 2010 the situation was just the opposite of this. For
example, the share of urban branches was 43 percent in that year. The share of urban bank branches
increased because of creation of new pouroshabhas in the country. The share of urban deposits and
advances which stood at 79 percent and 90 percent in June 2019 was 87 percent and 92 percent in
June 2010 respectively. Recently, Bangladesh Bank has adopted some prudential policies and
regulatory measures to help the banking sector in its quest to attain sustainability. The central bank
has also renewed its Emphasis on risk management operations in banks, periodic review of stability
of the individual bank within the gamut of the whole banking system, doing exercise on stress
testing, monitoring fraud forgeries in banks and strengthening internal control and compliance for
ensuring corporate governance in the banking system.

3.1 History of Sonali Bank Ltd

Sonali Bank was established under the Bangladesh Banks (Nationalization) Order-1972, President’s
Order No-26 of 1972, through the merger and nationalization of 1) The National Bank of Pakistan
2) The Bank of Bhawalpur Ltd. and 3) The Premier Bank Ltd. Later on, it was registered as a Public
Limited Company under the Company Act, 1994 on 3 June, 2007, with joint stock companies and
firms to make it operationally independent. Bangladesh Bank issued Banking License on 5 June,
2007 under the Bank Company Act, 1991. Sonali Bank Limited took over the business of Sonali
Bank on 15 November, 2007 with all assets, liabilities, benefits, rights, powers, authorities,
privileges, borrowing and responsibility as going concern under a Vendor`s Agreement signed
between the Government of the People’s Republic of Bangladesh and Sonali Bank Limited. It is the
largest state-owned commercial bank having 1222 local branches, 2 foreign branches, 46 Principle
Offices, 16 Regional Offices, 11 GM Offices, 32 Corporate Branches (including Local Office), 45
AD branches and two subsidiaries- named Sonali Exchange Co. Inc. (SECI), USA and Sonali
Investment Limited (SIL) in Bangladesh; and two associates named, Sonali Bank (UK) Ltd. and
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Sonali Intellect Limited. The address of the registered office of the Bank is 35-42, 44 Motijheel
Commercial Area, Dhaka, Bangladesh. The Board of Directors of the Bank consists of 09 (nine)
members headed by a Chairman. The Directors are representatives from both public and private
sectors with high proficiency and scholastic background in their respective areas.

3.2 Mission of Sonali Bank Limited

Dedicated to extend a whole range of quality products that support

divergent needs of people aiming at enriching their lives, creating
value for the stakeholders and contributing towards socio-economic
development of the country.

3.3 Vision of Sonali Bank Ltd

Socially committed leading banking institution with global

presence

3.4 Ethical Principle of Sonali Bank Ltd

Ethics is a combination of moral qualities and a collection of measurements that inquire

into the values, norms and rules which form the essentials of the individual and social
relations established by people from the moral aspect of right-wrong or good-bad.
Sonali Bank Limited deals with public money where Ethics, Integrity and Trust are the
utmost important. Bank upholds these principles in every aspect by its Management,
2.6 Strategic Objectives of Sonali Bank Ltd
Regulatory Compliance and Customer Services.

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  Greater emphasize to serve potential and unbanked population of the country through
providing banking services to under-served areas with the scaling up of various pilot

 Gaining competitive advantages by lowering overall cost compared to that of

competitors

 Retaining our top leadership position by providing quality customer services

 Investing in the thrust and priority sectors of the economy

 Providing impeccable and progressively better customer services through introducing

changed technologies

 Being excellent in serving the cause of least developed community and areas

 Improving of deposit mix by maintaining efficient deposit management, increasing share

of low cost and no cost deposit in total deposit as well funded business.

