EXECUTIVE SUMMARY

This paper examines Risk management practices and financial distress position of Janata
Bank Limited with quantitative measurement of Stress Testing and Z-Score Testing to
portrait the real scenario of the bank's financial structure and ability to sustain its growth with
uncertain future outcomes. In this report I tried to examine the major risk JBL faces and its
different policy against those risks. I also tried to find out its financial stability to sustain in
future against those risks through Z Score analysis.
In part A, I described current economic crisis and some major macroeconomic variables that
affecting banking industry and put banking business at risk. Then I gave a brief review about
some major risks in banking industry. Later I discussed different policy that JBL issues
according to the guidelines issued by Bangladesh Bank. There are 12 core guidelines that
JBL issues to maintain its organizational and financial position against risks.
I also conducted stress testing of JBL for the year 2013 and 2014 as it is one of the major tool
that alerts bank management to adverse unexpected outcomes related to a variety of risks and
provides an indication of how much capital might be needed to absorb losses should large
shocks occur The major uncertain outcome of banking industry is its Non Performing Loans.
I found that four out of five under credit shocks banks CAR fell below 10% in every scenario.
In Exchange rate bank CAR also fell below 10% in every scenario.
There are plenty of quantitative tools available for measuring the financial performance of a
business firm. In the report I lastly analyze bank financial stability through Z score of JBL
along with three others State-Owned Banks (Sonali, Rupali, Agrani) from the data set 20092010. In the analysis dependent variables Z Score relation is analyzed with four
microeconomic independent variables that are total assets; loan to assets ratio; cost ratio;
income diversity of the banks.
I run five models (OLS, OLS Robust, Fixed Effect, Random effect and Hausman Test). In
OLS model, Z score has significant relationship with L/TA ratio and with income diversity.
Co-efficient between Z score and income diversity is positive which indicates banks
financial stability. In OLS Robust model, impacts of income diversification and Loan to
assets ratio to Z score are significant. Loan to assets ratio has significant influence on Z score
in Fixed Effect model. Random model shows income diversity has only positive co-efficient
with Z score. Loan to assets ratio & income diversity has significant influence on Z score in
Random Effect. Lastly Hausman test said that random model is better as Probability of chi
square is insignificant.
In part B, I briefly describe about Janata bank Limited and my internship experience during
my internship period.

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ACRONYMS
JBL- Janata Bank Limited
CAR -Capital Adequacy Ratio
CRAB -Credit Rating Agency of Bangladesh
GDP-Gross domestic Products
BB- Bangladesh Bank
BBS-Bangladesh Bureau of Statistics
GDS-Gross Domestic Savings
SOBs-State-owned banks
FCBs-Foreign commercial banks
PCBs-Private commercial banks
NPL-Non-performing loans
KYC-Know Your Customers
AML -Anti Money Laundering
ICMAB-Institute of Cost and Management Accountants of Bangladesh
ABA -Asian Bankers Association
BMAP-Bank Marketing Association of the Philippines

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Part A
Risk Management of Janata Bank Ltd:
A Panel Analysis for Financial Stability
from 2009-2014

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Chapter-01
Introduction

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1.1 BACKGROUND OF THE STUDY

In the middle of an economic crisis and a still uncertain future that stemmed mainly from
mismanagement of financial risk, the whole literature and managers have turned back to the
basics: the meaning of proper management of risk. Especially banks were affected first and
the most and now have to face the ongoing consequences: unpaid or delayed loans, expensive
deposits, limited new revenues, low trustworthiness and confidence.
Risk management in banking contains a combination of processes and models, results of
scientific research, that banks base on them to implement risk based policies and practices.
Banks are not any more practice traditional financial intermediation in low risk environment.
A broad range of innovative and evolutional financial products, available globally at current
time, have taken place and turned banking into a dynamic and active risk management
process of assets and liabilities in a high regulated, high-risk environment.
A complex system of techniques and management tools are used in banks to measure,
monitor and control risks that are mainly categorized in credit risk, market risk, interest rate
risk, liquidity risk and operational risk. In fact, risk is referred to any uncertainty that might
bring losses and good management of this enhances the return of the bank.
Also for bankruptcy companies in general and public shareholding will suffer financial
distress. Not only owners are affected, but also other financial statements users, such as
investors, creditors, and the economy in general will also be affected. Consequently, an early
warning of bankruptcy could be taken as a precaution to be established to lower the risk and
danger levels of company bankruptcy or distress. Consequently the distress score of
corporations should be considered as a new predictor variable in predicting the financial
distress. Thus, the intent of this study is to assess the financial health of Stated owned banks
in Bangladesh.

1.2 RATIONALE OF THE STUDY

As a requirement of the completion of my BBA (Bachelor of Business Administration) as a
student of University of Dhaka, I wanted to complete my Internship program from a
reputed Bank which would be helpful for my future professional career. I got the opportunity
to perform my internship in the JBL. I was sent to Nawabgonj Branch, Dhaka. It was six
weeks practical orientation program. This is the last part of BBA program. It is essential to
fulfill all, the requirements the program demand. Only after preparing & submitting the report
this program becomes completed. Internship is highly needed to gain practical idea,
knowledge and experience.
I had to prepare my report under the supervision of Mrs. Shakila Halim, Assistant Professor,
Faculty of Business Studies, University of Dhaka.

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1.3 OBJECTIVE OF THE REPORT

Broad Objective: The broad objective of report is to evaluate and scrutinize the total Risk
Management activities and financial distress position of Janata Bank Limited.
Specific Objectives: To attain the broad objective the following specific objectives will be
pursued:
Identification of risk management guidelines and inspect whether the banks risk
management comply with it.
Identification of risk management framework- its risk management committee and
their sub-committee and of course the segregation of their duties and responsibilities.
Risk identification process, Risk mitigation methodology and Risk reporting
procedures.
Identified Core guidelines issued by JBL according to Bangladesh Bank
To measure Capital Adequacy Ratio position of JBL under Stress Testing Guidelines
issued by Bangladesh Bank(2010)
To evaluate the financial health (that is the financial distress position) of State owned
banks.

1.4 SCOPE OF THE STUDY

This report only includes the risk factors, risk management framework, identification process
of risk, analyzing and mitigating of related risk by respective risk committee of the Janata
Bank. And this report also gives insight about the financial stability of Janata Bank thorough
the analysis of Z score with some micro economic variables of the bank along with three
other govt banks.

1.5 METHODOLOGY OF THE STUDY

The study is performed based on the information extracted from different sources collected
by using a specific methodology. To fulfill the objectives of this report total methodology has
been divided into two major parts:
In order to make the report more meaningful and presentable, two sources of data and
information have been used widely.

Primary Sources
Six Weeks practical participation in internship
Face-to-Face conversation with the respective officers and staffs
Relevant file study provided by the officers concerned

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Secondary Sources
Risk Management Guideline for banks, published by Department of Off-site
Supervision, Bangladesh Bank.
Banking Risk Management Manual.
Annual Reports of Janata , Sonali, Rupali and Agrani banks for the year 2009-2014.
Stress testing guidelines issued by Bangladesh bank (2010)
Relevant books, Research papers, Newspapers and Journals.
Internet and various study selected reports.

1.6 LIMITATION OF THE STUDY

To prepare a report on the topic like this in a short duration is not easy task. From the
beginning to end, the study has been conducted with the intention of making it as a complete
and truthful one. In preparing this report some problems and limitations have been
encountered which are as follows:
Insufficiency of required information. There is various information the bank
employees cannot provide due to security and other corporate obligations.
As the data, in most cases, are not in organized way, I failed to process all
information.
Due to time limitation, many of the aspects could not be discussed in the report.
Since the bank personnel were very busy, they could not pay enough time.
Lack of opportunity to access to internal data.
I had to base on secondary data for preparing this report.
Legal action related information was not available.
Lack of in-depth knowledge about quantitative data analysis.

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Chapter-02
Literature Review

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LITERATURE REVIEW
Banks are at the heart of the economic system of a country. The banking industry plays a
crucial role in the progress of the financial system of the country. There are currently 56
banks operating in Bangladesh. These banks are grouped into four categories of scheduled
banks. These are the State-owned Commercial Banks (SCBs), State-owned Development
Financial Institutions (DFIs), Private Commercial Banks (PCBs) and Foreign Commercial
Banks (FCBs). Bank failure is not an uncommon phenomenon. In corporate finance, a
situation of bank failure is known as Financial Distress. Financial distress is difficult to
define specifically. This is true partly because of the variety of events responsible for
financial distress. The list of events is almost endless but listed are some reasons of bank
failure: operating losses, dividend reductions, branch closings, increasing trend of nonperforming loans (NPLs), volatility of the return on asset (ROA) and return on equity (ROE)
etc. To avoid situation of financial distress Bank introduces Risk Management Policy and
some other rules and regulations regarding compliance issues in its daily banking activities.
Significant studies have examined risk management practices worldwide. However, the
empirical studies in the context of Bangladesh are scarce. Linbo (2004) worked with risk
management in major banks of United States. The author provides two important information
about banking efficiency. His finding suggests that profitability is sensitive to credit risk.
According to Ho Hahm (2004), interest rate risk is a common phenomenon in Korean
commercial banks than the exchange rate risks. Niinimaki (2004) mentioned that the degree
of risk taking depends on the structure and side of the market in which competition takes
place. If the banks work in a monopoly market or banks are competing only in the loan
market, deposit insurance has no effect on risk taking. Banks in this situation tend to take
more risk than that of a competitive market operator, although intense risk taking is avoided.
Al-Tamimi (2002) investigated commercial banks in UAE. It reveals that the credit risk was a
major concern. Credit risk was examined by Salas and Saurina (2002) among the Spanish
banks. The study covered 1985-1997 and compared the determinants of problem loans.
Various risk management practices in financial organizations became the need of the time
just after the financial distress faced by the whole world in last decade. In particular, United
States required long time to restore their economy with serious regulatory changes. Many
post crisis analysts found dissimilarities in terms of risk identification and management in
different banks and financial organization before and during the crisis which was a selfdestructive thought that brought such loss to the world economy. Risk management defines
the need of identification of core risks, method to develop consistent and accurate risk
measurement, give the importance of risk reduction, avoidance and transfer through proper
risk return calculation and best monitoring procedures of risk position for the organization.
For banks, meeting the regulation not necessarily can avoid bankruptcy or financial
harassment. Bank personnel require reliable risk identification, measurement and
management culture to follow and monitor best risk-reward ratio.

