INTERNSHIP REPORT

On

INVESTMENT MANAGEMENT PERFORMANCE OF

AL-ARAFAH ISLAMI BANK LIMITED

Shantirhat Branch, Chattogram

SUBMITTED BY:

Arifur Rahman
ID No: 17303014
Session: 2020-2021

UNDER THE SUPERVISION OF:

Dr. Mohammad Saleh Jahur

Professor
Department of Finance
Faculty of Business Administration
University of Chittagong
Chattogram, Bangladesh

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 LETTER OF SUBMISSION

Date: 25.02.2024

To,
Dr. Mohammad Saleh Jahur
Professor
Department of Finance
University of Chittagong.

Subject: Submission of “Internship Report” on “Investment Management Performance of Al-

Arafah Islami Bank Limited”

Dear Sir,
I take great pleasure to inform you that as per the requirement forwarded by the university, I have
prepared my Internship Report on the topic-“Investment Management Performance of Al-Arafah
Islami Bank Limited”. I feel highly delighted to present my paper before you as I believe that this
contains some fresh interpretations of many conventional practices. Again, as I am completely new
in this sector, the analysis and findings presented here could be further used as an example of the
view of a layman.

I, therefore, pray and hope that this report will be able to meet the requirements of the course and
also be able to satisfy your requirements. I look forward to your kind appreciation.

Sincerely Yours

________________________

Arifur Rahman
MBA
ID: 17303014
Session: 2020-2021
Department of Finance
University of Chittagong.

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 SUPERVISOR DECLERATION

It is my pleasure to certify that, Arifur Rahman (ID: 17303014)- a student of University of

Chittagong, Department of Finance has successfully prepared his internship report on ―Funds
Management of Al-Arafah Islami Bank Limited, under my personal supervision.
During the preparation of this internship report, he observed and analyzed different aspects of the
Al-Arafah Islami Bank Limited, Shantirhat Branch, Chattogram. He was found to be sincere,
dedicated and skillful in completing his assigned duty.

I wish him every success in life.

………………………………………….
Dr. Mohammad Saleh Jahur
Professor
Department of Finance
University of Chittagong

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 ACKNOWLEDGEMENTS

At the very inception, praise be to the Merciful Lord, Allah, for enabling me to complete the
internship program successfully and to write this report.

I would like to express an infinite gratitude from the bottom of my heart to my reverend Dr.
Mohammad Saleh Jahur, honorable Professor, Department of Finance, for giving me valuable
advice and supervision to pursue the internship program and prepare the report successfully.

I would also like to express my gratitude to Shah-Jahan Siraj, Head of Al-Arafah Islami Bank
Limited, Shantirhat Branch, Chattogram for their sincere cooperation and providing all the
materials and information necessary to prepare the report on ’Investment Management
Performance of Al-Arafah Islami Bank Limited. I am also thankful to Mr. Didarul Alam
(Operations Manager) who spent valuable time from his busy schedule to help me out on preparing
this report by sharing valuable knowledge.

Finally, I would like to thank all other officers who provided me with valuable time, support, data
and information regarding my internship report and to those authors of the books, articles and
journals from whom I took help while preparing the internship report.

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5
 Executive Summary

Al-Arafah Islami Bank Limited is considered as the country's one of the most efficientfinancial
intermediaries. AIBL works tirelessly to establish itself as a cutting-edge, open, and competitive
organization both domestically and abroad. Al-Arafah Islami Bank Limited has been in fierce
competition with regional commercial banks as well as with government and multinational banks.
In order to compete with other banks, Al-Arafah Islami Bank Limited is constantly looking for
ways to differentiate itself. We hope Al-Arafah Islami Bank Limited will continue to excel in the
future by using this motto as its main motivator.This report, titled "Investment Management of Al-
Arafah Islami Bank Limited" Shantirhat Branch, was created to partially satisfy the MBA
program's requirements. I described their Investment Management procedures in this report and
conducted some analysis based on their financial reports from various years.The report's primary
goal is to assess the Branch's Investment Management Performance. I have assessed Al-Arafah
Islami Bank Limited's fund structure, Investment Management efficiency, and policy in this
report.All information has been gathered from primary and secondary sources to provide an
accurate picture of AIBL's Investment Management system. Primary information was gathered
from the branch's department, and secondary information came from annual reports, books, articles,
websites, etc. The study discovered a statistically significant relationship between the loan and Al-
Arafah Islami Bank Limited's profitability, liquidity, and productivity. It has been established that
return on assets and investment to total fund are positively correlated. Conversely, the relationship
between investment to total fund and return on equity is inverse.
The study comes to the conclusion that Al-Arafah Islami Bank Limited's ability to extend more
loans, which is the key aspect of Investment Management, is highly dependent on their ability to
increase deposit collection. Non-performing loans have an impact on the bank's productivity and
profitability.
The study suggests a comprehensive Investment Management policy as a solution to this issue. The
study makes recommendations for starting initiatives that can offer more details about the
borrowers' credit worthiness. Therefore, Al-Arafah Islami Bank Limited needs to spend more
money on credit research and monitoring in order to increase its understanding of risk assessment.

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 Table of Contents
Chapter-1: Introduction......................................................................................................................................... 8
1.1 Background of the Study...............................................................................................................................8
1.2 Literature Review.................................................................................................................................................9
1.3 Objective of the Study..........................................................................................................................................9
1.4 Scope of the Study.................................................................................................................................................9
1.4 Data and Methodology.......................................................................................................................................10
1.5 Organization of the report.................................................................................................................................10
1.6 Limitation of the Report.....................................................................................................................................10

Chapter 2:............................................................................................................................................................. 12

Overview of Al-Arafah Islami Bank Limited........................................................................................................ 12

2.1 Introduction........................................................................................................................................................ 13
2.1.1 Strategies......................................................................................................................................................13
2.1.2 Vision............................................................................................................................................................14
2.1.3 Mission......................................................................................................................................................... 14
2.1.4 Objectives.....................................................................................................................................................14
2.2 Characteristics of Al-Arafah Islami Bank Limited..........................................................................................14
Foreign exchange and Remittance......................................................................................................................16
Foreign Remittance..............................................................................................................................................16
International Trade Finance................................................................................................................................16
Functions of Foreign Exchange...........................................................................................................................17
Letter of Credit (L/C)...........................................................................................................................................17
2.3 Corporate Information of Al-Arafah Islami Bank Limited.............................................................................19
2.4 Organizational Structure of Al-Arafah Islami Bank Limited.........................................................................20
2.5 Authority and Responsibility.............................................................................................................................21
2.6 Objective of the Internship.................................................................................................................................21
2.7 Internship Experience:.......................................................................................................................................22

Chapter 3:............................................................................................................................................................. 24

Findings and Their Analyses................................................................................................................................ 24

3.1Introduction......................................................................................................................................................... 25
3.2 Investment Management Policy of both Al-Arafah Islami Bank Limited and its Shantirhat Branch.........25
3.2.1 Investment Management Policy of Bank...................................................................................................25
3.3 Analysis of Fund Performance of Al-Arafah Islami Bank- Total and Branch basis......................................31
3.4Identification of Problems associated with Investment Management of Al-Arafah Islami Bank Limited....40

Chapter 4:............................................................................................................................................................. 42

Policy Implications and Conclusion...................................................................................................................... 42

4.1 Introduction:.......................................................................................................................................................43
4.2 Summary of the Findings...................................................................................................................................43
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 4.3 Policy Implications and Recommendations......................................................................................................44
4.4 Conclusion...........................................................................................................................................................46

References............................................................................................................................................................ 47

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 Chapter-1:Introduction
1.1 Background of the Study
Investment management,that refers to the activities of overseeing and handling the cash flows of a
financial institution, is inevitable to a bank’s survival and sustainable growth. Investment
Management needs to ensure that the maturity schedules of the deposits coincide with the demand
for loans. To do this, the manager looks at both the liabilities and the assets and tries to match the
timing of their maturity taking to consideration the risk and return factor of the assets and the cost
involved with the liability.Efficient management of funds essentially includes raising of funds and
their use in the manner that generates revenues sufficient to meet the operational as well as
financial costs and contributes a reasonable return on capital. Thus, the objective of earning profits
shall be fulfilled by an appropriate design of funds management on sound commercial principles.
The selection of sources and uses of funds is the key to a bank’s success. The source consists of
capital funds, deposits and borrowings. Capital funds are the owned funds that serve as a protection
against risk and insolvency. Similarly, deposits are the primary source of bank funds. The size of
the deposits determines the funds available for profitable deployment.In addition, banks borrow
funds from time to time in the money market to meet the temporary deficiency as well as to expand
their assets. All these funds are to be deployed in various avenues considering the risk and return
factors. These avenues are, however, not alike in their returns. The assets, such as cash in hand,
balancewith Bangladesh Bank, money at call and short notice, are held as per the liquidity
requirements, and the return on these funds is almost zero, except money at call and short
notice.Investments under Statutory Liquidity Ratio (SLR) serve the purpose of liquidity as well as
income. The rate of return on such investments should be adequate enough to cover financial and
operating costs. Further, lending is a significant area of employment of funds in terms of size of
funds involved as well as quantum of revenue generated. However, it carries a high degree of
credit risk. In addition, banks also use a portion of their funds for creating their business
infrastructure which facilitates an enabling environment to conduct business and generate income.