 Improving corporate governance through strengthening good corporate culture,

motivation, training and supervision in all levels of management

 Developing Human Resource Management System to motivate and retain the human
resources and transform human resources to human capital through proper training in

 Ensuring diversification of investment by sector, size, economic purpose and

geographical location and expand need based retail and SME/Microfinance/Women

 Cost control optimization at all levels of operation by ensuring budgetary control and
maximizing revenue through quality services and product diversification

 Ensuring strong internal control and compliance culture through establishing strong
control environment and sound compliance within the Bank

 Developing sound and effective risk management culture within the Bank to safe guard
the banking assets and protect the interest of the depositors and other stake holders

 Ensure dedicated service to the government as an exchequer and government

transactions (government receipts and payments) in order to achieve expected economic
growth.

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3.5 Logo of Sonali Bank Ltd
3.6 Corporate profile of Sonali Bank Ltd
Name of the company
Registered Office
Genesis
Legal Status
Date of Incorporation
Date of Commencement of Business
Vendor’s Agreement
BB License No.
Banking License obtained
Date of Company Registration
Company Registration No
Authorized Capital
Paid up Capital
Shareholding Pattern
Tax Identification No. (TIN)
Chairman of the Board of Directors
CEO & Managing Director
Head of Risk Management
Chief Financial Officer
Chief Audit Officer
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Sonali Bank Ltd
35-42, 44 Motijheel Commercial Area, Dhaka,
Bangladesh
Emerged as a Nationalized Commercial Bank
following the Bangladesh Bank (Nationalization)
Order No. 1972 vice President’s Order No. 26 of
1972.
Public Limited Company
03 June, 2007
03 June, 2007
15 November, 2007
BRPD(P-3)745(1)/2007-1602
05 June, 2007
03 June, 2007
C-67113(4605)/07
BDT 60,000.00 Million
BDT 45,300.00 Million
100% share owned by Government of the People’s
Republic of Bangladesh
Tax Identification No. (TIN)
Mr. Ziaul Hasan Siddiqui
Mr. Md. Ataur Rahman Prodhan
Mr. Md. Zakir Hossain
Mr. Subhash Chandra Das, FCMA, FCA
Mr. Md. Golam Kibria, FCA
Company Secretary Mr. Tauhidul Islam
Domestic Network
No. of Branches 1226
No. of Urban Branches 500
No. of Rural Branches 726
No. of General Managers’ Office 11
No. of Principal Office 46

No. of Regional Office 16

No. of Treasury Branches 731
No. of AD Branches 44
No. Of Corporate Branches 23
No. of Computerized Branches 1226
No. of Core Banking System 1226
Branches
No. of Administrative Office 74
No. of ABB Operated Branches 1226
No. of RMS+ Operated Branches 1226
No. of SMS Banking Operated 1226
Branches
No. of Islamic Window 11
No. of Head Office Divisions 45
Overseas Network
No. of Branches 02
Location of Branches Kolkata, Siliguri
No. of Correspondence 682
No. of Representative Offices 03( 02 in KSA and 01 in Kuwait)
ATM Booths (own) 120

3.7 Board of Directors of Sonali Bank Ltd

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Name Status with the bank
Mr. Ziaul Hasan Siddiqui Chairman
Mr. A.B.M. Ruhul Azad Director
Mr. A.K.M Kamrul Islam,FCA, FCS Director
Mr. Ishtiaque Ahmed Chowdhury Director
Dr. Daulatunnahar Khanam Director
Mr. Md.Mofazzal Husain Director
Mr. Molla Abdul Wadud Director
Professor Dr. Mohammad Kaykobad Director
Mr. Md. Ataur Rahman Prodhan CEO& Managing Director

3.8 Audit Committee of Sonali Bank Ltd

Name Status with the bank Status with the committee

Mr. A.K.M Kamrul Islam Director Chairman
Mr. Ishtiaque Ahmed Director Member
Chowdhury
Dr. Daulatunnahar Khanam Director Member
Mr. Md.Mofazzal Husain Director Member
Mr. Molla Abdul Wadud Director Member

