MBA Intership Report On Liquidity Management Process of The City Bank Ltd-Libre

LIQUIDITY MANAGEMENT OF CBL
Liquidity management
Of
The City Bank Limited
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Internship Report
On
Liquidity management of
Submitted To
Md. Amdadul Hoque
Assistant Professor,
Department of Finance
Bangladesh University of Business and Technology (BUBT)
Submitted By
Zahiduzzaman
MBA Program, 16th Intake
ID # 08093201020
Major in Finance
Date of Submission: 13th September, 2011
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LETTER OF TRANSMITTAL
13th September, 2011
Md. Amdadul Hoque
Assistant Professor, Department of Finance
Bangladesh University of Business & Technology
Mirpur-2, Dhaka-1216.
Subject: Submission of Internship Report.
Dear Sir,
I am truly pleased to submit my internship report on the Liquidity management process of The City
Bank Ltd. I have gathered what I consider to be the most complete information available. This report
gave me the prospect to have a brief knowledge about the liquidity management process of The City Bank
Limited. It is a great achievement to work under your active supervision, care and guidance.
I tried my best to incorporate all the information that I have collected during the internship period. I wish
the report would fulfill your expectation and standard. I must mention here that, I am extremely grateful
to you for your valuable supervision, tireless effort and continuous attention in preparing this report.
I, sincerely hope that you will be satisfied with this report. If you have any query, I will be pleased to
answer that. I hope and pray that you would be gracious enough to accord approval to this report.
With best regards
Sincerely
Zahiduzzaman
MBA Program, 16th Intake
ID # 08093201020
Major in Finance
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Acknowledgement
Internship program is one of the important requirements for the completion of two years MBA
program. I have completed my internship from The City Bank Limited. In this regard I would
like to express my heartiest appreciation to my honorable supervisor Md. Amdadul Hoque,
Assistant professor, Department of Finance, for his care, guidance and valuable suggestions to
prepare this report.
I also would like to pay my gratitude to all of my faculty members for their constant guidance
and cooperation.
I also express my heartiest gratitude to honorable MBA Program Director, Professor M.A Hakim to give
me permission for Internship and help me to provide various guidelines about the report.
I would like to express my sincere gratitude to my organizational supervisor Mr. Shafiqur

Rahman, Manger, Human Resource division, of The City Bank Ltd, for his guidance and
cooperation which helped me in building confidence to face practical situation.
I also like to express my sincere thank to all the employees of HR & finance department of The
City Bank Limited for providing me required information about the Liquidity management
process which helped me to prepare such a significant report.
At last I feel very pleased to thank all my fellow friends for their cordial cooperation in preparing
this report.
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Executive summary
Banking is a business, which runs on the confidence and trust of people. This confidence enables
the bank to mobilize funds from various sources. The main function of bank may broadly be
divided into two categories. Firstly, borrowing money from public by accepting deposits and
secondly, lending the money to public for development of trade, commerce, agriculture and
industry. The profitability of a bank always depends on the efficient management of fund and
exploring the genuine avenues in which its resources are invested to produce the maximum
income. To ensure, that these activities will run properly, a bank must effectively manage its
liquid assets & liabilities. .
I am going to describe particularly the liquidity management process of The City Bank Ltd. So,
in whole through this report I concentrated on the liquidity management & its correspondent
issues. I divided my report in several chapters according to the necessity & similarity of the
topics.
To understand a particular management process of a bank, it is required to have a basic idea
about that I basically described the background & necessity of preparing this report, the methods
I used to prepare it & the scope & limitation I faced during preparing this reports etc. other then
these, I also stated some introductory speech to introduce my bank & the topic Ive chosen.
It contains the description & analysis of different department & activities of CBL. I tried my best
to highlight each & every department, the divisions-subdivisions, the achievement of CBl, their
recent financial position, recent performance & all basic ideas about it.
What is liquidity? As my main focus is on the liquidity management process, so it is very much
important to know the basic ideas & definitions of the fundamental issues regarding liquidity
management process. So I thoroughly illustrated the theoretical descriptions & ideas about the
liquid assets & liability of a bank, which type of assets & liabilities we should name liquid assets
& liquid liability, types of liquid assets & many other issues. It also contains the description of
the liquidity management requirements of central bank & central banks liquidity management
process. I have collected all possible information to thoroughly describe the liquidity
management of CBL. Also I analyzed different financial ratios such as current ratio, cash
position indicator, capacity ratio, loan to deposit ratio etc & Ive also done the trend analysis of
both loans & deposits. To present the liquidity position of the bank, I collected the information
about the SLR & CRR positions of CBL & also I made a graph of the liquidity gap & many other
financial calculations of this bank.
Organizations fail if they do not have access to sufficient cash to meet their short-term liabilities
as they fall due. As long as short-term assets exceed short-term liabilities, companies face
minimal liquidity problems. Fluctuations in margining requirements from lenders and trading
counterparties can cause short-term liabilities to rise sharply, precisely when assets fall, leading
to costly and sudden liquidations. Collateral haircuts, discretionary interest rates, and material
adverse change clauses exacerbate liquidity risk. Ironically, lenders make bank runs on
liquidity-stressed funds and corporations, each lender securing its own interest while collectively
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destroying value. Financial institution bankruptcies and restructurings in 2008 were accelerated
by the inability or failure to manage liquidity risk. Corporations must manage these risks through
better contracting and pre committed contingency plans. The liquidity management of a central
bank is defined as the framework, set of instruments and especially the rules the central bank
follows in steering the amount of bank reserves in order to control their price (i.e. short term
interest rates) consistently with its ultimate goals (e.g. price stability). The note presents a basic
theory of liquidity management in a framework of substantial reserve requirements and
averaging, focusing on the relationship between quantities (central bank balance sheet items) and
overnight rates and the involved signal extraction problems.
Maintaining the liquidity risks mostly depends on how the credit is being handled. The City
Bank Ltd. ensures that the loan or credit they lend is given to the right person. For this, CBL
follows a strict rules and regulation. Lending operation starts from selection of borrower from
field level and ends with disbursing sanctioned amount after proper credit analysis and
documentation. CBL also follows other procedure like early warning signals, credit risk analysis
and handling of non-performance loan to make sure that the borrower repay the interest and
repay the loan amount. For all these CBL follows strict regulation which is approved by the
Bangladesh Bank.
However, Ive done lots of financial calculations, observed their financial reports & from my
working experience I also gathered knowledge about their administrative process of managing
different issues. After preparing the whole report, I had some findings regarding the liquidity
management & some other aspects of the banks activities. As an inexperienced person I may
have made many mistakes in those findings, but whatever I felt from my point of view, I only
pointed out those. Based on those findings, I recommended some points which may help the
bank to remove their many shortcomings.
The City Bank Ltd was in a horrible position in the years 2007-2008 regarding their management
of liquidity crisis, but they are overcoming with some strict steps & strategy & if they will
develop their management policy & other related processes, then itll be one of the best
commercial banks of Bangladesh.
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Table of contents:
Content
Page No.
Chapter One (Introduction part)
12
1.1) Introduction
13
1.2) Origin of the Report
14
1.3) Background of the report
14
1.4) Objectives of the Report
14
1.5) Methodology
15-17
1.6) Scope of the study.
17
1.7) Limitations of the Report
17
Chapter Two (Organization Preview)
12
2.1 THE CITY BANK LIMITED
19-21
2.2 The City Bank Activities
22-26
2.3 Recent Performances of The City Bank
27
CHAPTER THREE (Theoretical part)
29
3.1 Basic definitions of liquidity
30-31
3.2 What is liquidity management

3.3.) Liquidity of a Bank
3.3.a) Liquid Assets of a bank
3.3.b) Characteristics of liquid asset
3.3.c) Liquidity crisis
3.1.f ) Types of Liquidity
3.1.g) The demand and supply of liquidity
3.1.h) Liquidity Risk
31-32
32
33
34-36
36
37
39
39-41
CHAPTER FOUR (Liquidity Management-Requirements of central bank) 42

4.1 Central Banks Liquidity management
4.1.a) Asset Liability Management Policy
43
44
4.1..a.a) Liquidity Risk
45
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4.1..a.b) Action Points
45
4.1..a.c) Key Management Indicators
45-47
4.1.a.d) Maturity Profile Mismatch
47
CHAPTER FIVE (Liquidity Management of CBL)
48
5.1 Current Assets of CBL
49
5.2 Current liabilities of CBL
49
5.3 CBLs liquidity Risk Management Framework
49-50
5.3.a) Treasury Desks
51-52
5.3.b) Liquidity Statement of The City Bank Limited
52-54
5.3.c) CRR and SLR of CBL
54-56
5.3.d) Estimating CBLs liquidity needs
56-58
5.3.e) Trend Analysis:
58
5.3.f) Ratio Analysis (Liquidity Ratios)
59-64
5.3.g) Handling CBLs liquidity crisis
64-65
CHAPTER SIX (Comparative Analysis with IFIC Bank Ltd.)
66
6.1 IFIC Profile
67
6.2 Banks Mission
67
6.3 Background of the IFIC bank.
68-69
6.4 Comparative Analysis with CBL
70-72
6.5 Analyzing Liquidity
73
CHAPTER SEVEN (Findings, Conclusion & Recommendation)
74
7.1) Major findings
75-76
7.2) Conclusion
77
7.3) Recommendation
77-78
Glossary
79
References
80
Appendix
81-83
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List of tables:
Content
Page No.
a. Recent Performances of The City Bank
26
b. Last few years SLR & CRR rate
44
c. Liquidity Statement
53
d. CRR and SLR of CBL
55
e. The sources and uses of fund approach

f. Assets based liquidity ratios
57
57
g. Liability based liquidity ratio
58
h. Current Ratio
60
i. Cash position indicator
60
j. Capacity ratio
61
k. Total Deposit Ratio
62
l. loan to deposit ratio
63
m. reserve ratio
63
n. Liquidity statement (IFIC)
69
o. Comparative Analysis with IFIC Bank Limited
70
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List of charts & graphs:

Content
Page No.
a. Award and Honor
21
d. Liquid Assets of a Bank
34
e. Characteristics of Liquid Assets
35
f. Types of Liquidity
38
g. Liquidity Risk
40
h. Liquidity requirements of commercial banks
45
I. Liquidity Statement Analysis
43
j. CRR and SLR of CBL
56
Ratio Analysis
60
k. Comparative Analysis with Standard Bank Limited
72
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CHAPTER ONE
(Introduction part)
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1.1 Introduction:
Banks are not ordinary intermediaries. Like non-banks, they also borrow, but they do not lend
the deposits they acquire. They lend by crediting the borrower's account with a new deposit, and
then if necessary borrowing the funds needed to meet the reserve ratio requirement. The
accounts of other depositors remain intact and their deposits fully available for withdrawal. Thus
a bank loan increases the total of bank deposits, which means an increase in the money
supply. When the loan is paid off, the money supply decreases.
A net increase in bank lending results in a shortage of reserves needed by the banking system,
which only the Fed can supply. In order to maintain control of the Fed funds rate, i.e. the interest
rate on overnight loans between banks, the Fed must provide the funds as required. It does so by
purchasing Treasury securities from the public. Bank lending has no effect on a bank's own
capital. But bank lending is limited by the capital ratio requirement set by the Fed. If a bank has
sufficient capital, it can expand its balance sheet by issuing more loans.
However if it is not holding excess reserves, it will have to acquire more in order to meet the
reserve ratio requirement. Banks therefore actively seek new deposits. Of course they prefer
deposits on which they pay no interest, like ordinary checking accounts. They also borrow from
savers who open savings accounts and investors who buy their CDs.
Liquidity is essential in all banks to compensate for expected and unexpected Balance Sheet
fluctuations and to provide funds for growth. The recent liquidity crises faced by banks and
financial institutions have brought to the fore the need to review their existing Liquidity
Management Policies, Practices and Procedures. One of the most important tasks the
management of any bank or financial service provider faces is ensuring adequate liquidity at all
times, no matter what emergencies may suddenly appear.
A financial institution is considered to be liquid if it has ready access to immediately spendable
funds at reasonable cost at precisely the time those funds are needed. This suggests that a liquid
bank or other financial-firm either has the right amount of immediately spendable funds on hand
when they are required or can rise liquid funds in a timely fashion by borrowing or by selling
assets. Indeed, lack of adequate liquidity can be one of the first signs that a bank or other
financial institution is in real trouble.
The cash shortages that banks and other financial service providers in trouble often experience
make clear that liquidity needs cannot be ignored. A Bank closes if it cannot raise sufficient
liquidity even though technically, it may still be solvent. Moreover, the competence of liquidity
managers is an important barometer of managements overall effectiveness in achieving any
financial institutions goals. So lets begin our journey and see how really important quality
liquidity management is to be success in The City Bank Limited (CBL).
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1.2) Origin of the Report:
Master of Business Administration (MBA) course requires 90 days attachment with a bank (The
City Bank Limited) followed by a report assigned by the supervisor in the organization and
endorsed by the faculty advisor. I took the opportunity to do my internship in The City Bank
Limited (CBL). My topic of internship is authorized from the head office of CBL .My faculty
supervisor Md. Amdadul Hoque, Assistant Professor, Department Of Finance, Faculty of
Business Studies, Bangladesh University of Business & Technology, also approved the topic and
authorized me to prepare this report as part of the fulfillment of internship requirement. The
report thus was titled as Liquidity management of The City Bank Limited.
1.3) Background of the Report:

The business world is getting dynamic and competitive. It is hard for an organization to run &
even survive in a fast paced, growing and uncertain world if it cannot keep tracks with the go of
business dynamism. Business plays and links important roles in developing the economy of a
country. So, as a business graduate, I think I need to be attached with any organization to get a
handy & versatile experience about the business world before starting our career. Internship is
the arrangement, which makes a bridge between our academic knowledge and practical world to
have an acquaintance with the real business world as well as to gear me up to lead the future
competitive business. I have worked in Different divisions of CBL, head office, Gulshan-2,
Dhaka. In this report, I will try to make a overall analysis on liquidity management of CBL.
1.4) Objectives of the Report:

1. General objective:
To analyze the liquidity management process of The City Bank Ltd.
2. Specific objective:
To know about liquid assets of the commercial banks in our country.
To get enough knowledge about liquidity management.
Central bank requirements for the commercial banks on liquidity management.
Estimating liquidity need of The City Bank Ltd.
Analyzing the Liquidity statement of CBL by using some statistical measures.
Finding out the internal system & actual liquidity management process of CBL.
Pointing out the major findings of the report & provide some valuable recommendations
based on them.
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1.5) Methodology:
Methodology refers to the essential part of the study and the process of collecting information
and arranging it in terms of the relevant issues of the study. It is designed in a way so that it
correspondent to achieve the objectives of the study.
Type: As I am going to find out the internal process of The City Bank Ltd to manage its
liquidity needs, so I have to describe its whole management process of liquidity risk by
analyzing some statistical data.
So, from my point of view, it is a descriptive report.
Sources of data:
For preparing a report, someone can use basically two sources for collecting data
& necessary information. Those are,
3.2 Primary source:
A primary source (also called original source or evidence) is an artifact, a
document, a recording, or other source of information that was created at the time
under study.
3.2 Secondary source:
A secondary source is a document or recording that relates or discusses information
originally presented elsewhere. Secondary sources involve generalization, analysis,
synthesis, interpretation, or evaluation of the original information.
I had collected data from both the primary source and secondary source.
Primary source:
I have collected data from the employees of different department of The City Bank Limited by
communicate & working with them. I also collected information form observing their financial
status, their organizational culture, from different group discussion, observing the process of
managing the liquid money & assets of the bank.
Secondary source:
Analyzing all the annual reports from 2005 to 2009, I tried to identify all the elements of
liquidity and prepared the report.
Annual Reports of The City Bank Ltd of the year 2006, 2007, 2008, 2009.
The basic idea about The City Bank Ltd was taken from its website (www.thecitybank.com)
Papers & journals about the Central bank liquidity management & reservation
requirements.
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Theoretical ideas about liquid assets & liabilities of banks were collected from a book (Dr. A.
R. Khan, Bank Management-A Fund Emphasis)
Liquidity management solution of The City Bank Limited.

Analyzing all the annual reports from 2005 to 2009, I tried to identify all the elements of
liquidity and prepared the report.
Data Collection process:

Mainly, the purpose of data collection is to obtain information to keep on record, to make
decisions about important issues, to pass information on to others. Primarily, data is collected to
provide information regarding a specific topic. A formal data collection process is necessary as it
ensures that data gathered is both defined and accurate and that subsequent decisions based on
arguments embodied in the findings are valid. However, Ive collected both primary &
secondary data by different processes. Those are described below:
Primary data:
Primary data are collected by different group discussions, personal observation of the
organizational culture, their internal process of managing liquidity & from different statistical
measures & analysis that Ive shown later on in this report.
Secondary data:
From working in this organization, Ive got the facility to go through maximum of the record file
related to the liquidity issue. So many important data were been collected from there. Some other
data Ive collected from the website.
Other then that, it was easy for me to make a positive relation with the manager of finance
department & to collect all annual report from him. However, the annual report of 2006 was not
available there.
Data analysis & reporting:

Analysis of data is a process of inspecting, cleaning, transforming, and modeling data with the
goal of highlighting useful information, suggesting conclusions, and supporting decision making.
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Techniques:
Data-collection techniques allow us to systematically collect information about our objects of
study (people, objects, phenomena) and about the settings in which they occur. In the collection
of data we have to be systematic. If data are collected haphazardly, it will be difficult to answer
our research questions in a conclusive way. However, Ive used some statistical techniques to
analyze the data. Those are,
Trends Analysis.
Ratio Analysis.
Tools:
The tool those Ive used to implicate the techniques for analyzing data, are simple MS Word &
MS Excel.
1.6) Scopes of the Study:

This report has prepared to gain a clear view of the liquidity management of the CBL. Using of
all my whole experience I try to include all of the criteria of the liquidity management. I focus on
what are the liquid assets, what is the liquidity, what is the liquidity management, the Bangladesh
Banks requirement on liquidity management for all the commercials banks. I also try to show
how the City Bank Limited handles all the liquidity requires activities, how to manage fund in
urgent situations and how to use access money in profitable sectors. Purpose of the report would
be to focus on how The City Bank Limited maintains liquidity requirements and fulfills the
central banks requirements on liquidity management of the commercial banks. And finally I
draw the conclusion on the liquidity management of The City Bank Limited.
1.7) Limitations of the Report:

There were some limitations faced to prepare this report that are:
There were not huge guidelines about liquidity management of the bank.
Employees of the CBL were not interested to share enough information about liquidity
management of this bank. That was a big problem for me.
I did not get sufficient information about liquidity management of The City Bank Limited
from CBL website.
Couldnt collect annual report of 2005 (Lack of availability).
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CHAPTER TWO
(Organizational Profile of The City Bank Limited)
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2.1 THE CITY BANK LIMITED--- Making Sense of Money:

The City Bank Limited is the first private sector Bank in Bangladesh. The Bank has been
operating since 1983 with an authorized capital of Tk. 1.75 Billion under the entrepreneurship of
twelve prominent & leading businessman of the country. The noble intention behind starting this
Bank was to bring about qualitative changes in the sphere of Banking and Financial
management. Today The City Bank serves it's customers at home & abroad with 84 branches
spread over the country & about three hundred oversea correspondences covering all the major
cities and business center of the world. The services encompass wide diversified areas of trade,
commerce & industry, which tailored to the specific, needs of the customers and are
distinguished by an exceptional level of prompt and personal attention. Over the years the Bank
has expanded the spectrums of Its Services. The extensive and ever growing domestic network
provides and carries various products and services to the doorsteps of millions.
City Bank is one of the oldest private Commercial Banks operating in Bangladesh. It is a top
bank among the oldest five Commercial Banks in the country which started their operations in
1983. The Bank started its journey on 27th March 1983 through opening its first branch at B. B.
Avenue Branch in the capital, Dhaka city. It was the visionary entrepreneurship of around 13
local businessmen who braved the immense uncertainties and risks with courage and zeal that
made the establishment & forward march of the bank possible. Those sponsor directors
commenced the journey with only Taka 3.4 crore worth of Capital, which now is a respectable
Taka 330.77 crore as capital & reserve. City Bank is among the very few local banks which do
not follow the traditional, decentralized, geographically managed, branch based business or
profit model. Instead the bank manages its business and operation vertically from the head office
through 4 distinct business divisions namely
I.
II.
III.
IV.
Corporate & Investment Banking;

Retail Banking (including Cards);
SME Banking; &
Treasury & Market Risks.
Under a real-time online banking platform, these 4 business divisions are supported at the back
by a robust service delivery or operations setup and also a smart IT Backbone. Such centralized
business segment based business & operating model ensure specialized treatment and services to
the bank's different customer segments. The bank currently has 87 online branches and 10 SME
service centers spread across the length & breadth of the country that include a full fledged
Islami Banking branch. Besides these traditional delivery points, the bank is also very active in
the alternative delivery area. It currently has 46 ATMs of its own; and ATM sharing arrangement
with a partner bank that has more than 550 ATMs in place; SMS Banking; Interest Banking and
so on. It already started its Customer Call Center operation. The bank has a plan to end the
current year with 100 own ATMs. City Bank is the first bank in Bangladesh to have issued Dual
Currency Credit Card. The bank is a principal member of VISA international and it issues both
Local Currency (Taka) & Foreign Currency (US Dollar) card limits in a single plastic. VISA
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Debit Card is another popular product which the bank is pushing hard in order to ease out the
queues at the branch created by its astounding base of some 400,000 retail customers. The launch
of VISA Prepaid Card for the travel sector is currently underway.
City Bank has launched American Express Credit Card and American Express Gold Credit card
in November 2009. City Bank is the local caretaker of the brand and is responsible for all
operations supporting the issuing of the new credit cards, including billing and accounting,
customer service, credit management and charge authorizations, as well as marketing the cards in
Bangladesh. Both cards are international cards and accepted by the millions of merchants
operating on the American Express global merchant network in over 200 countries and territories
including Bangladesh. City Bank also introduced exclusive privileges for the card members
under the American Express Selects program in Bangladesh. This will entitled any American
Express card members to enjoy fantastic savings on retail and dining at some of the finest
establishment in Bangladesh. It also provides incredible privileges all over the globe with more
than 13,000 offers at over 10,000 merchants in 75 countries. City Bank prides itself in offering a
very personalized and friendly customer service. It has in place a customized service excellence
model called CRP that focuses on ensuring happy customers through setting benchmarks for the
bank's employees' attitude, behavior, readiness level, accuracy and timelines of service quality.
City Bank is one of the largest corporate banks in the country with a current business model that
heavily encourages and supports the growth of the bank in Retail and SME Banking. The bank is
very much on its way to opening many independent SME centers across the country within a
short time. The bank is also very active in the workers' foreign remittance business. It has strong
tie-ups with major exchange companies in the Middle East, Europe, Far East & USA, from
where thousands of individual remittances come to the country every month for disbursements
through the bank's large network of 97 online branches and SME service centers.
No money, no bank. We all know how important money can be for any of us. Money is a need
all by itself. It is the most precious thing. Money is the port key to any destination. It is
everything between a person and his / her dreams & hopes. So, the money which is almost
synonymous to life must make sense. And for your money to make sense, it must be handled by
an expert. That is where we come in. We say, we make sense of your money. Because, at City,
we are wise men of banking. With 25 years of experience, we know how to make your money
more meaningful for you, how to lend you money in times of your needs or how to grow your
money safely for you.
2.1.a) Strategic Task Analysis:

2.1.a.a) Vision:
To be the leading bank in the country with best practice and highest social commitment.
2.1.a.b) Mission:
To attain highest level of customer satisfaction through extension of services by
dedicated and motivated team professionals.
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To maintain continuous growth of market share ensuring quality.
To maximize banks profit ensuring its steady growth.
To maintain the high moral and ethical standards.
To ensure participative management system and empowerment of human resources.
2.1.b) Award and Honor:

For significant performance, The Bank has earned national & international recognition. The City
Bank Limited was one of the 12 Banks Of Bangladesh among the 500 Banks in Asia for it's
asset, deposit & profit as evaluated by "ASIA WEEK" In The Year 2000. Other than that, The
City Bank Limited received the "Top Ten Company" award from the Prime Minister of the
People's Republic Of Bangladesh.
City Bank wins The Asian Banker "Strongest Bank in Bangladesh 2010" Award City Bank
MD & CEO K Mahmood Sattar wins The Asian Banker "Leadership Achievement Award 2010"
Sunday April 18th, 2010, 7pm. Resorts World Convention Center, Singapore.
a. Award and Honor
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2.2 The City Bank Activities:

The City Bank Limited serves its customers at home with 83 branches spread over the country
with total manpower of around two thousand. The Bank has expanded its services over the years,
which covers wide diversified areas of trade, commerce & industry. They have always tried to
provide different products and services to the customers through their wide and ever growing
domestic network. Major types of financing
Working Capital Finance

Short Term Financing
Mid Term Financing
Project Finance
Lease and Long Term Loans
Structured Finance
Islamic Finance
Payment Service
The City Bank Limited has already introduced some new Banking products like duel currency
Credit Cards, ATM and Online services which has created attraction among the clients. The
Bank is going to introduce real time Internet, SMS and Phone Banking systems with all modern
delivery channels at an early date.
CBLs credit can be divided into three broad classes:
Retail Financing
CBLs credit
SME Financing
Corporate Credit
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2.2.a) Corporate banking:

City Bank is a major player in Bangladesh wholesale banking industry to offer the full scope of
innovative, customized solutions and services. They offer service at the highest level. Their focus
is not on short-term profit, but on building long-term relationships and standing by their clients
whenever they need us. They have a unique business focus on enabling project financing, trade,
investment and supply chain financing for clients. They aim to be a one-stop gateway for
corporate and financial institutions looking to extend their business. And they are committed to
using our country wide network to facilitate their clients growing trade and investment flows
and supply chain financing needs across their business footprint. They make easy the complex
financial world for you and help you maximize every opportunity
Working capital:
Trade finance:
Short/mid-term finance:
Project finance:
Islamic finance:
Structured finance:
Cash management:
Investment banking:
2.2.b) City Retail:

One of the most remarkable success stories of last 50 years banking industry globally has been
the conceptualization and innovative execution of banking with individual customers, their
friends & families. The industry has termed it as Retail Banking or Personal Banking or
Consumer Banking; and it has now - at a very rapid pace become the major revenue line for
most of the top banks in the world. City Bank, too, recently has started its journey in Retail
Banking. City Retail - add a little city to your life is the new brand-mantra, the pay-off line for
City Retail.
2.2. b.a) Deposit:

Savings account:
It is a sound savings for retail customer. We give the major facilities and services to our
customer through 84 branches allover in Bangladesh with our skilled manpower.
Interest Rate : 4.00
Current account:
Our current account meets the needs of individual and commercial customers through our
schedule benefit.
Interest Rate : Nil
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City Onayash:
City Onayash - earn easy on your savings account, earn profit every month! City Onayash is a
unique kind of savings account which calculates interest on your daily balance and pays interest
to you every month.
City Shomridhdhi:
City Shomridhdhi - A unique offer from City Bank. City Shomridhdhi is an exceptional DPS
product that is distinctly more attractive than the prevalent DPS products in the market. You
receive a hefty sum at the end of the term against your monthly deposit of small installments.
City Projonmo:
City Projonmo financial safety for your future generations backed by complete immense
protection! City Projonmo is a unique monthly deposit scheme that you open for your kids to
safeguard their future against all uncertainties and risks.
City Ichchapurun:
City Ichchapurun great opportunity to earn against your savings every month! This product
allows you to earn interest and enjoy interest every month that accrues in your fixed deposit
account, no matter what the term of the deposit is.
Fixed Deposit:
If you believe in long-term investments and wish to earn higher interests on your savings, NOW
is the time to invest your money in our Fixed Deposit.
2.2.b.b) Loan:
City drive:
Owning a car is no longer a luxury. Car for your family is now a matter of fulfilling a necessity.
Appreciating that basic need, City Bank introduces City Drive, a tailor-made auto loan scheme
for individuals.
City solution:
Dream Vacation? Son's admission to a foreign university? Medical treatment? Daughter's
wedding? House renovation? Whatever the occasion or requirement may be, City Solution - any
personal loan from City Bank - is there to solve all your problems and to fulfill all your dreams.
You can access this facility from our selected branches across the country.
Loan Takeover Plan:

An exclusive offer for other bank's credit worthy customers who can now transfer their personal
loan outstanding to City Solution with a preferential interest rate and waiver on processing fee.
City express:
City Express Cash is a fully secured and revolving facility for any legitimate purpose. The
security for the loan should be ideally CBL FDR. Bank would finance against clients CBL FDR
or other banks/NBFIs security. City Express Loan is a fully secured and terminating (EMI
Page 23 of 84

Based) loan facility for any legitimate purpose. Bank would finance against clients CBL FDR or
other bank FDR/NBFIs security. This is an any purpose secured loan for any legitimate purpose.
2.2.b.c) City foreign remittance:

The city Bank's Foreign Remittance unit meets growing customer needs for fast, sucure & easy
money transfers to an extensive range of destinations. Being a committed bank to its customers,
we go all the lengths to remit your hard earned money safely to your loved ones.
With them, apart from a range of high-class modem remittance solutions, you will get peace of
mind which we believe counts to most.
2.2.b.d) Credit card:

City Bank is the first bank to issue Dual Currency Credit Card in Bangladesh. This card enables
you simultaneous usage of your card both in home and in abroad. You do not need to carry two
different cards for the same purpose.
2.2.b.e) Debit card:

CITY Visa Electron Debit Card - By your side, round the clock:
Now comes the Visa Debit Card from City Bank. Your life, therefore, becomes hassle-free and
safe; and it is Visa Electron branded, which makes you the proud owner of a meaningful plastic.
2.2.c) SME Banking:

SME Banking of City Bank is assuming a new and modern dimension. It is entering in to a wider
horizon. The philosophy of extending banking services to SME's of the country is to meaningfully
push every one of them up to the next level of respective business operations. The upward push
would be meaningful as they would be business wise competitive for a sustainable future. It is
therefore would be turning in to an abode of SME's to grow to the next level. Hence, the bank has
named it City Business - for taking SME's to the next level. For the first time in the history of
CityBank, SME Banking business processes are going to be driven thru a centralized platform
model. This is a fundamental move away from a 25 years legacy system of decentralized geography
based branch banking model. We all know this transformation process and momentum is already in
place. This would be completed by 2008.
2.2.d) Treasury
City Bank Treasury & Market Risk Division:
City Bank Ltd. has a dedicated Treasury team who is capable of providing all treasury Solutions.
Through our foreign correspondent business partners CBL is providing a wide range of Treasury
products. In CBL Treasury, there are four teams who are specialized in their own area to ensure
Page 24 of 84

the best possible solution to our customer requirement. CBL has following teams in the
Treasury:
01.Foreign Exchange
02.Money Market
03.Corporate Sales
04.Asset Liability Management & Market Research
Each team is dedicated to provide best solutions to their respective areas. Through their four
dedicated team they provide a lot of different services:
2.2.e) City i-Bank: Single Click Banking:

View Account Summary
View Account Details
Print Statement
Cheque Book Inquiry
View Standing Instruction
The Benefits of Internet Banking:

Security and privacy of Internet Banking. We strongly advise our customers to be on the alert for
phishing attempts. As a matter of security, The City Bank Limited will never send you an email
asking you to update sensitive personal information. Safe and Secure Tips for Internet Banking
What should you know about phishing? Click here for more information.
.
Page 25 of 84
2.3 Recent Performances of The City Bank:

The City Bank Limited, functioning as a conventional bank in the country, has been able to
consolidate its position in this sector; the bank has been able to establish a solid presence with
the customers and general public, through its improved services, value addition in the economy
and increasing shareholders value. (Million TK.)
Income Statement
Interest income
Interest expenses
Non interes income
Non interest expenses
Profit before provision
Profit before tax
Profit after tax
Balance Sheet
Authorized capital
Paid up capital
Reserve fund and surplus
Total shareholders equity
Deposits
Loans and advances
Investments
Fixed assets
Total assets
Off balance sheet exposures
Foreign Exchange Business
Export
Import
Remittance
Total Capital Adequacy Ratio
Credit Quality
Provision For Unclassified Loan
Provision For Classified Loan
Percentage Of NPL Over Total Loans And Deposits
SHARE INFORMATION
No Of Share Outstanding (In Million)
EPS
Stock Dividend
Market Value Per Share
PRICE EARNINGS RATIO
Net Assets Value Per Share
Operating Performance Ratio
Credit Deposit Ratio
Cost Of Funds
2009
5742.82
3671.99
2297.05
2112.24
2255.64
1388.06
818.72
1750
1571.13
4293.10
5864.23
62384.28
43486.42
10586.45
2788.07
76466.80
10446.56
13815.40
28717.80
17932.50
11.29%
799.21
708.47
4.87%
15.71
52.11
25%
729.55
14
373.25
69.71%
6.08%
Page 26 of 84

Yield On Loans & Advances
Return On Assets
Return On Equity
Other Information
Number of Branches
Number of SME Centres
Number of Employees
Number of foreign Correspondents
a. Recent Performances of The City Bank
13.07%
1.23%
16.24%
87
10
2424
513
Source: Annual report-2009
Operating Income:
Operating income for the year 2009 stood at tk.4367.88 million compared to that of tk. 3380.27
million in 2008. Operating income increased by tk.987.61 million (29.22%) from 2008 primarily
due to decreased cost of deposit.
Deposit:
Total deposit of the bank as on December 31, 2009 stood tk. 62384.28 million against tk.
45034.33 million of the previous year.
Loans and Advances:
The loans and advances portfolio of the bank at the end of the year 2009 stood at tk. 43486.42
million with loans diversified in both conventional credit and finance based on islami shariah.
Export:
The amount of export business including local bills was tk. 13815.40 million in the year under
review compared to tk.14765.80 million in the previous year.
Import:
The volume of import business including local L/Cs of the bank stood at tk. 28717.80 million in
the year 2009 compared to tk.30894.10 million in the year 2008.
They have also delivered a number of growth initiatives that are crore parts of their master
strategy and these will surely well position us for the future. In 2009,we have:
Launched American Express Cards in Bangladesh which is the number 1 financial
institution brand in the globe. We are American Expresss sole franchisee for
Bangladesh.
Opened 5 new branches, 5 SME service centers and 11 SME business centers.
Increased their number of ATM from 24 to 47 providing their customer with greater
access to their money.
Relocated Head office from Motijheel to Gulshan Avenue.
Launched brokerage business.
Appointed 290 additional talented staff to their bank during the year mainly to support
the newly formed departments.
Page 27 of 84
CHAPTER THREE (Theoretical Part)

(Liquidity Management)
Page 28 of 84
3.1. What is liquidity?

The degree to which an asset or security can be bought or sold in the market without affecting
the asset's price. Liquidity is characterized by a high level of trading activity. Assets that can by
easily bought or sold, are known as liquid assets.
3.1.a Core liquidity:
Cash and other financial assets that banks possess that can easily be liquidated and paid out as
part of operational cash flows. Examples of core liquidity assets would be cash, government
bonds and money market funds. Banks typically use forecasts to anticipate the amount of
cash that account holders will need to withdraw, but it is important that banks do not overestimate the amount of cash and cash equivalents required for core liquidity because unused
cash left in core liquidity cannot be used by the bank to earn increased returns.
3.1.b Liquid Asset:
An asset that can be converted into cash quickly and with minimal impact to the price
received. Liquid assets are generally regarded in the same light as cash because their prices are
relatively stable when they are sold on the open market.
3.1.c Cash Position:
The amount of cash that a company, investment fund or bank has on its books at a specific
point in time. The cash position is a sign of financial strength and liquidity. In addition to cash
itself, it will often take into consideration highly liquid assets such as certificates of deposit,
short-term government debt and other cash equivalents.
3.1.d Money market:
The money market is better known as a place for large institutions and government to manage
their short-term cash needs. However, individual investors have access to the market through a
variety of different securities.
3.1.e Liquidity cushion:
A reserve fund for a company or person containing money market and highly liquid
investments. This is a cushion used by large and small investors. By maintaining cash reserves
in money market instruments, unexpected demands on cash don't require the immediate sale of
securities
3.1.f Current asset
A balance sheet account that represents the value of all assets that are reasonably expected to
be converted into cash within one year in the normal course of business. Current assets include
cash, accounts receivable, inventory, marketable securities, prepaid expenses and other
liquid assets that can be readily converted to cash. In personal finance, current assets are all
Page 29 of 84

assets that a person can readily convert to cash to pay outstanding debts and cover liabilities
without having to sell fixed assets.
3.1.g Current liability:
A company's debts or obligations that are due within one year. Current liabilities appear on the
company's balance sheet and include short term debt, accounts payable, accrued liabilities and
other debts.
3.1.h Maturity mismatch:
The tendency of a business to mismatch its balance sheet by possessing more short-term
liabilities than short-term assets and having more assets than liabilities for medium- and longterm obligations. How a company organizes the maturity of its assets and liabilities can give
details into the liquidity of its position.
3.2 What is liquidity Management?

Cash and liquidity management is about forecasting the companys cash needs to run its
businesses and then managing the group wide cash flows, short-term borrowings and cash in the
most efficient manner to ensure that those cash needs can be met. With the help of IT and
communications systems, cash can be pooled internationally and used to best advantage. Funding
and liquidity needs are intimately connected with understanding and managing working capital
and the payments and cash reporting systems to best advantage. Some ratios can be used to
analyze the liquidity position of a bank.
3.2.a Liquidity ratios:

A class of financial metrics that is used to determine a company's ability to pay off its shortterms debts obligations. Generally, the higher the value of the ratio, the larger the margin of
safety that the company possesses to cover short-term debts.
3.2. a.a Current Ratio:

A liquidity ratio that measures a company's ability to pay short-term obligations. This ratio is
mainly used to give an idea of the company's ability to pay back its short-term liabilities
(debt and payables) with its short-term assets (cash, inventory, receivables). The higher the
current ratio, the more capable the company is of paying its obligations.
The Current Ratio formula is:
Also known as "liquidity ratio", "cash asset ratio" and "cash ratio".
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3.2.a.b Total debt-to-asset:

A metric used to measure a company's financial risk by determining how much of the
company's assets have been financed by debt. Calculated by adding short-term and long-term
debt and then dividing by the company's total assets.
3.2.b Trend Analysis:

An aspect of technical analysis that tries to predict the future movement of a stock based on past
data. 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.
There are three main types of trends: short-, intermediate- and long-term.
3.3 Liquidity of a Bank:

Liquidity refers to how quickly and cheaply an asset can be converted into cash. Money (in the
form of cash) is the most liquid asset. Assets that generally can only be sold after a long
exhaustive search for a buyer are known as illiquid. The degree to which an asset or security can
be bought or sold in the market without affecting the asset's price. Liquidity is characterized by a
high level of trading activity. Assets that can be easily bought or sold, are known as liquid assets.
The ability to convert an asset to cash quickly. Also known as "marketability".
The ability of an asset to be converted into cash quickly and without any price discount.
There is no specific liquidity formula; however liquidity is often calculated by using liquidity
ratios. It is safer to invest in liquid assets than illiquid ones because it is easier for an investor to
get his/her money out of the investment. Examples of assets that are easily converted into
cash include blue chip and money market securities. For banks and large corporates, liquidity
management is about getting a fine return on cash which they may need at short notice. They do
this by borrowing and lending between each other - using either money market securities or
deposits and loans - in what is called the interbank market. Just as the interbank market allows
commercial banks to engage in liquidity management, Central Banks too use money markets to
manage their reserves, and in doing so can affect prevailing money market rates. This is
commonly achieved by manipulating the one market segment over which they have direct
control, the Treasury bill market.
High liquidity means there is a lot of money because interest rates are low, and so capital is
easily available. However, a liquidity glut can develop if there is really too much money looking
for too few investments. This is usually a precursor to a recession, as more of this capital
becomes invested in bad ventures. As the ventures go defunct and don't pay out their promised
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return, investors are left holding worthless assets. Often a panic can ensue, resulting in a
withdrawal of investment money. This is what happened during the 2007 Banking Liquidity
Crisis.
Liquidity for a bank means the ability to meet its financial obligations as they come due. Bank
lending finances investments in relatively illiquid assets, but it fund its loans with mostly short
term liabilities. Thus one of the main challenges to a bank is ensuring its own liquidity under all
reasonable conditions.
3.3.a Liquid Assets of a Bank:

An asset that can be converted into cash quickly and with minimal impact to the price
received. Liquid assets are generally regarded in the same light as cash because their prices are
relatively stable when they are sold on 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 ownership and the
movement of the asset. Liquid assets include most stocks, money market instruments
and government bonds. The foreign exchange market is deemed to be the most liquid market in
the world because trillions of dollars exchange hands each day, making it impossible for any one
individual to influence the exchange rate. Cash and other financial assets that banks possess that
can easily be liquidated and paid out as part of operational cash flows. Examples of core liquidity
assets would be cash, government bonds and money market funds. Banks typically use forecasts
to anticipate the amount of cash that account holders will need to withdraw, but it is important
that banks do not over-estimate the amount of cash and cash equivalents required for core
liquidity because unused cash left in core liquidity cannot be used by the bank to earn
increased returns.
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 5% money on his total capital to the Bangladesh Bank. If a bank needs of
money, he can withdraw money from BBs reserve amount.
Balance with other banks: Every commercial bank has an account in other commercial
banks such as customer. If a bank needs of money, he can withdraw money from his
account. As a result liquidity risk is minimized.
Page 32 of 84
d. Liquid Assets of a Bank
3.3.b) Characteristics of Liquid Assets:

There are three characteristics involved in liquid assets, which are ready market, stable price and
reversible.
e. Characteristics of Liquid Assets
a) Ready Market: A liquid asset must have a ready market so that it can be converted into cash
without delay.
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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 his or her original investment with little risk of loss.
Asset Management Banking

Commercial banks differ widely in how they manage liquidity. A small bank derives its funds
primarily from customer deposits, normally a fairly stable source in the aggregate. Its assets are
mostly loans to small firms and households, and it usually has more deposits than it can find
creditworthy borrowers for. Excess funds are typically invested in assets that will provide it with
liquidity. The holding of assets that can readily be turned into cash when needed, is known as
asset management banking.
Liability Management Banking

In contrast, large banks generally lack sufficient deposits to fund their main business -- dealing
with large companies, governments, other financial institutions, and wealthy individuals. Most
borrow the funds they need from other major lenders in the form of short term liabilities which
must be continually rolled over. This is known as liability management, a much riskier method
than asset management. A small bank will lose potential income if gets its asset management
wrong. A large bank that gets its liability management wrong may fail.
Key to Liability Management

The key to liability management is always being able to borrow. Therefore a bank's most vital
asset is its creditworthiness. If there is any doubt about its credit, lenders can easily switch to
another bank. The rate a bank must pay to borrow will go up rapidly with the slightest suspicion
of trouble. If there is serious doubt, it will be unable to borrow at any rate, and will go under. In
recent years, large banks have been making increasing use of asset management in order to
enhance liquidity, holding a larger part of their assets as securities as well as securitizing their
loans to recycle borrowed funds.
3.3.c) Liquidity Cushion:

A reserve fund for a company or person containing money market and highly liquid investments.
This is a cushion used by large and small investors. By maintaining cash reserves in money
market instruments, unexpected demands on cash don't require the immediate sale of securities.
3.3.d) Liquidity crisis:

A negative financial situation characterized by a lack of cash flow. For a single business, a
liquidity crisis occurs when the otherwise solvent business does not have the liquid assets (i.e.,
cash) necessary to meet its short-term obligations, such as repaying its loans, paying its bills and
paying its employees. If the liquidity crisis is not solved, the company must declare bankruptcy.
Page 34 of 84

An insolvent business can also have a liquidity crisis, but in this case, restoring cash flow will
not prevent the business's ultimate bankruptcy. For the economy as a whole, a liquidity crisis
means that the two main sources of liquidity in the economy, banks and the commercial paper
market, severely reduce the number of loans they make or stop making loans altogether. Because
so many companies rely on these loans to meet their short-term obligations, this lack of lending
has a ripple effect throughout the economy, causing liquidity crises at a plethora of individual
companies, which in turn affects individuals.
3.3.e) Open market operations and liquidity management:

Commercial banks are required to hold a sufficient proportion of their assets in the form of
relatively riskless instruments for monetary control purposes. Historically, Central Banks
changed the level of minimum reserve requirements to directly affect levels of liquidity and the
price of short-term funds. But such legislative intervention has largely been replaced by open
market operations - a process of manipulating the level of liquidity available to commercial
banks by buying and selling short-term instruments.
If the Central Bank is buying Treasury bills the increased demand in the market will cause bill
yields to fall. This fall in bill yields makes other instruments relatively more attractive and
encourages substitution into those assets, thus causing a general fall in money market yields.
The purchase of bills by the Central Bank also increases commercial banks operational reserves.
This increase in liquidity - an increase in the supply of money - causes the interbank rate to fall
and leads to a general increase in loans extended and in securities purchased. This is because the
availability of funds has increased and their cost has decreased. This supply effect accentuates
Page 35 of 84

the reduction in yields on all securities caused by the Central Banks initial increase in demand
for bills.
By selling Treasury Bills the Central Bank stimulates the reverse price effect. The increased
supply of bills in the market will cause bill yields to rise. This rise in bill yields makes other
instruments relatively less attractive and leads to substitution out of these instruments and into
bills, thus causing a general rise in money market yields.
This in turn curtails loans and reduces demand for other instruments thus accentuating the
general rise in yields in the money market. The process of substitution stimulated by Central
Bank open market operations spreads to capital markets as borrowers and lenders reevaluate the
relative attractiveness of longer term instruments. This is a fundamental mechanism through
which the fine tuning of domestic interest rates - which affects all borrowing and investment
decisions - is achieved in domestic money markets.
3.3.f) Types of Liquidity:

There are several types of liquidity in banking sectors in our country which are immediate
liquidity, short-term liquidity, long-term liquidity, contingent liquidity, economic cyclical
liquidity.
f. Types of Liquidity
Page 36 of 84

a) Immediate liquidity: When cash money is needed to pay in cheques to demandable
customers, it is called immediate liquidity.
b) Short-term liquidity: Short-term liquidity is used to meet the monthly liquidity requirements.
Based on the types of clients and on the seasonal variability, the necessity of these types of
liquidity can vary.
c) 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.
d) Contingent liquidity: It arises depending on the happening of some unexpected events. It is
difficult to guess this unexpected situation but not impossible though the amount cannot be
exactly predicted. Contingent liquidity is also required to face the adverse situations created
by big bank robbery, fraud, arson or other accidents.
e) Economic cyclical liquidity: 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.
3.3.g) The demand and supply of liquidity:

Banks need liquid assets to meet the immediate demand of the customers and banks collect funds
to meets or equalize customers demand. For most banks , the most pressing demands for spend
able funds come from two sources generally such as customers withdrawing money from
deposits and credit requests from customers the bank wishes to keep , either in the in the form of
new loan requests, renewals of expiring loan agreements or drawings upon existing credit lines.
Other sources of liquidity demand include paying off previous borrowings such as loans the bank
may have received from other banks or from the central bank.
Similarly payment of income taxes or cash dividend to the stockholders periodically gives rise to
a demand for immediately spend able cash. The most important source for a depository
institution normally is receipt of new customer deposits, both from newly opened accounts and
from new deposits placed in existing accounts. These deposit inflows are heavy the first of each
month as business payrolls are dispensed and they may reach a secondary peak toward the
middle of each month as bills are paid and other payrolls are met.
Another important element in the supply of liquidity comes from customers repaying their loans
which provide fresh funds for meeting new liquidity needs, as do sales of assets, especially
marketable securities, from the investment portfolio. Liquidity also flows in from revenues
generated by selling non deposit services and from borrowing in the money market.
Page 37 of 84

3.3.h) Liquidity Risk:
Liquidity risk is the current and prospective risk to earnings or capital arising from a banks
inability to meet its obligations when they come due without incurring unacceptable losses.
Liquidity risk includes the inability to manage unplanned decreases or changes in funding
sources. Liquidity risk also arises from the failure to recognize or address changes in market
conditions that affect the ability to liquidate assets quickly and with minimal loss in value.
Quality of Liquidity Risk Management:

The following indicators, as appropriate, should be used when assessing the quality of liquidity
risk management.
g. Liquidity Risk Management
Strong:
Board approved policies effectively communicate guidelines for liquidity risk management and
designate responsibility. The liquidity risk management process is effective in identifying,
measuring, monitoring, and controlling liquidity risk. Reflects a sound culture that has proven
effective over time. Management fully understands all aspects of liquidity risk. Management
anticipates and responds well to changing market conditions.
The contingency funding plan is well-developed, effective and useful. The plan incorporates
reasonable assumptions, scenarios, and crisis management planning, and is tailored to the needs
of the institution. Management information systems focus on significant issues and produce
timely, accurate, complete, and meaningful information to enable effective management of
liquidity. Internal audit coverage is comprehensive and effective. The scope and frequency are
reasonable.
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Satisfactory:
Board approved policies adequately communicate guidance for liquidity risk management and
assign responsibility. Minor weaknesses may be present. The liquidity risk management process
is generally effective in identifying, measuring, monitoring, and controlling liquidity. There may
be minor weaknesses given the complexity of the risks undertaken, but these are easily corrected.
Management reasonably understands the key aspects of liquidity risk. Management adequately
responds to changes in market conditions. The contingency funding plan is adequate.
The plan is current, reasonably addresses most relevant issues, and contains an adequate level of
detail including multiple scenario analysis. The plan may require minor refinement.
Management information systems adequately capture concentrations and rollover risk, and are
timely, accurate, and complete. Recommendations are minor and do not impact effectiveness.
Internal audit is satisfactory. Any weaknesses are minor and do not impair effectiveness or
reliance on audit findings.
Weak:
Board approved policies are inadequate or incomplete. Policy is deficient in one or more
material respects. The liquidity risk management process is ineffective in identifying, measuring,
monitoring, and controlling liquidity risk. This may be true in one or more material respects,
given the complexity of the risks undertaken. Management does not fully understand, or chooses
to ignore, key aspects of liquidity risk. Management does not anticipate or take timely or
appropriate actions in response to changes in market conditions.
The contingency funding plan is inadequate or nonexistent. Plan may exist, but is not tailored to
the institution, is not realistic, or is not properly implemented. The plan may not consider costeffectiveness or availability of funds in a non-investment grade or CAMEL 3 environment.
Management information systems are deficient. Material information may be lacking or
inaccurate, and reports are not meaningful. Internal audit coverage is nonexistent or ineffective
due to one or more material deficiencies.
Sources of liquidity risk:

Incorrect judgment and complacency.
Unanticipated change in cost of capital.
Abnormal behavior of financial markets.
Range of assumptions used.
Risk activation by secondary sources.
Break down of payments system.
Macroeconomic imbalances.
Page 39 of 84
CHAPTER FOUR
(Liquidity Management-Central banks requirements)
Page 40 of 84
4.1 Central Banks Liquidity Management:

The liquidity management of a central bank is defined as the framework, set of instruments
and especially the rules the central bank follows in steering the amount of bank reserves in order
to control their price (i.e. short term interest rates) consistently with its ultimate goals (e.g. price
stability). The note presents a basic theory of liquidity management in a framework of substantial
reserve requirements and averaging, focusing on the relationship between quantities (central
bank balance sheet items) and overnight rates and the involved signal extraction problems. Some
elements of a normative theory of liquidity management are suggested.
The purchase, sale and rediscount of bill of exchange and promissory notes drawn on and
payable in Bangladesh are also included in the activity of the bank. The bank acts as the lender
of last resort for the government as well as for the country's scheduled banks. All scheduled
banks are required to maintain a minimum reserve with the Bangladesh Bank. The present
statutory liquidity reserve (SLR) requirement is 18.5% of total demand and time liabilities, 5.5%
of which is to be maintained as cash reserve ratio (CRR), and the rest 13% as approved
securities. The SLR requirement for Islamic banks is 10% and they are to keep 5.5% of this
reserve as CRR and the rest 5.5% in approved securities.
h. Liquidity requirements of commercial banks

Bangladesh Bank runs a Deposit Insurance Scheme established under the Deposit Insurance
Ordinance 1984. The objective of the scheme is to safeguard the deposits of the customers with
both local and foreign deposit money banks doing business in Bangladesh. The deposits
amounting up to Tk. 100,000 of all customers in a scheduled bank are insured under the scheme.
All scheduled banks in Bangladesh are required to be members of the scheme and pay premium
on their deposits at a rate determined by the Bangladesh Bank from time to time. Bangladesh
Bank accumulates the premiums in the Deposit Insurance Fund.
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Year
SLR
CRR
2005
2006
2007
2008
2009
2010
16
18
18
18
18
18.5
4.5
5
5
5
5
5.5
b. Last few years SLR & CRR rate (Source: www.banglaseh-bank.org)
In the above table SLR and CRR are shown which was increased in 2006 from 2005 but after
that year it was stable to 2009. As a result of worldwide recession and our countrys inflation
rate, BB decided to amplify the SLR and CRR to secure and develop our countrys economy.
The global financial crisis that began in mid-2007 has renewed concerns about financial
instability and focused attention on the fundamental role of central banks in preventing and
managing systemic crises. In response to the turmoil, central banks have made extensive use of
both new and existing tools for supplying central bank money to financial institutions and
markets. In the face of the widespread financial market dislocations that began in August 2007,
central banks have expanded liquidity operations, actively deploying their balance sheets to
address all three types of liquidity shortages. While the inherent cause of the current crisis may
be rooted in coordination failures and informational asymmetries and so is not new the scale and
scope of the problem have necessitated measures in some countries that are clearly
unprecedented. In particular, because institutions have come to depend on market-based sources
of liabilities, replacing lost funding liquidity now requires interventions on a scale that is large
relative to the size of the central banks balance sheet in normal times.
4.1.a) Asset Liability Management Policy:

Asset Liability Management (ALM) is an integral part of Bank Management; and so, it is
essential to have a structured and systematic process for manage the Balance Sheet. Banks must
have a committee comprising of the senior management of the bank to make important decisions
related to the Balance Sheet of the Bank. The committee, typically called the Asset Liability
Committee (ALCO), should meet at least once every month to analysis, review and formulate
strategy to manage the balance sheet. In every ALCO meeting, the key points of the discussion
should be minuted and the action points should be highlighted to better position the banks
balance sheet. In every ALCO meeting, action points taken in the past ALCO meeting should be
reviewed to ensure implementation. Changes in market liquidity and or interest rates exposes
banks/ business to the risk of loss, which may, in extreme cases, threaten the survival of
institution. As such, it is important that senior management as well as the Board of Directors
must understand the existence of such risk on the balance sheet and they should ensure that the
structure of the institutions business and the level of balance sheet risk it assumes are effectively
managed, that appropriate policies and procedures are established to control and limit these risks,
and that resources are available for evaluating and controlling interest rate risk.
Page 42 of 84
Increasingly Asset Liability Management has become an integral part of Bank Management.
Banks are exposed to Balance Sheet Risk, where it is absolutely necessary for the management
of the bank to understand the existence of such risk and best manage the exposure to the risk.
The Asset Liability Committee (ALCO), comprising of the senior management of a bank, is
primarily responsible for Balance Sheet Management or more specifically Balance Sheet Risk
Management.
4.1..a.a) Liquidity Risk:

The risk that bank or business will be unable to meet its commitment as they fall due leading to
bankruptcy or rise in funding cost. It is the solvency of business and which has special reference
to the degree of readiness in which assets can be converted into cash with out loss. Banks
traditionally use the statutory liquidity reserve and their borrowing capacity in the volatile
interbank money market as the source of liquidity. But a conscious approach to measure and
monitor the liquidity is somewhat lacking in our market. We can learn and draw immense benefit
by sharing the best practices, tools and techniques of liquidity management.
4.1..a.b) Action Points

The ALCO takes decisions for implementation of any/all of the following issues:
Need for appropriate Deposit mobilization or Asset growth in right buckets to optimize
asset-liability mismatch.
Cash flow (long/short) plan based on market interest rates and liquidity.
Need for change in Fund Transfer Pricing (FTP) &/or customer rates in line with strategy
adapted.
Address to the limits that are in breach (if any) or are in line of breach and provide
detailed plan to bring all limits under control.
Address to all regulatory issues that are under threat to non-compliance.
4.1..a.c) Key Management Indicators:

The management of every bank sets different limits in managing risk and exposures. The current
limit of all indicators along with recent utilization is included for management review. Also trend
for last few months are also included for better understanding of the behavior of the indicators.
Some of the key management Indicators are as follows:
Wholesale Borrowing Guidelines:

A key control in the management of liquidity risk is a set of guidelines placed on each banks
need to raise funds from the wholesale market. This is a banks standard source of marginal
Page 43 of 84

funding. Typically, defined as the ability of a bank to raise funds from the wholesale market (or
interbank market), it is also the most vulnerable given the large size of individual deposits and
the relatively small number of potential counterparties.
To reduce the banks dependency on funds from the wholesale market (or the interbank market),
it should examine the funding products presently offered and consider whether other funding
products may diversify/expand the banks funding base. Separate amounts may be established
for local currency and foreign currency balance sheets. A banks capacity to borrow from the
external wholesale market depends on a number of factors:
- The size and turnover of the local market; our share of that market
- The credit limits imposed by our counterparties, etc.
- Stability of liquidity in the market.
Commitments:
A banks liquidity is very much vulnerable to undrawn commitments by customers. Undrawn
commitments may be unutilized by not drawing an overdraft limit of customers or any loan
commitments, which has not been drawn by customers. Customers have the right to ask for these
funds at any point in time and the bank is obligated to pay the customer. Thus a ceiling should be
set on a banks commitments to customers.
Loan Deposit Ratio:
Loan deposit ratio, typically calculated as the ratio of loans against deposits, is the most common
way to see a banks liquidity position. In an ideal scenario, loan deposit ratio should not exceed
80% (as 20% of DTL is required for statutory requirements). However, a bank may decide to
lend out its capital or raise funds from the inter bank with a view that market interest rates would
be low. But excessive lending (a high Loan Deposit Ratio) may expose a bank in serious
liquidity and interest rate risk as the market liquidity may tighten any time.
Medium Term Funding Ratio:
Banks typically make money by running mismatches, that is, by borrowing short term and
lending long term. However, short term deposits may go out of the bank upon maturity, whereas
a bank cannot call back long term landings. Thus a bank has to find the right combination for
longer term mismatch. Medium term funding ratio is calculated as the ratio of liabilities with a
contractual maturity of more than one year to assets with a contractual maturity of more than one
year. This ratio is intended to highlight the extent to which we are dependent on being able to
roll over short term deposits in order to fund medium term assets.
Maximum Cumulative Outflow (MCO):
Under normal conditions, the day-to-day management of liquidity relies on the effective control
of cash flow. Maximum cumulative outflow (MCO) guidelines control the net outflow (inflow
from asset maturity minus outflow from liability maturity) over the following periods: overnight,
one week and one month. The Treasury operation of a bank will review its funding capabilities
Page 44 of 84

and recommend the guidelines to senior management. These guidelines will be based on the
estimated wholesale funding shortfall after calculating the forecast/contractual cash flow of the
entity under normal business conditions. The basis of cash flow measurement is to assume that
funds are repaid on their contractual maturity date. For wholesale funds, this is sufficient.
However, it is not realistic to assume that retail business will behave in this manner. In practice,
current accounts and savings deposits are not withdrawn the next day and overdrafts are not
repaid on demand. Retail business can be expected to follow more or less predictable patterns
being influenced by seasonal factors and other trends. In monitoring liquidity, an estimate should
be made of the expected change in such assets/liabilities with the resulting need for higher/lower
funding from the wholesale market. Whilst systems constraints will often impede frequent and
timely updating of cash flow data relating to retail business, it is nevertheless important to
include realistic estimates within the MCO data which Treasury use to manage the banks
aggregate cash requirements.
4.1.a.d) Maturity Profile Mismatch:

A key issue that banks need to focus on is the maturity of its assets and liabilities in different
tenors. A typical strategy of a bank to generate revenue is to run mismatch, i.e. borrow short term
and lend longer term. However, mismatch is accompanied by liquidity risk and excessive longer
tenor lending against shorter-term borrowing would put a banks balance sheet in a very critical
and risky position.
To address this risk and to make sure a bank does not expose itself in excessive mismatch, a
bucket-wise (e.g. next day, 2-7 days, 7 days-1 month, 1-3 months, 3-6 months, 6 months-1 year,
1-2 year, 2-3 years, 3-4 years, 4-5 years, over 5 year) maturity profile of the assets and liabilities
is prepared to understand mismatch in every bucket. However, as most deposits and loans of a
bank matures next day (call, savings, current, overdraft etc.), bucket-wise assets and liabilities
based on actual maturity reflects huge mismatch; although we know that all of the shorter tenor
assets and liabilities will not come in or go out of the banks balance sheet.
As a result, banks prepare a forecasted balance sheet where the assets and liabilities of the nature
of current, overdraft etc. are divided into core and non-core balances, where core is defined as
the portion that is expected to be stable and will stay with the bank; and non-core to be less
stable. The distribution of core and non-core is determined through historical trend, customer
behavior, statistical forecasts and managerial judgment; the core balance can be put into over 1
year bucket whereas non-core can be in 2-7 days or 3 months bucket.
Page 45 of 84
CHAPTER FIVE
(Liquidity Management of CBL)
Page 46 of 84

5.1 Current Assets of CBL:
Current assets are all assets that a person can convert readily to cash to pay outstanding debts and
cover liabilities without having to sell fixed assets. It include cash on hand, bank accounts, and
marketable securities that are not tied up in long-term investments. Current assets are important
to businesses because they are the assets that are used to fund day-to-day operations and pay
ongoing expenses. The current assts of CBl are:
i.
ii.
iii.
iv.
v.
Cash in hand
Balance with other banks and financial institutions
Money at call and short notice
Investments
Loans and advances
5.2 Current liabilities of CBL:

Current liabilities are a banks debts or obligations payable within one year. Current liabilities
appear on the banks balance sheet and include short-term debt, accounts payable, accrued
liabilities, and other debts. Essentially, these are bills that are due to creditors and suppliers
within a short time. Normally, baks withdraw cash or liquidate current assets to pay their current
liabilities. The current liabilities of CBL are:
i.
ii.
iii.
iv.
Borrowing from other banks, financial institutions and agents

Deposits
Other accounts
Provision and other liabilities
5.3 CBLs liquidity Risk Management Framework:

Our Treasury function is responsible for the management of liquidity risk. Our liquidity risk
management framework is designed to identify measure and manage the liquidity risk position of
the Group. The underlying policy, including the banks risk tolerance, is reviewed and approved
regularly by the Management Board. The policy defines the liquidity risk limits which are
applied to the Group. Our liquidity risk management approach starts at the intraday level
(operational liquidity) managing the daily payments queue, forecasting cash flows and factoring
in our access to Central Banks. It then covers tactical liquidity risk management dealing with the
access to secure and unsecured funding sources. Finally, the strategic perspective comprises the
maturity profile of all assets and liabilities (Funding Matrix) on our balance sheet and our
issuance strategy. Our cash flow based reporting system provides daily liquidity risk information
to global and regional management. Stress testing and scenario analysis plays a central role in
our liquidity risk management framework. This also incorporates an assessment of asset
liquidity, i.e. the characteristics of our asset inventory, under various stress scenarios.
Page 47 of 84
Short-Term Liquidity
Our reporting system tracks cash flows on a daily basis over an 18-month horizon. This system
allows management to assess our short-term liquidity position in each location, region and
globally on a by-currency, by-product and by-division basis. The system captures all of our cash
flows from transactions on our balance sheet, as well as liquidity risks resulting from off-balance
sheet transactions. We model products that have no specific contractual maturities using
statistical methods to reflect the behavioral characteristics of their cash flows. Liquidity outflow
limits (Maximum Cash Outflow Limits), which have been set to limit cumulative global and
local cash outflows, are monitored on a daily basis to safeguard our access to liquidity. As of
year-end 2009 we have implemented a new reporting system which focuses on contractual cash
flows from wholesale funding sources on a daily basis over a 12-month horizon. The system
captures all cash flows from unsecured as well as from secured funding transactions. Wholesale
funding limits, which are calibrated against our stress testing results and approved by the
Management Board; describe our maximum tolerance for liquidity risk. These limits apply to the
cumulative global cash outflows and are monitored on a daily basis.
Unsecured Funding
Unsecured funding is a finite resource. Total unsecured funding represents the amount of
external liabilities which we take from the market irrespective of instrument, currency or tenor.
Unsecured funding is measured on a regional basis by currency and aggregated to a global
utilization report. The management board approves limits to protect our access to unsecured
funding at attractive levels.
Asset Liquidity
The asset liquidity analysis forms an integral piece of stress testing and tracks the volume and
booking location within our consolidated inventory of unencumbered, liquid assets which we can
use to raise liquidity via secured funding transactions. Securities inventories include a wide
variety of different securities. As a first step, we segregate illiquid and liquid securities in each
inventory. Subsequently we assign liquidity values to different classes of liquid securities. The
liquidity of these assets is an important element in protecting us against short-term liquidity
squeezes.
In addition, we keep a dedicated strategic liquidity reserve containing highly liquid and central
bank eligible securities in major currencies around the world to support our liquidity profile in
case of potential deteriorating market conditions. The strategic liquidity reserve amounts to EUR
54.9 billion as of December 31, 2009. This reserve is held in addition to the banks cash balance
and the collateral the bank needs to support its clearing activities in euro, U.S. dollars and other
currencies which are held in separate portfolios around the globe.
Page 48 of 84
5.3.a) Treasury Desks:

CBL has a dedicated Treasury team which is capable of providing all treasury solutions through
wide range of Treasury products. CBL Treasury has five different desks to prove superior service
with respect to pricing, best possible solution for customer requirement and market information.
The different Treasury Desks are as follows:
5.3.a.a) The Money Market Desk:

The CBL money market desk is one of the most active and efficient desk in the inter-bank
market of the country. Dealers exercise all the existing MM products like call money, term
money, swap, Repo & Reverse- Repo & securities swap etc.
5.3.a.b) Fixed Income & Investment Desk:

Banks need to maintain liquidity in form of CRR (Cash Reserve Ratio) & SLR (Statutory
Liquidity Ratio) as per Banking Company Act. Investment in various Govt. securities like
Treasury bills and Bonds in different tenors, debentures qualify for SLR. CBL actively
participates in Govt. Securities auctions for investment in SLR maintenance and also generation
of risk free fixed return on Securities Investment. CBL Fixed Income & Investment Desk also
participates in secondary market trading of Govt. Securities though CBL is not a Primary Dealer.
5.3.a.c) Asset Liability Management (ALM) Desk:

CBL has a highly efficient ALM desk. The ALM Desk provides analysis, instruction and
guidance in the area of asset liability management in order to promote the financial well being of
a financial institution. Asset liability management is the process of ensuring an FI remains
financially viable through adequate capital, stable earnings, and sufficient liquidity.
5.3.a.d) Foreign Exchange Desk:

CBL-Forex desk offers full range of vanilla and derivative products in forex.
These include spot, forward (USD/BDT, Major cross currency), swaps in addition to high yield
structured deposits linked to currencies, interest rates. CBL- forex desk is one of the leading
market maker in USD/BDT spot, swaps, forward transactions in inter-bank market. CBL has
good sources of forex through its own export customers, Non-residence Remittances and local &
multinational corporate houses remittances / exports.
CBL is also well equipped to price world major currency spot & forward prices. CBL treasury is
connected to the international market through on-line Dealing Platforms of different international
banks enables CBL to quote very competitive prices on world major currency spot & forwards.
Page 49 of 84
5.3.a.e) Corporate Sales Desk:

CBL Corporate Sales Desk assists clients in managing their risk exposures so as to minimize the
impact of market volatility on the company. This includes analyzing the business/balance sheet
structure of the company and quantifying the net exposures in terms of interest rates, foreign
exchange, mismatch in cash flows, etc. Based on the risk appetite of a client, hedging strategies
are then tailor-made to suit the client's needs. Up-to-date market information and research, a
wide range of hedging products and a team of qualified treasury specialists are some of the main
features of the corporate sales desk.
5.3.a.f) Other miscellaneous activities:

CBL Treasury brings out a daily & quarterly financial news update for the corporate houses and
Non Residence Business houses. It contains a detail commentary on the money & forex market
movement. One can avail the copies from the download section of our website.
5.3.b) Liquidity Statement of The City Bank Limited:

The liquidity statement of assets and liabilities as on the reporting date has been prepared on the
following basis:
Balance with other banks and financial institutions, money at call and short notice etc are
on the basis of their maturity term.
Investments are on the basis of their respective maturity.
Loans and advances are on the basis of their repayment maturity.
Fixed assets are on the basis of their useful life.
Other assets are on the basis of their realization or amortization.
Borrowing from other banks. Financial institutions and agents are as per their maturity or
repayments.
Deposit and other accounts are on the basis of their repayment or adjustments schedule.
Page 50 of 84

Liquidity Statement
(Analysis of the maturity of assets and liabilities) As at 31 December, 2009.
(000 Taka)
Particulars
Assets
2009
2008
2007
Cash in hand
Money at call and short notice
Investments
Loans and advances
Fixed assets including premises, furniture and
fixtures
Other assets
Non banking assets
Total Assets (a)
Liabilities:
Borrowing from other banks, financial institutions
and agents
5142660.56
9850784.09
299779.17
10586452.61
43486421.80
2788065.87
3120173.30
4573690.31
220000.00
9031698.88
34420944.98
2514383.97
3477567.05
4782474.42
1830000.00
7550606.49
26788466.14
1390732.20
4312637.46
3233684.61
2935556.72
76466801.56
57114576.06
48755403.01
992651.50
2104480.29
850000.00
Deposits
Other accounts
59866593.87
2517686.13
7225635.78
70602567.29
43239466.44
1794868.07
5758284.74
52897099.52
38916353.90
1623280.13
4491401.99
45881036.03
5864234.28
4217476.53
2874366.99
Total liabilities(b)
Net Liquidity Gap (a-b)
Depos it
C as h
6000000
60000000
5000000
50000000
4000000
40000000
30000000
1000000
10000000
2009
2008
2007
The cash in hand has increased in 2009. It

was worse in the year of 2008.
Depos it
20000000
2007
2000000
2008
C as h
2009
3000000
Deposit level is increasing year by year. It

must be a good sign for an bank.
Page 51 of 84
L oans & A dvanc es

2500000
2000000
1500000
L oans &
A dvanc es
1000000
BFB
500000
2009
2007
2008
2009
45000000
40000000
35000000
30000000
25000000
20000000
15000000
10000000
5000000
0
BFB
As the deposit is increasing, amount of load

& advances is also increasing year by year
2008
2007
Borrowing from other banks was in a highest

position in 2008, but it is decreasing.
L iquidity G ap
8000000
6000000
4000000
2000000
0
L iquidity G ap
2009
2008
2007
5864234.28
4217476.53
2874366.99
i. Liquidity Statement Analysis:

If I think about cash in hand then I can say that cash amount is increasing day by day. So that it
can be easily understood that bank carries huge amount of money in hand.
In the deposits site, it is easily understood that deposit amount increases in very high level. As a
result of huge amount of deposit, cash and credit increase in high level. If we see in the graph of
deposit and cash then it will be easily visible to us.
Lastly, I am going to tell about liquidity gap graph that liquidity gap was increasing year to year.
5.3.c) CRR and SLR of CBL:

The minimum Cash Reserve Requirement on the Banks time and demand liabilities at the rate
of 5% has been calculated and maintained with Bangladesh Bank in current account and 18%
Statutory Liquidity Ratio, including CRR, on the same liabilities has also been maintained in the
Page 52 of 84

form of treasury bills, bonds and debentures including FC balance with Bangladesh Bank. Both
the reserves maintained by the bank are in excess of the statutory requirements, as shown below:
CRR
2009
2008
2007
2006
Required Reserve
2688313.00
2284419.00
2171060.00
1945317.00
Actual
reserve 2849674.00
maintained
2321252.00
2201544.23
1957657.00
Surplus/(deficit)
36833.00
30484.23
12340.00
Required Reserve 9664246.00

(including CRR)
8210229.00
7821976.00
7008262.00
Actual
reserve 13050517.00
maintained
(including CRR)
10312595.00
10696769.00
8370218.33
Surplus/(deficit)
2102366.00
2874793.00
1361956.33
161361.00
SLR
3386271.00
d. CRR and SLR of CBL (Source: Annual reports 2006, 2007, 2008, and 2009)
CRR
3000000
2000000
1000000
0
2009
2008
RR
2007
AR M
2006
S /D
All the four years, CBL has maintained a surplus in CRR. Although it was in a near
to steady position, but a good management of this reserve ratio indicate a good
liquidity management framework of CBL.
Page 53 of 84
SLR
15000000
10000000
5000000
0
2009
2008
RR
2007
AR M
2006
S /D
All the four years, CBL has maintained a surplus in SLR. However, it was also in a
steady amount.
j. CRR and SLR of CBL
From the above graphs it is easily imagine that CRR was increasing and SLR was also increasing
last 2006 year to 2009.
5.3.d) Estimating CBLs liquidity needs:

Varies kinds of experiments were made in estimating the quantum of liquidity for a particular
period. For that reason, bank fund managers estimate liquidity demand based on their past
experiences and knowledge.
Among all these methods, the following two methods are mostly useda)
b)
The sources and uses of fund approach.

Liquidity indicator approach.
5.3.d.a) The sources and uses of fund approach:

The more the deposits are, the more the liquidity will be. In other words, deposits will increase if
loans decrease. The less the deposits are, the less the liquidity will be. In the other words,
liquidity decreases with the increase in loans.
The following table shows the imaginary sources and uses of fund:
Page 54 of 84

(000Tk.)
Period
Deposit level
Changes in deposit
2009
2008
2007
2006
59866593.87
43239466.44
38916353.90
40287228
16627127
4323113
-1370874
Period
Loan level
Changes in loan
2009
2008
2007
2006
43486421.80
34420944.98
26788466.14
9065477
7632479
-4000556
30789021.98
Period
Changes in deposit
Changes in loan
Liquidity
surplus/deficit
2009
2008
2007
2006
16627127
4323113
9065477
7632479
7561650
-3309366
-1370874
-4000556
-5371430
e. The sources and uses of fund approach (Source: Annual Reports)
Except the estimation in 2009, all the remaining years have negative liquidity balance. Thus the
manager is required to employ 2009 years balances in profitable investments. On the other hand,
the manager would manage the cheapest source to fulfill the deficit liquidity in years 2008 and
2007.
5.3.d.b) Liquidity indicator approach:

Most of the banks estimate liquidity based on the ratios on specific periods. There are two types
of liquidity indicatorsI.
Assets based liquidity ratios: (1.1)
All the ratios are calculated based on total amount of required items.
S.N.
1
2
3
4
5
Name of Ratios
Ratios
Cash position indicators
0.84329: 1
Liquid securities indicators
0.1592915: 1
Risk less assets position
1.0025817: 1
Liquidity assets ratio
0.273666: 1
Capacity ratio
0.574189: 1
f. Assets based liquidity ratios
Page 55 of 84
Here, cash and deposit generate 84% of total assets which is sufficient; investment in
government securities is 16%. Cash, deposit and governments securities generate 100% of total
assets so that we can say; cash, deposit and government securities are main sources of total
assets. Cash, government securities and reserve are 27% on total assets. If we can say about
capacity ratio then we see that net loan is 57% of total assets.
II
Liability based liquidity ratios: (1.2)

All the ratios are calculated based on total amount of required items.
S.N.
1
2
Name of Ratios
Core deposit ratio
Deposit composition ratio
Ratios
0.7789016: 1.
0.2110333:1.
g. Liability based liquidity ratios
Here, current deposits are 21% of term deposit so that we can say that term deposit is greater
than current deposits. Core deposits are 78% of total assets which means 78% assets generated
from core deposits.
5.3.e) Trend Analysis:

a. Trend Analysis of Deposit of The City Bank Limited:
T rend A nalys is of Depos its
40287
38916
43239
59866
2006
2007
2008
2009
F . Depos its
2010
2011
A . Depos its
From this graph I find that by increasing 1 year the company Deposits is increasing day by day.
During the year 2009 there is a positive growth of the deposit. This betterment in deposit was the
result of strategic plan. So overall the deposit growth rate shows a satisfactory performance of
the company.
Page 56 of 84

b. Trend Analysis of Loans of The City Bank Limited:
T rend A nalys is of L oans
30789
26788
34420
43486
2006
2007
2008
2009
F . L oans
2010
2011
A . L oans
From this graph I find that by increasing 1 year the company Loans is increasing day by day.
During the year 2009 there is a positive growth of the loans and advances. This betterment in
loans and advances was the result of strategic plan. So overall the deposit growth rate shows a
satisfactory performance of the company.
5.3.f) Ratio Analysis (Liquidity Ratios):

In balance sheet measures, we can express ratio between certain assets and liabilities, can have
many useful applications for a bank. Many banks use ratios in addition to detailed cash flow
projections as a tool for high level planning and for formulating simple operating rules. External
analysts, regulatory agencies and investors find them practical, because a ratio can give a quick
indication of the overall liquidity position. Ratios make it easy to compare liquidity between
different institutions or to calculate average liquidity for an entire sector of the financial industry.
Ratios are also popular because of their limited data pre-requisites.
It takes systematic planning and inputs from all parts of the banking organization to draw up a
credible cash-flow chart, but all you need to calculate a ratio is the last balance sheet. However,
the real information value of a ratio lies not in its absolute number at a certain balance sheet date.
Rather than looking at such a single snapshot, management should be concerned with the trends
of the ratios over time. While ratios can seldom provide answers about changes in the bank's
liquidity or operational efficiency, marked trends in their development can point to questions that
merit further investigation.
6.5Current Ratio:
Probably the best-known liquidity ratio is the Current Ratio, the quotient of current assets and
current liabilities. Current assets and current liabilities are commonly defined as falling due
within a year from the balance sheet date.
Page 57 of 84
Current Ratio = (Current assets / Current liabilities)

Year
2006
2007
2008
2009
Ratios
1.318364
1.102125
1.17803
1.311393
CR
1.4
1.2
1.318364
1.102125
1.17803
1.311393
0.8
2006
2007
2008
2009
One of the most important issues in liquidity management is to determine which proportion of
the assets should be held as a liquidity reserve and how much can be loaned out. The current
ratio is of no help in this regard. In fact, an institution that has loaned all its funds and has zero
liquidity would have the same current ratio as a bank that has not made a single loan and holds
all its current assets as vault cash. Despite its limited information value, a bank might still need
to track and publish the current ratio, simply because it is used so widely by donors and
propagated in many comparative studies of the banking sector.
From this above graph we see that in 2006, current ratio was highest but after that year it reduced
and in 2008, 2009 it increased.
2. Cash Position Indicator:

The cash position indicator compares vault cash and demand deposits at other banks including
the central bank to the total asset base of the institution:
Cash Position Indicator = (Cash and deposits due from banks/Total assets)
Year
2006
2007
2008
2009
Ratios
0.9212
0.9028
0.843121
0.883085
Page 58 of 84
C PI
0.95
0.9
0.85
0.9212
0.9028
0.843121
0.883085
CPI
0.8
2006
2007
2008
2009
This ratio obviously ranges between 0 and 1, where a larger proportion of cash implies that the
institution is in a stronger position to handle immediate cash needs.
The City Bank Limited was stronger in 2006 but that time it reduced to 2008 and in 2009 it
increased.
3. Capacity Ratio:
The mirror image to the cash position is captured by the capacity ratio, which should be
understood as a negative liquidity indicator:
Capacity Ratio = (loans/ Total assets)
Year
2006
2007
2008
2009
Ratios
0.648927
0.549441
0.602654
0.568697
CR
0.65
0.6
0.55
0.648927
0.549441
0.5
0.602654
0.568697
CR
0.45
2006
2007
2008
2009
Page 59 of 84

The higher the capacity ratio, the lower the institution's liquidity. Even at zero liquidity, the
capacity ratio will be less than 1, because of the necessary investment in fixed assets.
In 2007 city bank had highest liquidity position and in 2006 it was lowest liquidity position.
4. Total Deposit Ratio:

A large base of retail deposits would be evidenced by a high total deposit ratio.
Total Deposit Ratio: Total Deposit Ratio = (Total customer deposits/Total assets)
Year
2006
2007
2008
2009
Ratios
0.861632
0.831484
0.788493
0.81584
T DR
0.9
0.85
0.861632
0.8
0.831484
0.788493
0.81584
TDR
0.75
2006
2007
2008
2009
The higher the total deposit ratio, the lower is the perceived liquidity risk because contrary to
purchased funds, retail deposits are less sensitive to a change in interest rates or a minor
deterioration in business performance.
In 2006 city bank had lower liquidity risk but in 2008 it was highest liquidity risk and in 2009 it
was moderately stronger position.
5. Loan-to-Deposit Ratio:
Many banks and bank analysts monitor loan-to-deposit ratios as a general measure of liquidity:
Loan - to -Deposit Ratio = (Net loans/Total deposits)
Page 60 of 84

Year
2006
2007
2008
2009
Ratios
0.753137
0.660796
0.764311
0.69707
L T DR
0.8
0.7
0.764311
0.753137
0.660796
0.69707
L TDR
0.6
2006
2007
2008
2009
Loans are presumably the least liquid of assets, while deposits are understood as the primary
source of funds. A high ratio indicates illiquidity, because in this case a bank is fully loaned-up
relative to its stable funding. Implicitly, it is assumed that new loans must be financed with large
purchased liabilities. A low ratio suggests that a bank has additional liquidity, since it can grant
new loans financed with stable deposits.
In 2008 bank had higher loan amount so it was higher illiquid but in 2007 city bank had lower
ratio which suggested that it had additional liquidity.
6. Reserve Ratio:
Although there is no shortage of different liquidity indicators in the commercial banking
literature, surprisingly there is rarely mention of a ratio that compares cash assets to customer
deposits.
Reserve Ratio = (Cash assets/Customer deposits)
Year
2006
2007
2008
2009
Ratios
0.069127
0.085769
0.069281
0.082425
Page 61 of 84
RR
0.1
0.05
0.069127
0.085769
0.069281
0.082425
2008
2009
RR
0
2006
2007
One could debate whether the numerator of the ratio should be cash assets or liquid assets. The
idea of a liquidity reserve would obviously be best captured by including all liquid assets in the
calculation. However, the analogy to a minimum reserve requirement imposed by the central
bank is most obvious when limiting the numerator to vault cash and demand deposits with other
banks.
In 2007 city bank had higher in cash position and in 2006 had lower cash position but in 2009 it
was moderately well position.
5.3.g) Handling CBLs liquidity crisis:

Liquidity management is an important problem of commercial banks. There are many possible
reasons which may cause such problem. Some of the reasons of liquidity crisis are:
Short-term investment should be made out of short-term funds and long term investment
should be made from long term funds.
Arrangements can be made to make repayments of liabilities not in bulk but in
installments. It lowers the banks risk in liability repayment and need to make a large
single repayment will not arise at a time.
Indifference and or lack of cautious and close observation to deposits and loan behavior
of the large prime customers.
If counter service is provided by efficient, skilled and well-behaved persons, then the
clients mainly depositors and installment takers of borrowers, will patiently wait without
any objection and do not complain to the higher authority about the unavailability of
money. Thus, no bad impression about the service of the bank spreads among the public.
Page 62 of 84
If bank maintains regular linkage building rapport with these institutions, they may get
regular and complete data and information from the bank with detail clarifications
regarding liquidity and other operational trends of banks. With the help of such
information and advice, understanding and reporting about banks liquidity will be easier
with clarifications.
To overcome crisis, banks should take develop connections and accessibility to the
money market players and can take advance steps to manage inter bank loans or sell
short term securities in the money market, whenever required. Thus, if liquidity crisis
arises, bank can overcome the situation by collecting necessary funds. The bank, which
sells securities with more reliability, credibility and stability, has the ability to avoid
liquidity crisis timely or even can avoid the same in more efficient way.
Management of bank by professionally skilled and experienced personnel of both
deposits and loan if done properly can avoid many problems not to speak the liquidity.
Liquidity crisis must occur if loan cannot be recovered in the right time and right amount.
On the other hand, the loan portion can be converted into debenture can be sold in the
market for cash and thereby liquidity is managed by managerial maneuvering. By
efficient and planned loan recovery and by ensuring loan conversion opportunity,
liquidity crisis can be avoided and or minimized by the experienced and professionally
trained bank personnel.
Page 63 of 84
CHAPTER SIX
(Comparative Analysis with IFIC Bank Ltd.)
Page 64 of 84
6.1 IFIC Profile

International Finance Investment and Commerce Bank Limited (IFIC Bank) is banking company
incorporated in the Peoples Republic of Bangladesh with limited liability. It was set up at the
instance of the Government in 1976 as a joint venture between the Government of Bangladesh
and sponsors in the private sector with the objective of working as a finance c company within
the country and setting up joint venture banks/financial institutions aboard. In 1983 when the
Government allowed banks in the private sector, IFIC was converted into a full fledged
commercial bank.
Initially, the bank's authorized capital was Tk 100 million divided into 1 million ordinary shares
of Tk 100 each. The paid up capital was Tk 71.5 million, which rose to Tk 80 million in 1986.
60% of the shares of the company were A-class ordinary shares owned by its sponsors and
members of the general public. The remaining 40%, grouped as B-class ordinary shares, were
held by the government of Bangladesh. On 31 December 2000, the authorised and paid up
capital, after being enhanced several times, stood at Tk 500 million and 279.35 million
respectively. On that date, total shareholders equity of the bank was Tk 1,120.48 million and its
reserve funds totaled Tk 648.20 million, which comprised statutory reserves (Tk 378.48 million)
and general reserve and retained surplus (Tk 269.72 million). The bank is listed with Dhaka and
Chittagong stock exchanges.
The Government of the Peoples Republic of Bangladesh now holds 32.75% of the share capital
of the Bank. The Government of the Peoples Republic of Bangladesh now holds 32.75% of the
share capital of the Bank. Directors and Sponsors having vast experience in the field of trade and
commerce own 11.42% of the share capital and the rest is held by the general public.
6.2 Bank's Mission

The IFIC Banks Mission is to provide service to their clients with the help of a skilled and
dedicated workforce whose creative talents, innovative actions and competitive edge make their
position unique in giving quality service to all institutions and individuals that we care for.
They are committed to the welfare and economic prosperity of the people and the community,
for they drive from them our inspiration and drive for onward progress to prosperity.
They want to be the leader among banks in Bangladesh and make our indelible mark as an active
partner in regional banking operating beyond the national boundary.
In an intensely competitive and complex financial and business environment, they particularly
focus on growth and profitability of all concerned.
Page 65 of 84
6.3 Background of the IFIC bank.

When the Government decided to open up banking in the privet sector in 1983 the above finance
company was converted a full- fledged commercial Bank. Along with this, the Government also
allowed four other commercial banks in the private sector. Subsequently, the Government
denationalized two banks, which were, then fully Government-owned.
While in all these Banks Government is holding nominal 5 percent shares, an exception was
made in the case of the Bank. It retained 40 percent shares of the Bank.
The decision by the Government to retain 40 percent shares in IFIC Bank was in pursuance of
the original objectives, namely, promotion of the participation of Government and private
sponsors to establish joint venture Banks, financial companies, branches and affiliates abroad.
Ownership Structure
The sponsors hold ownership of the Bank in the private sector and Government of the Peoples
Republic of Bangladesh. Sponsors and individuals now own about 62 percent of the share capital
and the Government owns a little more than 38 percent of the shares.
Capital and Reserves
The Bank started with an Authorized capital of Tk. 100 million in 1983. Paid up capital at that
time stood at Tk. 71.50 million only. Over the last 19 years, the authorized and paid-up capital
has increased substantially. The paid capital stood at Tk. 406.39 million as on December 31,
2001
The Bank has built up a strong reserve base over the years. In last 19 years its Reserves and
Surplus have increased overly. As against Tk. 21.20 million only in 1983 Reserve and surplus
increased to Tk.622.53 million in 2001. This consistent policy of building up Reserves has
enabled the Bank to maintain a better adequacy ratio as compared to others.
With the active support and guidance from the Government, the bank has been showing a steady
and improved performance. In its fifteen years operation, the bank has earned the status of
leading in terms of both business and goodwill.
Distribution of Branches
The Bank covers by its activities all the important trading and commercial centers of the country.
As on December 22, 2002 it had 55 branches within Bangladesh.
Page 66 of 84
The IFIC Bank Limited

Liquidity Statement
(Analysis of the maturity of assets and liabilities) As at 31 December, 2009.
Particulars
(in million Taka)
2009
2008
Cash in hand
3153.61
1202.26
2205
2130
Investments
1058.64
903.16
Loans and advances
4348.64
3442.09
Fixed assets including premises, furniture and fixtures
2788.06
2514.38
Other assets
431.26
323.36
9646.80
5711.45
Borrowing from other banks, financial institutions and 3926.51

agents
Deposits
5986.65
2104.48
Other accounts
2517.68
1794.86
722.56
575.82
Total liabilities(b)
7060.25
5289.70
Net Liquidity Gap (a-b)
1664234
4217476.53
Assets
Non banking assets

Total Assets (a)
Liabilities:
4323.94
Page 67 of 84

6.4 Comparative Analysis with IFIC Bank Limited:
Comparative position of CBL and SBL, here cash, deposits and government securities are
considered as liquid assets of two required banks. All the amounts is shown in million.
CBL
Year
2006
2007
2008
2009
Cash
(in million Tk.)
2826.39
3477.57
3120.17
5142.66
Deposit
(in million Tk.)
40881.41
40539.63
45034.34
62384.28
Govt. securities
(in million Tk.)
5873.02
7094.71
7608.21
8468.75
g. Comparative Analysis with IFIC Bank Limited
IFIC
Year
Cash
Deposit
Govt. securities
(in million Tk.)
(in million Tk.)
(in million Tk.)
2006
2413.29
35612.42
3522.27
2007
2530.75
28731
6943
2008
1230.53
22043.39
3272
2009
3153.61
44220
5623.35
h. Comparative Analysis with IFIC Bank Limited
From these tables we can easily understand that The City Bank Limited (CBL) is in better
position than IFIC bank ltd.. Here cash, deposit and government securities position are
considered as a comparative tools from 2006 to 2009 years.
Now, I am going to present the last liquidity position of CBL and IFIC in graphs.
Page 68 of 84
C as h in 2009
6000
4000
5142.66
C as h
3153.61
2000
0
CBL
IF IC
Cash is the most liquid asset of any organization. So, when the question arises on liquidity, at
first the cash should be considered. Here the cash in hand position of two selected bank has been
considered.
In case of cash, The City Bank Limited is higher position than Standard Bank Limited.
Depos it in 2009
80000
60000
40000
62384.28
20000
Depos it in 2009
44220
0
CBL
IF IC
Deposit is one of the most important sources of income for any bank. Also it is the source of
liquid asset of a bank. So, higher the deposit rate of a bank, better it can mange its liquidity.
Here, from the graph, we can observe that, CBL has a better deposit rate then IFIC bank. So it is
expected that it will be able to manage its liquidity more effectively then IFIC bank.
Page 69 of 84
G ovt. S ec urities
10000
8000
6000
8468.75
5623.35
4000
G ovt. S ec urities
2000
0
CBL
IF IC
k. Comparative Analysis with IFIC Bank Limited
Here, only the short term securities have been considered. Short tern Govt. securities are almost
similar to any current asset as it can be liquidated very quickly & can be converted in liquid cash.
As CBL is again in a better position, so the CBL is also in a favorable position compared to IFIC
bank to meet any kind of liquidity crisis.
6.5 Ratio analysis:
Ratios
Current ratio
Cash position indicator
Capacity ratio
Total deposit ratio
IFIC Bank
1.085
0.698
.618
0.686
CBL
1.311
0.883
0.568
0.815
Page 70 of 84
Year 2009
1.5
1
Current ratio
0.5
0
IFIC
CBL
The current ratio of IFIC & CBL is almost closed to each other. However, the city bank was in a better
position in year 2009 regarding its current ratio.
Cash position indicator

1
0.5
0
year 2009
IFIC
CBL
Cash position indicator basically indicates the total amount of cash & deposit among the total asset. As
we have seen before, CBL has a greater liquid cash amount then of IFIC. So here CBL is somehow in a
better position regarding liquidity then IFIC.
Page 71 of 84
Capacity Ratio
0.62
0.6
0.58
Capacity
Ratio
0.56
0.54
IFIC
CBL
Year 2009
The liquidity surplus or deficit basically depends on the amount of deposit & loan. If the loan amount
increases more fluently then the deposit level, a deficit on liquidity may arise. The situation above seems
like this. IFIC is loosing their deposits year by year, but their loan amount is increasing. So again CBL is
a nearby constant situation in this regard.
Total deposit ratio
0.85
0.8
0.75
0.7
0.65
0.6
IFIC
CBL
IFIC
CBL
Year 2009
So, the loan to deposit level among the total asset is presented here. CBL is in a good situation & it is
maintaining the balance of its deposit & loans. IFICs loan level is increasing year by year, but the deposit
level is decreasing. It is alarming for them.
Page 72 of 84
6.5 ANALYZING LIQUIDITY
Net Working Capital:

IFIC
2008
2009
Current asset
220,555,925
316,512,305
Less: Current Liability
625,436,987
999,906,522
Net working capital
(404,881,062)
(683,394,217)
CBL
Current asset
284,005,632
214,854,300
Less: Current Liability
367,620,005
456,906,522
Net working capital
(83,614,373)
(205,598,693)
Net Working Capital is a measure of liquidity of a firm. It is not a ratio, it measure a minimum
level of net working capital that the firm should maintain.
The net working capital of both the banks (IFIC, CBL) in both the years are negative. That
means, they are suffering from liquid asset (cash) to meet the current liabilities. The net working
capital have been decreased in 2009 than in both the companies, IFIC and CBL. The reason is
that the increased of current liabilities much than increased of current assets.
In comparison, CBL is better position of net working capital than IFIC in both the years.
Page 73 of 84
CHAPTER SEVEN
(Findings, Conclusion & Recommendation)
Page 74 of 84
7.1
Major findings:
First of all, this is to be remembered that it is not a research report. So, the report covers an
existing banking system that has been observed in the last twelve weeks. The findings of this
report describe the tasks that take place in the Credit division of CBL. Here I mainly focused on
the problems of the credit division of the bank these findings are completely from my personal
point of view. Those are given below:
1. From my personal working experience, Ive observed that CBL doesnt have any full
bodied liquidity management framework that ensures the maintenance of its liquidity.
The situation was worse in previous years, which can be easily understood by seeing the
charts of different ratio analysis. However, they recovered their lacking by taking
different steps, but steel they are avoiding this problem. I think this is a major problem of
the bank & again they are going to face same kind of situation if they dont take
necessary steps immediately.
2. There is no developed strategy, policies & practices to manage liquidity risk in