1.2 Literature Review

Existing pool of literature on Investment Management Performance of bank is the focal point of this
report. Priorly done empirical work on this subject matter such as Hasan K., Khanam F. A., Mawla
A.H.M.R. & Khan R. S. showed the Impact of Investment Management on Banks liquidity,
Profitability and Productivity. They found that the successful management of a commercial bank is
very careful in consideration of three objectives liquidity, profitability and productivity. To attain
the above objectives, commercial banksin practice need to set up their funds in their balance sheet
composition. Management needs to decide as to what constitutes the best distribution of funds in
the quest for attaining those objectives. A study by Hossain and Akter (2021) analyzed the
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performance of 25 banks in Bangladesh using data from 2014 to 2018. The study used the Data
Envelopment Analysis (DEA) method to measure the efficiency of the banks. The results showed
that the Investment Management performance of the banks varied significantly, with some banks
being more efficient than others.

Another study by Rahman and Islam (2020) analyzed the Investment Management performance of
12 banks in Bangladesh using data from 2014 to 2018. The study used the Stochastic Frontier
Analysis (SFA) method to measure the efficiency of the banks. The results showed that the
efficiency of the banks varied significantly, with some banks being more efficient than others. In
conclusion, the banking sector in Bangladesh has been performing well in recent years. However,
the Investment Management performance of banks varies significantly. The results of the studies
reviewed in this literature review suggest that some banks are more efficient in managing funds
than others. Further research is needed to identify the factors that affect the Investment
Management performance of banks in Bangladesh and to develop strategies to improve the
efficiency of the banking sector.

1.3 Objective of the Study

The main objective of the study is to evaluate Investment Management Performance of Shantirhat
Branch of Al-Arafah Islami Bank Limited. Following Specific objectives have been covered in
order to accomplish the objective of the study:
1. To provide an overview of Al-Arafah Islami Bank Limited
2. To analyze Bank Investment Management policies of Al-Arafah Islami Bank Limited.
3. To examine Investment Management performance of Al-Arafah Islami Bank Limited.
4. To identify problems associated with Investment Management practices of Al-Arafah Islami
Bank Limited.
5. To suggest some prudent policy measures for improving Investment Management practices
of Al-Arafah Islami Bank Limited.

1.4 Scope of the Study

“The Investment Management of Al-Arafah Islami Bank Limited Ltd, A Study on Shantirhat
Branch, Chittagong” is the topic of this report. Working in almost every department under the
direction of executive officers and in-charges of every department in the branch has given me the
chance to gain experience. This report's focused investigation is limited to looking into various
banking-related issues, as well as challenges and opportunities. By doing this, an effort is made to
provide recommendations for fixing the issues. The presentation of AIBL's organizational
framework and policy, as well as an examination of the tactics it employs, define the scope of this
report. The organization's infrastructure has been described in detail, along with a look at the world
and the future. The company's general operations, services, industry positioning, and business
strategies are the only topics covered in this report. The study's focus is only on the structure, roles,
and outputs of organizations.

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I had the wonderful opportunity to gain a thorough understanding of all the divisional work
performed by The Al-Arafah Islami Bank Limited Ltd. while preparing this report. It aided me in
gaining firsthand knowledge of a major private bank in Bangladesh. Information is given to the
managers, supervisors, and employers to create this report. Despite the fact that my topic is broad
and it can be challenging to evaluate an organization, I firmly believed that I could not have
prepared this report without the assistance of The AIBL management. The AIBL, the largest private
bank in Bangladesh, is working to improve quality and reduce errors.
1.4 Data and Methodology
This is an analytical study in nature that exploits both Primary and Secondary data in its accomplishment. The study
primarily uses secondary data that were gathered by visiting the Bank's Shantirhat Branch and data gathered from the
bank. That means this report uses both bank specific data and branch specific data to conduct the study. Various
statistical measures like, Mean Value, Standard Deviation (SD), Coefficient of Variance (CV), correlation coefficient,
and beta are also provided have been used to draw conclusion. To determine the banks' level of productivity and
liquidity position, the data are analyzed using various ratio indicators.

1.5 Organization of the report

The first chapter of this report is devoted to the introductory speech, which includes an introduction, the
objective of the study, the methodology of the study, the scope of the study, organization of the report and
the limitations of the study. The following chapter of this report provides an overview ofAl-Arafah Islami
BankLimited, including its background, features, vision, mission, strategies, objectives, function, and branch
structure. The third chapter contains the findings and analyses of the Investment Management structure,
utilization, and performance of AIBL. The fourth chapter contains a summary of the previous chapters,
policy implementations, and a conclusion.

1.6 Limitation of the Report

The bank was hesitant to give out some sensitive information because of some legal obligations and business
secrecy. Thus, the scope of this study is restricted to the information that has already been published, a
limited number of formal and informal interviews, and these data. Despite the extensive nature of the
particular study, great effort was made to make it worthwhile and significant despite its limitations.
Altogether the internship period in the bank was not free from limitations. The organization maintains strict
confidentiality about their financial and other information. I ran into a few issues while studying, which I
will list below:

• They are concerned about any kind of information leaking to their rivals. As a result, getting the
right information from them was never easy.
• The banking authority's posted restrictions and limitations prevent large-scale analysis.
• The study's time frame was too brief to provide a thorough understanding of the banking industry
as a whole.
• The official records and annual reports served as the sole basis for this study.
• Not enough books, papers, journals, etc.
• It's possible that current information won't always be available.

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12
 Chapter: 02
Overview of Al-Arafah Islami Bank Limited

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2.1 Introduction
Al-Arafah Islami Bank Limited (AIBL) is a Bank registered under the Company Act of 1994, with its
headquarters at Al-Arafah Tower, 63, Purana Paltan, Dhaka-1000. The bank began operations on April 15,
1995. Al-Arafah Islami Bank Limited is a well-capitalized new generation bank with Authorized Capital of
Tk.1600.00 million and Paid-up Capital of Tk.390.00 million. As of June 30, 2005, the bank's Paid-up
Capital was 429.00 million, and its total equity was 725.00 million.

The Bank currently has 211 branches. The bank's management is constantly focused on comprehending and
foreseeing the needs of its customers. The banking industry is evolving daily, so it is the bank's duty to
devise a strategy and new products to adapt to the new conditions. Entrepreneurs can also use AIBL's
services to establish new businesses and BMRE of industrial units. The banking industry is evolving daily,
so it is the bank's duty to devise a strategy and new products to adapt to the new conditions. The bank is
well-known for its reputation and has already earned a spot among the top service providers. Currently, the
Bank has smart IT-backed real-time centralized online banking branches (Urban & Rural) all over the
country. Besides these traditional delivery points, the bank has ATM of its own, sharing with other partner
banks & Consortium throughout the Country.

The operation hour of the Bank is 10:00 A.M. To 6:00 P.M. from Sunday to Thursday with transaction hour
from 10:00 A.M. to 4:00 P.M. The Bank remains closed on Friday including government holidays.

2.1.1 Strategies

 To identify customers’ credit and other banking needs and monitor their perception towards
our performance in meeting those requirements.
 To promote organizational effectiveness by openly communicating company plans, policies,
practices and procedures to employees in a timely fashion
 To strive for customer satisfaction through quality control and delivery of timely services
 To review and update policies, procedures and practices to enhance the ability to extend
better service to customers.
 To manage and operate the Bank in the most efficient manner to enhance financial
performance and to control cost of fund
 To train and develop all employees and provide them adequate resources so that customers’
needs can be reasonably addressed.
 To diversify portfolio both in the retail and wholesale market

 To increase direct contact with customers in order to cultivate a closer relationship between
the bank and its customers.