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Wang and Sheng-Yung (2004) examined profit diversification among the major banks. Their
results suggested that the foreign exchange risk seems the most vulnerable one among the
others. In a study of top 20 Japanese banks, Khambata and Bagdi (2003) revealed that the
financial derivatives (for example, off-balance-sheet) have been extremely used by the major
banks. These banks are using this as profit diversification. Comparing their results of Asian
banks with major banks in USA and Europe, Asian banks are lagging behind in practicing
profit diversification.
According to Altman (1968), failure, insolvency, default and bankruptcy are four different
terms and they all mean that a business is in distress. Any sort of financial distress is an
unfortunate situation for a business firm. Bankruptcy may be the worst case scenario for
certain companies, but in the case of the business stakeholders, default also can cause
problems.
According to the study by Brown Bridge (1998), most of the bank failures were caused by
non-performing loans. In most of the cases, non-performing loans become bad loans.
Muniappan (2002) argued that a high degree of NPLs is responsible for non-income
generating assets that not only affect the profitability of the banks but also have great impact
on the capital adequacy of the banks. Lata (2014) said that NPLs in Bangladesh have become
a very sensitive issue in recent years.
There are plenty of quantitative tools available for measuring the financial performance of a
business firm. But the Altmans Z-score has been proven to be a more reliable tool. Z-score
model is able to provide 80%90% accuracy in predicting bankruptcy one year before the
event. The Z-score uses multiple corporate income and balance sheet items to measure the
financial strength of a company. This model is devoted to forecasting possibilities of
bankruptcy of manufacturing as well as non-manufacturing concerns.
Gomath (2012) analyzed the financial health of selected oil refineries in India by using the
Altman Z-score model. And he found that almost all of the selected firms are above the
standard bankruptcy line which is put by Altman in his model.
Amadasu (2012) evaluated the financial distress of selected commercial banks in Nigerian
from 2003 to 2007 with four packages of analysis, i.e. multiple discriminate analysis,
ordinary least squares regression, correlation Matrix and Logit-Probit regression, for
sophistication and effectiveness instead. The finding is that working capital/total asset
(default ratio) among others should be closely taken care of and the major recommendation is
that bank officials or corporate managers whose firms failed should not be with impunity.

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Chapter-03
Current Economic Condition

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3.1 GLOBAL FINANCIAL CRISIS & ITS IMPACT ON BANGLADESH

Bangladesh is interlinked with global financial system. As such global financial crisis which
was originated from the year 2007 mainly in USA and spread in the latter part of the year
2008 among developed nations and subsequently shifted to developing nations has impact on
the domestic economy of Bangladesh. The country is in a difficult situation as it faces
imbalances, lack of transparency in the financial markets and non-applicability of domestic
safety net.
The government has been facing the impact of global financial crisis on the domestic
economy. However, still now macro economic variables of the country are more or less is not
in a very bad situation. In the national budget of Bangladesh for the fiscal year of 2015-16, it
is expected that GDP growth rate will be 6.5 percent but latter on Finance Minister expressed
that it may be raised up to 7%. In January 2016, BB observes growth for FY2016 between
6.8% and 6.9%; WB sees 6.7% whereas IMF sees 6.5%.
Through considering micro and macro perspectives, the government of Bangladesh is trying
to cope with the policy formulation to mitigate the problem of the global financial turmoil.
The prime objective is to create employment opportunity, infrastructural development and to
safeguard the economy from the worst impact of the global financial crisis. But problem lies
with the implementation process.
Present Status
According to the budget (FY2015-16), the country has realized economic growth rate of 6.51
percent in FY2014-15. This is a remarkable achievement considering unprecedented
disruption in economic activities.
Banking system of the country is not free from the danger. Difference between the crisis of
developed nations and Bangladesh is that their crisis originated from the financial sector and
worst impact felt in the real sector. On the other hand in case of Bangladesh crisis has been
originated in the real sector due to the problem arise from financial sector. Due to financial
crisis, not only exporters will face the problem, but the banking sector will also face problem
due to non-recovery of advances against export financing. Private credit growth is observed
at 13.8% in which lending rate is 11.35% and deposit rate is 6.99%.
But the current excess liquidity of banks is a cause of concern for both policymakers and
practitioners. The overall excess liquidity with commercial banks stood at Tk 1,31000.00
crore in September, 2015 which has mostly invested in government approved-securities. In
case of public sector credit growth registered a negative figure of 2.5 percent in the last fiscal
year whereas Bangladesh Bank projects a positive growth rate of 18.7 percent for the current
fiscal year. In contrast private sector credit growth has always remained stable particularly
since the fiscal year of 2013 and stood higher at 14.9 percent in December 2015.
Recently the Central Bank Governors and Heads of Supervision decided to strengthen the
banking rules and regulations under the guidance of the Bank for International Settlements.
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Foreign exchange reserves in Bangladesh stood at 27,140 USD million in January of 2016,
following a record high of 27,490 USD million in December 2015. The decline is mainly
attributed to a rise in imports. Foreign Exchange Reserves in Bangladesh averaged 14434.70
USD Million from 2008 until 2015, reaching an all time high of 27580 USD Million in
September of 2015 and a record low of 7470.90 USD Million in June of 2008.

Regarding export, around 80 per cent of the total export earnings are coming from USA and
European countries. Bangladesh's export items have low price elasticity and targeted towards
relatively lower income groups.
Bangladeshs balance of trade position is always in deficit. As import prone country the
country can get some opportunities. Importable commodities like food, oil, fertilizers etc.
have been decreased. Bangladesh has dramatically reduced dependency syndrome on foreign
aid and loans for last 25 years. In the proposed budget of FY 2015-2016 it has been expected
that 2% of the Total receipts will come as a foreign aid and 8.2% as a foreign loan.
Bangladesh Trade
Balance of Trade
Exports
Imports
Current Account
Current Account to GDP
Capital Flows
Remittances
Gold Reserves
Foreign Direct Investment
External Debt

Last
-74.86
192.13
266.99
-496.00
0.80
0.33
1310.00
13.78
1504.00
23.70

Previous
-69.98
196.36
266.34
273.00
0.40
3.14
1137.54
13.78
1726.00
22.40

Highest
0.00
211.99
284.13
1526.00
3.70
679.50
1491.36
13.78
1726.00
23.70

Lowest
-128.40
0.05
0.57
-1638.00
-4.40
-12.72
1005.80
3.29
276.00
16.17

Unit
BDT Billion
BDT Billion
BDT Billion
USD Million
percent
BDT Billion
USD Million
Tones
USD Million
USD Billion

Another indicator of the state of Bangladesh economy in relation to the U.S. economy is the
exchange value of the Bangladesh currency against the U.S. dollar. Currently Bangladesh
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Bank is trying to maintain stabilization of USD against Bangladesh Taka. The exchange rate
ranged from Tk 77.8:$1 to Tk 78.0:$1 in this year. If the global crisis would have affected
Bangladesh severely, the Bangladesh currency would have depreciated significantly.
However, the value of Taka against the US dollar has remained stable since 2006 and
continued to maintain its value against the U.S. dollar up until now and perhaps appreciated a
bit against the dollar. However, exporters and remittances senders are pressing hard to
deprecate Taka against USD.
Bangladesh has positioned itself as a forward-looking nation in the world economy through
its steady and stable growth performance over the years amid natural calamities, external
shock and political turmoil. The growth potential of Bangladesh has been recognized by
many global surveys. JP Morgan Chase placed Bangladesh as one of the frontier five markets
and Goldman Sachs ranked the country among 11 emerging markets after BRICS (a bloc of
Brazil, Russia, India, China and South Africa). The country has also achieved Ba3 and BB
ratings with stable outlook in consecutive years (2010-13) by S&P and Moody's,
respectively.

3.2 EXTERNAL ENVIRONMENT REVIEW

Gross Domestic Product (GDP)
In the face of global financial meltdown and internal economic turbulence, Bangladesh has
been securing GDP growth rate of more than 6% on an average for the last one decade. As
per BBS, GDP growth in FY2015 is provisionally estimated at 6.5%, higher than the 6.1%
recorded in FY2014.
Service
The services sector registered a 5.8 percent growth in FY15 which was slightly higher than
the preceding fiscal year. Wholesale and retail trade, repair of motor vehicles, motorcycles
and personal and household goods; and transport, storage and communication sub-sectors
grew by 6.6 and 6.0 percent respectively in FY15 compared to 6.7 and 6.1 percent
respectively in FY14. Financial intermediations sub-sector registered a growth of 8.8 percent
in FY15 which was 7.3 percent in FY14.
Inflation
Inflation reduced to 5.62% in February 2016 compared to 6.27% in March 2015 on point to
point basis and average inflation decreased from 6.66% to 6.15% between FY 2015 and FY
2016.
Interest Rate
Call money rates fell in H2FY14 but average retail interest rate spreads rose above 5%. Call
money rates have declined since their peaks in early 2012 when they were around 20%, and
also fell in H2FY13 from around 10% in January 2013 to around 7% in June 2013 and
around 7-8% in H1FY14. In H2FY14 call money rates fell further from 7.17% in January
2014 to 6.23% in June 2014.
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Savings & Investment

Domestic and national savings increased moderately. Gross Domestic Savings (GDS) at
current market prices grew by 13.7 percent in FY15 from 12.3 percent in FY14. The GDS as
percentage of GDP also increased to 22.3 in FY15 from 22.1 in FY14. The ratio of private
savings to GDP increased to 20.7 percent in FY15 from 20.6 percent in FY14. The ratio of
public savings to GDP increased to 1.6 percent in FY15 from 1.5 percent in FY14.
Export
Total exports in FY15 had a low growth over FY14. Aggregate exports increased by 3.4
percent in FY15 to USD 31208.9 million from USD 30186.6 million in FY14. Apparels
(woven garments and knitwear products) continued to occupy an overwhelming (above four
fifths) share of the export basket in FY15. With a view to attracting foreign investment, BB
has relaxed restrictions on foreign investor borrowing from the local market and their ability
to access working capital financing from their parent company.
Import
Import payments in FY15 stood at USD 40685 million registering a positive growth of 11.2
percent compared to USD 36571 million in FY14. Except raw cotton, oil seeds, sugar and
milk & cream, all other importable items indulge varying degrees of increase in the aggregate
imports during FY15 over FY14. Import of food grain recorded significant growth of 64.5
percent in FY15 mainly due to rise in rice import.
Remittance
The flow of inward remittances from Bangladeshi nationals working abroad regained its
growth in FY15 and played an important role to increase foreign exchange reserve and
strengthening the current account balance of the country. Receipts from this sector have
increased by 7.7 percent from USD 14228.31 million in FY14 to USD 15316.92 million in
FY15.
Foreign Exchange Reserve
Foreign currency reserve is going through growing trend thanks to increased export earnings
and controlled growth of import expenditure. In addition, FDIs and portfolio investments are
playing facilitating role in the growth of foreign currency reserve. Foreign exchange reserves
grew steadily over FY15, which crossed USD 25 billion mark on 25 June 2015. At the end of
FY15, reserves stood at USD 25.02 billion. Currently reserve stood at over USD 28 billion.