3.9 Management Hierarchy of Sonali Bank Ltd

Top Management
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 Chairman

Board of Directors

Executive Committee

Executive
ManagingLevel Management
Director

Additional Managing Director

Deputy Managing Director

Senior Executive Vice President

Executive Vice President

Senior Vice President

Vice President

Senior Assistant Vice President

Assistant Vice President

Mid Level Management Junior Level Management

First Assistant Vice President Senior Officer

Management Trainee
Senior Executive Officer
Officer Junior Officer
Executive Officer

Principal Officer
3.10 Awards & Recognition of Sonali Bank Limited

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Sl Name of Award Awarded By Year
1 Annual Performance Agreement Financial Institutions Division, 2019
(APA) 2018-19 Ministry of Finance
2 ICMAB Best Corporate Award-2018 Institute of Cost and Management 2019
Accountants, Bangladesh
3 Award in Foreign Remittance Centre for the Non-Residence 2019
Collection Bangladeshis (NRBs
4 Bangladesh Bank Remittance Award Bangladesh Bank 2018
5 Bangladesh Bank Remittance Bangladesh Bank 2017
Award
6 ICMAB Best Corporate Award-2015 Institute of Cost and Management 2016
Accountants, Bangladesh
7 Highest Tax Payer in Banking National Board of Revenue 2016
Sector
8 Best Financial Institute of the Year Arthokontho Business Award 2013
9 Best Brand Award Bangladesh Brand Forum 2013
10 Strongest Bank in Bangladesh The Asian Banker 2012
11 Highest Remittance Collecting The Industry 2012
Bank
12 Best Brand Award Bangladesh Brand Forum 2012
13 Silver Award in Foreign Centre for the Non-Residence 2012
Remittance Collection Bangladeshis (NRBs)
14 Best Brand Award Bangladesh Brand Forum 2011
15 Best Retail Banker in Bangladesh The Asian Banker 2010
16 Best Brand Award Bangladesh Brand Forum 2010
17 Best Brand Award Bangladesh Brand Forum 2009
18 ICMAB Best Corporate Award Institute of Cost and Management 2008
Accountants, Bangladesh

Chapter: 4

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 Methodology of the study

4.0: Methodology

In this topic I have discussed a number of important issues of Sonali Bank Limited and
critically analyze the banking procedure with as per theoritical framework. For this reason, I
used my personal observation during my internship programme.Trough face to face
conversation with the different lwvel officers of the bank I gathered knowledge as weel as
information about Sonali Bank Limited. And for theoritical information, I have read a number
of bank related books.

4.0.1Research Design

A research design is a basic plan which guides the researcher in the collection and analysis of
data practicing. This report is prepare on the tooic of "Risk Management Systems of Sonali
Bank Limited". Primary and secondary both data are used for preparing the report.

4.0.2: Sampling Design

4.0.2.1:SamplingFrame: A branch has been taken as a sample.

4.0.2.2:SamplingTechnique: Descriptive sampling procedure has been used in the

survey.

4.0.3: Data Collection:The data collection method to study consist of both primary abd
Secondary sources. But majority of the information collected from the secondary sources.

4.0.3.1:Sources of PrimaryData

♣Observing the day-to-day activities of the bank.

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 ♣Interviewing the bank officials.

♣Interviewing the customers of the Bank.

♣Informal conversation with client .

4.0.3.2Sources of secondary data:

 Annual report of sonali bank limited.

Internet was used as a related important source of information.

 The bank website and newspaper according financial pages are sources of information.

 Article has been used as a sources of critics and analysis.

4.4: Limitation of the study:

 Due to bank's policy of maintaining secracy the personnels of bank did hot disclose all
the information.
 there is a chance of having some mistake in the report though best effort has been
applied to avoid any kind of mistake.
 As collected data only from the branch of Sonali Bank Limited, I did not get the
opportunity in broadly study on risk management systems
 Time was not sufficient to make an in depth study on such issue.