 To cultivate a working environment that fosters positive motivation for improved

performance

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2.1.2 Vision
To rise to the top of the banking industry and be essential to the nation's progress.

2.1.3 Mission
The Bank is dedicated to meeting the various needs of its customers through a variety of products at a fair
price, while utilizing the right technology and offering prompt service, in order to guarantee sustainable
growth, a reasonable rate of return, and a contribution to the development of the nation with a motivated and
qualified workforce.

2.1.4 Objectives
 To keep the business expanding steadily and portraying the desired image. To keep procedures
transparent and to have adequate control systems.
 To maintain risk levels within reasonable bounds (including any off-balance sheet risk).
 To pursue an effective system of management by ensuring compliance to ethical norms,
transparency and accountability at all levels.
 To create lasting banking relationships and enhance customer service through the creation of
strategic marketing plans.
 To continue to be among Bangladesh's top banks in terms of profitability and asset quality.
 To make sure the rate of return on investment is adequate.
 To keep enough cash on hand to fulfill commitments and obligations that are coming due.
 To create and keep a top-notch workforce with the aid of a strong human resources management
system.
 To guarantee the best possible use of all resources.
 To introduce fully automated systems using information technology integration.

2.2 Characteristics of Al-Arafah Islami Bank Limited

Al-Arafah Islami Bank Limited has the following key characteristics.

Form of the Company:

Al-Arafah Islami Bank Limitedis a commercial bank in Bangladesh registered under the Companies Act
1994. It was established on June 3, 1995.

Capital Structure:
Al-Arafah Islami Bank Limited was founded on June 3, 1995, with a paid-up capital of Tk.390.00 million
divided into 3.90 million o of Tk.100 each, with the conviction of maintaining a strong capital base. The
bank's authorized capital is Tk.1600 million, divided into 16.00 million Tk.100 shares. The bank's paid-up
capital as of December 31, 2006 was Tk.1072.50 million, which was raised through an initial public offering
of 4.29 million ordinary shares. Tk.214.50 million was raised through the issuance of Bonus Shares in a 1:4
ratio, i.e. one bonus sholding of 8.58 million ordinary shares as of December 31, 2005, for every 4 shares
from profits. As a result, as of December 31, 2006, the total shareholder equity and reserve stood at
Tk.1701.82 million.

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Types of Account:

Deposit accounts are classified into several types. Each account has unique characteristics, and each account
serves a specific purpose. AIBL provides the following important Personal Banking Services. They are
described as follows based on their uniqueness:

Savings Account:

Individuals or groups of more than two people can open a savings account with AIBL (Sonargaon Road
Branch). Officers and authorized persons issue cheque books, deposit slips, and statements of account to
savings account holders. The officer justifies the information provided by the account holder in order for the
account to be opened. Account opening procedures are handled by bank officers.

Current Deposit Account:

AIBL is a well-known third-generation private commercial bank in Bangladesh that was established
recently. It conducts a wide range of current account operations. They serve a variety of customers,
including current accounts for private limited companies, public limited companies, and partnership
businesses.

Foreign Currency Account:

For foreign nationals, companies, and other entities to send their valuable earned foreign currency into the
nation, as well as for Bangladeshi wage earners, the AIBL also operates foreign currency accounts.

Short Term Deposit Account (STD):

AIBL also offers short term deposits to its valued clients. A short-term deposit is a deposit account that pays
interest monthly. These items include warranties for periods ranging from 7 (seven) days to 89 (eighty-nine)
days. These types of liabilities are paid on special notice or after a specified period other than time deposits.
Some of these deposits are term deposits in nature. The interest rate on the STD account is 4.5% per annum.
STD account holders must uphold certain rules and regulations. If the STD account holder wants to
withdraw money from the account, he must notify the bank in advance, otherwise the account holder may
not receive the full interest.

Fixed Deposit Receipt (FDR):

Particulars Approved Revised Rate

FDR for 3(one) month and above 2.50%
FDR for 1 (three) year and above 3.50-4.00%
FDR for 2 year and above 4.00-5.25%
FDR for 3 year and above 5.25-6.75%
To its clients, AIBL provides a range of FDR options. Their maturity can range from 1 month to 2 months to
3 months to 6 months to 12 months, etc. Customers of AIBL may open an FDR for any amount and a
specific duration, either individually or jointly. There is no need for introductions to begin the FDR. Only
one copy of the account holder's passport-size photo and another of the nominee are required. Customers
may receive interest after the FDR's maturity period. Additionally, before the period's maturity, he or she
16
may cash out the FDR. He won't receive the standard interest rate on the FDR in this situation. The
following table shows the current interest rates:

Foreign exchange and Remittance

Trade between citizens of two different countries is referred to as foreign trade. Every nation operates as a
sovereign state with its own laws and currency. The term "foreign exchange" refers to foreign currency.
Businesses and organizations need foreign currency to make purchases from abroad, invest, or engage in
speculative activities. The only business that is legally permitted to handle foreign exchange and foreign
trade is a bank. Foreign exchange is the conversion of one national currency into another and the transfer of
funds between two nations. When conducting international trade and settling the transaction that results from
the nationality difference between the exporter and the importer, the following significant issues arise:

• Different countries have different monetary units.

• Restrictions imposed by countries on import and export of goods

• Restrictions imposed by nations on payment from and into their countries

• Difference in legal practice in different countries

• Foreign Exchange means foreign currency

Foreign Remittance
In Bangladesh, Al-Arafah Islami Bank Limited Ltd. has 211 branches, and four more branches will soon join
the network.All branches offer remittance services, and foreign remittances can be sent to any branch by
people who want to help their beneficiaries. Through the Electronic Fund Transfer (EFT) mechanism,
remittances are credited to beneficiaries' accounts immediately or as soon as possible. Nearly all countries
and cities have correspondent banking relationships with Al-Arafah Islami Bank Limited Ltd. Expatriate
Bangladeshis can send their hard-earned foreign currency to their loved ones in Bangladesh through these
banks or any reputable nearby banks (where they live or work).Al-Arafah Islami Bank Limited Ltd. has Taka
Drawing Arrangements with numerous international banks and exchanges to make it easier to send money
directly in Bangladeshi Taka. Through Al-Arafah Islami Bank Limited Ltd.'s subsidiaries and branches,
expat Bangladeshis can send money in BDT.

International Trade Finance

Al-Arafah Islami Bank Ltd.'s one of the primary business activities is International Trade. The bank has a
large trade services network that can efficiently handle your transactions thanks to its global correspondent
network and close relationships with major financial institutions. The most important branches in Dhaka,
Chittagong, Sylhet, and Naogaon are staffed by professionals with expertise in International Trade Finance.
For both large and small corporations, these offices are the primary point of contact for processing import
and export transactions. The bank provides Trade Finance services in their entirety. Through mobilizing the
entire range of trade services locally and drawing on global resources, the professionals will collaborate with
you to develop solutions tailored to your needs. The bank can give you expert advice on all aspects of the
requirements for international trade, including:

 Providing advice, issuing, and verifying documentary credits.

17
  Financing before and after shipment

 Buying and negotiating Export Bills.

 Discounting Bill of Exchange.

 Bill collection. Help customers insure all risks and deal in foreign currencies, among other things.

Functions of Foreign Exchange

The Bank goes about as a media for the arrangement of foreign trade strategy. As a result, employees who
work with foreign exchange, particularly foreign business, should be familiar with the following functions:

• Foreign exchange transaction

• Exchange Rate
• Premium and discount rates
• Risk of rate of exchange
• How the rate of exchange works
• Forward and spot rates
• Causes of rate of exchange fluctuations
• Exchange control
• Convertibility
• Non-commercial letter of trade
• Methods of quoting rates
• Exchange position
• Money intervention
• Nature and function of foreign exchange market
• Foreign Exchange trading
• Export and import letter of credit
• Financing of foreign trade
• Rules and regulations used in foreign trade.