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3.3 BANKING SECTOR FOR SUSTAINABLE GROWTH

The role of the banking sector in accelerating growth is contingent upon the soundness and
depth of the sector. In Bangladesh the banking sector has travelled through a journey where
the sector has experienced several ups and downs. Reforms measures have been undertaken
in an attempt to improve upon the structural constraints of the sector. Such measures have
been driven by objectives such as increasing the capital adequacy of banks, streamlining
guidelines for rescheduling of various types of loans, tightening provisions for nonperforming loans, strengthening disclosure requirements and improving accounting system.
These have undoubtedly improved the soundness of the sector over the years. At present, key
performance indicators of commercial banks in the country reflect the poor health of banks.
Most banks have not been able to show significant improvements on indictors such as capital
to risk weighted asset, non-performing loans, expenditure-income ratio, return on asset,
return on equity, liquid asset and excess liquidity despite several measures taken by the
central bank.
Profitability, measured by return on asset and return on equity, has been negative for the
SCBs. For PCBs, though these indicators are positive, but very low. In case of NPL similar
performance is observed. Though the share of NPL to total loans in SCBs has slightly
declined in September 2015 from June 2014, the rate is still as high as 21.82%. On the other
hand, NPL in PCBs and FCBs have increased. Because of high NPL, SCBs have to make
larger provisions. The government has to inject capital into these banks to keep them going.
Clearly, implementation of BASEL III requirements that call for capital adequacy ratio to be
raised to 12.5% of their risk-weighted assets by 2019 will be challenging for the SCBs. As of
September 2015, capital adequacy ratio of SCBs was only 6.2%.
Lower profits in SCBs are mainly due to bad assets, inefficiency and political interference. In
case of PCBs, stricter compliance requirements by the central bank and low appetite for
credit by the private sector due to sluggish business environment are the major reasons for
lower profits. This is reflected through high volume of liquidity in banks. The advancedeposit ratio has been little over 70% in November 2015 even though banks are allowed to
lend up to 80% of their total deposit.
The banking sector has achieved considerable success due to the reforms in the 1990s, 2000s
and afterwards. However, the sector will have to prepare for the next generation of global
regulatory framework and meet emerging clients' needs. In the coming days, the banking
industry will have to achieve the ability to absorb shocks arising from financial and economic
stress, improve risk management and governance, and strengthen banks' transparency and
disclosures. And if the sector has to play the larger role of contributing towards a stable and
sound macroeconomic situation, the banking sector has to go through the painful path of
stricter policy and legal measures.

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Chapter-04
Theoretical Framework on
Bank Risks

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4.1 BANKING RISKS

4.1.1 DEFINITION OF RISKS:
In order to study and understand the term risk management, risk alone, and especially in
case of banking, has to be defined first. Risk can be defined as the combination of the
probability of an event and its consequences (ISO/IEC Guide 73). In business industry, risks
are invisible and intangible uncertainties which might materialize into adverse variations of
profitability or in future losses.
More specifically, financial risk in a banking organization is the possibility that the outcome
of an action or event could bring up adverse impacts on profitability of several distinct
sources of uncertainty. These outcomes could either result in a direct loss of earnings/capital
or may result in creating difficulties on banks ability to meet its business objectives.

4.1.2 TYPES OF BANKING RISKS:

Credit Risk:
Credit risk is considered as the most important of all risks. It is referred to the customers
inability or unwillingness to serve their debts, and constitutes a major source of loss not only
on banks profitability but also on the initial asset; the loss could be as much partial as total of
any amount lent to the counterparty.

Market Risk:
Market risks are risks arising from changes in financial market conditions and affect
negatively the value of financial products, and, therefore, the net income and net worth of
banking institutions. Market risk can also include the risks associated with the cost of
borrowing securities, dividend risk, correlation risk and liquidation risk.

Interest Rate Risk:

Interest rate risk is the risk of a reduction in profits due to unexpected and unfavorable
fluctuations in interest rates that may negatively affect both the price of the bank assets and
the income derived from them. The main sources of interest risk are volatility of interest rates
and mismatch in the timing of interest on assets and liabilities.

Foreign Exchange Risk:

Foreign exchange risk is referred to the unexpected and unfavorable fluctuations of foreign
currency exchange rates which affect negatively the value of financial flows and the net
worth of the assets and liabilities of banking institutions that rely on foreign currency.

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Liquidity Risk:
In general, liquidity risk is referred to the banks inability to make its daily money
transactions. Liquidity risk arises on both sides of the balance bank sheet. On the liability
side, liquidity risk represents the inability of banks to satisfy their depositors, especially in
period of panic and loss of trust to the banks which leads to massive deposit withdrawals. On
the asset side, liquidity risk represents the banks inability to have the appropriate assets to
contract new loans, advances or facilities, and make new investments in opportunities.
Operational Risk:
Operational risk is the risk of loss resulting from inadequate or failed internal processes,
people and systems or from external events. It is the risk remaining after determining
financing and systematic risk, and includes risks resulting from breakdowns in internal
procedures, people and systems.

Money Laundering Risk:

Money laundering is commonly defined as happening in three steps: the first step involves
introducing cash into the financial systems by some means (Placement); the second involves
carrying out complex financial transactions to camouflage the illegal source (layering); and
the final step entails acquiring wealth generated from the transactions of the illicit funds
(integration). Money laundering is the process in which the proceeds of crime are
transformed into ostensibly legitimate money or other assets.

Internal Control Risk:

Internal Control, as defined in accounting and auditing, is a process for assuring achievement
of effectiveness and efficiency, reliable financial reporting and compliance with laws,
regulations and policies. A board concept, internal control involves everything that controls
risks to an organization. It is a means by which an organizations resources are directed,
monitored and measured.

4.2 RISK MANAGEMENT

Definition of Risk Management:
BCBS (2001) defines financial risk management as a sequence of four (4) processes: (1) the
identification of events into one or more broad categories of market, credit, operational and
other risks into specific sub-categories; (2) the assessment of risks using data and risk model;
(3) the monitoring and reporting of the risk assessments on a timely basis; and (4) the control
of these risks by senior management.

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4.2.1 ELEMENTS OF A SOUND RISK M ANAGEMENT SYSTEM:

The key elements of a sound risk management system should encompass the following:
a) Risk management structure with Board and Senior Management;
b) Organizational policies, procedures and limits that have been developed and
implemented to manage business operations effectively;
c) Adequate risk identification, measurement, monitoring, control and management
information systems that are in place to support all business operations; and
d) Established internal controls and the performance of comprehensive audits to detect
any deficiencies in the internal control environment in a timely fashion.

4.2.2 THE M ODEL OF RISK M ANAGEMENT PROCESS:

The Organizations Strategic
Objective
Risk Assessment
Risk Analysis

Risk identification

Modification

Risk Description
Risk Estimation
Risk Evaluation
Risk Reporting
Threats & Opportunities

Formal
Audit

Decision

Risk Treatment
Residual Risk Reporting

Monitoring
Figure: Risk Management Process
Concerning the model of risk management process, it embraces all the factors that are needed
so as the risk management approach to be effective and successful.
Once the organizations strategic objectives have been defined, risk assessment has to follow.
Risk assessment is defined as the overall process of risk analysis and risk evaluation.

Page | 20

Risk analysis begins with Risk identification; an evaluation of the banks exposure to
uncertainty. This requires a detailed view, not only of the banks philosophy and operation
but also of the market and of the general environment in which it operates and exists.
Risk description is part of risk analysis and has as objective to display the identified risks in
a structured manner so as to ensure a comprehensive risk identification, description and
assessment process.
Risk estimation is the final step of risk analysis and can be quantitative, semi quantitative or
qualitative in terms of the probability of occurrence and the possible consequence.
When the risk analysis process has been completed, it is necessary to compare the estimated
risks against risk criteria which the organization has established. The risk criteria may include
associated costs and benefits, legal requirements, socioeconomic and environmental factors,
concerns of stakeholders, etc. Risk evaluation therefore, is used to make decisions about the
significance of risks to the organization and whether each specific risk should be accepted or
treated.
After the decisions are taken, the risk treatment follows in order to cure the risks; it is the
process of selecting and implementing measures to modify them. Risk treatment mainly
includes risk control/mitigation, but also extends further to functions like risk avoidance, risk
transfer, risk financing, etc. A reporting and review procedure follows in order to ensure
that risks are effectively identified and assessed and that appropriate controls and responses
developed. Regular audits of policy and standards compliance should be carried out and
standards performance reviewed to identify opportunities for improvement.
Finally, the monitoring process should reassure that the controls for the banks activities are
appropriate and the procedures are understood and followed.

4.3 RISK MANAGEMENT GUIDELINE

These guidelines are issued by Bangladesh Bank (BB) under section 45 of Bank Company
Act, 1991, and introduced to provide a structured way of identifying and analyzing potential
risks, and devising and implementing responses appropriate to their impact. The guidelines
are structured on following four aspects:
a)
b)
c)
d)

Risk Management Objectives;

Risk Management Structure;
Risk Management Requirements;
Risk Management Process.

