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Pranto Vai Internship Report
Pranto Vai Internship Report
on
April, 2023
INTERNSHIP REPORT
on
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.
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.
Sincerely yours,
……………………………..
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
AB Bank Limited
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.
iv
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.
List of Abbreviations
vi
Short Forms Abbreviations
BB Bangladesh Bank
IT Information Technology
Certificate of Supervisor ii
vii
Declaration iii
Acknowledgement v
Executive Summary vi
List of Tables xi
Table of Contents
2.4 Vision of AB Bank Limited 9
viii
2.6 Objective of AB Bank Limited 9-10
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
4 4.1 Methodology 30
ix
5 5.1 Policy Guidelines on Credit Risk Management 33
5.2 Trend Analysis of ABBL 33
7 7.1 Conclusion 57
Bibliography 58
x
List of Tables
Table No. Name of the Tables Page No.
Table: 2.1 Organizational Overview 8
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
xi
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 and
liquidity Management of AB Bank Limited”. I will focus on various aspect of AB Bank. Since
2|Page
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.
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.
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 activities practiced by the branch. This report has been made based on the experience
3|Page
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.
• 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.
• 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.
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 1 st 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
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.
7|Page
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.
8|Page
2.4 Vision of AB Bank Limited
"To be the trendsetter for innovative banking with excellence & perfection"
Core Values
9|Page
In this report, the major area of commercial banking has been covered is Foreign Exchange
Section which comprises of mainly following departments.
Strategic Objectives:
Financial objectives:
• Growth in earnings
• Higher dividend
• A more diversified revenue base
• 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.
• 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.
10 | P a g e
• 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. SME loan
• Gati
• Prosher
• Digun
• Sathi
• Choto puji
• Uddog
• Awparajita
• Uttaron
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• 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
• Payment of Tax
• Payment of VAT
• Excise Duty
• Government Fees
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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
A. Corporate Finance
1. Project finance
• Time Loan
• Trust Receipt
• Packing Credit
• Export Development Fund
• Bank Guarantee
• Foreign Bill Purchase (FDBP)
• Inland Bill Purchase (IBP)
• Buyer’s Credi
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)
13 | P a g e
• Foreign Documentary Bill Collection
• Bank Guarantee
• Standby Letter of Credit
• Buyer’s Credit
4. Off-Shore Banking Unit (OBU)
• Project Finance
• Working Capital Finance
• Trade Finance
• Cash Management
• Syndicated Finance, both onshore & off-shore
• Equity Finance, both onshore & off-shore
• Corporate Advisory Services
Figure: 2.1
Hierarchy of AB Bank Limited
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Top
Management
Executive Level
Management
Mid Level
Management
Junior Level
Management
Figure: 2.2
Level of Management
Executive Level Mid Level
Top Management Management Management Junior Level Management
Table: 2.4
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 16 | P a g e
SWOT Analysis
Strength
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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
Investment 43,594
65,215 63,716 61,579
Table: 2.6
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.
• 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.
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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;
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.
20 | P a g e
Exposure: Total amount the bank or lender expects to collect over the life of the loan
• 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
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
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• Operational risk
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.
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.
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.
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• 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.
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.
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
23 | P a g e
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-
• 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.
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.
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
24 | P a g e
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.
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.
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
the ownership and the movement of the asset. Liquid assets include most stocks, money market
instruments and government bonds.
25 | P a g e
• 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.
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.
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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.
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Chapter Four
Methodology of the Report
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.
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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.
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.
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-
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• 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.
Chapter Five
Credit Risk and Liquidity Management of
AB Bank Limited
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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:
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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.
270,000
260,000 256,512
250,000
240,000
230,000
2019 2020 2021 2022
Graph: 5.1
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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.
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
Table: 5.2
0.15%
0.10%
0.05%
0.00%
2017 2018 2019 2020 2021
Graph: 5.2
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Year 2017 2018 2019 2020 2021
Table: 5.3
Graph: 5.3
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:
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• 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.
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.
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.
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
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Loan Loss Provision 3757.71 million 8,957.57 million 20,953.45 million
Table: 5.4
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.
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.
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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 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:
Excellent ≥80%
Unacceptable <60%
Table: 5.5
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Non-Performing Loan 13,254.52 million 8,957.57 million 20,953.45 million
Non-Performing Loan (NPL)
25,000.00
20,000.00
15,000.00
10,000.00
5,000.00
0.00
2019 2020 2021
Table:5.6
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.
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:
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:
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:
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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.
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
d) The level of statutory liquidity and reserves required and to be maintained.
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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:
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
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.
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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.
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
enterprisewide level. This requires the ability to access and gather information across the
institution’s many lines of business, currencies, accounts and often multiple systems.
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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
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.
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 ongoing basis but also examine how liquidity requirements are likely to evolve under
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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.
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:
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
noninterest-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 (%)
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.
Table: 5.10
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 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,
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it could operate with higher limit sanctioned by ALCO giving specific reasons on the need for
such higher limit.
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.
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.
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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.
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• 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.
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
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
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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
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
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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
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