Letter of Credit (L/C)

A bank's letter of credit is an instrument that a customer uses to put agreed-upon sums in foreign currency at
the customer's disposal. A letter authorizing the payment of a specific amount to the person named in the
letter under specific conditions is known as a letter of credit. It is sent from one banker to another. Letters of
credit are a common form of commercial payment in international import and export transactions. A foreign
importer may be required to open a letter of credit at the importer's local bank for the amount of the goods in
an export contract.

Products and Services Offered by Al-Arafah Islami Bank Limited The Bank offers a wide range of
specialized financial services and products. Products like monthly savings plans, consumer credit plans,
lease financing, personal loans for women, and shop financing plans, among others, fall into this category.
Q-cash ATM cards from AIBL were also made available to its devoted customers, offering debit card
banking services round-the-clock. AIBL provides its devoted clientele with the following services:

• Retail Banking

• Deposit Schemes

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• Remittance and Collection

• Handling and Financing of Imports and Exports

• Loan Synchronization • Project Finance • Investment Banking

• Lease Finance

• Hire Purchase

• Women's Personal Loan

• 24/7 Banking: ATMs with Q-Cash; Islamic banking; corporate banking; consumer credit scheme;
international banking

19
2.3 Corporate Information of Al-Arafah Islami Bank Limited

Official Logo

Registered Name Al-Arafah Islami Bank Limited

Known as AIBL

Slogan “A Bank with Vision”

Category Commercial

Type Public Limited Company

Date of Incorporation April 15, 1995

Chairman of AIBL Alamgir Kabir, FCA

Number of Branches 129

Operation System Conventional & Foreign Exchange Operation

Registered in Stock Exchange DSE & CSE

Fields of activity Deposits, Corporate Banking, SME Banking, Merchant

Banking and Remittance Services.

Head Office Eunoos Trade Center 52-53, Dilkusha, C/A, Dhaka

Number of ATM Booth 163

Number of Employees 2300 (Approx.)

Customer Corporate & Individual Customer

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2.4 Organizational Structure of Al-Arafah Islami Bank Limited

2.3 Organogram of AIBL

21
2.5 Authority and Responsibility
Al-Arafah Islami Bank Limited has a top-down hierarchy of authority. There is a planning division at Al-
Arafah Islami Bank Limited. The overall planning is primarily the responsibility of this department. Each
branch may make plans in accordance with the corporate level's mandated objective. It does not
independently plan. Each branch has a Senior Vice President (SVP) in charge of their own performance,
then manager heads. He is responsible for the performance of their branch. Work is set up so that no one can
leave without finishing the task that has been assigned to him for the day. Every office has a seating
arrangement that allows the boss to keep an eye on the employee at all times. Budgeting, rewarding,
punishing, and other control mechanisms are also used.

2.6 Objective of the Internship

By providing real-world work experience, internships help students advance their careers by allowing them
to explore their interests and develop professional competencies and skills. Students have the chance to put
what they've learned in class into practice through internships. It is anticipated that students will also be
pushed to consider how the helping process is influenced by their attitudes, beliefs, and values. Therefore,
after completing my internship, I must prepare a report on the topic I chose and present it to my supervisory
professor.

The primary goals of this internship are as follows, as the primary objective is to evaluate Al-Arafah Islami
Bank Limited's Investment Management performance:

 Acquire an understanding of the bank's procedures for evaluating its Investment

Management practices.

 Acquire an understanding of how bank funds are managed.

 Learn how to effectively communicate with supervisors and other employees of the
company and how to document work done on applications.

 Learn how to work in the bank's various departments.

 To compose a report based on the data gathered.

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2.7 Internship Experience:
Day & Date Work Done

26.10.2023 Got introduced with the officers and staffs of Al-Arafah Islami
Bank Limited, Shantirhat Branch and learned about different
Departments and their Primary Function.

29.10.2023 Reading the instructions to open a client’s bank account.

30.10.2023 Knowing how to find information about clients
31.10.2023 Observing how to open account
01.11.2023 Knowing about different products such as saving account, Current
account, FDR, Minor account, Joint account.
02.11.2023 Opening saving account
05.11.2023 Filling up the cheque requisite book entity
06.11.2023 Filling up cheque issue register, debit card entity.
07.11.2023 Knowing about current account
08.11.2023 Knowing how to activate the current account.
09.11.2023 Verifying documents needed to open account.
12.11.2023 Filling up minor account
13.11.2023 FDR encashment
14.11.2023 Opening DPS Account in the system.
15.11.2023 Learning how to issue cheque book.
16.11.2023 Doing cheque book activities on the system(unlocked, delivered,
requested)
19.11.2023 Knowing about SOD against DPS/FDR
20.11.2023 Knowing about Letter of Credit(LC) of Al-Arafah Islami Bank
21.11.2023 Learning how to open LC
22.11.2023 Learning how LC works in international transactions.
26.11.2023 Entry of LC in register book
27.11.2023 Registering letter of credits in Bangladesh bank register
28.11.2023 Learning about Credit Application Form
29.11.2023 Verifying documents of customers who opened new letter of credit.

30.11.2023 Knowing about the documents required after loan application.

23
03.12.2023 Learning the process of loan sanction
04.12.2023 Learning about risk grading and account verification
05.12.2023 Knowing the procedure after the approval of loan sanction
06.12.2023 Knowing the process of loan Origination.
07.12.2023 Made vouchers of day to day transactions.
10.12.2023 Made vouchers of day to day transactions.
11.12.2023 Wrote down the monthly transaction of accounts.
12.12.2023 Knowing about the financial analysis of the Bank.
23.12.2023 Knowing about the fund structure of AIBL.
24.12.2023 Observing the fund utilization of Al-Arafah Islami Bank Limited
15.12.2023 Fund transfer from one account to another.

24
 Chapter3:
Findings and Their Analyses

25
3.1 Introduction
The central bank policy, which includes instructions on the rate of interest on deposits and advances, the
minimum liquidity ratio, the allocation of credit to priority sectors, etc., has a significant impact on the
decisions made by the banking sector. For the portion over which banks have discretion, there are still some
areas, such as cost management, work management, and Investment Management. In this case, it is crucial
to objectively assess how Investment Management has affected the profitability of the sample commercial
banks. Achieving the highest level of income consistency, increased profitability, and acceptable risk are all
guarantees of effective Investment Management.

3.2 Investment Management Policy of both Al-Arafah Islami Bank Limited and its
Shantirhat Branch
The management of funds ensures appropriate asset allocation to match the fund's short- and long-term
goals. Diversification and asset allocation go hand in hand. The choice of funding sources and uses is
essential to a bank's success. Capital funds, deposits, and borrowings make up the source. The amount of
money available for profitable deployment depends on the size of the deposits. Additionally, banks
occasionally borrow money on the money market to cover a shortfall and increase their assets. All of these
funds will be used in a variety of ways while taking into account risk and return variables.

3.2.1 Investment Management Policy of Bank

A set of regulations called bank Investment Management policies is required for a bank to manage its funds.
The plans, organization, implementation, and control provided by the policies enable the managers to
manage the fund to the highest standard. A bank cannot carry out its duties in a proper manner without a
proper policy. As a result, the bank no longer has the capacity to endure over time.

Objectives of Bank Investment Management Policy:

Investment management on behalf of investors is the main goal of Investment Management.
Additionally, some of the other goals include the following:
 Ensure the highest level of safety and stability for the investors by focusing on investment
opportunities that offer the right mix of risk and return.
 Guarantee capital appreciation of the investments in the long term.
 Besides long-term capital appreciation, generate regular cash flow through interest and dividend
income on the investments.

Policy Outline of ALCO

The senior management of a bank makes up the Asset and Liability Management Committee (ALCO),
which is in charge of managing assets and liabilities according to the established ALM policy. Make sure the
levels of liquidity and market risk are accurately communicated by the bank's measurement and reporting
systems. The Asset Liability Committee (ALCO) regularly keeps track of interest rate changes. Duration
One method used by AIBL to measure interest rate risk in the banking book on a quarterly basis is gap
analysis. A portfolio's price sensitivity to interest rate changes is gauged by its duration.

Members of the Committee:

• Managing Director (Chairperson)
• Deputy Managing Directors and Strategically important Divisional Heads of Head Office.
• The Head of Treasury acts as the member-secretary of the committee.