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 Chapter :5 Analysis and Finding

5.0: Current Position of Risk Managaemnt Systems of Sonali Bank Limited

The Bank Company Act 1991 (amended 2019) and the BB regulatoins require the MGT to
ensure effective internal control and risk MGT functions of the Bank.The MGT is also required
to make a self-assessment on the effectiveness of anti-fraud internal controls and reports of BB
on instances of fraud and forgeries.

BB department of off-site supervision has issued circular no. 02 dated 15 February 2012 on
risk MGT guidelines for Banks and instructed for all schedule banks operating in Bangladesh
to follow the guidelines for managing various risks which have been complied by the bank. In
addition, the bank also following relevant BB guidelines on risk based capital adequacy,
stress testing and managing the banking risk in other core risks areas. The bank has
established a RMD. The RMD conducts stress testing for examining the banks capacity of
handling future socks, as well as deals with all potential risk that might occur in future. Being
financial institutions, in the ordinary courses of business, the bank is sensitive to verities of
risks.The generic severity of such is much intense in our locality due to presence of large
number of banks and complex financial transactions. In such highly competitive environment
to ensure banks consistent system and performance the presence strong risk MGT culture is
obligatory. Being compliant, the bank is now looking forward to take risk management
practice to a different level, i.e. preventing risk before occurance rather than a reactive
manner, on a proactive basis. According to the bank as a part of regulatory and global
benchmarking the bank has seven core risks guidelines of BB basel framework. listed below
are identified risks the bank is currently managing or intents to manage:-

♦Internal control and compliance risk

♦Foreign exchange risk

♦Credit risk MGT

♦Asset and liability risk

♦Money laundaring risk

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 ♦Information and communication technology risk

♦Environment risk

According to the bank has various high powered committee to monitor and ensure smooth risk
MGT activities.

For ecample:-Board risk MGT committees, high powered central risk MGT, departmental risk
MGT comittee, assets and liabilities committee, credit committee etc.

5.1: Disclosure of credit risk:

Banks are very much prone to credit risk due to its core activities i.e. lending to corporate,
SME, individual, another banks etc. As per relevent of BB guidelines the banks defines the
past due and impaired loans and advances for strengthening the credit discipline and
migigating the credit risk of the bank. For this purposes all loans and advances are grouped in
four categories:

(a) Continuous Loan

(b) Demand Loan

(c) Fixed Term Loan

(d) Short term agriculture and microcredit

According to the instruction of the BB, all loans and advances are classified into four
segments, these are:-

(a) Special Mention Account (SMA)

(b) Substandard(SS)

(c) Doubtfu (DF)

(d) Bad/Loss( BL)

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 Sonali Bank follows strictly all the regulations provided by BB while calculating the above:

S/L No. Types of Loan Classification Period gor

status calculation

1 Continuous SMA 2 month

Loan
SS 3 month

DF 6 month

BL 9 month

2 Demand Loan SMA 2 month

SS 3 month

DF 6 month

BL 9 month

3 Fixed term SMA 2 month

loan(above. 10
crore) SS 3 month

DF 6 month

BL 9 month

4 Short term SMA -

agriculture and
micro credit SS 12 month

DF 36 month

BL 60 onth

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 5.2: Credit Risk Ratio

Year 2013 2014 2015 2016 2017

Equity to 5.86% 6.37% 5.68% 5.61% 19.50%

total assets

Equity to net 14.56% 17.65% 16.85% 17.52% 57.20%

loan

Interpretation: The equity total assets ratio of Sonali Bank Limited is indicating percentage of
equity in total assets. In 2013 it was good but next some year it was increased a little bit.
Consequently, it was most same next two year except 2017. The equity to net loan ratio is a
percentage of equity in 100% loan amount. It was a slide good in 2013 and then it was
increased up positively upto 2017.

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 5.3: Liquidity Ratio:

In line with the provisions of liquidity risk management under Basel 3, BB on the basis of the
relevant guidelines of bank for international settlement.
.

