INTERNSHIP REPORT

on

Credit Risk and Liquidity Management

of AB Bank Limited, Tangail Branch

Department of Business Administration

Faculty of Business Studies
Mawlana Bhashani Science and Technology University Santosh,
Tangail-1902, Bangladesh.

April, 2023
 INTERNSHIP REPORT

on

Credit Risk and Liquidity Management of AB Bank Limited:

A study on Tangail Branch

Submitted By
Pranto Roy
ID: BBA18003
Session: 2017-2018
Stream: Accounting and Information Systems
Department of Business Administration
Faculty of Business Studies
Mawlana Bhashani Science and Technology University, Santosh, Tangail, Bangladesh.

Supervised By
Dr. Syed Moudud-Ul-Huq
Professor, Department of Business Administration
Faculty of Business Studies
Mawlana Bhashani Science and Technology University, Santosh, Tangail, Bangladesh.

1st April, 2023

 Letter of Transmittal
Date: 1st April 2023
Dr. Syed Moudud-Ul-Huq
Professor
Department of Business Administration
Faculty of Business Studies
Mawlana Bhashani Science and Technology University, Santosh, Tangail, Bangladesh.

Subject: Submission of Internship Report on “Credit Risk and Liquidity Management of

AB Bank Limited”.

Honourable Sir,

With due respect, I have the honour to place my Internship Report on “Credit Risk and
Liquidity Management of AB Bank Limited” for the partial fulfillment of the requirements
of completion of my BBA program. The report is prepared under your supervision and
guidance. With a view to having pragmatic exposure over practical arena, I was assigned this
topic.

To get through this report based on my cognition and analysis I exerted my full efforts and zeal.
I have worked hard in preparing this report and tried to make the report clear and comprehensive
within the constraints. I sincerely believe that this report will fulfill the purpose.

Thanking you for your kind supervision.

Sincerely yours,

……………………………..

Name: Pranto Roy

ID: BBA18003
BBA 8th Batch, Session: 2017-18
Stream: Accounting and Information Systems
Department of Business Administration
Faculty of Business Studies
Mawlana Bhashani Science and Technology University,Santosh, Tangail, Bangladesh

i
 Certificate of Supervisor

This is to certify that the Internship Report on “Credit Risk and Liquidity Management
of AB Bank Limited” A Study on Tangail Branch” is done by Pranto Roy as a partial
fulfillment of the requirement of Bachelor of Business Administration (BBA) degree from
the Department of Business Administration (Major in Accounting and Information
Systems), Mawlana Bhashani Science and Technology University.

I also ensure that, I have gone through the draft copy of the report thoroughly and found
it satisfactory for submission to the department of Business Administration, Mawlana
Bhasani Science and Technology University, Santosh, Tangail, Bangladesh.

……………………………
Dr. Syed Moudud-Ul-Haq
Professor
Department of Business Administration
Faculty of Business Studies
Mawlana Bhashani Science and Technology University, Santosh, Tangail, Bangladesh

ii
 Declaration

I do hereby solemnly declare that the work presented in this Internship Report titled “Credit Risk
and Liquidity Management of AB Bank Limited” is an original work done by me under the
supervision of Dr. Syed Moudud-Ul-Huq, Professor, Department of Business Administration ,
Mawlana Bhashani Science and Technology University, Santosh, Tangail, Bangladesh. No part of
this report has been previously submitted to any other University/ College/ Institution/
Organization for any academic certificate/ Degree/ Diploma/ Qualification.

The work I have presented does not breach any existing copyright and no portion of this report is
copied from any work earlier for a degree or otherwise.

I further undertake to indemnify the department against any loss or damage arising from breach of
the forgoing obligation, if any.

……………………………………
Name: Pranto Roy
ID: BBA18003
BBA 8th Batch, Session: 2017-18
Stream: Accounting and Information Systems
Department of Business Administration
Faculty of Business Studies
Mawlana Bhashani Science and Technology University,Santosh, Tangail, Bangladesh.

iii
 To Whom It May Concern
It is my pleasure to write on behalf of Pranto Roy who is working with? AB Bank Limited, Tangail
branch as an intern for 3 months.

During this time with us Pranto Roy is a dedicated valuable trainee and he is working hard at any
task. He is quite confident and consummate professional. He has always exhibited sound judgment
in his work and he is a trusted worker. He is unique to take initiative and I am very satisfied with
his performance. His performance is quite and helpful in the advanced of our organization.

Furthermore, his co-worker is all pleased with him and they feel comfortable in teaming and co
ordinating with his to work towards common goal and objective. While he will be missed, I wish
him all the best of luck in his future endeavors.

………………………………………

Md. Arifuzzaman

AVP and Manager

AB Bank Limited

Tangail Branch, Tangail.

iv
 Acknowledgement

First of all, I would like to express gratitude to God for giving me the strength and the ability to
finish the task within the given time. I am also grateful to all the people who were involved both
directly and indirectly in the preparation of this report.

At the very beginning, I want to thanks my honourable supervisor Dr. Syed Moudud-Ul-Huq sir,
Professor, Department of Business Administration , Mawlana Bhashani Science and Technology
University, Santosh, Tangail, Bangladesh for his stimulating advice, guidance, valuable
suggestions and whole hearted cooperation. His supervision helps me to complete this report
successfully.

I would like to thanks the authority of AB Bank Limited for recruiting me as an internship student
which brings me to come closer to the corporate world and helps me enriching my knowledge and
experience. I would also like to thanks, Md Arifuzzaman, AVP and Branch Manager; Mustaq
Ahamed, AVP and Operation Manager; Md Khaliduzzaman, Senior Principal Officer and RO;
Murshida Sultana, Principal officer; Aminul Islam, Principal Officer; Ashikur Rahman, JCO & all
the employees of AB Bank Limited, Tangail Branch.

All of them guided me and without their friendly co-operation, this type of report preparation might
be impossible. I would like to thank all the employees of ABBL who helped me by providing so
much information within the limited time.

At last, I would like to give thanks to HR Department of AB Bank Limited who gave me the chance
in their bank as intern.

……………………………….
Name: Pranto Roy
ID: BBA18003
BBA 8th Batch, Session: 2017-18
Stream: Accounting and Information Systems
Department of Business Administration
Faculty of Business Studies
Mawlana Bhashani Science and Technology University,Santosh, Tangail, Banngladesh
v
 Executive Summary
The Internship Report is prepared as requirement of BBA program of Mawlana Bhashani
Science and Technology University. This report is on “Credit Risk and Liquidity
Management of AB Bank Limited”. This report is intended to assist the reader in detailed
understanding the credit risk and liquidity management process. It also attempts to capture the
procedures practiced in First commercial bank AB Bank Limited (ABBL) in relation to credit
handling. The purpose of this report is to have an idea about the credit process, risk
management and liquidity procedure of AB Bank Limited.

In chapter one, there is an overview of internship report where the report describes
introduction, origin, scope, objectives, limitations and rationality. The main objective of my
report is the way of credit risk and liquidity management and to evaluate the performance of
AB Bank Limited and to suggest some policy measurement to overcome the advisement.

In chapter two, this report has narrated the institutional background including Ab Bank’s
history, organizational overview, their vision, mission, objectives, activities and performance,
banking products, organization structure and so on.

In chapter three, it has described concept of bank risks, types of bank risks, credit, credit risk,
credit risk management, banks liquidity, liquid assets of a bank, liquidity cushion, liquidity
crisis and liquidity management.

In chapter four, the methodology of the report is discussed. Data have been collected from both
primary and secondary sources.

In chapter five, study enumerates some analysis Credit Risk and Liquidity Management of AB
Bank Limited. I tried to give some suggestion to the base of my knowledge and experience
which I have achieved during internship.

In chapter six, findings and recommendations have been given on the basis of the findings
from the analysis. I have also pointed out some recommendations which I believe to be the
best form to solving that the problems and AB Bank Limited will be better perform in future
and bank will be a great position among the all banks in Bangladesh.

In the last chapter, according to the findings and recommendations of the study I have provided
conclusion and some suggestions and in the last part and bibliography is given at the end of
the report. I observed that AB Bank Limited will ensure the better services to the people and
they will be more contribution on development of Bangladesh.

vi
 List of Abbreviations

Short Forms Abbreviations

ABBL Ab Bank Limited

BB Bangladesh Bank

CRM Credit Risk Management

EPS Earnings Per Share

BBA Bachelor of Business Administration

DPS Deposit Pension Scheme

FDR Fixed Deposit Receipt

ALCO Asset-Liability Committee

CSR Corporate Social Responsibility

SLR Statutory Liquidity Ratio

ICRRS Internal Credit Risk Rating Scores

NPL Non-Performing Loan

IT Information Technology

ATM Automated Teller Machine

vii
 Serial No. Particulars Page No.
Letter of Transmittal i

Certificate of Supervisor ii

Declaration iii

To Whom It May Concern iv

Acknowledgement v

Executive Summary vi

List of Abbreviations vii

Table of Contents viii- x

List of Tables xi

List of Figures xii

List of Graphs xii

Chapter One – Introduction 1

1 1.1 Introduction of this report 2-3
1.2 Origin of the Report 3

1.3 Scope of the Report 3-4

1.4 Objectives of the Report 4
1.4.1 General Objective 4
1.4.2 Specific Objectives 4
1.5 Limitations of the Report 4

1.6 Rationality of the Report 5

Chapter Two – Institutional Background 6

2 2.1 Profile of AB Bank Limited 7

2.2 History of AB Bank Limited 7-8

2.3 Organizational Overview 8

viii
 Table of Contents
2.4 Vision of AB Bank Limited 9

2.5 Mission of AB Bank Limited 9

2.6 Objective of AB Bank Limited 9-10

2.7 Corporate Social Responsibility 10-11

2.8 Banking products of AB Bank Limited 11-14

2.9 Management and Organization Structure 15-16

2.10 SWOT Analysis of AB Bank Limited 17

2.11 Analysis of Performance of ABBL 18

Chapter Three - Concept of Credit Risk and Liquidity Management 19

3 3.1 Bank Risks 20
3.2 Types of Bank Risks 20-21`

3.3 Credit 21
3.4 Credit Risk 21-22
3.5 Credit Risk Management 22-24
3.6 Banks Liquidity 24-26
3.7 Liquid Assets of a Bank 26-27