26
In every month, meetings of the Asset Liability Committee take place. In 2023, total 21 meeting were held.

Major agenda covered in 2023 are:

 Review of interest rates on Deposits and Advances of Al-Arafah Islami Bank compared to other
Banks.
 Discussion regarding bucket information of Asset & Liabilities Discussion regarding the position of
rate sensitive Asset & Liability.
 Review of the Fund Position and Mismatch Position.
 Discussion on the comparative position of Deposit and Advances of Al-Arafah Islami Bank.
 Discussion regarding activities of PD.
 Review of the Economic & Market Status and outlook & the KeyManagement indicators AIBL.
 Discussion regarding the unused whole sale borrowing capacity.
 Discussion regarding the undrawn portion of Commitment.
 Review of the trend of local & foreign currency deposits & advance position.

a) Fund Collection Policy:

The fund collection policy of a commercial bank refers to the bank's strategies and procedures for
acquiring and managing deposits from customers and other sources. The objective of this policy is
to ensure that the bank has sufficient funds to meet its lending and operational requirements while
maintaining profitability and liquidity.Fund collection policy outlines the guidelines and procedures
of collecting bank funds from different sources that include Deposits, Equity and borrowing. The
focal point in bank fund collection policy is to determine from which sources to collect its fund
mainly so that cost of the fund and risk associated with the repayment of the fund will be minimum.
The main sources of funding of Al-Arafah Islami Bank Limited are equity, deposits, and borrowing.
In the fund’s structure of Al-Arafah Islami Bank deposits and equity constitute the major part of the
total fund. Equity contributes to only 10% of the total fund AIBL and 90% of its fund comes from
deposit collected from the depositors. In addition, banks borrow funds from time to time in the
money market to meet the temporary deficiency as well as to expand their assets. All these funds
are to be deployed in various avenues considering the risk and return factors.The key elements of a
fund collection policy for a commercial bank typically include:

1. Deposit Products: The bank must offer a range of deposit products that cater to the needs of
its target market. These may include savings accounts, current accounts, fixed deposits, and
other specialized deposit products.
2. Pricing: The bank must determine the interest rates and other charges for its deposit
products based on various factors such as the cost of funds, prevailing market rates, and
competition. The pricing strategy should balance the need to attract deposits with the need
to maintain profitability.

27
 3. Marketing and Promotion: The bank must develop effective marketing and promotion
strategies to attract deposits from its target market. This may include advertising,
promotions, and other customer engagement initiatives.
4. Customer Service: The bank must provide high-quality customer service to its depositors to
maintain their loyalty and attract new customers. This includes providing convenient and
secure banking facilities, timely resolution of customer complaints, and transparent
communication with customers.
5. Risk Management: The bank must manage the risks associated with its deposit-taking
activities, including credit risk, liquidity risk, and interest rate risk. This may involve
developing risk management policies and procedures, stress testing, and other risk
mitigation measures.

b) Fund utilization policy:

The fund utilization policy of a commercial bank refers to the strategies and procedures that govern
how the bank deploys the funds it has collected from customers and other sources.Fund utilization
refers to the investment of collected funds into different avenues i.e. providing loan to borrowers,
investing in portfolios and keeping some portion as cash in hand to meet the depositors’ withdrawal
need to make maximum profit out of it by taking minimum risk. Proper utilization of the fund
ensures the maximum output. As a result, it is necessary to have prudent policy guidelines for the
utilization of bank funds that will ensure the making of maximum profit keeping the risk minimum.
AIBL generally keeps more than 5% of its total fund as cash, 10% to 20% of its total fund are
invested in investment portfolios and 70% to 75% of total fund is used to provide loan and
advances. The primary objective of this policy is to ensure that the bank uses its funds efficiently
and effectively to maximize profitability while minimizing risk. The key elements of a fund
utilization policy for a commercial bank typically include.

1. Lending Policies: The bank must have a clear lending policy that specifies the types of loans
it will make, the credit criteria that must be met, and the interest rates and other charges that
will be applied.
2. Investment Policies: The bank must have a clear investment policy that specifies the types
of securities and other investment instruments it will invest in, the risk profile of each
investment, and the expected returns.
3. Liquidity Management: The bank must have adequate liquidity to meet its operational and
regulatory requirements. This may involve maintaining a reserve of liquid assets such as
cash and marketable securities.
4. Risk Management: The bank must manage the risks associated with its lending and
investment activities. This may involve developing risk management policies and
procedures, stress testing, and other risk mitigation measures.
5. Capital Management: The bank must manage its capital effectively to maintain its financial
stability and meet regulatory requirements. This may involve maintaining a buffer of capital
above regulatory requirements and managing the bank's capital structure to minimize costs.
28
c) Capital Management policy and Basel Accord III
Basel III is a global, voluntary regulatory framework on bank capital adequacy, stress testing, and
market liquidity risk. This third installment of the Basel Accords was developed in response to the
deficiencies in financial regulation revealed by the financial crisis of 2007– 08. It is intended to
strengthen bank capital requirements by increasing bank liquidity and decreasing bank leverage.
Basel III was agreed upon by the members of the Basel Committee on Banking Supervision in
November 2010, and was scheduled to be introduced from 2013 until 2015; however,
implementation was extended repeatedly to 31 March 2019. The Basel III standard aims to
strengthen the requirements from the Basel II standard on bank's minimum capital ratios.

Capital Standard of Basel III is structured into three aspects, which are known as three
pillars:

Pillar 1: covers minimum capital, capital buffer and leverage

Pillar 2: covers Risk management and supervision and

Pillar 3: covers Market Discipline

Pillar 1 of Capital standard prescribes some ratios related to capital, which has to be maintained by
banks as a minimum. Two such major ratios are Capital to Risk weighted Asset Ratio (CRAR) and
Leverage Ratio.

The following detailed qualitative and quantitative disclosures under Pillar-III of

Basel-III are provided in accordance with revised ―Guidelines on Risk Based Capital Adequacy‖
for banks issued by Bangladesh Bank in December 2014. These quantitative and qualitative
disclosures are intended to complement the
Minimum Capital Requirement (MCR) under Pillar-I and Supervisory Review Process (SRP) under
Pillar-II of Basel-III
AIBL’s Capital Structure:
The revised RBCA guidelines by BB specify that regulatory capital is divided into two tiers. The
following categories will be added together to make up the total regulatory capital:

1) Tier 1 Capital (going-concern capital)

a) Common Equity Tier 1

b) Additional Tier 1
2) Tier 2 Capital (gone-concern capital)

29
Tier 1 capital (going-concern capital) is the capital which can absorb losses without triggering
bankruptcy of the bank.

Tier 2 capital (gone-concern capital) is the capital which will absorb losses only in a situation of
liquidation of the bank.

Capital 2018 2019 2020 2021 2022

Information:
Total Risk 194,100.57 187,919.84 191,254.12 169,991.95 175,112.65
weighted
Assets
Crore Capital 19,925.32 17,912.91 16,575.74 15,299.85 14,455.69
(Tier-I)
Supplementary 12,145.02 11,644.14 11,657.74 9,311.55 8.655.71
Capital (Tier-
II)

d) Regulatory Requirement of Bank:

Monetary Policy Statement (MPS):
Bangladesh Bank unveiled monetary policy for FY2022-23 focusing on taming inflation and
exchange rate.It may improve governance and monetary management system.In the new policy,
they raised its key interest rate, also known as the policy rate, by 50 basis points to 5.5%. Earlier,
the policy rate was 5%. Earlier on May 29 this year, the central bank increased the repo rate from
4.75% to 5 points. Meanwhile, the repo rate rose to 6.00% from 5.75%, and the reverse repo by
4.25% from 4.00% as a part of the current policy stance. Lending rate cap for consumers credit has
been relaxed to vary up to 3% points, along with the complete removal deposit floor rate.
Bangladesh Bank’s new move would make funds costlier for banks and tighten the money flow.
Non-performing loans (NPLs) in the country's banking sector increased to Tk1.34 trillion which
was Tk1.03 trillion in 2021, this situation occurred due to poor governance of the banking system.
MPS endorsed it as one of the concerns for the financial stability of the economy, but measures
need to be mentioned separately.

According to the FY23 monetary policy, the private sector credit growth ceiling has been set at
14.1%, down from the 14.8% set for the outgoing fiscal year.Bangladesh Bank will introduce a new
refinance line of credit for import-substituting products to minimize import dependency and save
valuable foreign exchange reserves.