In these guidelines, 'credit' means all types of loans and advances and 'borrower' means
obligor or counterparty.

Page | 21

Chapter-05
Risk Management of JBL
Under Bangladesh Bank
Guidelines

Page | 22

5.1 RISK MANAGEMENT FRAMEWORK

JBL has established a robust risk management framework through strengthening risk-related
policies, procedures, processes, control mechanisms and reporting during the last few years.
With a view to preserving and enhancing resiliency capacity, the bank continues to increase
its risk management capabilities through investing in people, processes and IT infrastructure.
The Banks risk management framework is applied on an enterprise wise basis and consists
of three key elements:
Risk Governance,
Risk Appetite, and
Risk Management Techniques

Figure-: Risk Management Framework of JBL

5.2 RISK GOVERNANCE

Effective risk management begins with effective risk governance
The Bank has a well-established risk governance structure, with an active and engaged Board
of Directors supported by an experienced senior management team and a centralized risk
management group that is independent of the business lines. Decision-making is highly
centralized through a number of senior and executive risk management committees.

Page | 23

Board of Directors

Boards Risk Management

Committee

Executive Risk
Management Committee

CRM
Sub-Com

ALM
Sub-Com

F.Ex
Sub-Com

AML
Sub-Com

ICC
Sub-Com

ICT
Sub-C0m

Figure-: Risk Governance of JBL

5.2.1 BOARDS RISK M ANAGEMENT COMMITTEE:

A risk management committee of the board has been formed as per BRPD Circular No.11
dated 27.10.2013 and Bank Company Act-1991 (Amendment Act 2013) sec-15(b) (3)
comprising of three members from Board of Directors and CEO & MD. The Board of
Directors, either directly or through its committees ensures that decision-making is aligned
with the Banks strategies and risk appetite.

5.2.2 EXECUTIVES RISK M ANAGEMENT COMMITTEE:

A risk management committee with top management has been formed as per instruction of
Bangladesh Bank to supervise risk management activities of the bank. The committee is
headed by Deputy Managing Director.

5.2.3 RISK M ANAGEMENT SUB-COMMITTEES:

Risk Management Framework includes six risk management sub-committees for six core
risks. The sub-committees perform the beginning part of risk management process. They
collect data from different sources, analyze it and report the findings to the Executives Risk
Management Committee.
Credit risk Sub-Committee: Comprising of 7 members headed by GM (Credit)
ALM Sub-Committee: Comprising of 6 members headed by GM (Treasury)
AML Sub-Committee: Comprising of 4 members headed by GM (Overseas Banking
Division)
Foreign Exchange Risk Sub-Committee: Comprising of 5 members headed by GM
(Overseas Banking Division)
ICC Sub-Committee: Comprising of 6 members headed by GM (ICC)
ICT Sub-Committee: Comprising of 3 members headed by GM (ICT)
Page | 24

5.3 RISK APPETITE

Effective risk management requires clear articulation of the Banks risk appetite and how the
Banks risk profile will be managed in relation to that appetite. The Banks risk appetite
framework governs risk taking activities on an enterprise-wide basis.
Risk Management
Principles

Strategic Principles

Risk Appetite
Framework

Governing Financial
Framework

Risk Appetite Measures

Figure-: Risk Appetite Framework

The Banks Risk Appetite Framework consists of four components, and combines qualitative
as well as quantitative terms of reference to guide the Bank in determining the amount and
types of risk it wishes to prudently undertake.

5.4 RISK MANAGEMENT TECHNIQUES

Effective risk management includes techniques that are guided by the Banks Risk Appetite
Framework and integrated with the Banks strategies and business planning processes.
Strategies, Policies &
Limits

Guidelines, Processes &

Standards

Risk Management
Techniques
Measurement, Monitoring &
Reporting

Stress Testing

Figure: Risk Management Techniques

Risk management techniques are regularly reviewed and updated to ensure consistency with
risk-taking activities, and relevance to the business and financial strategies of the Bank.

Page | 25

5.4.1 POLICIES, PROCEDURES AND LIMIT STRUCTURE OF JBL:

i.
ii.
iii.
iv.
v.
vi.

Risk Management policies, procedures and limits are properly documented;

Policies are reviewed annually or on demand basis;
All policies and procedures are duly approved by the Board of Directors;
Policies are assigned with full accountability and clear lines of authority for each
activity and product area;
A compliance monitoring procedures have been deployed for all policies;
An independent internal control unit is in JBL to check internal compliance.

5.4.2 GUIDELINES, PROCESSES AND STANDARDS:

For guidelines, processes and standards, Janata Bank follows Risk Management Guidelines
for Banks published by Bangladesh Bank on February 2012.

5.4.3 RISK M EASUREMENT, MONITORING

SYSTEM:
i.
ii.

iii.
iv.

AND

M ANAGEMENT REPORTING

An effective risk monitoring procedure exists in the bank to identify and measure
all quantifiable and material risk factors;
JBL has a separate Management Information Systems Department which provides
necessary information to Risk Management Department and senior management
for understanding the banks positions and risk exposures in time;
A strong risk management monitoring culture has been framed in JBL to address
all sorts of material risks;
Adequate and accurate reports containing sufficient information are being
produced to senior management for identifying any adverse trends and evaluating
the level of risk.

5.4.4 STRESS TESTING:

Stress testing has become an essential and very prominent tool in the analysis of financial
sector stability and development of financial sector policy. It measures the shock absorbing
capability of a bank. Different shocks in stress testing:
i. Minor shock
ii. Moderate shock
iii. Major shock

Page | 26

5.5 MANAGING CORE RISK OF JBL UNDER BANGLADESH BANK GUIDELINES

Bangladesh bank identifies 12 major risks in banking industry and issues some major
guidelines to mitigate those risks. JBL follow those guidelines as well as also issue some
other policy to mitigate those risks. A brief discussion about those risks mitigation policy in
JBL is discussed below:

5.5.1 CREDIT RISK AND ITS M ITIGATION:

Credit risk occupies the lions share of banks total risk. So credit risk management is a
crucial issue of risk management and an essential to the long-term success of any banking
organization. JBLs goal of credit risk management is to maximize its risk-adjusted rate of
return by maintaining credit risk exposure within acceptable parameter. Credit Risk
Mitigation Process considers the following credit related aspects:

Sector concentration
Large Borrower concentration
Single Borrower concentration
Geographical concentration
Non-performing loans
Credit growth
Loan-deposit ratio etc.

Sound Practice and Sustainable CRM Culture

The sound CRM practice is set out in JBL by addressing the following areas:
a) Establishing an appropriate credit risk environment;
b) Operating under a sound credit-granting process;
c) Maintaining an appropriate credit administration, measurement and monitoring
process; and
d) Ensuring adequate controls over credit risk.
Diversified credit portfolio, financial inclusion and regulatory guidance are the main
component of JBLs CRM culture.

Credit Granting Process

Although the Board of Directors holds the sole right of credit sanctioning, the power is
delegated to CEO & MD. The credit sanctioning authority is also delegated to various lower
level of the management line to strike a balance between adequate control and flexibility in
credit operations to ensure full transparency and accountability at all levels. But there is a
well-defined, clear and sound credit granting process applicable for all sanctioning authority.
The process includes:
Page | 27

a)
b)
c)
d)
e)
f)
g)

Selection of borrower;
Credit appraisal;
Credit assessment;
Credit risk grading;
Credit approval & sanctioning;
Credit disbursement;
Credit monitoring;

Credit administration, measurement and monitoring process

The credit risk rating systems support the determination of key credit risk parameter
estimates which measure credit and transaction risk. These risk parameters probability of
default, loss given default and exposure at default are transparent and may be replicated in
order to provide consistency of credit adjudication, as well as minimum lending standards for
each of the risk rating categories. JBL follows Bangladesh Banks BRPD Circular No.14
Dated 23 September 2012 for classification of loans & advances.

5.5.2 ASSET LIABILITY RISK AND ITS M ITIGATION:

ALM programs focus on interest rate risk, liquidity risk and foreign exchange risk as those
represent the most prominent risks and may affect the overall balance-sheet of the
organization. Individual risk mitigation methodology is discussed below:
The ALCO of JBL consisting of the banks senior management and headed by CEO
& Managing Director is responsible for ensuring adherence to the limits set by the
Board and deciding the business strategy of the bank (on the assets and liabilities
sides) in line with the banks budget and decided risk management objectives.
The committee meets at least once in a month, addresses all the risks and tries to find
out the solution for mitigating the risks.
Deputy General Manager of treasury department is the convener of ALCO meeting.
The ALCO is supported by the ALCO unit who is responsible for providing necessary
inputs and reports to the committee on the banks current position as well as external
information necessary for making ALM decisions.

5.5.3 MARKET RISK:

Market risk is the risk of loss from changes in market prices and rates (including interest
rates, equity prices, and foreign exchange rates), the correlations among them, and their
levels of volatility. The major sources of Market Risk to which assets and liabilities of the
Bank are exposed to are stated below:

Page | 28

 Interest Rate Risk

Generally, a bank may have a disproportionate amount of fixed or variable rates instruments
on either side of the balance-sheet. One of the primary causes is mismatches in terms of a
bank deposits and loans.
Change in net interest income (NII) = i(Change in interest rate) * gap
=1%*3230.00=32.30
At 1% increase in Interest Rate, fall in MVE (Market Value Equity) is Tk.32.30 million.

Equity Price Risk Management

JBLs equity investment activities like holding limit of shares, provision against them and
risk management are guided as per Bangladesh Bank policy.

Foreign Exchange Risk Management

Foreign exchange risk is measured and monitored by the Treasury Department. A sound and
clear policy for dealing room is stated in the Foreign Exchange Risk Management Guidelines
of JBL.

5.5.4 LIQUIDITY RISK:

In ALM perspective, the focus is on the funding liquidity risk of the bank meaning its ability
to meet its current and future cash-flow obligations and collateral needs, both expected and
unexpected. This mission thus includes the bank liquidity's benchmark price in the market.
Component of Liquidity Risk Reporting

SLR
CRR
AD Ratio
Structural Liquidity Profile
Wholesale borrowing analysis
Maximum Cumulative Outflow (MCO) analysis
Medium Term Funding Ratio analysis.