Year 2013 2014 2015 2016 2017

Cash Ratio 0.01 0.08 0.006 0.006 0.004

Cash to 0.08 0.07 0.07 0.06 0.07

Assets
Ratio

Cash to 0.1 0.09 0.09 0.07 0.08

deposit Ratio

Loan to 0.87 0.56 0.87 0.67 0.60

total assets
Ratio

Loan to 0.08 0.56 0.77 0.99 0.33

total deposit
Ratio

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 5.4: Profitability Ratio

Year 2013 2014 2015 2016 2017

Return on 0.45% 0.68% 0.6% 0.14% .58%

assets

Return on 9.89% 11.05% 0.99% 2.18% 10.63%

equity

Interst spread 1.25% 2.24% 2.78% 2.30% 1.92%

Net interst 0.95% 1.66% 1.93% 1.94% 2.30%

margin

Operating 5.53% 13.2% 12.47% 5.9% 16.8%

Profit
margin

Interpretation: The return on asset has been fluctuated over the year a little bit and showing
rate of slam 2013 to 2017. The banks return on equity was positive stream from 2013, 2014,
and 2017. In 2015 to 2016 showing the ratio was decreased 0.99% to 2.18% but significantly
increased in 2017. The interest spread showing a normal rate following the years but lower
performance in 2013 and high performance in 2015. Net interest margin has positive trend
from 2013 to 2017. Operating profit margin showing better fluctuation from 2013 to 2017 it
was very high.

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 Q-1: Is Risk Management Systems sufficient for Sonali Bank Limited?

Background of the question:- Risk management is an important issue for mitigating or

minimizing risk. If the risk management systems is not sufficient for the organization then the
risk cannot be minimized or mitigated that is why the question is raised.

S/L No. Answer Respondent

A Yes 15
B No 8

C Neutral 2

Interpretation:- 60% said that yes, 32% said that no and 8% become neutral.

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 Q-2: Can risk management systems compare to the other branches of Sonali Bank Limited?

Background of the question:- The question is raised for knowing the management system of
risk of Sonali Bank Limited either be compared or cannot be compared to the other country's
risk management systems.

S/L No. Answer Respondent

1 Yes 20

2 No 5

3 Neutral 0

Interpretation:- 80% said that risk management systems can be compared and 20 % said that
cannot be compared. That means risk management systems of branch is not so bad.

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 Q-3: Can Kotbari branch of cumilla more mitigated managing risk than other branches of the
bank?

Background of the question:- The question is raised for knowing the capability of Kotabri
banch either better or poorer than other branches.

S/L No. Answer Respondent

1 Yes 18

2 No 6

3 Neutral 0

Interpretation:- 72% Said yes and 28% said no. That means the mitigating capability may be
better than other branches.

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 Q-4: Do you think about risk management department try to control all types of risk?

Background of the question:- Since the main task of risk management department is to
manage risk The question is raised for knowing the capacity of controlling risk.

S/L No. Answer Respondent

1 Strongly agree 22

2 Agree 8

3 Disagree 0

Interpretation:- 88% respondent said yes and 8% respondent said no. That means they try to their
best level to control the risks.

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 Q-5: Do you think risk management systems is helpful for reducing the fear of risk though all
types of risk cannot be totally controlled?

Background of the question:- For obtaining the information about what is their role.

S/L Answer Respondent

1 Strongly agree 19

2 Agree 5

3 Disagree 2

Interpretation: 73.1% strongly agree, 19.2% agree, 7.7% disagree.

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 Q-6 :-What do you think about the management systems of Sonali Bank Limited?

Background of the question:- Management is the way of achieving ultimate goal of the
organization. So the management systems should be properly maintained that is why the
question is raised.

S/L No. Answer Respondent

1 Satisfied 19

2 Poor 6

3 Dissatisfied 0

Interpretation: 76% satisfied, 24% think the management systems is poor.

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 Q-7:- Is the managing risk should be cost effective?

Background of the question:- Everything should be cost effective because high cost reduce the
profit earning as a result the organization fail to reach its ultimate goal.