accordance with the risk tolerance & to ensure that the bank maintains sufficient
liquidity. The policy, which is now somehow followed by CBL, is not sufficient for
maintaining its goodwill in the market.
3. There is no sound process for identifying, measuring, monitoring & controlling liquidity
risk. The treasury department gives more emphasis on foreign exchange, Money market
activities, corporate sales & Market research. As they are handling many activities in a
single department, so it is tough for them to manage every issue very strictly.
4. Supervisors are busy with the expansion plan of the bank, rather then development of it.
They doesnt regularly perform any assessment of banks overall liquidity risk
management framework & liquidity position to determine whether they deliver an
adequate level of flexibility to liquidity stress or not.
Page 75 of 84
5. Bank doesnt have any funding strategy which will provide an effective diversification in
the source & tenor of funding. It doesnt maintain any ongoing presence in its chosen
funding markets & strong relationships with fund providers. So it may cause a liquidity
crisis & shortage of funding to maintain its liquidity position.
6. From the comparison part of net working capital, it can be observed that the CBL might
be is in a better position then IFIC, but its own current asset has decreased in 2009
compared to 2008.
7. CBL has a lot of cash in hand-which might be proved a loss of profitability for the bank
in future.
8. Another major problem of The City Bank Limited is using highly subjective judgment in
lending decision-making. Due to lack of forward looking structuring policy banks resort
to subject to judgment based on current situation.
9. As the process of sanctioning loan takes a long time to process a loan. It some times
creates bad impact in market. Many clients are switching to other banks to reduce this
processing hour.
10. Sometimes the employee to unlawfully help the client deliberately overvalues the
securities taken against the loan. As a result if he fails to repay the loan, the Bank
authority cannot collect even the principal money invested by the selling those assets. It
is also a very important factor that leads to loan default.
Page 76 of 84
7.2) Conclusion:
From the above analysis of The City Bank Limiteds liquidity management, it is easily imagined
or predicted that the liquidity position will be stronger than now because liquidity position is
increasing day by day to support profitable loans and investments. Liquidity risk was a footnote
in many treatments of risk management until the credit crisis of 2008. While the crisis may have
been triggered by bad mortgage debt, it was accelerated and brought to a head by unanticipated
cash demands that caused bankruptcies, fund dissolutions, bank reorganizations (too many to
list), forced sales, distress aversion, asset sales, and equity infusions. Liquidity risk comes from
fluctuations in the prices of either short-term assets or short-term liabilities, or both. It is
typically manifest in margin lending, futures contracts, and OTC derivative contracts. Non price
risk factors include lender-determined haircuts, subjective interest rates, material adverse credit
quality changes, me first credit terms, herd behavior, and market panic. As such, quantitative
liquidity modeling is both critically necessary and extremely difficult. Best practice liquidity risk
management takes place at the point of contracting. In the absence of contractual protections,
firms need to provide recommitted solutions to solve liquidity problems. If they wait for a
liquidity shortfall to occur, it is already too late to undo the damage.
7.3) Recommendation:
A negative financial situation characterized by a lack of cash flow. For a single business, a
liquidity crisis occurs when the otherwise solvent business does not have the liquid assets (i.e.,
cash) necessary to meet its short-term obligations, such as repaying its loans, paying its bills and
paying its employees. If the liquidity crisis is not solved, the company must declare bankruptcy.
An insolvent business can also have a liquidity crisis, but in this case, restoring cash flow will
not prevent the business's ultimate bankruptcy. For the economy as a whole, a liquidity crisis
means that the two main sources of liquidity in the economy, banks and the commercial paper
market, severely reduce the number of loans they make or stop making loans altogether. Because
so many companies rely on these loans to meet their short-term obligations, this lack of lending
has a current effect throughout the economy, causing liquidity crises at a excess of individual
companies, which in turn affects individuals.
For the more betterment in liquidity position or liquid assets and sound liquidity risk
management and supervision, the city bank can take some perfect principles which are as follow:
A bank is responsible for the sound management of liquidity risk. So the city bank should
establish a full-bodied liquidity risk management framework that ensures it maintains
sufficient liquidity, including a cushion of unencumbered, high quality liquid assets, to
survive a range of stress events, including those involving the loss or impairment of both
unsecured and secured funding sources. Supervisors should assess the adequacy of both a
Page 77 of 84

bank's liquidity risk management framework and its liquidity position and should take
prompt action if a bank is deficient in either area in order to protect depositors and to
limit potential damage to the financial system.
Bank should clearly be coherent a liquidity risk tolerance that is appropriate for its
business strategy and its role in the financial system.
Senior management should develop a strategy, policies and practices to manage liquidity
risk in accordance with the risk tolerance and to ensure that the bank maintains sufficient
liquidity. Senior management should continuously review information on the banks
liquidity developments and report to the board of directors on a regular basis. A banks
board of directors should review and approve the strategy, policies and practices related
to the management of liquidity at least annually and ensure that senior management
manages liquidity risk effectively.
Bank should incorporate liquidity costs, benefits and risks in the internal pricing,
performance measurement and new product approval process for all significant business
activities.
Bank should have a sound process for identifying, measuring, monitoring and controlling
liquidity risk. This process should include a healthy framework for comprehensively
projecting cash flows arising from assets, liabilities and off-balance sheet items over an
appropriate set of time horizons.
Bank should actively monitor and control liquidity risk exposures and funding needs
within and across legal entities, business lines and currencies, taking into account legal,
regulatory and operational limitations to the transferability of liquidity.
Bank should establish a funding strategy that provides effective diversification in the
sources and tenor of funding. It should maintain an ongoing presence in its chosen
funding markets and strong relationships with funds providers. Bank should regularly
measure its capacity to raise funds quickly from each source. It should identify the main
factors that affect its ability to raise funds and monitor those factors closely to ensure that
estimates of fund raising capacity remain valid.
CBL should wisely utilize its liquid cash in hand, that may increase its profitability in
future.
Bank should actively manage its intraday liquidity positions and risks to meet payment
and settlement obligations on a timely basis under both normal and stressed conditions
and thus contribute to the smooth functioning of payment and settlement systems.
Page 78 of 84

Bank should actively manage its collateral positions. Bank should monitor the legal entity
and physical location where collateral is held and how it may be mobilized in a timely
manner.
Bank should conduct stress tests on a regular basis for a variety of short-term and
protracted institution-specific and market-wide stress scenarios (individually and in
combination) to identify sources of potential liquidity damage and to ensure that current
exposures remain in accordance with a banks established liquidity risk tolerance. A bank
should use stress test outcomes to adjust its liquidity risk management strategies, policies,
and positions and to develop effective contingency plans.
Bank should maintain a cushion of unencumbered, high quality liquid assets to be held as
insurance against a range of liquidity stress scenarios, including those that involve the
loss or impairment of unsecured and typically available secured funding sources. There
should be no legal, regulatory or operational impediment to using these assets to obtain
funding.
Bank should publicly disclose information on a regular basis that enables market
participants to make an informed judgment about the soundness of its liquidity risk
management framework and liquidity position.
Supervisors should regularly perform a comprehensive assessment of a banks overall
liquidity risk management framework and liquidity position to determine whether they
deliver an adequate level of flexibility to liquidity stress given the banks role in the
financial system.
Supervisors should supplement their regular assessments of a banks liquidity risk
management framework and liquidity position by monitoring a combination of internal
reports, prudential reports and market information.
Supervisors should occur to require effective and timely corrective action by a bank to
address deficiencies in its liquidity risk management processes or liquidity position.
Supervisors should communicate with other supervisors and public authorities, such as
central banks, both within and across national borders, to facilitate effective cooperation
regarding the supervision and oversight of liquidity risk management. Communication
should occur regularly during normal times, with the nature and frequency of the
information sharing increasing as appropriate during times of stress.
Page 79 of 84

Glossary
BB
Bangladesh Bank
CBL
SBL
Standard Bank Limited
CRR
Cash Reserve Ratio
SLR
Statutory Liquidity Reserve
ALM
Asset Liability Management
C&I
Corporate & Investment
CAMEL
Capital, Asset, Management, Earning, Liquidity and Sensitivity
DRS
Disaster Recovery Site
SMA
Special Mention Account
SME
Small & Medium Enterprise
ATM
Automated Teller Machine
BFOBFI
Borrowing From Other Banks & Financial Institutions
BWOBFI
Balance With Other Banks & Financial Institutions
L/C
Letter of Credit
Page 80 of 84
References:
Annual Report, The City Bank Limited, 2006-2009.
www.thecitybank.com.
Bangladesh Bank: http://www.bangladesh-bank.org/mediaroom/corerisks/albsrisks.pdf
Dr. A. R.Khan, Bank Management-A Fund Emphasis (june,2009),chapter 8.
Liquidityforbanks;http://www.google.com.bd/#q= liquidity+ management+ in+ banks+ in+
bangladesh&hl= en&ei= tndnTI3oPJO4cYbZ3Y8F&start= 40&sa= N&fp= 1&cad= b
GTZ(LiquidityManagement:Basiccourse),http://www.ruralfinance.org/servlet/BinaryDo
wnloaderServlet?filename= 1151660203478_LM_lesson3.pdf(2010)
Practical participation with The City Bank Ltd.
Informal face to face conversation with the employee of CBL.
Page 81 of 84
Page 82 of 84

Liquidity indicator approach:
Assets based liquidity ratios:
1. Cash position indicators = (cash + deposit)/ Total assets
= (11740401+142022414)/ 182336781=0.84329: 1.
2. Liquid securities indicators= Govt. securities/ Total assets.
= 29044700/ 182336781= 0.1592915: 1
3. Riskless assets position = ( cash + deposit+ govt. securities) / Total assets
= (11740401+142022414+29044700)/ 182336781= 1.0025817: 1
4. Liquidity assets ratio= ( cash+ govt. securities+ reserve)/ Total assets
(11740401+29044700+9114213.7)/ 182336781= 0.273666: 1
5. Capacity ratio= ( Net loan/ Total assets) = 104695833/ 182336781= 0.574189: 1
Liability based liquidity ratios:

6. Deposit composition ratio = Current deposit/ Terms deposit= 26304909/ 124648113=
0.2110333:1.
7. Core deposit ratio = Core deposit / Total assets = 142022414/ 183588.46 = 0.7789016: 1.
Ratio Analysis:
1.Current Ratio = (Current assets / Current liabilities)

2006 = (17115/ 12982) = 1.318364
2007 = (17893/ 16235) = 1.102125
2008 = (21373/ 18143) = 1.17803
2009 = (28949/ 22075) = 1.311393
2. Cash Position Indicator = (Cash and deposits due from banks/Total assets)
2006 = (43707/47446) = 0.9212
2007 = (44016/48755) = 0.9028
2008 = (48154/57114) = 0.843121
2009 = (67526/76466) = 0.883085
3. Capacity Ratio = (loans/ Total assets)
2006 = (30789/47446) = 0.648927
2007 = (26788/48755) = 0.549441
Page 83 of 84

2008 = (34420/57114) = 0.602654
2009 = (43486/76466) = 0.568697
4. Total Deposit Ratio: Total Deposit Ratio = (Total customer deposits/Total assets)
2006 = (40881/47446) = 0.861632
2007 = (40539/48755) = 0.831484
2008 = (45034/57114) = 0.788493
2009 = (62384/76466) = 0.81584
5. Loan - to -Deposit Ratio = (Net loans/Total deposits)
2006 = (30789/40881) = 0.753137
2007 = (26788/40539) = 0.660796
2008 = (34420/45034) = 0.764311
2009 = (43486/62384) = 0.69707
6. Reserve Ratio = (Cash assets/Customer deposits)
2006 = (2826/40881) = 0.069127
2007 = (3477/40539) = 0.085769
2008 = (3120/45034) = 0.069281
2009 = (5142/62384) = 0.082425
Page 84 of 84

MBA Intership Report On Liquidity Management Process of The City Bank Ltd-Libre

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LIQUIDITY MANAGEMENT OF CBL

LIQUIDITY MANAGEMENT OF CBL

Date of Submission: 13th September, 2011

LIQUIDITY MANAGEMENT OF CBL

Subject: Submission of Internship Report.

With best regards

LIQUIDITY MANAGEMENT OF CBL

I would like to express my sincere gratitude to my organizational supervisor Mr. Shafiqur

LIQUIDITY MANAGEMENT OF CBL

LIQUIDITY MANAGEMENT OF CBL

LIQUIDITY MANAGEMENT OF CBL

Chapter One (Introduction part)

1.2) Origin of the Report

1.3) Background of the report

1.4) Objectives of the Report

1.6) Scope of the study.

1.7) Limitations of the Report

Chapter Two (Organization Preview)

2.1 THE CITY BANK LIMITED

2.2 The City Bank Activities

2.3 Recent Performances of The City Bank

CHAPTER THREE (Theoretical part)

3.1 Basic definitions of liquidity

3.2 What is liquidity management

CHAPTER FOUR (Liquidity Management-Requirements of central bank) 42

4.1..a.a) Liquidity Risk

LIQUIDITY MANAGEMENT OF CBL

4.1..a.c) Key Management Indicators

4.1.a.d) Maturity Profile Mismatch

CHAPTER FIVE (Liquidity Management of CBL)

5.1 Current Assets of CBL

5.2 Current liabilities of CBL

5.3 CBLs liquidity Risk Management Framework

5.3.a) Treasury Desks

5.3.b) Liquidity Statement of The City Bank Limited

5.3.c) CRR and SLR of CBL

5.3.d) Estimating CBLs liquidity needs

5.3.e) Trend Analysis:

5.3.f) Ratio Analysis (Liquidity Ratios)

5.3.g) Handling CBLs liquidity crisis

CHAPTER SIX (Comparative Analysis with IFIC Bank Ltd.)

6.1 IFIC Profile

6.2 Banks Mission

6.3 Background of the IFIC bank.

6.4 Comparative Analysis with CBL

6.5 Analyzing Liquidity

CHAPTER SEVEN (Findings, Conclusion & Recommendation)

7.1) Major findings

LIQUIDITY MANAGEMENT OF CBL

a. Recent Performances of The City Bank

b. Last few years SLR & CRR rate

d. CRR and SLR of CBL

e. The sources and uses of fund approach

g. Liability based liquidity ratio

i. Cash position indicator

k. Total Deposit Ratio

l. loan to deposit ratio

n. Liquidity statement (IFIC)

o. Comparative Analysis with IFIC Bank Limited

LIQUIDITY MANAGEMENT OF CBL

List of charts & graphs:

a. Award and Honor