3.8 Liquidity Cushion 27

3.9 Liquidity Crisis 28

3.10 Liquidity Management 28

Chapter Four- Methodology of the Report 29

4 4.1 Methodology 30

4.2 Collection of Data 30

4.3 Sources of Data 30-31

ix
 4.4 Data Processing and Analysis 31

Chapter Five- Credit Risk and Liquidity Management of ABBL 32

5 5.1 Policy Guidelines on Credit Risk Management 33

5.2 Trend Analysis of ABBL 33

5.2.1 Loans and Advances 34

5.2.2 Return on assets 35

5.2.3 Return on equity 35

5.3 Credit Processing/Appraisal 35-36

5.4 Credit Approval/Sanction 36
5.5 Credit Documentation 38-40

5.6 Credit Administration 40-41

5.7 Credit Disbursement 41-42

5.8 Monitoring and Control of Overall Credit 43-44

5.9 Liquidity Policies of ABBL 44-46

5.10 Achieve Adequate Liquidity Ways of ABBL 46-47

5.11 The Liquidity Management Process of ABBL 47-48

5.12 Liquidity Risk Management 48-51

5.13 Guidelines for the Development of Liquidity Management 51-52

Chapter Six - Findings and Recommendations 53

6 6.1 Findings 54
6.2 Recommendations 55

Chapter Seven- Conclusion 56

7 7.1 Conclusion 57

x
 Bibliography 58

List of Tables
Table No. Name of the Tables Page No.
Table: 2.1 Organizational Overview 8

Table: 2.2 Basic Information of ABBL 8

Table: 2.3 Lockers/ Safe Custody Services 14

Table: 2.4 Level of Management 16

Table: 2.5 Operating Performance 18

Table: 2.6 Balance Sheet 18

Table: 5.1 Loans and Advances 34

Table: 5.2 Return on assets (ROA) 35

Table: 5.3 Return on equity (ROE) 35

Table: 5.4 Loan Loss Provision 37

Table: 5.5 Internal Credit Risk Rating Scores 39

Table: 5.6 Non-Performing Loan (NPL) 39

Table: 5.7 Credit Disbursement 42

Table: 5.8 Liquidity Ratio 45

Table: 5.9 Cash Reserve Ratio (CRR) 50

Table: 5.10 Statutory Liquidity Ratio (SLR) 50

xi
 List of Figures

Figure No. Name of Figures Page No.

Figure: 2.1 Organizational Chart of ABBL. 15
Figure: 2.2 Hierarchy of ABBL 16
Figure: 2.3 SWOT Analysis of ABBL 17

List of Graphs
Graph No. Name of the Graphs Page No.
Graph: 5.1 Loans and Advances 34
Graph: 5.2 Return on Investment 35
Graph: 5.3 Return on Equity 36
Graph: 5.4 Loan Loss Provision 38
Graph: 5.5 Non-Performing Loan (NPL) 40
Graph: 5.6 Credit Disbursement 42
Graph: 5.7 Liquidity Ratio 46

xii
Chapter One
Introduction

1|Page
1.1 Introduction of this Report
In recent days, people are becoming more aware about the management of their resources. As the
banks do business by lending their depositors' money, they are more responsible to manage their
credit portfolio smoothly. Bank's reputation is a critical factor for its success and therefore
multinational banks must follow appropriate guidelines, policies and relevant manuals regarding
credit extension and recovery. The usage of banking service for any type of financial activities is
increasing day by day. People are taking loans to start different types of businesses as well as other
purposes. It is now very important to know the internal credit processes of the banks.

Credit risk can be defined as the risk of losses caused by the default of borrowers. Default occurs
when a borrower can not meet his financial obligations. Credit risk can alternatively be defined as
the risk that a borrower deteriorates in credit quality. This definition also includes the default of the
borrower as the most extreme deterioration in credit quality. Credit risk is managed at both the
transaction and portfolio levels. But banks increasingly measure and manage the credit risk on a
portfolio basis instead of on a loan-by-loan. Liquidity refers to the ability of a bank to ensure the
availability of funds to meet financial commitments or maturing obligations at a reasonable price
at all times in credit risk and liquidity management banks use various methods such as credit limits,
taking collateral, diversification, loan selling, syndicated loans, credit insurance, securitisation and
credit derivatives. Credit risk and liquidity management is considered as a critical factor that needs
to be managed by the banks and financial institutions.

Banks and Financial Institutions have high exposure to credit risk and AB Bank was initially
emerged in the Banking scenario first private Bank Limited at the initiative of some in the year
1982 under Bank Companies Act 1913. The bank is pledge-bound to serve the customers and the
community with utmost dedication. The prime focus is on efficiency, transparency, precision, and
motivation with the spirit and conviction to excel in both value and image. In this respect, AB
Bank Limited has established its own credit policy which will guide them in achieving their target
of maximum value addition through an efficient and effective credit risk management.

I am doing my internship in AB bank limited with rotation on different desks which includes
Account opening, General Banking, clearing, Credit and SME etc. In this report “Credit Risk

2|Page
and liquidity Management of AB Bank Limited”. I will focus on various aspect of AB Bank.
Since they are standing at good position amongst the public banks, their financial position,
market shares, marketing mechanisms, overall strengths and weakness, objectives, goals will
be shown by analysing the fact that however they were and the way they're going to be in
future. Various types of analysis will help us to understand the comparative position and a
transport picture of this bank that will help us to draw any comment at a glance .

1.2 Origin of the Report

The Internship is very helpful which works as bridge to remove the gap between the theoretical
knowledge and real-life experience. It is the part of the BBA program. This report has been
prepared to have a practical experience through the theoretical knowledge.

The primary goal of internship is to provide the job exposure to the student and an opportunity to
implement theoretical knowledge in real life situation. For that reason, usually a student takes the
Internship Program at the end of the BBA program as the requirement to Bachelor’s degree. With
permission from my honourable supervisor, Professor Dr. Syed Moudud-Ul-Huq Sir ordered me
to write a report on the Credit Risk and Liquidity Management of AB Bank Limited.

1.3 Scope of the Report

AB Bank Limited is the commercial bank in Bangladesh. The scope of the study is limited to the
Tangail branch, only. The scope of the study includes the organizational structure, background
and objective, functional, departmental and business performance of ABBL as a whole and the
main part covers deposit, loan and advance of ABBL at Tangail Branch.

Worldwide economic situation continued to pose adverse impact on most developing countries
including Bangladesh challenging the possibility of registering a positive growth. Banking system
holds a significant position in a nation’s economy. It plays a crucial role in the economic
advancement of a country and shapes the central part of fiscal market in a highly developed country.
The preparation of this report offers a great opportunity to have an in-depth knowledge of banking

3|Page
activities practiced by the branch. This report has been made based on the experience gathered
during the period of 3 months’ internship. It was a huge opportunity for me to practically learn and
execute the entire process of credit risk and liquidity management.

1.4 Objectives of the Report

The core objective of this study is to gain realistic and practical understanding about banking
structure and activities. The general objective and specific objectives of the study are given below.

1.4.1 General Objective

The general objective of this study to have a sound understanding of credit risk and liquidity
management system and procedure followed in the AB Bank Limited.

1.4.2 Specific Objectives

• To understand and analyses the overall activities of AB Bank Limited.

• To study the operational efficiency of AB Bank Limited.
• To analyses in detail the credit risk management process of the bank and to make
recommendations if needed.
• To focus on the credit risk grading system for analysing the credit assessment
procedure of AB Bank Limited.
• To have a general idea about the credit risk management performance of this bank.

1.5 Limitations of the Report

To provide recent information and to make this report read worthy, support from various sources
is essential. In spite of having my wholehearted effort, I could not collect some information required
at the time of the study. Therefore, this study is not free form limitations. Some limitations and
problems have encountered which are as follows:

• The credit policies and manuals of ABBL are of confidential nature and thus it is difficult
to collect the necessary literature and documents within this short time.

4|Page
 • The bank officials though helpful in every respect do not have much time to explain the
internal procedures.

• Many operations relating to the credit extension run simultaneously by different credit
officials and it is difficult to capture the sequence of any particular credit proposal.

• A structured filing procedure is often neglected which also poses difficulty in understanding
the sequential procedure.

• Borrowers do not often have the time to cooperate in the information gathering process.

• As a matter of fact, three months is too short after that I had tried to give best effort to my
learning purpose.

1.6 Rationality of the Report

Banking sector is one of the fastest growing sectors in our country. There are more than 105 banks
are operating which includes local and foreign venture. Some new banks are coming in the market.
Therefore, the banking industry is very much lucrative and at the same time very competitive too.
All banks are offering newer products and facilities to attract the customers and retain them.
Appropriate customer selection and retention is vital for bank profitability.

In case of sanctioning credit selection of borrowers, credit investigation is must. Not only these but
also preparation of credit report, credit approval process & administration following proper credit
risk management is crucial for any bank. Because if there is any lack in credit management the loan
may default this may run a bank in bankruptcy. Management of credit portfolio is one of the major
operations of the banks. Therefore, as a 1st generation bank, AB Bank Limited should give much
attention to this area and this study will attempt to analyses their efforts and draw a complete picture
of their practices.

In time of preparing this report I found it have some lacking in this branch of ABBL although
it is good in credit risk and liquidity management. This branch has a good recovery rate &
also has satisfactory profit.

5|Page
 Chapter Two
Institutional Background

6|Page
2.1 Profile of AB Bank Limited

During the last 40 years, AB Bank Limited has opened 103 Conventional branch, 01 Islami
Banking Branch, 01 off-shore banking unit, 04 Subsidiaries, 164 Agent banking outlet, 254
ATM, AB Direct (Internet Banking), manpower 594 female 1686 male total 2280 in different
Business.