Cash Reserve Requirement (CRR):

Each scheduled bank is required to keep a cash balance with BB. which shall not be less than the
percentage of its overall demand and time liabilities that is from time to time specified by BB by
notification in the official Gazette. The amount of money available at the banks decreases when the
BB decides to raise the Cash Reserve Ratio. This is how the BB manages the excessive money flow

30
in the economy. Banks are currently only permitted to keep cash reserves in local currency (Taka).
To determine the maintained cash reserve for the day, the day end balances of the Taka current
accounts maintained with various BB offices will be added together. The cash balance that is to be
maintained by scheduled banks with the BB should not be less than 4% of the total NDTL, which is
the Net Demand and Time Liabilities. This is done on a fortnightly basis. BB may also mandate the
mechanism for maintaining cash reserves in accordance with its monetary policy goals. Time
deposits are deposits that must be returned at maturity and from which the depositor cannot
withdraw funds immediately. Instead, he must wait a specific amount of time before gaining access
to the cash. Fixed deposits, the time liabilities element of savings bank deposits, and staff security
deposits are also included. A bank's liabilities include call money market borrowings, certificates of
deposit, and investments in other banks' deposits. In short, the greater the Cash Reserve Ratio, the
less money banks have available for lending and investment. In May 2022, the Cash Reserve
Requirement Ratio was established at 4.5%.

Statutory Liquidity Ratio (SLR):

Every scheduled bank is required to keep assets, such as cash, gold, or unencumbered approved
securities, whose market value cannot be less than the amount of its total demand and time
liabilities as determined from time to time by BB.The process for determining assets, liabilities, and
the percentage of maintainable assets in various classes may also be prescribed by BB. Currently,
conventional banks must maintain a SLR of 13% per day, while Islamic banks must maintain a
SLR of 5.5% per day, based on their average total demand and time liabilities. Banks are advised to
abide by the circular issued in this regard from time to time by the Monetary Policy Department of
BB.

31
3.3Analysis of Fund Performance of Al-Arafah Islami Bank- Total and Branch basis.

Fund performance refers to how effectively a bank is using its funds to generate profits and provide
value to its stakeholders. A bank's fund performance can be evaluated using various financial
metrics such as return on assets (ROA), return on equity (ROE), net interest margin (NIM),
efficiency ratio, and capital adequacy ratio. Factors that may impact a bank's fund performance
include the interest rate environment, the quality of its loan portfolio, its cost structure, its ability to
manage risk, and its ability to grow its business. For example, if interest rates are low, a bank's net
interest margin may be compressed, which could impact its profitability. Similarly, if a bank has a
high percentage of non-performing loans or is not effectively managing its credit risk, this could
also impact its fund performance.

To assess Al-Arafah Islami Bank’s fund performance, it is important to evaluate its financial
statements, including its income statement, balance sheet, and cash flow statement, as well as other
financial data such as loan portfolio quality, capital adequacy ratio, and efficiency ratio.

a) Fund structure is a term that refers to the contributions of each components of a fund. It can
be easily observed from a fund’s structure whether the maximum part of the fund has come
from either equity or debt. The main sources of funding of Al-Arafah Islami Bank Limited
are equity, deposits, and borrowing. In the fund’s structure of Al-Arafah Islami Bank
deposits and equity constitute the major part of the total fund. In contrast, fund utilization
defines how the funds are used in different portfolios.
Evaluation of fund structure and utilization is done with a view to seeing whether the fund
structure is efficient or not and whether the fund utilization is effective or not.
Year Total Branch
Capital Deposit Borrowing Deposit Others
2018 1,784.84 16,155.10 292.75 49.04 25.27
2019 1,843.34 17,757.13 299.57 49.19 21.25
2020 1,732.88 16,841.86 275.64 48.03 19.65
2021 2,066.06 18,250.95 466.15 49.25 20.63
2022 2,134.47 19,103.99 504.77 49.67 22.32
Mean 1,912.32 17,621.81 367.78 49.04 21.82
Standard Deviation 158.868 1036.392 97.174895 0.54471 1.9289
Coefficient of 8.3076 5.881307 26.422305 1.11083 8.8382
variation
Table 3.1 Fund Structure of Al-Arafah Islami Bank Limited
Source: Annual Reports of 2018-2022
Notes: Data have been compiled by the researcher.

32
Analysis: From the table we can see that the target equity is 1,892.32 crore. The bank meets the target on
2020 and 2022. During 2021 the bank had total Capital of 2,066.06 crore which is greater than the target
Capital. The average deposits are 18,1.81 crore and the bank were able to meet the target during 2019, 2021
and in 2022. The deposits were maximum 2021 for both bank and the Branch. The average borrowing is
367.78 crore and the bank borrowing surged in 2021 and in 2022 above the average borrowing.

Capital:
Bank capital represents the value invested in the bank by its owners and/or investors. It is
calculated as the sum of the bank's assets minus the sum of the bank's liabilities, or being equal to
the bank's equity. In the year of 2021 the bank had maximum amount of Capital 2,134.47 crore

Capital
2,500.00

2,000.00

1,500.00
Tk in million

1,000.00

500.00

0.00

2018 2019 2020 2021 2022

taka. The target Capital is 1,912.32 crore taka, standard deviation is 158.87 and coefficient of
variation is 8.30%, which indicates a relatively moderate variation.
Source: Annual Report 2018-2022 of Al-Arafah Islami Bank Limited

Figure 3.1 The bar diagram depicts that the amount of equity was 2,134.47 crore taka at the end of
the year 2021 and the amount was 27380.9 million taka. Whereas the target capital is 1,912.32
crore.

33
34
Deposit:
Bank deposits consist of money placed into banking institutions for safekeeping. These deposits are
made to deposit accounts such as savings accounts, checking accounts, and money market
accounts.
In the year of 2022 the bank held maximum amount of deposits 19103.99 crore taka. The target
deposit is 17,621.81 crore taka, standard deviation is 1036.39 and coefficient of variation is 5.88%,
which indicates a relatively moderate variation.

Deposit
19,500.00

19,000.00

18,500.00

18,000.00
Tk in million

17,500.00

17,000.00

16,500.00

16,000.00

15,500.00

15,000.00

14,500.00

Source: Annual Report 2018-2022 of Al-Arafah Islami Bank Limited

Figure 3.2 The above table shows 2022 the bank had highest amount of deposits (19103.99crore),
we can observe that there was a moderate rise in the deposit amount from the year 2018 to 2022.
But the amount of deposit started to slightly decrease on 2020.

Borrowings:
Bank may borrow from central bank or any other sources to meet their obligations. In the year of
2020 the bank had highest amount of borrowings 704.77 crore taka which is 3.18% of total fund.
The target borrowing is 435.78 crore taka, standard deviation is 180.16 and coefficient of variation
is 41.34%, which indicates a high volatility in borrowing. The growth rate of deposit is 26.71%.

35
 Borrowing
600

500

400
Tk in million

300

200

100

Source: Annual Report 2018-2022 of Al-Arafah Islami Bank Limited

Figure 3.3 Here we can see the amount of borrowed money was minimum 275.64 crore on 2018
and sharply jumped in 2022 (504.77 crore), which is much greater than the average borrowing, the
bank needs to borrow larger amounts of money to meet the obligations.

b) Fund Utilization of Al-Arafah Islami Bank Limited

Effective and efficient fund utilization enables organizations in profit and wealth/ returns
maximization, minimization of the cost of capital, improving savings and bettering its value. To
ensure optimum funds utilization, once the funds are procured, they should be utilized in maximum
possible way at least cost.
Year Total(in million) Branch

Capital/ Total Borrowing/ Total Deposit/ Investment/ Deposit

Asset Asset Total Asset
2018 1,046.07/ 3,011.40/ 11,709.96/ 43.12/131.25
16,012.69 16,012.69 16,012.69 = 0.328533333
=0.06 5 =0.188 =0.731
2019 1,148.31/ 2,606.19/ 14,225.29/ 45.29/167.13
18,510.04 18,510.04 18,510.04 = 0.270986657

36
 =0.06 2 =0.141 =0.765

2020 1,179.27/ 2,915.49/20,120.38 16,026.64/ 37.64/171.86

20,120.38 =0.145 20,120.38 = 0.219015478
=0.05 8 =0.797

2021 1,294.12/ 3,920.06/ 17,727.88/ 57.88/200.95

22,413.16 22,413.16 22,413.16 = 0.288031849
=0.05 7 =0.175 =0.791

2022 1,126.54/ 5,097.04/ 16,265.84/ 65.84/193.99

22, 22,2 22,22 = 0.339398938
223.23=0.05 1 23.23=0.229 3.23=0.731
Average 0.058 0.175 0.763 0.29
Standard 0.011 0.072 0.063 0.043
Deviation
Coefficient 18.96% 41.1% 8.3% 14.93%
of
Variation

Source: Annual Reports of 2018-2022

Notes: Data have been compiled by the researcher.