Statutory Liquidity ratio of JBL:

Particulars
Cash Reserved
Requirement
Statutory liquidity ratio

Required
Maintained
Required
Maintained

Dec,2014
6%
6.83%
13%
37.34%

Dec,2013
6%
5.70%
13%
38.89%

Page | 29

Structural Liquidity Profile:

Dec,2014 Dec,2013
Particulars
59.71%
Credit deposit ratio (CDR) or Advance deposit ratio (ADR) 61.97%
Maximum cumulative outflows (MCO)
15.82%
17.10%

5.5.5 OPERATIONAL RISK AND ITS M ITIGATION:

Operational risk mitigation is the oversight of operational risk, including the risk of loss
resulting from inadequate or failed internal processes and systems, human factors or external
events. In JBL operational risks are discovered, controlled and mitigated using a seven-step
approach:
Their tasks are segregated;
Curtailing complexities in business processes;
They reinforce organizational ethics;
They have deployed the right people for the right job;
They monitor and evaluate key performances at regular intervals for timely
detection and mitigation of risks;
They assess the risks periodically to scale them;
They look back and learn from previous strategies employed.
Internal Control & Compliance (ICC) is the main tool in managing operational risk.
Management, through three units of ICC (i.e. monitoring, compliance and Audit &
Inspection) controls overall operation of the bank. Board audit committee directly oversees
the functions of ICC to prevent operational risks.
Summary of mitigation activities

Formulation and implementation of ICC policy;

Monitoring all operational activities;
Taking corrective measures to reduce operational risks.

Approach for calculating capital charge for operational risk:

K= [(GI1 + GI2 + GI3) x ] /n
Where,
K = Capital charge under the basic indicator approach
GI= Only Positive annual gross income over the previous three years
= 15%
N = Number of the previous three years of which gross income is positive
The capital requirements for operational risk:
Solo
3,371.00

Consolidated
3,414.20

(TK in Mill)

Page | 30

5.5.6 M ONEY LAUNDERING RISK AND ITS M ITIGATION:

JBL treats the money laundering and terror financing issues as a vital part of its core risk
management activities. Bank has formulated its own guidelines for prevention of money
laundering approved by the Board of Directors in line with Anti Money Laundering Law and
Bangladesh Bank guidelines.
Anti-money Laundering Policy
The following major issues that bank have been incorporated in the respective policy and
followed them to mitigate money laundering risk:
i.
ii.
iii.
iv.

v.
vi.
vii.
viii.

Bank has developed, administered, and maintained an anti-money-laundering

compliance policy.
The policies have been tailored to the institution and based upon an assessment of
the money laundering risks.
KYC policy and identification procedures before opening new accounts,
monitoring existing accounts for unusual or suspicious activities.
It also includes a description of the roles and responsibilities of the anti-money
laundering compliance officers(s)/unit and other appropriate personnel will play in
monitoring compliance with and effectiveness of money laundering policies and
procedures.
There is a monitoring unit to monitor unusual/suspicious transaction which needs
to be reported to Bangladesh Bank.
Cash transaction report (CTR) is being sent to Bangladesh Bank on monthly basis
for cash transaction of 1.00 million or above in a day.
Suspicious transaction report (STR) is reported as and when detected.
Officials of the bank are trained up on anti-money laundering policies.

To mitigate money laundering risk, JBL has assigned CAMLCO in its head office and
BAMLCO in all branches. Besides, for minimization of risks in the banking activities, three
new departments named Foreign Exchange Audit, Compliance External and Foreign
Trade Monitoring have been established in 2013.

5.5.7 ICC RISK AND ITS M ITIGATION:

Internal control and compliance policy is the policies and procedures established and
implemented alone, or in concert with other policies or procedures, to manage and control a
particular risk or business activity, or combination of risks or business activities, to which the
bank is exposed or in which it is engaged. It refers to the mechanism in place on a permanent
basis to control the activities in an organization, both at a central and at a departmental or
divisional level.

Page | 31

 Management Committee (MANCOM)

In setting out a strong internal control framework within the organization the MANCOM of
JBL is responsible for overall management of the bank. The committee puts in place policies
and procedures to identify measure, monitor and control these risks and monitors the
adequacy and effectiveness of the internal control system based on the banks established
policy & procedure.
Board of Directors

Executive Committee

Board of Audit
Committee

Board Risk
Management
Committee

CEO & MD
MANCOM

Head of ICC

Monitoring &
Compliance Division

Audit & Inspection

Division

Figure: MANCOM

5.5.8 ICT RISK AND ITS MITIGATION:

Janata Bank Limited has formulated the ICT policy to use as a minimum requirement and as
appropriate to the level of its IT operation. The guidelines includes

IT security policy,
physical security policy,
password policy,
anti-virus policy,
server security policy,
IT assets administration and management policy,
disaster management policy and system audit policy.

Janata Bank Limited has taken steps to automate its business process, data management,
accounts etc. to reflect Real Time On-Line Banking through Straight Processing (STP) and
Temenos-24, a world class banking solution has already been implemented in 42 branches.
Page | 32

Janata Bank has adopted sufficient measures to protect the safety and security of information
and communication platform from unauthorized access, modification, virus, disclosure and
destruction in order to ensure business continuity, data safety and security thereby protecting
customers' interest at large.

5.5.9 ENVIRONMENTAL RISK AND ITS M ITIGATION:

Environmental risk is an actual or potential threat of adverse effects on living organisms and
environment by effluents, emissions, wastes, resource depletion, etc., arising out of an
organizations activities. It is a facilitating element of credit risk arising from environmental
issues. These increase risks as they bring an element of uncertainty or possibility of loss in
the context of a financing transaction.
JBL has formulated an Environment Risk Management Guidelines with the purpose of
understanding and managing the risks that arise from environmental concerns. It is
introduced in general and sector specific environmental due diligence checklists covering
poultry, dairy, cement, chemicals, pesticides, pharmaceuticals, engineering, housing, pulp &
paper, sugar, tannery, textiles & apparels, ship breaking, medicare & hospital etc. All projects
in the said sectors will be rated as high, moderate and low using EDD check list to assess and
mitigate social & ethical risks.

5.5.10 STRATEGIC RISK AND ITS M ITIGATION:

Strategic risk is the current or prospective risk relate to earnings and capital that arises from
adverse business decisions, improper implementation of decisions or lack of responsiveness
to changes in the business environment both internal and external. This risk is a function of
the compatibility of a bank's strategic goal, the business strategies developed and resources
employed to achieve strategic goal and the quality of implementation of that goal.
Internal sources include organizational structure, work process and procedures, personnel,
information and technology.
External sources include competition, changes of target customer group, technological
changes, economic factors and regulations.
JBL formulates 3-5 years strategic plan, in consistent with its long term goal to indentify,
measure and mitigate the strategic risks.

Page | 33

5.5.11 COMPLIANCE RISK AND ITS M ITIGATION:

Compliance risk is the current or prospective risk to earnings and capital arising from
violations or non-compliance with laws, rules, regulations, agreements, prescribed practices,
or ethical standards, as well as from the possibility of incorrect interpretation of effective
laws or regulations.
To identify measure and monitor compliance risk, JBL has taken the following steps:
i.
ii.
iii.

iv.

Identifying the source of compliance risk inherent in all existing or new rules,
procedures, internal processes, activities, contracts and court cases.
Maintaining standard process and checklists to identify the strengths and
weaknesses of the compliance risk environment.
Analyzing the risk indicator like statistics or matrices that include the volume
and/or frequency of law violations, frequency of complains, fines and court
expenses, unfavorable court verdicts or number of finalized court cases on a
periodical basis and frequency of actual or suspected fraud or money laundering
activities.
Conducting regular legal reviews on different bank's products and services and
their relevant documentation in order to ensure that all contracts are in conformity
with laws and regulations.

5.5.12 CAPITAL RISK M ANAGEMENT:

JBL is committed to maintain a strong capital base to support business growth, ensuring
compliance with all regulatory requirements, obtaining good credit and CAMELS rating and
having a cushion to absorb any unexpected shocks arising from credit, operational and market
risks.
JBL has formulated a five years capital plan considering the following:
i.
ii.
iii.
iv.
v.

Increasing Tier 1 and Tier 2 capital;

Keeping sufficient cushion to absorb unexpected losses;
Keeping sufficient capital to cover the risks associated with its activities;
Maintaining a process to compare available capital with current and projected
solvency needs and address deficiencies in a timely manner.
Meeting regulatory requirements.

JBL also has a business plan for next three years consistent with capital requirement, business
growth, improvement of credit and CAMELS rating.

Page | 34

Chapter-06
Stress Testing of JBL

Page | 35

6.1 OVERVIEW OF STRESS TESTING

6.1.1 INTRODUCTION:
Stress testing is an important risk management tool that is used by banks as part of their
internal risk management and, through the Basel II capital adequacy framework, is promoted
by supervisors. Stress testing alerts bank management to adverse unexpected outcomes
related to a variety of risks and provides an indication of how much capital might be needed
to absorb losses should large shocks occur. While stress tests provide an indication of the
appropriate level of capital necessary to endure deteriorating economic conditions, a bank
alternatively may employ other actions in order to help mitigate increasing levels of risk.
Stress testing is a tool that supplements other risk management approaches and measures.

6.1.2 DEFINITION OF STRESS TESTING:

A stress test is commonly described as the evaluation of a banks financial position under a
severe but plausible scenario to assist in decision making within the bank. The term stress
testing is also used to refer not only to the mechanics of applying specific individual tests,
but also to the wider environment within which the tests are developed, evaluated and used
within the decision-making process. At institutional level, stress testing techniques provide a
way to quantify the impact of changes in a number of risk factors on the assets and liabilities
portfolio of the institution.