Centres of the country, one foreign Branch in Mumbai, India, two Representative Offices in
London and Yangon, Myanmar respectively and also established a wholly owned Subsidiary
Finance Company in Hong Kong in the name of AB International Finance Limited. To facilitate
cross border trade and payment related services, the Bank has correspondent relationship with
over 220 international banks of repute across 58 countries of the World.
AB Bank Limited, the premier sector bank of the country is making headway with a mark of
sustainable growth. The overall performance indicates mark of improvement with Deposit
reaching BDT 289,373 million, which is precisely 2.63% higher than the preceding year. On the
Advance side, the Bank has been able to achieve 86.32% increase, thereby raising a total portfolio
to BDT 41289.25 million, which places the Bank in the top tier of private sector commercial
banks of the country.
On account of Foreign Trade, the Bank made a significant headway in respect of import, export
and inflow of foreign exchange remittances from abroad.

2.2 History of AB Bank Limited

AB Bank Limited, the first private sector bank under Joint Venture with Dubai Bank Limited,
UAE incorporated in Bangladesh on 31st December 1981 and started its operation with effect
from April 12, 1982.
Dubai Bank Limited (name subsequently changed to Union Bank of the Midlist Limited) decided
to off-load their investment in AB Bank Limited with a view to concentrate their activities in the
UAE in early part of 1987 and in terms of Articles 23A and 23B of the Articles of Association
of the Company and with the necessary approval of the relevant authorities, the shares held by
them in the Bank were sold and transferred to Group "A" Shareholders, i.e., Bangladeshi Sponsor
Shareholders.
As of December 31, 2022; the Authorized Capital and the Equity (Paid up Capital and Reserve)
BDT 8035.84 million respectively. The Sponsor Shareholders hold 31.67% of the Share Capital,
7|Page
 foreign institution holds .88% the General Public Shareholders hold 43.20% and the rest 0.19%
Shares are held by the Government of the People's Republic of Bangladesh. However, no
individual sponsor share holder of AB Bank holds more than 31.67% of its total shares.

Since beginning, the bank acquired confidence and trust of the public and business houses by
rendering high quality services in different areas of banking operations, professional competence
and employment of the state of art technology.

2.3 Organizational Overview

Key Point Particulars
Name of the Organization AB Bank Limited
Logo

Slogan of ABBL First of many first

Founded April 12, 1982; 40 years ago, in Dhaka, Bangladesh
Type First Private Commercial Bank
Chairman Khairul Alam Choudhury
CEO & Managing Director Tarique Afzal

Number of Branches 105

Head Office
The Skymark, 18 Gulshan Avenue, Gulshan 1, Dhaka 1212,
Bangladesh
Website www.abbl.com
Table: 2.1
Basic Information of ABBL
Trading Code: AB BANK

Scrip Code: 4036

Authorized Capital (million) 35905.67

Paid-up Capital (million) 8358.39
Face/Par Value 13.50
Type of Instrument Equity
Market Lot 1
Table: 2.2

8|Page
2.4 Vision of AB Bank Limited
"To be the trendsetter for innovative banking with excellence & perfection"

2.5 Mission of AB Bank Limited

"To be the best performing bank in the country"

Core Values

 Our Compliance We consider adherence to national policies and objectives a

priority for giving our customers the best financial support with corporate integrity,
meaning a fully compliant bank along with involvement in social development.
 Our Customers We give the best priority on our customer demand and through our
endless effort we assure the best satisfaction to our customers.
 Our Shareholders We assure the best return to our shareholders by prudent
performance. Our Team Members We provide secure, satisfying employment,
ensuring the contribution of each individual to the success of ABBL.

2.6 Objectives of ABBank Limited

To exceed customer expectations through innovative financial products & services and establish a
strong presence to recognize shareholders’ expectations and optimize their rewards through
dedicated workforce.

Long term Objective:

Keeping ahead of other competitors in productivity and profitability.

Short term Objective:

To attain budgetary targets fixed in each area of business

9|Page
Strategic and Financial Objectives:
In this report, the major area of commercial banking has been covered is Foreign Exchange Section
which comprises of mainly following departments.

Strategic Objectives:

 Maximizing the Capital Base

 Enhanced Focus on Retail and SME
 Business Boosting Non-Funded Business
 Expanding Banking Network via Agent Banking
 Focus on Islamic Banking Channel Renewed
 Focus on Asset Quality Transforming to Digital Platform

Financial objectives:
 Growth in earnings
 Higher dividend
 A more diversified revenue base

2.7 Corporate Social Responsibility

AB Bank’s CSR activities reflect the Bank’s mission, vision and values. Corporate Social
Responsibility (CSR) initiatives are an integral part of our strategic commitment, and we are
always guided by strong ethical values to operate responsibly within broader social and
economic context. AB strongly believes that a strong CSR engagement helps the organization to
be socially accountable to itself, its stakeholders, and to the public. It is an essential element in
fulfilling social commitment of all the business enterprises which contributes towards the
improvement of quality of the lives of people. AB feels that by practicing corporate social
responsibility, an organization can be conscious of the kind of impact it is having on all aspects
of society, including economic, social, and environmental. It is also one of the ways to contribute
to the society as a form of giving back to the community

 Education: CSR for communities is a key for success in any society for any
education institution. Quality education is a basic need for everyone and is the best
way to raise aspiration in the society and therefore, AB Bank redirected its CSR
focus more in the field by providing financial assistance to a number of educational
institutions to support the studies of poor and meritorious students.

10 | P a g e
  Health: Responding to the evolving needs of the society, and making a meaningful
impact on the quality of their lives are central to AB Bank’s CSR philosophy.
 Disaster: Management: Standing by the nation in any national emergency is a call
of duty and AB Bank as a corporate citizen has always responded during such times.
AB Bank has remained fully committed to fighting the national crisis, in all possible
ways.
 Sports Arena: AB always contributes in the development of sports, be it cricket,
football or golf. The President Cup Golf at Bhattarai, Chittagong is a trademark
event sponsored by AB for the last 30 years.

2.8 Banking Products of AB Bank Limited

SME Banking Products
1.SME Deposit
Progoti

2. SME loan
 Gati
 Prosher
 Digun
 Sathi
 Choto puji
 Uddog
 Awparajita
 Uttaron

Retail Banking product

1. Card
 Credit card
 Debit card
 0%EMI Partners
 Discount Partners

2. Deposit Products
 AB Nishchinto
 AB Hight
 Savings Accounts
 Current Accounts
 FDR Accounts
 Deposit Double Scheme

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  Monthly Income Deposit
 Monthly Savings Deposit Scheme
 Double Deposit Scheme
 Millionaire Scheme Account
 Family Savings
 Family Saving Plan
 MaxSaver
 Smart Saver
 Student Account
 Shampurna
 Payroll Management
 Special Notice Deposit
 Fixed Term Deposit
 Progoti
 Foreign Currency Account
 NFCD
 RFCD

3. Loan Products
 Personal Loan
 Auto Loan
 Home Loan
 Personal Overdraft Secured
4. AB School Banking

5. AB জন্মভূ মি

 Fixed Deposit
 Savings Account
 Monthly instalment-based scheme product

6. AB Service Product

 24-hour ATM access

 Online Banking
 SMS Banking
 Internet Banking
 SWIFT
 Custodian Service
 24/7 call Center

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7. Automated Challan

 Payment of Tax
 Payment of VAT
 Excise Duty
 Government Fees
 Passport Fees

AB Islami Banking
1. Al-Wadeeah
2. Al-Mudarabah
 Mudarabah Short Notice Deposit (MSND) Account
 Mudarabah Savings Deposit (MSD) Account
 Mudarabah Term Deposit (MTD)
 Mudarabah Monthly Profit Deposit
 Mudarabah Quarterly Profit Deposit
 Mudarabah Pension Deposit
 Mudarabah Hajj Deposit
 Mudarabah Pension Deposit
 Mudarabah Marriage Savings Deposit
 Mudarabah Cash Waqf Deposit

3.Islamic Investment Services

AB bank Corporate Finance and Structured Finance

A. Corporate Finance

1. Project finance

2. Working capital finance

 Time Loan
 Trust Receipt
 Packing Credit
 Export Development Fund
 Bank Guarantee
 Foreign Bill Purchase (FDBP)
 Inland Bill Purchase (IBP)
 Buyer’s Credi

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3. Trade finance

 Packing Credit
 Export Development Fund
 Import Letter of Credit
 Export Letters of Credit
 Shipping Guarantee
 Foreign Bill Purchase (FDBP)
 Inland Bill Purchase (IBP)
 Foreign Documentary Bill Collection
 Bank Guarantee
 Standby Letter of Credit
 Buyer’s Credit

4. Off-Shore Banking Unit (OBU)

 Foreign currency Loans

 Buyer’s credit
 Bill-discounting-import-bill
 Discounting-of-export-bill
 Add confirmation of L/Cs issue

B. Structured Finance

 Project Finance
 Working Capital Finance
 Trade Finance
 Cash Management
 Syndicated Finance, both onshore & off-shore
 Equity Finance, both onshore & off-shore
 Corporate Advisory Services

AB locker/Safe Custody Services

Lockers/ Safe Custody Services

Small Tk 4,000/- with 15%VAT annually
Medium Tk 6000/- with 15% VAT annually
Large Tk 8000/- 15% VAT annually
Replacement of lost keys At actual
Table: 2.3

14 | P a g e
2.9 Management and Organization Structure
The Board of Directors being at the highest level of organizational structure plays an important
role on the policy formulation. The Board of Directors is not directly concern with day-to-day
operation of Bank. They had delegated their authority to the Managing Director who is assist by
Additional Managing Director (AMD), Deputy Managing Directors (DMD) and General
Managers (GM) to look after the day-to-day affairs of the Bank. The Bank is running by an
excellent management team under the direct supervision of a competent Board of Directors. The
Board of Directors comprises total fourteen members headed by the Chairman. Khairul Alam
Chowdhary is the present Chairman of the Board. The Managing Director (MD) heads
management team. Under him a AMD, four DMDs, a GM heads each department of the Bank Mr.
Tarique Afzal is the present Managing Director of ABBL. The management hierarchy of AB Bank
Limited is given below:

Management structure: Organizational Chart of AB Bank Ltd.