Analysis: The table shows that average capital to total asset is 0.058. The cash to total funds ratio
was the highest in the year of 2018 while it was the lowest in the year of 2021. We can clearly see
gradual decrease over the five years. In the year of 2022 the bank had fewer cash compare to total
fund, which was 0.051. Whereas on 2018 the bank had maximum ratio of cash to total fund, which
was 0.065. The target cash to total fund is 0.058, standard deviation is 0.011 and coefficient of
variation is 18.9%. In the year of 2020 the bank had highest investment to total fund 0.229 and
lowest 0.141 in the year of 2018. The average investment to total fund is 0.175, standard deviation
is 0.072. The bank had highest advances to total fund 0.797 in the year of 2019 and lowest 0.731
advances to total fund respectively in the year of 2018 and 2021. The average advances to total
fund is 0.763, standard deviation is 0.063. On 2019 compare to total fund the bank sanctioned
greater amount of loan and advances, whereas the average advances to total deposits is 0.859.

Capital to Total Asset:

Capital/Total Asset—measures the portion of a bank’s total asset is financed by capital.

37
Dividing the amount of Capital by the amount of total Asset we can calculate Capital as a portion
of total asset.
In the year of 2018 the bank had highest Capital to total asset 0.065 and lowest 0.051 in the year of
2021. The average capital to total asset is 0.058, standard deviation is 0.011 and coefficient of
variation is 18.9%, which indicates a relatively high volatility in capital to total asset.

Capital Total Asset

0.07

0.06

0.05

0.04

0.03

0.02

0.01

0
2018 2019 2020 2021 2022
Capital to Total Asset

Figure 3.5 here we can see that on 2022 the bank had fewer capital compared to total asset, which
was 0.051. Whereas on 2018 the bank had maximum ratio of capital to total asset, which was
0.065. We can observe a decreasing trend in capital to total asset over the five years.

Borrowing to Total Asset:

Borrowings to total asset ratio indicates how well a company's total asset is being funded by
Borrowings. Dividing the amount of Borrowings by the amount of total asset we can calculate the
ratio of Borrowings to total asset. In the year of 2022 the bank had highest Borrowing to total asset
0.229 and lowest 0.141 in the year of 2019. The average Borrowing to total asset is 0.175, standard
deviation is 0.072 and coefficient of variation is 41.1%, which indicates a high variation in
investment to total fund.

38
 Borrowing to Total Asset
0.25

0.2

0.15

0.1

0.05

0
2018 2019 2020 2021 2022

Borrowing to Total Asset

Figure 3.6 here we can see the investment to total fund was highest (0.229) in the year of 2021 and
ratio of investment to total fund was lowest (0.141) in the year of 2018. The target ratio of
investment to total fund is 0.175.

Deposit to Total Asset:

Deposit to total asset ratio indicates how much of the total asset is financed by deposit. Dividing the
amount of Deposit by the amount of total asset we can calculate the ration of Deposit to total asset.
In the year of 2020 the bank had highest Deposit to total fund 0.797 and lowest 0.731 advances to
total fund respectively in the year of 2018 and 2021. The average advances to total fund is 0.763,
standard deviation is 0.063 and coefficient of variation is 8.3%, which indicates a moderate level of
variation in advances to total fund.

39
 Deposit to Total Asset
0.82

0.8

0.78

0.76

0.74

0.72

0.7

0.68
2018 2019 2020 2021 2022
Deposit to Total Asset

Figure 3.7 We can see that compared to total asset the bank received significant amount of
Deposit. There was gradual increase in Deposit to total asset from 2018 to 2020. But after that,
Deposit to total asset ratio gradually started to decrease in the year of 2020 and 2021.

Investment to Total Deposits (Branch):

The Investment to total deposit ratio is used to assess a branch’s investment to its total deposits for
the same period. To calculate the investment to total deposit ratio, divide a branch’s total amount of
Investment by the total amount of deposits for the same period.
In the year of 2020 the bank had highest investment to total deposits (0.893) and lowest investment
to total deposits (0.827) in the year of 2018. The average investment to total deposit is 0.859,
standard deviation is 0.051 and coefficient of variation is 5.9%, which indicates a moderate level of
variation of investment to total Deposit.

40
 Investment to Total Deposits
0.9

0.88

0.86

0.84

0.82

0.8

0.78
2018 2019 2020 2021 2022
Investment to Total Deposits

Figure 3.7 here on 2019 compare to total fund the bank sanctioned greater amount of loan and
advances, whereas the average advances to total deposits is 0.859.There was a rapid growth from
2018 to 2019. But after that, there had been a fall in the advance to total deposit ratio during the
year of 2020 and 2021.

41
3.4 Identification of Problems associated with Investment Management of Al-Arafah
Islami Bank Limited.
Problems associated with the Investment Management of Al-Arafah Islami bank have been listed
below:
Serial No. Names of Problems
1 The credit to deposit ratio is lower.
2 Lack of effective Investment Management policy.
3 The cash to total fund ratio is decreasing year by year
4 Disbursement of loan beyond its policy.
5 The unclear and flexible terms and conditions of loan sanctioned.
6 There is no proper balance in the quantity of liquidity
7 Weakness in loan Administration.
8 Low recovery rate.
9 Less attention to cost control.
10 High non-performing assets ratio.

Table 3.4.1 Problems associated with Investment Management of Al-Arafah Islami Bank Limited

1. Low Credit to Deposit ratio:

Al-Arafah Islami Bank Limited provides loans and advances to different parties for different
purposes. The recovery of all these loans is not certain. The loan which recovery is questionable is
the main problem in loan management. But it is possible for the bankers to prevent their loan
program from bad ones by detecting the risk elements with them and taking measures in time. For
this purpose, first of all, the authorized officer in loan section checks the loan application properly
in order to choose the right person for providing the loan. He considers two factors to determine
whether the loan is good or bad loan. The factors are willingness and ability to repay the loan.

2. Lack of effective Investment Management policy:

Without effective Investment Management policy, it is quite difficult for bank to ensure a
sustainable Investment Management performance. Investment Management policy of the bank is
not effective.

3. Decreasing cash to total fund ratio:

Decreasing nature of cash to total fund ratio indicates a likelihood of cash shortage or liquidity
crisis that is never expectable for a bank. Liquidity crisis may bring about precarious outcome to
banks management that needs to be addressed right away.

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4. Disbursement of loan beyond its policy:
A Loan Policy protects a lender's interests and is based on the dollar amount someone is borrowing
from the bank – not on the full value of the property. It is designed to protect the outstanding
amount of the lender's loan even though homebuyers are typically responsible for paying for the
Loan Policy. Disbursement of loan beyond bank’s loan policy increases the chance of default.

5.The unclear and flexible terms and conditions of loan sanctioned.

One of the most important ways a bank can make sure its loans meet regulatory standards and are
profitable is by establishing a written loan policy. A loan policy gives loan officers and the bank’s
management specific guidelines in making some loan decisions and in shaping the overall
portfolios of the bank.

6. Lack of proper coordination among different departments.

Improper Investment Management typically results from a lack of coordination between various
departments within the bank, and a lack of clear responsibilities and functions. By implementing
control measures to reduce redundancies, an organization can work toward improving overall
coordination within the organization.

7. Weakness of loan Administration.

Loan management is one of the important functions of the bank. Loan recovery largely depends on
good loan administration.

8. Low recovery rate.

Recovery rate is the extent to which principal and accrued interest on defaulted debt can be
recovered, expressed as a percentage of face value. A higher rate is always desirable.

9. Less attention to cost control.

Cost control is the practice of identifying and reducing business expenses to increase profits, and it
starts with the budgeting process. Excessive cost may lead to inefficient fund performance of bank.

