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First of all, this is to be remembered that it is not a research report. So, the report covers an existing banking system that has been observed in the last twelve weeks. The findings of this report describe the tasks that take place in the Credit division of CBL. Here I mainly focused on the problems of the credit division of the bank these findings are completely from my personal point of view. Those are given below:

1. From my personal working experience, I‟ve observed that CBL doesn‟t have any full bodied liquidity management framework that ensures the maintenance of its liquidity.

The situation was worse in previous years, which can be easily understood by seeing the charts of different ratio analysis. However, they recovered their lacking by taking different steps, but steel they are avoiding this problem. I think this is a major problem of the bank & again they are going to face same kind of sit uation if they don‟t take necessary steps immediately.

2. There is no developed strategy, policies & practices to manage liquidity risk in accordance with the risk tolerance & to ensure that the bank maintains sufficient liquidity. The policy, which is now somehow followed by CBL, is not sufficient for maintaining its goodwill in the market.

3. There is no sound process for identifying, measuring, monitoring & controlling liquidity risk. The treasury department gives more emphasis on foreign exchange, Money market activities, corporate sales & Market research. As they are handling many activities in a single department, so it is tough for them to manage every issue very strictly.

4. Supervisors are busy with the expansion plan of the bank, rather then development of it.

They doesn‟t regularly perform any assessment of bank‟s overall liquidity risk management framework & liquidity position to determine whether they deliver an adequate level of flexibility to liquidity stress or not.

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5. Bank doesn‟t have any funding strategy which will provide an effective diversification in the source & tenor of funding. It doesn‟t maintain any ongoing presence in its chosen funding markets & strong relationships with fund providers. So it may cause a liquidity crisis & shortage of funding to maintain its liquidity position.

6. From the comparison part of net working capital, it can be observed that the CBL might be is in a better position then IFIC, but its own current asset has decreased in 2009 compared to 2008.

7. CBL has a lot of cash in hand-which might be proved a loss of profitability for the bank in future.

8. Another major problem of The City Bank Limited is using highly subjective judgment in lending decision-making. Due to lack of forward looking structuring policy banks resort to subject to judgment based on current situation.

9. As the process of sanctioning loan takes a long time to process a loan. It some times creates bad impact in market. Many clients are switching to other banks to reduce this processing hour.

10. Sometimes the employee to unlawfully help the client deliberately overvalues the securities taken against the loan. As a result if he fails to repay the loan, the Bank authority cannot collect even the principal money invested by the selling those assets. It is also a very important factor that leads to loan default.

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7.2) Conclusion:

From the above analysis of The City Bank L imited‟s liquidity management, it is easily imagined or predicted that the liquidity position will be stronger than now because liquidity position is increasing day by day to support profitable loans and investments. Liquidity risk was a footnote in many treatments of risk management until the credit crisis of 2008. While the crisis may have been triggered by bad mortgage debt, it was accelerated and brought to a head by unanticipated cash demands that caused bankruptcies, fund dissolutions, bank reorganizations (too many to list), forced sales, distress aversion, asset sales, and equity infusions. Liquidity risk comes from fluctuations in the prices of either short-term assets or short-term liabilities, or both. It is typically manifest in margin lending, futures contracts, and OTC derivative contracts. Non price risk factors include lender-determined haircuts, subjective interest rates, material adverse credit quality changes, “me first” credit terms, herd behavior, and market panic. As such, quantitative liquidity modeling is both critically necessary and extremely difficult. Best practice liquidity risk management takes place at the point of contracting. In the absence of contractual protections, firms need to provide recommitted solutions to solve liquidity problems. If they wait for a liquidity shortfall to occur, it is already too late to undo the damage.

7.3) Recommendation:

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

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

For the more betterment in liquidity position or liquid assets and sound liquidity risk management and supervision, the city bank can take some perfect principles which are as follow:

 A bank is responsible for the sound management of liquidity risk. So the city bank should establish a full-bodied liquidity risk management framework that ensures it maintains sufficient liquidity, including a cushion of unencumbered, high quality liquid assets, to survive a range of stress events, including those involving the loss or impairment of both unsecured and secured funding sources. Supervisors should assess the adequacy of both a

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bank's liquidity risk management framework and its liquidity position and should take prompt action if a bank is deficient in either area in order to protect depositors and to limit potential damage to the financial system.

 Bank should clearly be coherent a liquidity risk tolerance that is appropriate for its business strategy and its role in the financial system.