Figure: 2.1

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 Hierarchy of AB Bank Limited

Top
Management

Executive Level
Management

Mid Level
Management

Junior Level
Management

Figure: 2.2

Level of Management

Executive Level Mid Level

Top Management Junior Level Management
Management Management
Chairman Senior Executive Vice Assistant Vice Principal Officer
President President
Executive Vice Senior Principal
Board of Director Senior Officer
President Officer
Executive Committee Senior Vice President
Officer

Managing Director Vice President Trainee Assistant

Additional Managing Senior Assistant Vice
Director President Junior cash Officer

Deputy Managing
Director

Table: 2.4

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2.10 SWOT Analysis of ABank Limited
SWOT analysis is a strategic planning technique used to help a person or organization identify
strengths, weaknesses, opportunities, and threats related to business competition or project
planning.

SWOT Analysis

Internal Factors External Factors

Strength Weakness Opportunity Threat

Figure: 2.3

SWOT Analysis
Strength

 AB Bank is the First Private sector Bank

 Faithful
 Working Environment is Comfortable
 High Quality services in different areas of banking Operations
 Bank acquired confidence and trust of the public
 High Brand Image

Weakness

 Slow progress in new system

 Product and services are lower than another bank, example- ATM card
 Some banking processes are too long and have too much formalities

Opportunities

 Do fast in competition market

 Develop product and services than another bank
 Going on faster progress in new system

Threats

 New generation banking system

 The competitors
 Money launder

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2.11 Analysis of Performance of ABBL

Operating Performance
Particular 2021 2020 2019 2018
Total operating income 11,844 12,146 12,884 8,648
Total operating expenses 5,711 5,679 6,434 5,573
Total Operating profit 6,133 6,467 6,450 3,075
Total provision for loan and 4,327 5,145 5,141 2,519
others
Profit before tax 1,806 1,322 1,309 556
Provision for taxation 1,165 931 1,141 538
Net profit after tax 641 391 168 18
Retained surplus 369 113 1,33 15
Non- controlling interest .18 .24 1.27 3.21
Net Profit/(Loss) attributable 369 112 129 52
to the shareholders of parent
company
Consolidated Basic Earnings 0.77 0.47 0.20 0.02
Per Share (EPS)
(BDT in million unless stated otherwise)

Table: 2.5

Balance Sheet
Particular 2021 2020 2019 2018

Cash in hand 30,619 25,121 19,611 21,768

Investment 43,594
65,215 63,716 61,579

Money at call on short notice 4,351 2,500 4,776 1,429

Loans and advances 274,830 276,512 256,512 241,070
Fixed assets 3,632 4,489 4,871 3,543
Other assets 15,706 14,877 12366 12,936
Non-banking assets 334 334 343 343
Total Assets 367,687 387,549 360,058 324,683
(BDT in million unless stated otherwise)

Table: 2.6

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 Chapter Three
Concept of Credit Risk and Liquidity
Management

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3.1 Bank Risks
A bank has many risks that must be managed carefully, especially since a bank uses a large amount
of leverage. Without effective management of its risks, it could very easily become insolvent. If a
bank is perceived to be in a financially weak position, depositors will withdraw their funds, other
banks won't lend to it nor will the bank be able to sell debt securities, such as bonds or commercial
paper, in the financial markets, which will exacerbate the bank's financial condition.

3.2 Types of Bank Risks

There are many types of risks that banks face:

• Credit risk.
• Market risk.
• Liquidity risk.
• Foreign exchange risk
• Operational risk.
• Interest rate risk • Reputational risk.
• Strategic risk.

a) Credit risk is the risk of potential occurrence of adverse effects on the bank’s financial
result and capital due to debtor’s default to meet its obligations to the bank. Credit Risk
arises from potential changes in the credit quality of a borrower. Credit risk has two
components, viz., Default Risk and Credit Spread Risk.
b) Market risks entail foreign exchange risk, price risk on debt securities, price risk on equity
securities, and commodity risk.
c) Liquidity risk is the risk of potential occurrence of adverse effects on the bank’s financial
result and capital due to the bank’s inability to meet the due liabilities caused by the
withdrawal of the current sources of funding, that is, the inability to raise new funds,
aggravated conversion of property into liquid assets due to market disruption.

d) Foreign exchange risk is the risk of possible occurrence of adverse effects on the bank’s
financial result and capital on account of changes in foreign exchange rates.
e) Operational risk is the risk of possible adverse effects on the bank’s financial result and
capital caused by omissions (unintentional and intentional) in employees’ work, inadequate
internal procedures and processes, inadequate management of information and other
systems, as well as by unforeseeable external events. Operational risk also includes legal
risk.
f) Interest rate risk is the risk of possible occurrence of adverse effects on the bank’s financial
result and capital on account of banking book items caused by changes in interest rates;

20 | P a g e
 g) Reputational risk relates to the possibility of the occurrence of losses due to adverse effects
on the bank’s market positioning.

h) Strategic risk is the possibility of occurrence of adverse effects on the bank’s financial
result and capital due to the absence of appropriate policies and strategies, their inadequate
implementation, as well as changes in the environment where the bank operates or absence
of appropriate response of a bank to those changes

3.3 Credit
In banking terminology, credit refers to the loans and advances made by the bank to its customers
or borrowers. Bank credit is a credit by which a person who has given the required security to a
bank has liberty to draw to a certain extent agreed upon. It is an arrangement for deferred payment
of a loan or purchase.

Credit means a provision of or commitment to provide, funds or substitutes for funds, to a

borrower, including off-balance sheet transactions, customers’ lines of credit, overdrafts, bills
purchased and discounted and finance leases.

3.4 Credit Risk

Risk may be defined in terms of the variability of possible outcomes from a given investment. If
the outcome is certain and there is no variability-hence no risk. Another way Risk means the
exposure to a chance of loss or damage. Risk is the element of uncertainty or possibility of loss
that exist in any business transaction. Credit risk is the likelihood that a borrower or counter party
will be unsuccessful to meet its obligation in accordance with agreed terms and conditions. Also,
we can say credit risk means as the potential that a bank borrower or counterparty will fail to meet
its obligations in accordance with agreed terms.

Credit Risk = Default Probability * Exposure *Loss Rate

Default: Debtor will default on his or her payment

Exposure: Total amount the bank or lender expects to collect over the life of the loan

Loss Rate: The loss rate simply Recovery rate

21 | P a g e
Types of credit risk:

Credit risk is classified within the following manner.

 Credit default risk: The loss of arising from an individual being unlikely to pay
its loan obligation fully or the individual is over ninety days late on any material
credit obligation. Default risk could impact all credit sensitive dealing, together
with loans, securities and derivatives.
 Concentration/Industry Risk: The risk goes with any single exposure
or cluster of exposure with the potential to provide giant enough losses to
threaten a bank’s core operation. It’s could arise within the variety of single name
concentration or business concentration
 Country Risk: The risk arises from sovereign state freezing foreign currency
payment or when its default on its obligations.
 Institutional risk: The risk is breakdown in the legal structure, banks may encounter
institutional risk. Institutional risk may also occur if there is an issue with an entity
that oversees the contractual agreement between a lender and debtor.
 Credit spread Risk: Credit spread risk is typically caused by the changeability
between interest rate and risk-free return rate
 Downgrade Risk: The risk is loss caused by filling credit ratings, looking at the credit
rating, market analysts assume operational inefficiency. A downgrade therefore leads
to a lower price

3.5 Credit Risk Management

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, Aggregation, Planning
and management, as well as monitoring.

Identification

A bank's risks have to be identified before they can be measured and managed. Typically, banks
distinguish the following risk categories:

 Credit risk
 Market risk
 Operational risk

22 | P a g e
Measurement
The consistent assessment of the three types of risks is an essential prerequisite for successful risk
management. While the development of concepts for the assessment of market risks has shown
considerable progress, the methods to measure credit risks and operational risks are not as
sophisticated yet due to the limited availability of historical data.

Calculation of Credit risk

Credit risk is calculated on the basis of possible losses from the credit portfolio. Potential losses in
the credit business can be divided into

1. expected losses and

2. unexpected losses

Expected losses are derived from the borrower's expected probability of default and the predicted
exposure at default less the recovery rate, i.e., all expected cash flows, especially from the
realization of collateral. The expected losses should be accounted for in income planning and
included as standard risk costs in the credit conditions.

Expected loss = Probability of default * Exposure at default * Loss given default

Unexpected losses result from deviations in losses from the expected loss. Unexpected losses are
taken into account only indirectly via equity cost in the course of income planning and setting of
credit conditions. They have to be secured by the risk coverage.

Aggregation

When aggregating risks, it is important to take into account correlation effects which cause a bank's
overall risk to differ from the sum of the individual risks. This applies to risks both within a risk
category as well as across different risk categories.

Planning and Management

Furthermore, risk management has the function of planning the bank's overall risk position and
actively managing the risks based on these plans.

The most commonly used management tools include:

23 | P a g e
  Risk-adjusted pricing of individual loan transactions
 Setting of risk limits for individual positions or portfolios
 Use of guarantees and credit insurance
 Securitization of risks
 Buying and selling of assets

Monitoring
Risk monitoring is used to check whether the risks actually incurred lie within the prescribed limits,
thus ensuring an institution's capacity to bear these risks. In addition, the effectiveness of the
measures implemented in risk controlling is measured, and new impulses are generated if
necessary.

3.6 Bank Liquidity

Liquidity refers to the ability of a bank to ensure the availability of funds to meet financial
commitments or maturing obligations at a reasonable price at all times. It is the bank’s ability to
immediately meet cash, cheques, other withdrawals obligations and legitimate new loan demand
while abiding by existing reserve requirements. Put differently, bank liquidity means banks having
money when they need it particularly to satisfy the withdrawal needs of their customers. The
survival of deposit money banks depends greatly on how liquid they are, since illiquidity, being a
sign of imminent distress, can easily erode the confidence of the public in the banking system and
results to run on deposit.

Sources of Liquidity
For a commercial bank to plan or manage its liquidity position, it must comply firstly with the legal
requirement concerning its cash position. However, it is very essential for banks to manage and
maintain adequate funds for operations in other to avoid excesses or deficiencies of the required
primary reserves. Where there is a decline in the market price of securities or where additional
funds needed to correct the bank reserve position are for a short time, it will be definitely expensive
to secure securities than to borrow from another bank.