S/L No. Answer Respondent

1 Strongly agree 22

2 Agree 3

3 Disagree 0

Interpretation: 88% respondent was strongly agree and 12% respondents was agree.

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 Q-8 Risk management systems of this branch should be improved?

Background of the question:- Where there is a problem there is a solution in maximum cases.
If there is a problem of poor risk managing system then it should be improved.

S/L No. Answer Respondent

1 Yes 25

2 No 0

3 Neutral 0

Interpretation:- In this question 100% respondent said yes. So risk management should be
improved as early as possible.

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 Q-9 Can risk management system of Sonali bank helps to increase organizational total output?

Background of the question:- Since risk is a great barrier to total output, so it must consider.
For increasing total output risk management systems will be a great technique.

S/L No. Answer Respondent

1 Yes 25

2 No 0

3 Neutral 0

Interpretation:- 100% respondent's answer was "yes". So properly management helps to total
output.

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 Q-10 Are you pleasesd with the services provided by the branch?

Background of the question:- For knowing the client satisfaction the question is raised.

S/L No. Answer Respondent

1 Yes 18

2 No 7

3 Neutral 0

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 5.5: Findings

1. Liquidity ratio indicates the firm's ability to meet up its immediate demanad in cash. Cash
ratiovof the bank has been decreasing from 2013-2017 that means has been facing cash
crisis in 2017.

2. Loan to total assets ratio of the bank in 2013 and 2015 was high that indicates the bank has
default risk because the higher the rate, the lower the liquidity of the bank. On the other
hand, in 2014 it was too low, but it has a little flactuated between 2016 and 2017.

3. Loan to total deposit ratio showing that in 2013 the ratio was 0.08 which is co- putatively too
low than next four years. At the same time, in 2016 it was 0.99 whereas in 2017 it was 0.33.
It means the bank could not able to profit as much as expected

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 Chapter: 6

Recommendation and Conclusion

6.1: Recommendation

I have completed my internship program from Sonali Bank Limited Koatbari bazar branch
Cumilla.While I was working here as an intern I have got some problems which are given
below:-

♦Cash ratio of the bank has been decreasing from 2013-2017 that means facing cash crisis in
2017.So the bank should increase cash ratio to solve the problem.

♦Loan to asset ratio of the bank 2013 and 2015 was high that indicates the bank has default
risk because the higher ratio, the lower of the liquidity of the bank. In 2014 is very low but it
was little flactuated 2016 and 2017. In that case bank should decrease its loan amount with
the balance of the total assets.

♦Loan to deposit ratio showing that in 2013 the ratio was 0.08 which was comparatively too
low than next four years. At the same time in 2016 it was 0.99 wherease in 2017 it was 0.33.
So the bank should increase its loans amount and deposit to increase its profit.

♦Risk management systems should be more sufficient at the present situation.

♦RMD tries to control all types risk.

♦Credit risk of the bank portfolio be monitoring properly.

♦Management should be more cost effective.

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 6.2: Conclusion

The study title "Risk Management Systems of Sonali Bank Limited helps the company
to understand the risk managing systems. Sonali Bank Limited's interest risk and
liquidity risks, credit risk should be properly managed. The regular monitoring and
managing of the risk is need of the hour. Bank should use information about these risks
as key input in their strategic business planning process, while increasing the size of the
balance sheet, the degree of assets and liability should be controlled. Because the
excessive mismatch would result in volatility in earnings. The study suggests much
scope for the bank to improve profitability by monitoring and reducing short term
liquidity.

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 Bibliography and References

Books:

1.. Principles of Managerial Finance-------Lwarence J Gitman

2. Commercial Bank Mangement---------Rose S. Peter

3.Research Methodology methods and Techniques----------C R. Kotha

Web Adress:
Https: //www.Sonali

Bank.com.bd/

Https: //www.bb.org.bd/

Others:
Various kinds of publication of Sonali Bank Limited

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