6.1.3 SCOPE OF STRESS TEST:

As a starting point the scope of the stress test is limited to simple sensitivity analysis. Five
different risk factors have been identified and used for the stress testing. Moreover, the
liquidity position of the institutions has also been stressed separately. Though the decision of
creating different scenarios for stress testing is a difficult one, however, to start with, certain
levels of shocks to the individual risk components have been specified considering the
historical as well as hypothetical movement in the risk factors.
Stress test shall be carried out assuming three different hypothetical scenarios:
Minor Level Shocks: These represent small shocks to the risk factors. The level for
different risk factors can, however, vary.
Moderate Level Shocks: It envisages medium level of shocks and the level is
defined in each risk factor separately.
Major Level Shocks: It involves big shocks to all the risk factors and is also defined
separately for each risk factor.

Page | 36

Risk Factors considered in Stress Testing

Credit Risk
Interest Rate Risk
Exchange Rate Risk
Equity Price Risk
Liquidity Risk

6.2 ANALYSIS OF STRESS TESTING OF JBL

Risk Management Department (RMD) of JBL has already prepared a stress testing model in
line with the Bangladesh Banks Guideline. Here I conducted stress testing according to
Bangladesh Bank Guideline (2010) which initially focused on Simple Sensitivity and
Scenario Analysis.

6.2.1 M EASUREMENT OF SHOCKS:

Sl.

Risk Factor

1.

Credit Risk:
Increase in NPLs
Negative shift in the NPLs categories
Fall in the forced sale value of mortgaged
collaterals
Increase of the NPLs in particular 1 or 2
sector
Increase of the NPLs due to default of Top
10 large borrowers
Interest Rate Risk
Exchange Rate Risk
Equity Price Risk (fall in the stock market
index )
Liquidity Risk (excess of banks normal
withdrawal)

2.
3.
4.
5.

Minor
Shock

Moderate
Shock

Major
Shock

1%
50%
10%

2%
80%
20%

3%
100%
40%

5%

7.5%

10%

5%

7.5%

10%

1%
5%
10%

2%
10%
20%

3%
15%
40%

10%

20%

30

Page | 37

6.2.2 EFFECTS ON CAR UNDER DIFFERENT SHOCKS:

Year

Actual
CAR

Minor Shock
Revised
Fall in
CAR
CAR

10.27%
10.30%

Major Shock
Revised
Fall In
CAR
CAR

i. Increase in NPLs

Credit Risk:
2013
2014

Magnitude of shock
Moderate Shock
Revised
Fall in
CAR
CAR

9.58%
9.57%

0.69%
0.72%

8.89%
8.84%

1.39%
1.45%

8.18%
8.10%

2.10%
2.20

ii. Shift in NPLS Categories

2013
2014

10.27%
10.30%

9.57%
9.68%

.70%
0.62%

9.12%
9.27%

1.16%
1.03%

8.81%
9.00%

1.46%
1.30%

iii. Fall in FSV of Mortgaged Collateral

2013
2014

10.27%
10.30%

10.11%
10.04%

0.17%
.26%

9.94%
9.78%

0.33%
.52%

9.60%
9.25%

0.67%
1.05%

iv. Increase of the NPLs in particular one or two sector:

2013
2014

10.27%
10.30%

8.54%
8.90%

1.74%
1.39%

7.64%
8.19%

2.63%
2.10%

6.73%
7.47%

3.54%
2.83%

v. Increase of the NPLs due to default of top 10 large borrowers

2013
2014

10.27%
10.30%

9.61%
9.59%

0.66%
.70%

9.28%
9.24%

0.99%
1.06%

8.95%
8.88%

1.33%
1.42%

0.23%
.20%

9.82%
9.90%

0.45%
0.40%

9.59%
9.70%

0.68%
.60%

0.63%
.40%

9.00%
9.49%

1.27%
0.80%

8.35%
9.09%

1.91%
1.21%

0.24%
0.25%

9.79%
9.80%

0.48%
0.50%

9.31%
9.30%

0.96%
1.00%

Interest Rate Risk

2013
2014

10.27%
10.30%

10.05%
10.20%

Exchange Rate Risk

2013
2014

10.27%
10.30%

9.64%
9.90%

Equity Price Risk

2013
2014

10.27%
10.30%

Liquidity Risk
2013
2014

99.22%
79.58%

10.03%
10.05%

Change in Liquidity Ratio due to excess withdrawal

99.13%
0.09%
99.02%
0.20%
77.31%
2.27%
74.48%
5.10%
Table: Effect on CAR under different Shocks

98.88%
70.83%

0.34%
8.75%

According to guidelines (2010) issued by Bangladesh Bank every bank must maintain CAR
at 10%. But from the table it is seen that JBL actual CAR both in year 2013 and 2014 fall
below 10% in every shocks under except Fall in FSV of mortgage collateral, interest rate risk
and equity risk under minor shock. So, when the position of CAR is decreased the banks
moves towards more risky position. So, JBLs management has to take proper steps and
Page | 38

actions to raise its CAR as under BASEL III every bank must maintain CAR at 12.5% by
2019.
Cumulative Impact on CAR:
Year

Actual
CAR

2013
2014

10.27%
10.30%

2013
2014

10.27%
10.30%

Magnitude of shock
Minor Shock
Moderate Shock
Revised
Fall in
Revised
Fall in
CAR
CAR
CAR
CAR
Credit Risk
6.19%
3.81%
3.14%
6.86%
6.49%
3.51%
3.79%
6.21%
Cumulative Impact of All Shocks
5.25%
4.75%
1.39%
8.61%
5.83%
4.17%
2.40%
7.60%

Major Shock
Revised
Fall In
CAR
CAR
0.44 %
0.79%

9.66%
9.21%

-2.82%
-1.45

-12.82%
-11.45%

From this table is can be seen that cumulative impact on CAR under credit shock is very
severe through it is improved in 2014. CAR goes down close to 0% in major shook under
credit shock. The impact on CAR under all shock is also severe CAR goes down to negative
under major shock.

Page | 39

Chapter-07
Financial Stability of JBL

Page | 40

7.1 MEASURING BANK STABILITY:

In this paper, the widespread practice of measuring financial stability using z-score as an
individual measure of bank soundness (or a distance from insolvency) has been used. The
dependent variable is the z-score is used as a measure of bank stability. Many recent papers
used the z-score as a primary assessment of a bank risk. For example, the World Bank and
the International Monetary Fund (IMF) used z-score to evaluate stability of banks. The
calculation of the z-score is based on the historical accounting data extracted from the banks
financial statements. It is a combination of capital adequacy, profitability and volatility
measures.
The basic definition of the z-score, allowing to measure individual-level stability, is as
follows:
+
=

where is the ratio of equity capital plus assets, i.e., ; t is the net income/assets ratio, i.e.

; and t the standard deviation of the net income/assets ratio. A higher z-score indicates a
lower default risk and vice versa. A higher indicates instability of a banks income that
lowers its z-score.

Data
The calculations in this paper were based on and extracted from website of that contains the
financial statements. The sample covers 4 State owned banks (Janata, Sonali, Rupali, Agrani)
in Bangladesh. The total observations are 24 for 4 banks covering the period 2009 to 2014.

Regression Analysis
The dependent variable is z-score that represents banks stability measure across time. The
microeconomic independent variables are cost ratio, loans/total assets, income diversity ratio
and total assts.

Variable Definitions
Below is a brief description of the variables and their calculation is given below:
Z-score: the dependent variable, z=(k+)/, where k is equity capital and reserves as a
percent of total assets, is average net income as a percent of total assets, and is
standard deviation of return on assets (average net income as a present of assets) as an
indicator of return volatility.
Total Assets: total assets of the bank in million Tk.
Loans/Total Assets: loans as a percent of total assets.
Cost Ratio: operating expense as a percent of operating income.

Income Diversity: defined as

Net Interest Income Non Interest Income

Page | 41

Expected Relation Between Dependent and Independent Variables:

Independent Variable
OE/OI

Expected Relation
-

Loan/TA

Income Diversity

TA

Explanation
If expanse greater than income Z score will
decrease.
If loan given is higher than total assets Z
score will decrease
If non-interest income increases banks Z
score will increase.
If Total Assets increases then Z score will
also increase

7.2 RESULTS AND ANALYSIS

In this section the regression results through explaining the relationship between the
dependent variable and the independent variables and whether or not this relationship is
significant in the model or not have been discussed. 5 models have discussed below:
1.

Z score OLS

regress zscore oeoi loanta incdiv ta

Source

SS

df

MS

Model
Residual

264.908834
356.934002

4
19

66.2272086
18.7860001

Total

621.842836

23

27.0366451

zscore

Coef.

oeoi
loanta
incdiv
ta
_cons

-8.489836
-75.29814
8.134535
-6.90e-06
52.91485

Std. Err.
8.735534
25.16815
3.369668
5.85e-06
17.13824

t
-0.97
-2.99
2.41
-1.18
3.09

Number of obs
F( 4,
19)
Prob > F
R-squared
Adj R-squared
Root MSE

P>|t|
0.343
0.007
0.026
0.252
0.006

=
=
=
=
=
=

24
3.53
0.0259
0.4260
0.3052
4.3343

[95% Conf. Interval]

-26.77352
-127.9757
1.081737
-.0000191
17.04411

9.793847
-22.62059
15.18733
5.34e-06
88.7856

P-values are between parentheses (***Significant at 5%, **Significant at 10%)

By looking at table, it can be seen that F test (p-value of the model, It tests whether R2 is
different from 0) is 2% which means model is significant. Here, R2 (coefficient of
determination) is 42%. It expresses the proportion of the variation in Dependent Variable
which is explained by variation in independent variables by 42%. Adjusted R square is 30%
Page | 42

that means irrespective of time and number, the combined variation in independent variables
can explain 30% variation of dependent variable. Root MSE (root mean squared error) is the
SD of the regression. The closer to zero better the fit.
All of impacts are significant except of cost ratio & total assets as P value is less than 5% in
Loan to assets ratio and income diversity. Coefficients tell about the percentage change in
dependent variable for 1% change in each independent variable. All aspects of
microeconomic have negative co-efficient with the dependent variable (z-score) except of
income diversity. It is widely known that the more income diversity a bank or corporation has
the more stable it becomes. When income is diversified the associated risk is also diversified
and mitigated. From the table positive relation between Z score and income diversity can be
seen. Through the co-efficient of Total assets and Z score is negative, it is very low. The coefficient of Z score, Cost ratio and loan to asset ratio is also negative so it in indicates
negative impact on banks financial stability.