24 | P a g e
Effective liquidity management therefore involves obtaining full utilization of all reserves. The
primary reserves are made of vault cash, cash balances or excess reserves with the central bank, as
well as deposits with other banks, both locally and abroad. They are maintained to satisfy legal
and operational requirements. While the secondary reserves are those liquid assets that can be
converted into cash without impairment of the principal sum invested. Secondary reserves are
characterized by short maturity, high credit quality and high marketability. The secondary reserves
are held primarily to meet both anticipated and unanticipated short-term and seasonal cash needs
from depositors. They contribute to the attainment of both profitability and liquidity objective of
the bank.

Types of Liquidity
There are several types of liquidity in banking sectors which are-

 Immediate liquidity: When cash money is needed to pay in cheques to demandable

customers, it is called immediate liquidity.

 Short-term liquidity: Short-term liquidity is used to meet the monthly liquidity

requirements. Based on the types of clients and on the seasonal variability, the necessity of
these types of liquidity can vary.

 Long-term liquidity: Long-term liquidity is required to meet the cash demand for
replacement of fixed assets, retirement of the redeemable preferred shares or debentures
and to acquire new fixed assets and technical know-how.

 Contingent liquidity: It arises depending on the happening of some unexpected events. It

is difficult to guess this unexpected situation but not impossible though the amount cannot
be exactly predicted. Contingent liquidity is also required to face the adverse situations
created by big bank robbery, fraud, arson or other accidents.

Based on good or bad economic situation, the supply of bank deposit and the demand for loan
varies. Due to this variation, the liquidity demand also varies. But it is very difficult to identify
the extent of such variation. Generally, difficult national and international events such as
political instability, war, the pressure created by the different interest groups relating to the
banking activities are the causes of economic cyclical liquidity needs.

25 | P a g e
Need for Liquidity
Liquidity simply means the ability to convert an asset to cash with minimum delay and minimum
loss/cost. In the portfolio of commercial banks, liquidity assets play a very crucial role because
banks operate largely with the funds borrowed from depositors in form of demand and time
deposits. These liquidity assets are the essential balance sheet items which have the capacity to
maintain the confidence of depositors which is the most valuable intangible asset of the
commercial banking business.

• Adequate liquidity enables a bank to meet three risks. First is the funding risk – the ability
to replace net outflows either through withdrawals of retail deposits or nonrenewal of
wholesale funds. Secondly, adequate liquidity is needed to enable the bank to compensate
for the non-receipt of inflow of funds if the borrower or borrowers fail to meet their
commitments. The third risk arises from calls to honour maturity obligations or from
request for funds from important customers.

• Adequate liquidity is also needed to avoid forced sale of asset at unfavourable market
conditions and at heavy loss.

• Adequate liquidity serves as vehicle for profitable operations specially to sustain

confidence of depositors in meeting short run obligations.

• Finally, adequate liquidity guides against involuntary or non-voluntary borrowing from the
regulatory authorities where there is a serious liquidity crisis, the bank is placed at the
mercy of the Central Bank, and hence the control of its destiny may be handed over.

Having adequate or sufficient liquidity to meet all commitments at all times at normal market rates
of interest is indispensable for both large and small banks. Liquidity is the life blood of a banking
setup.

3.7 Liquid Assets of a Bank

Liquid asset is one kind of asset which can be converted into cash very hurriedly and which has
negligible impact to the price. Liquid assets are generally regarded in the same light as cash
because their prices are relatively stable when they are sold in the open market. For an asset to be
liquid, it needs an established market with enough participants to absorb the selling without
materially impacting the price of the asset. There also needs to be a relative ease in the transfer of

26 | P a g e
the ownership and the movement of the asset. Liquid assets include most stocks, money market
instruments and government bonds.

Following are the liquidity assets of a bank-

 Cash in hand: Amount of money of a bank, which stay in hand of that bank to meet
recent needs. Generally, bank keeps enough money in hand. As a result, liquidity risk
is minimized.
 Items in the process of collection: Some amount of money which keeps in the process
of making cash.
 Reserve in Bangladesh Bank: Every schedule bank has reserve requirement where
every bank keeps 6% money on his total capital to the Bangladesh Bank. If a bank
needs of money, he can withdraw money from Bangladesh Bank’s reserve amount.
 Balance with other banks: Every commercial bank has an account in other
commercial banks as customer. If a bank needs money, it can withdraw money from
the account. As a result, liquidity risk is minimized.

Characteristics of Liquid Assets

Three characteristics involved in the liquid assets are given below.

a) Ready Market: It is one kind of market where liquid assets can be sold or converted into cash
without delay.

b) Stable Market: Liquid asset must have a reasonable stable price so that no matter how quickly
the asset must be sold or how large the sale is the market is deep enough to absorb the sale
without a significant decline in price.

c) Reversible: The seller can recover the original investment amount with little risk of loss.

3.8 Liquidity Cushion

A liquidity cushion refers to the cash or highly liquid assets that an individual or company might
hold to meet unexpected demands for cash during a liquidity crisis. A bank maintains reserve fund
by holding money market instruments and highly liquid investments in other sectors. By retaining
cash reserves in money market instruments, urgent demands of the customers on cash can be
fulfilled by immediately sale of these securities.

27 | P a g e
3.9 Liquidity Crisis
Liquidity crisis means negative financial situation of the banks or lack of cash flow of the banks.
Liquidity crisis arises when a bank does not have enough liquid assets (i.e., cash or easily cash
convertible assets) at hand for meeting its urgent short-term financial obligations such as repaying
deposit amount, repaying loan amount, paying bills and paying stakeholders. A bank is announced
bankrupt when it is not able to solve the problem of liquidity.

3.10 Liquidity Management

Business can only operate under the state of adequate liquidity. A bank or a company is said to be
liquid, if it can convert its asset to cash with minimum amount of delay and inconvenience. A bank
or firm should ensure that it does not suffer from lack of liquidity and does not also have excess
liquidity. Failure to meet obligation due to lack of sufficient liquidity results in poor credit
worthiness and loss of creditors‟ confidence. However, a high degree of liquidity results in idle
cash. Thus, liquidity management as a concept encompasses efficient and effective planning and
organization of Bank’s assets which will enhance its liquidity and profitability at a minimum cost
possible. It is the ability of an institution to meet demands for funds thereby ensuring that the
institution maintain sufficient cash and liquid assets to satisfy client demand for loans and savings
withdrawals and then meet its expected expenses.

The liquidity needs of the banking system are usually defined by the sum of reserve requirements
imposed on banks by a monetary authority.

28 | P a g e
 Chapter Four
Methodology of the Report

29 | P a g e
4.1 Methodology
Methodology is the process, technique or method of observation, survey and analysis. For smooth
and accurate study everyone has to follow some rules and regulation. To perform this report, the
data sources were to be identified and collected, to be classified, analysed, interpreted and
presented in a systematic manner and key points were to be found out. The overall process of
methodology followed in the study is explained further.

4.2 Collection of Data

Both primary and secondary data were used to complete this study. Primary data were collected
through direct and face to face interview of the different executives, some customers of AB Bank
Limited, Tangail Branch, Tangail. Secondary data were collected through head office of ABBL,
internet and other sources.

4.3 Sources of Data

I have used various method to collect and present data. Mainly I used two types of data for this
purpose-

• Primary data
• Secondary data

Primary data: This report has prepared through extensive use of primary data. It is collected from
group of people who are related with this bank. The following methods are used in collecting
primary data. These are:

a) Direct interviewing: I have collected data from the branch manager, executives, officers
and bank clients with the protested and well-designed questionnaire.

30 | P a g e
 b) Personal communication: I have gathered data through personal communication with the
officers, executives, managers and clients of the bank branch.

c) Observation method: I went to credit risk and liquidity management department of this
bank and observe their all activities.

Secondary data: Secondary sources are those which are published or processed materials. I have
collected secondary data from the following sources-

 Annual Reports of AB Bank Limited.

 Various types of official documents.
 Some published research, books, journal and articles.
 File study, some books on banking theory and practice.
 Online data from different websites.

4.4 Data Processing and Analysis

Collected data were analysed and presented in the form of figures, graphs and charts. Both
quantitative and qualitative methods were applied for preparing this study. After collection of data
& information, data were classified according to category, sub sector, year & analysed and
presented as numerical percentage by MS-Word & MS-Excel. The collected data were inspected
very well and pointed out were shown as findings. Recommendations are also made for the
improvement of the current situation.

31 | P a g e
 Chapter Five
Credit Risk and Liquidity Management of
AB Bank Limited

32 | P a g e
5.1 Policy Guidelines on Credit Risk Management

Risk is the element of uncertainty or possibility of loss that prevail in any business transaction in
any place, in any mode and at any time. In the financial arena, enterprise risks can be broadly
categorized as Credit Risk, Operational Risk, Market Risk and Other Risks. Credit risk is the
possibility that a borrower or counter party will fail to meet agreed obligations.

For sake of well-organized, fully controlled & better-disciplined credit policy in practice, AB Bank
Limited has felt the exigency to revisit the existing Credit Risk Management guidelines. In
continuation to that, this revised version of the guidelines is designed in line with Guidelines on
Credit Risk Management (CRM) for Banks, edited by Bangladesh Bank. Salient objects of these
guidelines appended below:

 Design a high-quality “Credit Risk Management Policy” (CRMP) making

allowances for globalization, open-market economy, decentralization,
renunciation of intermediaries, national & international environment &
business atmosphere.
 Form strong & appropriate Credit Risk Management Committee (CRMC).
 Develop a Lending Policy (LP) as a part of overall Credit Risk Management
Framework;
 Reduce expected & unexpected losses;
 Earn profit to the desired level;
 Segregate the duties & responsibilities;
 Culture Credit Risk Management values in practice.

5.2 Trend Analysis of ABBL

Trend analysis is a technique used in technical analysis that attempts to predict the future stock
price movements based on recently observed trend data. Generally, trend analysis is based on the
idea that what has happened in the past gives traders an idea of what will happen in the future. I
have used the Annual Report of AB Bank Limited for the year 2014 to 2018.

33 | P a g e
5.2.1 Loans and Advances
Money provided by the bank to entities for fulfilling their short-term requirements is known as
Advances. Loan is a kind of debt while Advances are credit facility granted to customers by banks.
Loans are provided for long duration which is just opposite in the case of Advances.