 Senior management should develop a strategy, policies and practices to manage liquidity risk in accordance with the risk tolerance and to ensure that the bank maintains sufficient liquidity. Senior management should continuously review information on the bank‟s liquidity developments and report to the board of directors on a regular basis. A bank‟s board of directors should review and approve the strategy, policies and practices related to the management of liquidity at least annually and ensure that senior management manages liquidity risk effectively.

 Bank should incorporate liquidity costs, benefits and risks in the internal pricing, performance measurement and new product approval process for all significant business activities.

 Bank should have a sound process for identifying, measuring, monitoring and controlling liquidity risk. This process should include a healthy framework for comprehensively projecting cash flows arising from assets, liabilities and off-balance sheet items over an appropriate set of time horizons.

 Bank should actively monitor and control liquidity risk exposures and funding needs within and across legal entities, business lines and currencies, taking into account legal, regulatory and operational limitations to the transferability of liquidity.

 Bank should establish a funding strategy that provides effective diversification in the sources and tenor of funding. It should maintain an ongoing presence in its chosen funding markets and strong relationships with funds providers. Bank should regularly measure its capacity to raise funds quickly from each source. It should identify the main factors that affect its ability to raise funds and monitor those factors closely to ensure that estimates of fund raising capacity remain valid.

 CBL should wisely utilize its liquid cash in han d, that may increase it‟s profitability in future.

 Bank should actively manage its intraday liquidity positions and risks to meet payment and settlement obligations on a timely basis under both normal and stressed conditions and thus contribute to the smooth functioning of payment and settlement systems.

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 Bank should actively manage its collateral positions. Bank should monitor the legal entity and physical location where collateral is held and how it may be mobilized in a timely manner.

 Bank should conduct stress tests on a regular basis for a variety of short-term and protracted institution-specific and market-wide stress scenarios (individually and in combination) to identify sources of potential liquidity damage and to ensure that current exposures remain in accordance with a bank‟s established liquidity risk tolerance. A bank should use stress test outcomes to adjust its liquidity risk management strategies, policies, and positions and to develop effective contingency plans.

 Bank should maintain a cushion of unencumbered, high quality liquid assets to be held as insurance against a range of liquidity stress scenarios, including those that involve the loss or impairment of unsecured and typically available secured funding sources. There should be no legal, regulatory or operational impediment to using these assets to obtain funding.

 Bank should publicly disclose information on a regular basis that enables market participants to make an informed judgment about the soundness of its liquidity risk management framework and liquidity position.

 Supervisors should regularly perform a comprehensive assessment of a  bank‟s overall liquidity risk management framework and liquidity position to determine whether they deliver an adequate level of flexibility to liq uidity stress given the bank‟s  role in the financial system.

 Supervisors should supplement their regular assessments of a bank‟s  liquidity risk management framework and liquidity position by monitoring a combination of internal reports, prudential reports and market information.

 Supervisors should occur to require effective and timely corrective action by a bank to address deficiencies in its liquidity risk management processes or liquidity position.

 Supervisors should communicate with other supervisors and public authorities, such as central banks, both within and across national borders, to facilitate effective cooperation regarding the supervision and oversight of liquidity risk management. Communication should occur regularly during normal times, with the nature and frequency of the information sharing increasing as appropriate during times of stress.

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Glossary

 BB Bangladesh Bank

 CBL The City Bank Limited

 SBL Standard Bank Limited

 CRR Cash Reserve Ratio

 SLR Statutory Liquidity Reserve

 ALM Asset Liability Management

 C&I Corporate & Investment

 CAMEL Capital, Asset, Manag

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ement, Earning, Liquidity and Sensitivity

 DRS Disaster Recovery Site

 SMA Special Mention Account

 SME Small & Medium Enterprise

 ATM Automated Teller Machine

 BFOBFI Borrowing From Other Banks & Financial Institutions

 BWOBFI Balance With Other Banks & Financial Institutions

 L/C Letter of Credit

References:

Annual Report, The City Bank Limited, 2006-2009.

www.thecitybank.com.

Bangladesh Bank: http://www.bangladesh-bank.org/mediar oom/corerisks/albsr

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isks.pdf  Dr. A. R.Khan, Bank Management-A Fund Emphasis (june,2009),chapter 8.

Liquidityforbanks;http://www.google.com.bd/#q=liquidity+management+in+banks+in+

bangladesh&hl=en&ei=tndnTI3oPJO4cYbZ3Y8F&start=40&sa=N&fp=1&cad=b GTZ(LiquidityManagement:Basiccourse), http://www.ruralfinance.org/servlet/BinaryDo wnloaderServlet?filename=1151660203478_LM_lesson3.pdf(2010)

Practical participation with The City Bank Ltd.

Informal face to face conversation with the employee of CBL.

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