2. Z score OLS Robust (least standard error)

Linear regression

Number of obs =
F( 4,
19) =
Prob > F
=
R-squared
=
Root MSE
=

zscore

Coef.

oeoi
loanta
incdiv
ta
_cons

-8.489836
-75.29814
8.134535
-6.90e-06
52.91485

Robust
Std. Err.
9.134574
28.23246
2.798998
4.77e-06
18.74603

t
-0.93
-2.67
2.91
-1.45
2.82

P>|t|
0.364
0.015
0.009
0.165
0.011

24
2.94
0.0476
0.4260
4.3343

[95% Conf. Interval]

-27.60872
-134.3894
2.276164
-.0000169
13.67896

10.62905
-16.20691
13.99291
3.09e-06
92.15074

Robust is used because here standard error is less than OLS model.
From the table it can be seen that the model is significant as F test value is 4%. From R2, it
can be said that the proportion of the variation in Dependent Variable which is explained by
variation in independent variables by 42%. The impacts of income diversification and Loan
to assets ratio are significant as P value is less than 5%. Co-efficient is similar to OLS model.

Page | 43

3. Z score Fixed Effect (group influence):

R-sq:

within = 0.2644
between = 0.9658
overall = 0.4213

corr(u_i, Xb)

=
=

24
4

Obs per group: min =

avg =
max =

6
6.0
6

=
=

1.44
0.2671

Number of obs
Number of groups

Fixed-effects (within) regression

Group variable: id

F(4,16)
Prob > F

= 0.4262

Std. Err.

P>|t|

[95% Conf. Interval]

zscore

Coef.

ta
oeoi
loanta
incdiv
_cons

-7.31e-06
-10.40777
-72.14034
6.911533
52.04448

.0000201
15.22197
34.44236
5.695058
28.3352

sigma_u
sigma_e
rho

.68212276
4.6971483
.02065347

(fraction of variance due to u_i)

F test that all u i=0:

F(3, 16) =

-0.36
-0.68
-2.09
1.21
1.84

0.06

0.721
0.504
0.052
0.243
0.085

-.00005
-42.67691
-145.1549
-5.16145
-8.02346

.0000353
21.86137
.8742007
18.98452
112.1124

Prob > F = 0.9804

Fixed-effect (FE) is used in analyzing the impact of variables that vary over time. From the
table it can be said that the model is not significant as F test value is greater than 5%. From
R2, it can be said that the proportion of the variation in Dependent Variable which is
explained by variation in independent variables by 26% within group, 97% between group
and 42% overall group. The errors u i are correlated with the regressors in the fixed effects are
42%.
The coefficient is negative for all the independent variable except income diversity with Z
score. From P value it is seen that Loan to assets ratio has significant influence on Z score.
Sigma_u is the standard deviation of the errors within group which is .68. Sigma_e is the
standard deviation of of residuals (overall error term) that is 4.69. rho is known as the
intraclass correlation. Here rho explains .02 of the variance is due to differences across
panels.

Page | 44

4. Z score Random Effect (free data):

. xtreg zscore ta oeoi loanta incdiv, re
Random-effects GLS regression
Group vari able: id

Number of obs
Number of groups

=
=

24
4

R-sq:

Obs per group: min =

avg =
max =

6
6.0
6

within
= 0.2621
between = 0.9922
overall = 0.4260

corr(u_i, X)

Wald chi2(4)
Prob > chi2

= 0 (assumed)

zscore

Coef.

Std. Err.

ta
oeoi
loanta
incdiv
_cons

-6.90e-06
-8.489836
-75.29814
8.134535
52.91485

5.85e-06
8.735534
25.16815
3.369668
17.13824

sigma_u
sigma_e
rho

0
4.6971483
0

(fraction of variance due to u_i)

-1.18
-0.97
-2.99
2.41
3.09

P>|z|
0.238
0.331
0.003
0.016
0.002

=
=

14.10
0.0070

[95% Conf. Interval]

-.0000184
-25.61117
-124.6268
1.530106
19.32452

4.56e-06
8.631496
-25.96946
14.73896
86.50518

The rationale behind random effects model is that, unlike the fixed effects model, the
variation across entities is assumed to be random and uncorrelated with the predictor or
independent variables included in the model.
From the table it is seen that Probability of chi2 is only .70%, so the model is very significant.
R2 that explains the proportion of the variation in Dependent Variable which is explained by
variation in independent variables by 26% within group, 99% between group and 42% overall
group.
The coefficient is negative for all the independent variable except income diversity with Z
score. Loan to assets ratio & income diversity has significant influence on Z score as P value
is .30% & 1.6% respectively.

Page | 45

5. Z score Hausman Test (statistically which one is better fixed or random model):
. hausman fixed random
Note: the rank of the differenced variance matrix (3) does not equal the number of coefficients being tested (4); be sure
this is what you expect, or there may be problems computing the test. Examine the output of your estimators for
anything unexpected and possibly consider scaling your variables so that the coefficients are on a similar scale.
Coefficients
(b)
(B)
fixed
random
ta
oeoi
loanta
incdiv

-7.31e-06
-10.40777
-72.14034
6.911533

-6.90e-06
-8.489836
-75.29814
8.134535

(b-B)
Difference

sqrt(diag(V_b-V_B))
S.E.

-4.11e-07
-1.917935
3.157793
-1.223002

.0000192
12.46591
23.51256
4.591189

b = consistent under Ho and Ha; obtained from xtreg

B = inconsistent under Ha, efficient under Ho; obtained from xtreg
Test: Ho: difference in coefficients not systematic
chi2(3) = (b-B)'[(V_b-V_B)^(-1)](b-B)
=
0.12
Prob>chi2 =
0.9896

To decide between fixed or random effects, Hausman test is run where the null hypothesis is
that the preferred model is random effects vs. the alternative the fixed. It basically tests
whether the unique errors (ui) are correlated with the regressors, the null hypothesis is they
are not. From the table it can be said that random model is better because Probability of chi
square in hausman test is insignificant, that is, panel data set have least impact of panels
difference ( change of banks) in result.

Page | 46

Chapter-08
Findings & Conclusion

Page | 47

8.1 FINDINGS
Banking in todays environment face a number of challenges, including deciphering and
complying with ongoing regulatory changes, developing and conducting adequate stress
testing methods and justifying or defending changes in their allowance reserves. But bank can
do many things to mitigate risk in those areas. They areI.

Document the rationale for loan upgrades.

Its important to eliminate regulator guesswork and its also important for financial
institutions like JBL to verify that guidelines for analyzing a potential upgrade are clear,
clearly communicated to, and consistently followed.
II.

Dont be afraid to uncover vulnerabilities.

To assess and quantify banks vulnerabilities, JBL should implement proper Integrating Risk
Appetite, Stress Testing and Capital Planning. For the betterment of the banks performance
JBL should comply with the Risk Management Guidelines for Banks by Bangladesh Bank.
Once the potential downside is understood, JBL can take steps to reduce or mitigate those
risks or can ensure they have sufficient capital to manage those risks.
III.

Develop a successful stress testing framework with three KNOWS.

To manage stress testing JBL need to know three key things:

a. JBLs institutions portfolio
b. The scenarios and their impact on the banks capital and liquidity.
c. The forecasts including what they show and why.
IV.

Set Deadlines.

JBL should set hard deadlines fora.

b.
c.
d.
e.

Risk-rating changes.
Charges-offs.
Updating the core systems to reflect the risk-rating changes.
Determining the loans that need to be reviewed for impairment (FAS 114).
Updating the data on the impairment analyses (appraisal values and selling costs or
cash flows).

Page | 48

8.2 CONCLUSIONS
Banks are in the business of taking risk not to avoid it. Banks cannot function without taking
risk on the one hand, and on the other no organization is immune to risk. Risk management
involves the maintenance of losses and the value of the bank to within accepted margins.
Types of risk, in general, include: market risk, legal risk, operational risk, liquidity risk, credit
risk and etc.
In this report JBL risk structure described thoroughly and also quantitatively measure its risk
and financial stability position. As a State-owned bank JBL should increase its regulatory
capital and put more attention to its credit lending department as its NPL is increasing.
From stress testing analysis, it is seen that in under credit risk banks CAR is fell below 10%
in four out of five shocks in every scenario. CAR fell below 9% under increase in NPL due to
particular sector. Interest rate risk and equity price risk did not affect bank adversely as CAR
does not fall below 9% at major shock.
The widespread practice of measuring financial stability using z-score as an individual
measure of bank soundness has been used to measure JBL financial stability along with three
others state-owned banks Sonali, Rupali and Agrani. Five models are run considering Z-score
as dependent variable with four microeconomic independent variables which are cost ratio,
loans/total assets, income diversity ratio and total assts.
OLS model shows F test is 2% which means model is significant. Here, R2 expressed the
proportion of the variation in Dependent Variable which is explained by variation in
independent variables by 42%. There is a positive relation between Z score and income
diversity which its banks sustainability. Impacts are significant on Z score as P value is less
than 5% in L/TA ratio and income diversity.
Robust model is also significant as F test value is 4%. From R2 explained proportion of the
variation in Dependent Variable is explained by variation in independent variables by 42%.
The impacts of income diversification and Loan to assets ratio are significant as P value is
less than 5%. Co-efficient is similar to OLS model.
Fixed-effects (FE) is not significant as F test value is greater than 5%. From R2, it can be said
that the proportion of the variation in Dependent Variable which is explained by variation in
independent variables by 26% within group, 97% between group and 42% overall group. The
errors u i are correlated with the regressors in the fixed effects are 42%. Loan to assets ratio
has significant influence on Z score as P value is 5%. Here rho explains .02 of the variance
is due to differences across panels.
Probability of chi2 is only .70%, so the Random model is very significant. R2 that explains
the proportion of the variation in Dependent Variable which is explained by variation in
independent variables by 26% within group, 99% between group and 42% overall group. The
coefficient is positive only between income diversity with Z score. Loan to assets ratio &
income diversity has significant influence on Z scoreas P value is .30% & 1.6% respectively.
Page | 49

To decide between fixed or random effects, Hausman test is run where the null hypothesis is
that the preferred model is random effects vs. the alternative the fixed. From Hausman test it
can be said that random model is better because Probability of chi square in hausman test is
insignificant, that is, panel data set have least impact of panels difference in result.
As an organization Janata Bank Limited has earned the reputation of top banking operation in
Bangladesh. The organization is much more structured compared to any other public
commercial bank in Bangladesh. It is relentless in pursuit of business innovation and
improvement. It has a reputation as a partner of consumer growth. So to compete with this
competitive business of banking industry JBL has to improve its policy to improve its capital
structure and credit lending policy.