Year 2019 2020 2021 2022

Loans and 256,512 276,512 274,830 274,100
Advances BDT million BDT million BDT million BDT million
Table 5.1

Loans and Advances

300,000
290,460
290,000

280,000 274,830 274,100

270,000

260,000 256,512

250,000

240,000

230,000
2019 2020 2021 2022

Graph: 5.1

The above graphical representation indicates that the amount of total loans and advance of ABBL
in the year of 2019 to 2020 was respectively BDT 256,512; 274,830; 290,460; 27,41,00 BDT
million. Over the four years from the year 2019 to 2022 almost all the years the amount of loans
and advance has been increased. So, it can be said that there is an increasing trend or upward trend
over the last four years in the total loan facility provided by the ABBL Tangail branch.

34 | P a g e
5.2.2 Return on assets (ROA)

The return on assets shows the percentage of how profitable a company's assets are in generating
revenue. It is a financial ratio that shows the percentage of profit a company earns in relation to its
overall resources. It is commonly defined as net income divided by total assets. Net income is
derived from the income statement of the company and is the profit after taxes.
Year 2017 2018 2019 2020 2021

Return on assets .01% .01% 0.05% 0.10% 0.16%

Table: 5.2

Return on assets (ROA)

0.20%

0.15%

0.10%

0.05%

0.00%
2017 2018 2019 2020 2021

Graph: 5.2

5.2.3 Return on equity (ROE)

The return on equity is a measure of the profitability of a business in relation to the equity, also
known as net assets or assets minus liabilities. ROE is a measure of how well a company uses
investments to generate earnings growth. It is a measure of financial performance calculated by
dividing net income by shareholders' equity.

Year 2017 2018 2019 2020 2021

Return on equity 0.13% 0.08% 0.74% 1.65% 2.63%

Table: 5.3

35 | P a g e
 Return on equity (ROE)
3.00%
2.50%
2.00%
1.50%
1.00%
0.50%
0.00%
2017 2018 2019 2020 2021

Graph: 5.3

5.3 Credit Processing/Appraisal

Credit processing is the stage where all required information on credit is gathered and applications
are screened. Credit application forms should be sufficiently detailed to permit gathering of all
information needed for credit assessment at the outset. In this connection, financial institutions
should have a checklist to ensure that all required information is, in fact, collected. Financial
institutions should set out pre-qualification screening criteria, which would act as a guide for their
officers to determine the types of credit that are acceptable. For instance, the criteria may include
rejecting applications from blacklisted customers. These criteria would help institutions avoid
processing and screening applications that would be later rejected.

The institution must carry out its own due diligence, including credit risk analysis, and an
assessment of the terms and conditions of the syndication. As a general rule, the appraisal criteria
will focus on:

• Amount and purpose of facilities and sources of repayment;

• Integrity and reputation of the applicant as well as his legal capacity to assume the credit
obligation;
• Risk profile of the borrower and the sensitivity of the applicable industry sector to
economic fluctuations;
• Physical inspection of the borrower’s business premises as well as the facility that is the
subject of the proposed financing;
• Current and forecast operating environment of the borrower;
• Management capacity of corporate customers.

36 | P a g e
5.4 Credit Approval/Sanction

A financial institution must have in place written guidelines on the credit approval process and the
approval authorities of individuals or committees as well as the basis of those decisions. Approval
authorities should be sanctioned by the board of directors. Approval authorities will cover new
credit approvals, renewals of existing credits, and changes in terms and conditions of previously
approved credits, particularly credit restructuring, all of which should be fully documented and
recorded. Prudent credit practice requires that persons empowered with the credit approval
authority should not also have the customer relationship responsibility.

Approval authorities of individuals should be commensurate to their positions within management

ranks as well as their expertise. Depending on the nature and size of credit, it would be prudent to
require approval of two officers on a credit application, in accordance with the Board’s policy. The
approval process should be based on a system of checks and balances. Some approval authorities
will be reserved for the credit committee in view of the size and complexity of the credit
transaction.

Depending on the size of the financial institution, it should develop a corps of credit risk specialists
who have high level expertise and experience and demonstrated judgment in assessing, approving
and managing credit risk. An accountability regime should be established for the decision-making
process, accompanied by a clear audit trail of decisions taken, with proper identification of
individuals/committees involved. All this must be properly documented.

Loan Loss Provision

A loan loss provision is an expense that is reserved for defaulted loans or credits. It is an amount
set aside in the event that the loan defaults. This provision is used to cover a number of factors
associated with potential loan losses, including bad loans, customer defaults and renegotiated terms
of a loan that incur lower than previously estimated payments.

Year 2019 2020 2021

Loan Loss Provision 3757.71 million 8,957.57 million 20,953.45 million

Table: 5.4

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 Loan Loss Provision
25000

20000

15000

10000

5000

0
2019 2020 2021

Graph: 5.4

From the above graph we can see there are an increasing trend in the loan loss provision for
classified of the ABBL among the last three years. We see that in the year 2019 the amount of loan
loss provision was 3757.71 million takas, in the year 2020 the amount of loan loss provision was
8,957.57 million taka and in the next year the amount was 20,953.45 million takas.

5.5 Credit Documentation

Documentation is an essential part of the credit process and is required for each phase of the credit
cycle, including credit application, credit analysis, credit approval, credit monitoring, and
collateral valuation, and impairment recognition, foreclosure of impaired loan and realization of
security. The format of credit files must be standardized and files neatly maintained with an
appropriate system of cross-indexing to facilitate review and follow up.

The Bangladesh Bank will pay particular attention to the quality of files and the systems in place
for their maintenance. Documentation establishes the relationship between the financial institution
and the borrower and forms the basis for any legal action in a court of law. Institutions must ensure
that contractual agreements with their borrowers are vetted by their legal advisers.

Credit applications must be documented regardless of their approval or rejection. All

documentation should be available for examination by the Bangladesh Bank. Financial institutions
must establish policies on information to be documented at each stage of the credit cycle. The

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depth and detail of information from a customer will depend on the nature of the facility and his
prior performance with the institution. A separate credit file should be maintained for each
customer. If a subsidiary file is created, it should be properly cross-indexed to the main credit file.

Internal Credit Risk Rating Scores: The ICRR consists of 4-notched rating
system covering the Quantitative and Qualitative parameters. The ratings and scores are
mentioned below:

a) To provide a granular, objective, transparent, consistent framework for the

measurement and assessment of borrowers’ credit risk.
b) To facilitate the portfolio management activities.
c) To assess the quality of individual borrower to help the banks to determine the
quality of the credit portfolio, line of business of the branch or the Bank as a whole.
d) To be used for individual credit selection, credit pricing, and setting credit limit and
terms & conditions.

Rating Scores Aggregate

Excellent ≥80%

Good ≥70% to <60%

Marginal ≥60% to <70%

Unacceptable <60%

Table: 5.5

Non-Performing Loan (NPL)

A non-performing loan is a loan that is in default or close to being in default. Many loans become
non-performing after being in default for 90 days, but this can depend on the contract terms. The
calculation method for the NPL ratio is simple: Divide the NPL total by the total amount of
outstanding loans in the bank's portfolio. The ratio can also be expressed as a percentage of the
bank's nonperforming loans.
Year 2019 2020 2021

Non-Performing Loan 13,254.52 million 8,957.57 million 20,953.45 million

Table:5.6

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 Non-Performing Loan (NPL)
25,000.00

20,000.00

15,000.00

10,000.00

5,000.00

0.00
2019 2020 2021

Graph: 5.5

According to above graph, the non performing loan of AB Bank Limited is in an increasing trend.
From year 2019 to 2021 the NPL increased in a steady rate. However, in 2021 the NPL amount is
very high.

5.6 Credit Administration

Credit Administration Officer will perform as loan disbursement authority. Approval of
disbursement must be followed by getting required documents fulfilled, signed and stamped,
keeping record and safe custody of all type of legal documents maintaining liaison with the Bank's
Panel Lawyers. But for sake of effective control over credit portfolio, the Credit Administration
requires work independently keeping itself free from Credit Approval & Relationship
Management.

Credit Administration function is basically a back-office activity that supports and controls
extension and maintenance of credit. While developing credit administration areas, bank must
ensure:

a) The efficiency and effectiveness of credit administration operations, including monitoring,

documentation, contractual requirements, legal covenants, collateral, etc.;

b) The accuracy and timeliness of information provided to management information systems;

c) The adequacy of control over all “back office” procedures; and

d) Compliance with prescribed management policies and procedures as well as applicable laws
and regulations.

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Function of Credit Administration
The credit administration will perform the following functions:

a) Documentation: The credit administration will ensure completeness of documentation

(loan agreements, guarantees, creation of Registered Mortgage etc.) in accordance with
approved terms & conditions. Outstanding documents should be tracked & followed up to
ensure execution and receipts.
b) Credit Disbursement: Before entering credit limits into computer system, the credit
administration will ensure that credit application has been approved properly.
Disbursement will be effective only after completion of covenants, and receipt of collateral
holdings. In case of exceptions, necessary approval should be obtained from competent
authorities.
c) Credit Monitoring: After the credit is approved and draw down allowed, the credit should
be continuously monitored (i.e., observe borrower’s compliance with credit terms; identify
early signs of irregularities; check fund diversification; conduct periodic valuation of
collateral; monitor timely repayment).
d) Credit Repayment: The borrower should be communicated ahead of time as and when
the principal/ markup instalment becomes due. Any exceptions such as non-payment or
late payment should be tagged and communicated to the management. Proper records and
updates should also be made after receipt.
e) Maintenance of Credit Files: The credit files will contain all correspondence with the
borrower, sufficient information necessary to assess the financial health and repayment
performance of the borrower.

5.7 Credit Disbursement

The credit administration should ensure that the credit application has proper approval before
entering the facilities into computer systems. Disbursement should be affected only after execution
of charge documentation and completion of covenants and creating charge on primary securities
and collaterals. In case of exceptions, necessary approval is to be obtained from the competent
authorities. Under no circumstances, loan should be disbursed before obtainment of necessary
approvals from the competent authority.