10. High non-performing assets ratio.

A nonperforming asset (NPA) refers to a classification for loans or advances that are in default or in
arrears. NPA Affects the Profitability of the Bank: The banks get their income from the loans and
advances that are disbursed and if these loans are not repaid then it is not possible for them to
receive profits.

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 Chapter4:
Policy Implications and Conclusion

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4.1 Introduction:
The objective of the report is to evaluate bank Investment Management practices of Al-Arafah
Islami Bank Limited. I observed financial reports of five years and evaluate the fund structure,
Investment Management performance of Al-Arafah Islami Bank Limited, which is a crucial part of
bank Investment Management. The study has covered both Empirical and Theoretical research
method. In the first and second chapter of the report contain introduction and the complete
overview of the bank. In the third chapters contains finding, analysis and problems associated with
Investment Management of Al-Arafah Islami Bank Limited. And in the fourth chapter contains
summary, policy implication and the conclusion with bibliography.

4.2 Summary of the Findings

The report has addressed five objectives-provide overviews of Al-Arafah Islami Bank Limited,
analyze bank Investment Management policies of Al-Arafah Islami Bank, evaluate fund structure
and utilization of Al-Arafah Islami Bank, evaluate Investment Management performance of Al-
Arafah Islami Bank, identify problems associated with Investment Management practices of Al-
Arafah Islami Bank, suggest some prudent policy measures for improving Investment Management
practices of Al-Arafah Islami Bank.
Followings are the summary of each chapter that has been discussed above.

4.2.1In third chapter 3.1, the objective of bank Investment Management, Policy outline of ALCO,
Fund Collection Policy Fund Utilization Policy, Capital Management Policy have been delineated.
Capital structure of Al-Arafah Islami Bank Limited and Shantirhat Branch, regulatory requirement
of bank, investment for maintaining statutory reserve, portfolio of assets and portfolio of liabilities
in amount in crore and in percentage have also been discussed.
4.2.2After analyzing the Investment Management performance of AIBL over the five years.
In table 3.2, the Capital to total Asset ratio was the highest in the year of 2019 while it was the
lowest in the year of 2020.The ratios fluctuated between the year of 2018 and 2020 and there was a
moderate decrease from 2018 to 2020.The Borrowings to total Asset ratios began at 0.1718 in 2018
while it finished the year 2021 by 0.2572 and this was the highest ratio during the five years. The
ratio dropped sharply in 2018 and from that point it started to grow rapidly over the next few years.
The advance to total fund ratios rose moderately till 2018 from 2018 and after that, it declined
sharply between the year 2018 and 2020.
It is also mentionable that the Deposit to total asset ratios fluctuated over the years while it reached
the maximum ratio of 0.7740 in 2018 and reached the minimum ratio of 0.6677 in 2020.
Table 3.3 shows that the classified loan increased from the year 2018 to 2021 while it dropped in
2021` at 480.16 crore. The minimum classified loan was 474.35 crore taka on 2018 and the
maximum was 655.95 crore taka while the average quantity was 561.21 crore taka. Whereas the
average good loan was 14,828.66 crore taka while the minimum and maximum were in 2018

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(11,235.61 crore taka) and 2020 (17,071.92 crore taka) respectively. The non-performing asset
decreased over the years from 4.05% to 2.95% while the average non-performing assets ratio was
3.70%. The average recovery ratio was 0.00061, but there was a fluctuation in the recovery rate
over the years. The recovery rate was lowest in 2018 and reached to the highest in 2022.

4.2.3 Summary of Problems Associated with Investment Management

Following problems have been identified as important problems.

1. Problems in loan management.

2. Short term funds are used in long term investment.

3. Large proportion of liabilities is paid in that time period.

4. Disbursement of loan beyond its policy.

5. Low recovery rate.

6. High non-performing assets ratio.

4.3 Policy Implications and Recommendations

1. Reduce risk through the formation of credit bureau.

2. Proper managerial observation and cooperation with credit department
3. Proper evaluation of credit worthiness of loan applicant.
4. Monitoring of the Investment Management performance
5. Ensure ethical codes, good governance.
6. Improve credit growth in new emerging sectors.
7. Improvement of liquidity position.
8. Implementing better Investment Management guidelines.
9. Follow the loan policies while sanction loans
10. Explore all avenues to lower interest rate on lending.

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1. Reduce risk through the formation of investment bureau
Efforts may be taken to reduce risk through the formation of credit bureau, credit grantee
scheme credit rating as well as low enforcement needs to be improved. These policies will
improve transparency and availability of debtor information, thus reducing asymmetric
information problem.
2. Proper managerial observation and cooperation with credit department
The proper managerial observation and cooperation with credit department are required to
ensure proper Investment Management performance of bank.
3. Explore all avenues to lower interest rate on lending
In order to bring down the burden of NPL, the banks need to explore all avenues to lower
interest rate on lending which is likely to have positive impact on NPL as well.
4. Follow the loan policies while sanction loan
The bank should create prudent loan policies and strictly follow the loan policies while
sanctioning loan, because it increases the possibility of default loan.
5. Monitoring of the investment management performance
Periodical monitoring of the Investment Management performance should be ensured by the
bank management. Because it can provide necessary feedback and trigger the process of
corrective actions to improve the efficiency and health of Al-Arafah Islami Bank.
6. Implementing better Investment Management guidelines
Productivity of the commercial banks may be raised by practicing better Investment
Management guidelines, improving recycling of funds and developing other income from
business activities of the banks
7. Improvement of Liquidity position
Liquidity position of the commercial banks should be improved from present situation. The
Bangladesh Bank should monitor actively to ensure that the commercial banks maintain
their minimum liquidity requirements.
8. Ensure ethical codes, good governance
Ethical codes, good governance, total quality management (TQM) should be ensured. A
code of ethics sets out an organization's ethical guidelines and best practices to follow for
honesty, integrity, and professionalism.
9. Proper evaluation of credit worthiness of loan applicant
Bank need to properly credit worthiness by processing loan applications and documentation
to determine financial eligibility and feasibility of granting loans.

10. Improve credit growth in new emerging sectors

The bank should improve credit growth by maintaining loan quality in to new emerging
sectors like power, ship building, jute yarn, ceramic, pharmaceuticals industry etc.

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4.4 Conclusion
One of the top private commercial banks in the nation is Al-Arafah Islami Bank Limited. Since
being founded in 2001, the Bank has operated its banking operations effectively. Through its
extensive branch network spread across the nation, the Bank provides customers with a range of
banking services. I made an effort to illustrate and assess every aspect of Al-Arafah Islami Bank
Limited's Investment Management. They can look over this report for future development and
discover effective ways to accomplish their objective through effective Investment Management.
On my way to finishing this report, I recognized various banking operations and day-to-day
banking activities. I've done my best to explain my real-life experience from working in various
departments in this report. Given how competitive the banking industry is today, I think most
banking thinkers will agree with what I've realized. By offering a variety of valuable and dynamic
services to customers, businesses can satisfy their needs and receive the proper compensation for
their efforts. Since the Investment Management system is involved in all the activities necessary to
satisfy its customers and provide them with valuable services, AIBL pays close attention to this
system. AIBL always gives its highest attention in monitoring and managing the bank fund, which
is consists of fund, capital, deposits, loan and advance. At present AIBL is successful in effectively
and efficiently managing these vital issues. In spite of that, in order to keep its success, continue
and reach at the pinnacle of success it, its managers, board of directors and employee must have the
comprehensive and clear idea about the reserve, fund, loan, capital, deposit and liquidity regarding
the smooth control of bank and continue its vital operation toward country’s economic
development.

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 References

1. Bank Investment Management, A. R. khan

2. Annual report of Al-Arafah Islami Bank Limited 2018-2022
3. Hasan, K., Khanam, F. A., Mawla, A. H. M. R., & Khan, R. S. (2012). Impact of
Investment Management on Banks liquidity, Profitability and Productivity-A Study on
Some selected Private Commercial Banks inBangladesh. International Academic Research
Journal of Economics and Finance, 1(3), 16-35.
4. Rahman, M., & Hoque, M. A. (2019). The financial performance of commercial banks in
Bangladesh: An empirical study. Journal of Banking and Finance Research, 4(1), 1-1
5. Hossain, M. A., & Rahman, M. (2018). Financial performance analysis of selected
commercial banks in Bangladesh. Journal of Finance and Banking Research, 4(1), 20-33.

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