Page | 50

Part-B
Internship Report on
Janata Bank Ltd.

Page | 51

Chapter-01
Company Profile

Page | 52

1.1 COMPANY PROFILE OF JANATA BANK L IMITED

Janata Bank Limited welcomes you to explore the world of progressive Banking in
Bangladesh. It is a state owned commercial bank and is catering the need of the mass
business people. It was corporatized on 15th November 2007. JBL was born with a new
concept of purposeful banking sub serving the growing and diversified financial needs of
planned economic development of the country. JBL commitment and the peoples belief in
them have given them the edge over others to earn this trust about the safe keeping of their
money in the right kind of banking channel.
JBL, one of the state owned commercial banks in Bangladesh, has an authorized capital of
BDT 30,000 million. The total asset of the bank in FY 2014 was BDT 629,454.14 million
which was BDT 586,083 million in the previous year. Net profit of the bank stood at BDT
3,813.15 million in the FY 2014 as against BDT 9,551.39 from previous year. This decrease
was due mainly to reduced operating profit and increased provisions. Under Basel-II
guidelines, the CAR at the end of 2014 stood at 10.30 percent compared to 10.27 percent of
the previous year.
CRAB assigned JBL A+ in the long run & AR-2 in the short run as Entity Rating (2014)
and AAA in the long run & AR-1 in the short run as Government owned Bank.
JBL operates through 905 branches including 4 overseas branches at United Arab Emirates. It
is linked with 1242 foreign correspondents all over the world and a subsidiary in Italy.
Number of Employees 15485 ad number of exchange house 68. The corporate head office is
located at Dhaka with 35 Divisions. As a part the conscious development of existing Human
Resources, JBL through its three training institutes imparts training to officers and staffs. All
of 905 branches are computerized and 174 branches running online banking. JBL has
installed 15 ATM booths and shares 4,102 ATM of other banks across the country. A plan for
installation of more ATM booths has been taken by end of this year.
The Board of Directors is composed of 13 members headed by a Chairman. The Directors are
representatives from both public and private sectors. The Bank is headed by the Chief
Executive Officer & Managing Director, who is a reputed banker. The corporate head office
is located at Dhaka with 10 Divisions comprising of 38 Departments.

1.2 VISION
To become the effective largest commercial bank in Bangladesh to support socio-economic
development of the country and to be a leading bank in South Asia.

Page | 53

1.3 MISSION
Janata Bank Limited will be an effective commercial bank by maintaining a stable growth
strategy, delivering high quality financial products, providing excellent customer service
through an experienced management team and ensuring good corporate governance in every
step of banking network.

1.4 CORE VALUES

Professionalism
Growth

Dignity

Commitment

Diversity

Core values

Quality

Accountability

Integrity

Transperancy

1.5 ETHICAL PRINCIPLES

Bank deals with public money where ethics, integrity and trust are the most essential. Janata
Bank protects and upholds these principle issues in every area of its management activities
and customer services. The basic characteristics of employees code of ethics and business
conduct are as follows:
Ensure customer service with utmost care, respect, dedication, integrity and
unwavering responsibility.
Protect privacy and confidentiality of customers information.
Prevent money laundering and fraud forgery.
Protects and upholds corporate values.

Page | 54

1.6 CORPORATE PROFILE OF JBL, 2016

Name of Company
Legal Status
Date of Incorporation
Date of Commencement
Business
Authorized Capital
Paid up Capital
Face value per share
Shareholding Pattern

Janata Bank Limited

Public Limited Company
21 May 2007
of 31 May 2007

Number of Branch in Domestic

Number of Branch in Overseas
Subsidiaries:
Janata Capital and Investment Ltd.
Janata Exchange Company srl.
Janata Exchange Company, USA
Number of Correspondence
Number of Employees
Number of Exchange House
Corporate Rating Status
Entity Rating
As Govt. owned Bank

Tk. 30,000 Million

Tk. 19,140 Million
Tk. 100 per share
100% Share owned by the Government of the
Peoples Republic of Bangladesh
900
04
Dhaka
Italy
Not yet started its operations
1242
14413
72
A + in the long term
AR-2 in the short term
AAA in the long term

1.7 PRODUCTS AND SERVICES OFFERED BY JBL

JBL render both corporate and retail banking services with a strong focus on socio-economic
development of the country. Under corporate banking services JBL provides trade finance,
project finance, syndicate finance. In 2013, JBL launched its own innovation to remittance
payment system at all branches which facilitate Deposit/withdrawal from any branch in this
system. Services that are provided by JBL

Retail And Personal Banking

General Credit Line
International Banking
Export Finance
Import Finance
Financing It Sector
Industrial Credit Finance
Page | 55

Development Of Women Entrepreneurs Financing

Financing Small And Medium Enterprise
Foreign Remittance Services
Non Resident Foreign Currency Deposit Account (NFCD)
Resident Foreign Currency Deposit Account (RFCD)
Non-Resident Investor's BDT Account (NITA)
Wage Earners Development Bond (WEDB)
Us Dollar Investment Bond and Us Dollar Premium Bond
Utility Services

1.8 EXPERIENCE WORKING AT JANATA BANK

I got the opportunity to work as an intern at Janata Bank Limited (Nawabganj Branch) and
the tenure of my internship is from 10th February to 11th April 2016. Through this period I
have many responsibilities and duties. As an intern I have learned lot of things about Banking
from Janata Bank Limited (Nawabganj Branch). I have learned about office atmosphere &
discipline, corporate behavior, maintaining office confidentiality etc. I got my confirmation
letter from Janata Bank Limited on 24th January. The office hour of JBL as an intern is from
10.00am to 3.00pm. Janata Bank Limited maintain attendance register both employees and
internees. I have done my best to maintain the rules & regulations of the office like the
permanent employees.

1.8.1 BRIEF DESCRIPTION OF M Y TASKS IN JBL

In this segment, I describe my tasks in JBL during internship. I work in general banking
section, Remittance section and Advance section (Credit section).

General Banking Section

I worked in the general banking section in JBL. In this section, I co-operate Abdullah Kabir
(Executive Officer) & Md. Arifur Rahman (Senior Office). The tasks I did in the general
banking section are as follow
Helping customer to open an account
I helped customers to open new account. JBL offers three types of accounts. These are
Savings A/C, Current A/C and Short Term Deposit. To open an account the customer must
bring National Identity Card, two copy passport size photo of Account holder, one copy
photo of nominee, introducer recommendation. To open a new account a customer has to
complete some formalities. The customer must fill up some form. These forms will carry
customer details. I used to help customers to fill form.

Page | 56

 Providing the information of A/C balance to customer

Through strong network server JBL provide up-to-date information of every account. JBL is
able to maintain the confidentiality of the customer properly to build up good relation with
customers. I used to provide the information of last A/C balance of the day after debit &
credit.
Receiving cheque books from head office & Deliver these to customers
I received cheque books from head office of JBL by peon and register it in the cheque book
register. And when the customers came to collect those cheques, I delivered them by taking
signature.

Advance Section (Credit)

Advance section is very sensitive part of any bank. JBL maintains high confidentiality for
Advance section. Normally JBL do not give any opportunity for intern to work in the
Advance section. But because of my strong request the Manager of JBL give me permission
to work in the advance section for five days. These five days I co-operated Executive officer
Nazrul Haider and Executive officer Shuvashis Mondal.
Opening New Loan Account
To have any loan from bank a customer must do application to the bank manager and had to
submit required documents like, trade license, national identity card/citizen certificate, tax
identification number etc. JBL justify the documents and study the purpose of the credit. JBL
also examine the turnover of the A/C of the credit applicant, security related paper. Then JBL
take the advice of the lawyer and surveyor. Next JBL submit the all papers to the head office
for approval of the credit. After approval, bank disburses the credit through a loan account.
Then we have to enter the required data to complete this form. The required data are
customer id., loan type, loan amount, currency, open date, A/C title, Name & Address, Sector
code, security code, economy code etc. I used to fill up those form.

Remittance Department
I have work in remittance department. Remittance department are divided in two sections:
Inland and Foreign. In foreign remittance department I worked under MD. Mostak Ahmed
(Executive officer). He shows me how foreign remittance is transferred in Bangladesh from
abroad through Ria, Money Gram etc. In inland remittance desk, I work under MD. Mostafiz.
As an intern in JBL (Nawabganj Branch), Dhaka I have truly enjoyed my internship from
the learning and experience viewpoint. I was confident during my internship program during
the course of my practical orientation I have tried to learn the practical banking to realize my
theoretical knowledge, what I have gathered and going to acquire from various courses. It is
great pleasure for me to have practical exposure of JBL, because without practical exposure it
couldn't be possible for me to compare the theory with practice.
Page | 57

BIBLIOGRAPHY
WEBSITES:

www.bangladesh-bank.org
www.jbl.ac.bd
http://ssrn.com/abstract=913211
http://ssrn.com/abstract=2276277
www.ea-journals.org
www.opf.slu.cz/kfi/icfb/proc2011/pdf/52_Stan.pdf

OTHERS:
Annual Report of Janata, Sonali, Rupali & Agrani Banks (2009-2014)
OCC Releases Guidelines for Heightened Expectations for Bank Risk Governance,
Simpson Thacher, September 8, 2014
Risk Based Capital Adequacy for Banks (Basel II) (December 2010)
Risk Management guidelines for Banks By Department of Off-site Supervision,
Bangladesh Bank, February 2012.
Assessment of Financial Distress Conditions of Commercial Banks in Ethiopia

Page | 58