The authorized officials will obtain and implement checks of such papers/ documents so that the
borrower can understand and comply with these checks. Credit disbursement scenario of ABBL at
a glance as under:

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 Credit 2019 2020 2021 2022
Disbursement
Number of 30 65 42 45
Account
Amount BDT. 43.5 BDT. 54 million BDT. 232 BDT 283.3
million million million
Table: 5.7

Number of Account
70

60

50

40

30

20

10

0
2019 2020 2021 2022

Amount
300

250

200

150

100

50

0
2019 2020 2021 2022

Graph: 5.6
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5.8 Monitoring and Control of Overall Credit
To safeguard financial institutions against potential losses, problem facilities need to be identified
early. A proper credit monitoring system will provide the basis for taking prompt corrective actions
when warning signs point to deterioration in the financial health of the borrower. Examples of such
warning signs include unauthorized drawings, arrears in capital and interest and deterioration in
the borrower’s operating environment. Financial institutions must have a system in place to
formally review the status of the credit and the financial health of the borrower at least once a year.
More frequent reviews (e.g., at least quarterly) should be carried out of large credits, problem
credits or when the operating environment of the customer is undergoing significant changes.

In broad terms, the monitoring activity of the institution will ensure that:

• Funds advanced are used only for the purpose stated in the customer’s credit application;
• Financial condition of a borrower is regularly tracked and management advised in a timely
fashion;
• Borrowers are complying with contractual covenants;
• Collateral coverage is regularly assessed and related to the borrower’s financial health;
• The institution’s internal risk ratings reflect the current condition of the customer.

Credit Portfolio

An important element of sound credit risk management is analysing what could potentially go
wrong with individual credits and the overall credit portfolio if conditions/environment in which
borrowers operate change significantly. The results of this analysis should then be factored into
the assessment of the adequacy of provisioning and capital of the institution. Such stress analysis
can reveal previously undetected areas of potential credit risk exposure that could arise in times of
crisis. Possible scenarios that financial institutions should consider in carrying out stress testing
include:

 Significant economic or industry sector downturns;

 Adverse market-risk events; and
 Unfavourable liquidity conditions.

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Financial institutions should have industry profiles in respect of all industries where they have
significant exposures. Such profiles must be reviewed /updated every year. Each stress test should
be followed by a contingency plan as regards recommended corrective actions. Senior management
must regularly review the results of stress tests and contingency plans. The results must serve as
an important input into a review of credit risk management framework and setting limits and
provisioning levels.

5.9 Liquidity Policies of ABBL

Sound and prudent liquidity policies set out the sources and amount of liquidity required to ensure
it is adequate for the continuation of operations and to meet all applicable regulatory requirements.
These policies must be supported by effective procedures to measure, achieve and maintain
liquidity. Operating liquidity is the level of liquidity required to meet a bank’s day-today cash
outflow commitments. Factors influencing a bank’s operating liquidity include:

I. Cash flows and the extent to which expected cash flows from maturing assets and liabilities
match; and
II. The diversity, reliability and stability of funding sources, the ability to renew or replace
deposits and the capacity to borrow.

For regulatory purposes a bank is required to hold a specific amount of assets classed as liquid,
based on its deposit liabilities. Generally, undue reliance should not be placed on these assets, or
those formally pledged, for operating purposes other than as a temporary measure, as legally they
may not be available for encashment if needed. In assessing the adequacy of liquidity, each bank
needs to accurately and frequently measure:

a) The term profile of current and approaching cash flows generated by assets and liabilities, both
on and off-balance sheet;

b) The extent to which potential cash outflows are supported by cash inflows over a specified
period of time, maturing or liquefiable assets, and cash on hand;

c) The extent to which potential cash outflows may be supported by the bank’s ability to borrow
or to access discretionary funding sources; and

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d) The level of statutory liquidity and reserves required and to be maintained.

The banks should formulate liquidity policies, which are recommended by senior management/
Asset Liability Committee (ALCO) and approved by the board. Board should ensure that there are
adequate policies to govern liquidity risk management process. While specific details vary across
banks according to the nature of their business, the key elements of any liquidity policy include:

 A statement of liquidity risk appetite;

 General liquidity strategy (short and long term), specific goals and objectives in relation to
liquidity risk management, process for strategy formulation and the level within the bank
it is approved;
 Roles and responsibilities of individuals performing liquidity risk management functions,
including structural balance sheet management, pricing, marketing, contingency planning,
management reporting, lines of authority and responsibility for liquidity decisions;
 Liquidity risk management structure for monitoring, reporting and reviewing liquidity;
 Liquidity risk management tools for identifying, measuring, monitoring and controlling
liquidity risk (including the types of liquidity limits and ratios in place and rationale for
establishing limits and ratios);
 Mechanisms for dealing with deviations from the policy and the restrictions it imposes;
and
 Contingency plan for handling liquidity crises.

Liquidity Ratio

Liquidity ratios are an important class of financial metrics used to determine a debtor's ability to
pay off current debt obligations without raising external capital. Liquidity ratios measure a bank's
ability to pay debt obligations.

Year 2018 2019 2020 2021

Liquidity Ratio 8.91% 15.72% 14.74% 13.73%

Table5.8

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 Liquidity Ratio
18
15.72
16
14.74
13.73
14

12

10 8.91

0
2018 2019 2020 2021

Graph 5.7

We can observe from the graph that the major part of liquidity ratio of AB Bank Limited. The
amount of ratio is 8.91% in 2018, 15.72% in 2019, 14.73% in 2020 and 13.73% in 2021. In 2021,
liquidity ratio 13.73% is lower than 14.74% in 2020.

5.10 Achieve Adequate Liquidity Ways of ABBL

Banks can increase their liquidity in multiple ways, each of which ordinarily has a cost, including:

1. Shorten asset maturities

2. Improve the average liquidity of assets
3. Lengthen liability maturities
4. Issue more equity
5. Reduce contingent commitments
6. Obtain liquidity protection

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  Shorten asset maturities: This can help in two fundamental ways. First, if the maturity of
some assets is shortened by enough that they mature during the period of a cash crunch,
then there is a direct benefit. Second, shorter maturity assets generally are more liquid.
 Improve the average liquidity of assets: Assets that will mature beyond the time horizon
of an actual or potential cash crunch can still be important providers of liquidity, if they
can be sold in a timely manner without an excessive loss. Securities are normally more
liquid than loans and other assets, although some large loans are now designed to be
relatively easy to sell on the wholesale markets, so this is a matter of degree and not an
absolute statement.
 Lengthen liability maturities: The longer-term a liability, the less likely that it will mature
while a bank is still in a cash crunch.

 Issue more equity: Common stock is roughly equivalent to a bond with a perpetual
maturity, with the added advantage that no interest or similar periodic payments have to be
made.

 Reduce contingent commitments: Cutting back the volume of lines of credit and other
contingent commitments to pay out cash in the future reduces the potential outflows,
thereby improving the balance of sources and uses of cash.

 Obtain liquidity protection: A bank can pay another bank or an insurer, or in some cases
a central bank, to guarantee the availability of cash in the future, if needed. For example, a
bank could pay for a line of credit from another bank. In some countries, banks have assets
prepositioned with their central bank that can be used as collateral to borrow cash in a
crisis.

5.11 The Liquidity Management Process of ABBL

Effective liquidity management requires three-steps in which treasury identifies, manages and
optimizes liquidity. These steps are interdependent, each requiring the successful implementation
of the other two to optimally manage liquidity.

Identifying liquidity is the foundation from which the entire liquidity management process
depends. It involves understanding the balances and positions of the institution on an enterprise-
wide level. This requires the ability to access and gather information across the institution’s many

47 | P a g e
lines of business, currencies, accounts and often multiple systems. Identifying liquidity is
primarily a function of data gathering, and does not include the actual movement or usage of
funds.

Managing liquidity within a bank’s corporate treasury involves using the identified liquidity to
support the bank’s revenue generating activities. This may include consolidating funds, managing
the release of funds to maximize their use, and tasks that “free up” lower-costing funds for lending
or investment purposes to maximize their value to the institution.

Optimizing liquidity is an ongoing process with a focus on maximizing the value of the
institution’s funds. As the strategic aspect of liquidity management, optimizing liquidity balances
requires a strong and detailed understanding of the financial institution’s liquidity positions
across all currencies, accounts, business lines and counterparties. With this information, the
bank’s treasury is able to map the strategic aspects of the institution into the liquidity management
process.

Limited time and resources availability is the biggest challenge in the liquidity management
process to treasury. Although treasury groups are staffed with very capable personnel, a large
amount of their time is spent on the task-based function of identifying liquidity instead of on the
strategic elements necessary to optimize balances. This results in the entire liquidity management
process being less efficient and affects the institution’s bottom line.

5.12 Liquidity Risk Management

(a) Liquidity Tracking

Measuring and managing liquidity needs are vital for effective operation of the Company. By
assuring the Company’s ability to meet its liabilities as they become due, liquidity management
can reduce the probability of an adverse situation. The importance of liquidity transcends
individual institutions, as liquidity shortfall in one institution can have repercussions on the entire
system. The ALCO should measure not only the liquidity positions of the Company on an on-
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going basis but also examine how liquidity requirements are likely to evolve under different
assumptions. Experience shows that assets commonly considered to be liquid, such as govt.
securities and other money market instruments, could also become illiquid when the market and
players are unidirectional. Therefore, liquidity has to be tracked through maturity or cash flow
mismatches. For measuring and managing net funding requirement, the use of a maturity ladder
and calculation of cumulative surplus or deficit of funds at selected maturity dates is adopted as
a standard tool.

(b) Time Buckets

The Maturity Profile, as detailed in Appendix III, could be used for measuring the future cash
flows of a financial institute in different time buckets. The time buckets shall be distributed as
under:

One day to 30/31 days (one month)

Over one month and up to two months
Over two months and up to threemonths
Over three months and up to six months
Over sixth months and up to one year
Over one year and up to three years
Over three years and up to five years
Over five years and up to seven years
Over seven years and up to ten years
Over ten years

(c) CRR/SLR Requirement

Cash Reserve Ratio (CRR): Every financial institute is required to maintain a Cash
Reserve Ratio (CRR) of 4% on its customer deposits. The CRR is maintained with the non-
interest-bearing current account with the Bangladesh Bank. Cash Reserve Ratio (CRR) is a
certain minimum amount of deposit that the commercial banks have to hold as reserves with the
central bank.

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 Particular 2021 2020 Increase/(Decrease) Change (%)

Cash Reserve Ratio 4.00% 5.33% -1.0% -8.06%

Table: 5.9

Statutory Liquidity Ratio (SLR): Statutory Liquidity Ratio is the money a commercial
bank needs to preserve in the form of cash, or gold or government authorized securities (Bonds)
before providing credit to their own customers. SLR rate is 13% decided by the Central Bank
as well as to control the expansion of bank credit.

Particular 2021 2020 Increase/(Decrease) Change (%)

Statutory Liquidity 13.74% 13.84% -0.10% -0.93%

Ratio

Table: 5.10

Every financial institute is required to maintain a Statutory Liquidity reserve (SLR) of 5%

(including CRR) on all its liabilities. There is no restriction on where these SLR will be
maintained. The financial institutions holding deposits are given freedom to place the
mandatory securities in any time buckets as suitable for them. These SLRs shall be kept with
banks and financial institutions for different maturities.

(d) Time Bucket Mismatch

Within each time bucket, there could be mismatches depending on cash inflows and outflows.
While the mismatches up to one year would be relevant since these provide early warning
signals of impending liquidity problems, the main focus should be on the short-term mismatches
viz., 1-90 days. The cumulative mismatches (running total) across all time buckets shall be
monitored in accordance with internal prudential limits set by ALCO from time to time. The
mismatches (negative gap) during 1-90 days, in normal course, should not exceed 15% of the

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 cash outflows in this time buckets. If the Company, in view of current asset-liability profile and
the consequential structure mismatches, needs higher tolerance level, it could operate with
higher limit sanctioned by ALCO giving specific reasons on the need for such higher limit.

(e) Statement of Structural Liquidity

The statement of Structural Liquidity shall be prepared by placing all cash inflows and outflows
in the maturity ladder according to the expected timing of cash flows. A maturing liability will
be a cash outflow while a maturing asset will be a cash inflow. While determining the likely
cash inflow/outflow, every financial institute has to make a number of assumptions according
to its asset-liability profiles. While determining the tolerance levels, the Company should take
into account all relevant factors based on its asset-liability base, nature of business, future
strategies, etc.

(f) Short-term Dynamic Liquidity

In order to enable the Company to monitor its short-term liquidity on a dynamic basis over a
time horizon spanning from 1 day to 6 months, ALCO should estimate short-term liquidity
profiles on the basis of business projections and other commitments for planning purposes. An
indicative format for estimating short-term Dynamic liquidity is enclosed. The format should
be reviewed and revised over time based on the future requirements.

5.13 Guidelines for the Development of Liquidity Management

Liquidity is crucial to the on-going performance of any bank, as illiquidity can have dramatic and
rapid adverse effects on even well capitalized banks. Where a crisis develops in a bank as a result
of other problems such as deterioration in asset quality, the time available to the bank to address
the problem will be determined by its liquidity. Therefore, the measurement and management of
liquidity are amongst the most vital activities of bank. The importance of liquidity transcends the
individual bank, as a liquidity shortfall in a single institution can have system-wide repercussion.
Consequently, the analysis of liquidity requires bank’s managements to measure, not only the

51 | P a g e
liquidity positions of their banks, on an ongoing basis, but also to examine how funding
requirements are likely to evolve under crisis scenarios.

In view of the above considerations, a viable framework has been developed to guide bank’s the
management of their liquidity in line with international standards and best practices. Therefore,
required to develop and implement their liquidly management policies, in line with the attached
guidelines. The policies should limit liquidity risk to acceptable levels and clearly define
managerial responsibilities for managing liquidity. These policies and systems are to be observed
at all times and further reviewed from time to time, to reflect changing situation.

The Bank for International settlements Basel Committee on Banking Supervision provided
principles and details of key elements for effective management of liquidity. Each bank should
have an agreed strategy for day-to-day liquidity management. This strategy should be
communicated throughout the organization. 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.

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. 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.
Every 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.

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 Chapter Six
Findings and Recommendations

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6.1 Findings
As a renowned private bank, AB Bank Limited must ensure faster services by removing the
problems. From my study on the overall performance and activities of AB Bank Limited, I have
got some major findings, which are given below:

 Credit risk is an investor’s risk of loss arising from a borrower who does not make
payments as promised.

 The importance of credit risk management for banking is tremendous because banks and
other financial institutions make profit from their credit disbursement. So, it is very
important for banks and other financial institution to manage credit risk properly.

 As AB Bank Limited follows the traditional credit risk and liquidity management strategy,
they offer the service that the bank has, so they should change this way of thinking and
make service schemes according to the customer preferences.

 Advertising and promotion are the weak points of AB Bank Limited. AB Bank Limited
does not have any effective marketing activities.

 In some cases, those loans become classified which the head office has recommended. So,
to some extent it is true that, sometime head office decision is also creating classified loans.

 Ensuring proper introduction before giving any types of loan which will help to trace out
the customer for any kind of mishaps due to his conducts.

 The employees of AB Bank Limited are very good in nature, highly educated and helpful,
if subordinate makes a mistake, higher authority motivates politely rather than blaming.
 There are some cases where effective monitoring and persuasion are needed especially for
substandard and doubtful cases. Persuasion and monitoring are effectively performed by
the branch manager.

 All the commercial banks of Bangladesh are maintaining CRR and SLR well the required
rate from 2022 continuously and so the banks are not facing any liquidity pressure at all.

 Political interference has to be avoided in selection of employee. Because customers are

very sensitive in-service marketing. If they don’t get right service at right time at right place
by the right person they will switch over in another bank.

 Credit rating reports from the professional credit rating agencies of the borrowers are
important tools to judge the credit worthiness of borrowers. ABBL needs to strictly follow
the terms and conditions of the loan agreement with the borrowers.

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6.2 Recommendations
The recommendations given below are not decisions; rather they are only suggestions to improve
the customer’s service in order to fulfill the customer’s satisfaction so that customers give more
preference to ABBL. The recommendations are given below:

 Develop more customized parameters for credit approval process under the general
guideline of Bangladesh Bank to increase its market.

 The credit sanction procedure should be made quicker since competition is very hard in
today’s business world. People do not want to wait for three to four weeks on an average
to get a loan which is even protected by security.

 All the loan documentations have to done honestly. The bank should concentrate more on
proper documentation of all types of loans to make the department trust worthy & healthy.

 There is lack of close observations to deposit & advance behaviour of the large customers.
So, banks need to ensure the precise supervision on deposit and advance position which
helps to manage the liquidity position with very well manner.

 Top depositors list helps the bank to have a greater visibility on where the deposit
concentrations are coming from. It is important to track the behaviour of these deposits and
take measures so as to avoid any untoward liquidity issues.

 An effective management information system (MIS) is essential for sound credit risk and
liquidity management decisions. Information should be readily available for day-to-day
liquidity management and risk control, as well as during times of stress.

 As AB Bank Limited follows the traditional credit risk and liquidity management strategy,
they offer the service that the bank has, so they should change this way of thinking and
make service schemes according to the customer preferences.

 For improving the recovery position and reducing huge over due loans, first action needed
to attract political support and urge upon the govt. and political parties to take necessary
steps for repayment of defaulted loans within a limit.

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Chapter Seven
Conclusion

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7.1 Conclusion
Analysts and economists have identified the vulnerable and risky areas of a banking institution
which are - credit risk management, market risk management, investment risk management,
operational risk management, liquidity risk management, internal and external fraud management
and defective IT systems. Among these, credit risk and liquidity management lie at the heart of
commercial banking. Credit risk is one of the main risks of banking industries, especially
commercial banks, which will affect the banks' ability of sustainable operation.

Banking is the backbone of national economy. Banking sector no more depends on only on a
traditional method of banking. Banking industry has been treated as a prospective financial sector
in Bangladesh. Bangladesh’s banking system is heavily affected by bad loans. This is not only
making conservative, contracts the lending system, it discourages investment. As a result, the
growth of the economy is impeded. One major reason for default loan is banks ineffectiveness of
assessing credit risk of a proposed investment. With time Bangladesh bank has set rules and
general guidelines to help banks asses risk and mitigate their credit risk. In spite of that many banks
fail to attract good credit and run profitably. Thus, it is not only the guidance provided by the
Bangladesh bank that a commercial lending institution need to follow own lending policies should
be in place to ensure maximum effectiveness of credit assessment.

Credit risk management is becoming more and more important in today's competitive business
world. It is all the more important in the context of Bangladesh. The tools for improving
management of consumer credit risk have advanced considerably in recent years. Therefore, as a
responsible and reputed commercial bank, ABBL has instituted a contemporary credit risk
management system. From the study, it is evident that the bank is quite sincere in their approach
to managing the consumer credit risk though there are rooms for improvement. They have to be
more cautious in the recovery sector and preferential treatments to some big clients should also be
stopped. However, they follow an in-depth procedure in assessing the credit risk by using the credit
risk grading techniques which provides them a solid ground in the time of any settlement.

Liquidity management is a key factor which directly impacts the banks profitability, credit and
economic growth. Efficient liquidity management can lead to minimization risk and generation of
more profits through enhancing loanable funds. This study tries to examine the liquidity

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management condition of ABBL and impact of liquidity in ensuring profit. The study can be useful
to the policy makers, researchers, management and relevant stakeholders to formulate and
implement need-based liquidity management policies for sustainable growth of our economy.

Bibliography

https://www.abbangla.com

https://www.bb.org.bd/

zstangail@abbankbd.com

http://en.wikipedia.org/wiki/Banking in_Bangladesh

https://www.abbangla.com/Annual-Reports.asp

https://scholar.google.com/

https://www.dsebd.org/displayCompany.php?name=AB BANK

• Guidelines on Credit Risk Management (CRM)

• Credit Risk Grading Manual
• Annual Report of ABBL 2019
• Annual Report of ABBL 2020
• Report of Disclosures under Basel-III
• Auditors’ Report of ABBL 2021
• Liquidity Management and Reporting

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