CHAPTER 1

Introduction

1.1 Introduction:
In an economy, banks play the crucial role of an intermediary that channel funds from the surplus
economic units to the deficit economic units. So, obviously the fundamental and most important
task of any bank is to make the proper arrangements of its liquidity needs that the bank can meets
it short term or long term operational activities. A bank acquires funds by using or selling
liabilities, which are consequently also referred to as the source of funds. These types of funds
obtained from the issuing liabilities which are used to purchase income earning assets.

Liability management for a bank is essential because current and term liabilities helps both the
customers and bank by making assurance of safety of wealth and on the other side, the bank can
meet its investment requirements with these sources of liquid assets. This report on the
“Liquidity Management of the Social Islami Bank Bangladesh Limited” that is significantly
important for acquiring knowledge upon the activities of islamic banking sector in our country.
SIBL is treated in different way from other conventional banks because of its profitable
contribution in economy. It uses different types of technology and financial innovation SIBL
manage their funding and liquidity. SIBL always attempt to stand on a standard rank to provide
satisfactory services to the customers. From this report it can be understood about the
components of liquidity management, how rules and regulations given by Bangladesh Bank affect
the liquidity policy of SIBL.

1.2 Rationale of the study:

This internship report is originated as a partial fulfillment of the BBA program of the Institute of
Business Administration, Jahangirnagar University (IBA-JU), Savar, Dhaka. The report is
prepared after three month long internship tenure at Social Islami Bank Bangladesh Limited.

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1.3 Objective of the study:
Objectives of this Report includes two types of objectives. They are broad objective and specific
objectives. A broad objective and some specific objectives are included in this report. They are:

 Broad Objective
To analyze the Liquidity Management of Social Islami Bank Bangladesh Limited.
 Specific Objectives

The specific objectives of this report are given below:

 To present an overview of Social Islami Bank Limited.

 Central bank requirements for the Social Islami Bank Limited on liquidity management.
 To assess the level of different types of Liquidity indicators maintained by SIBL.

1.4 Methodology of the study:

Methodology describes the manner in which data is collected, analyzed and interpreted. I have
collected the information/data from the following sources, which has helped me to make this
report. The source is divided into two parts:

Primary Source:

Primary data is which data collected first time. The information that I collected from primary
source are:

 Face-to-face conversation with the respective officers and staffs of the Branch
 Informal conversation with the clients.

Secondary Sources:

The secondary data sources which was used for this study were annual reports, manuals, and
brochures of Social Islami Bank Bangladesh limited, official website of SIBL, and different
publications of Bank.

Instruments used for analysis:

In this report, ratio analysis is used to analyze the liquidity management practice of Social Islami
Bank Ltd. such as (current ratio, capacity ratio, cash position indicator, credit to deposit ratio,
capital adequacy ratio etc.)

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Liquidity indicator approach: All most all of the banks estimate liquidity based on the ratios on
specific periods. There are two types of liquidity indicators-

i) Assets based liquidity ratio: An assets that can be converted into cash in a short time, with
little or no loss in value. Liquid assets include cash, savings accounts, certifications of
deposit, accounts receivable, marketable securities, stocks, government bonds,
promissory notes etc. The Assets based liquidity ratios are:

 Cash position indicators

 Liquid securities indicators
 Risk less assets position
 Liquidity assets ratio
 Capacity ratio
ii) Liability based liquidity ratio: Liquid liabilities are those liabilities or debt obligations
which a bank has to pay within a year. They are the sum of currency and deposits in the
central bank, plus transferable deposits and electronic currency, plus time and savings
deposits, foreign currency transferable deposits, certificates of deposit, and securities
repurchase agreements, plus travelers’ checks, foreign currency time deposits,
commercial paper. The ratios are:
 Core deposit ratio
 Deposit composition ratio

1.5 Scope of the study:

This study has prepared to gain a clear view of the liquidity management of the SIBL. This study
focuses on what are the liquid assets, what is the liquidity, what is the liquidity management, the
Bangladesh Bank’s requirement on liquidity management for all the Islami banks. Purpose of the
report would be to focus on how the Social Islami Bank Bangladesh Limited maintains liquidity
requirements and fulfills the central bank’s requirements on liquidity management.

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1.6 Limitations of the Study:

It is obvious that every study has some limitations. On the way of preparing this report, the
following problems are faced that may be termed as limitations of the study:

i. Large scale analysis is not possible due to constraints & restrictions posted by the
banking authority.
ii. Duration of the study was too short to have a sound understanding of the overall
banking.
iii. This study completely depended on official records and annual report.

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 CHAPTER 2

Organization Part

2.1 Introduction:
Social Islami Bank Limited (SIBL) is a banking company registered under the companies Act
1994 with its head office in 15 Dilkusha C/A, Dhaka-1000. The bank operates as a scheduled
commercial bank & public limited company in Bangladesh incorporated in Bangladesh under the
Banking Companies Act 1991.The Bank started its operation from 22, November 1995 as Social
Investment Bank Limited and changed its name to the present one on August 2009. Currently the
bank has 142 branches in all over the Bangladesh. The bank under takes all types of banking
transaction to support the development of trade and commerce in the country. SIBL services are
also available for the entrepreneurs to set up new venture and BMRE of industrial units. To
provide clientele services in respect of international trade it has established wide corresponded
banking. SIBL relationship with local and foreign bank stride and financial interest home and
abroad. Every organization has some objectives of its own. The prime objective of Social Islami
Bank Ltd. is to earn profit throw undertaking the responsibility of providing financial help for the
development of the country’s commercial and industrial sector.

2.2 Vision
Social Islami Bank Ltd. started its journey with the concept of 21st Century Islamic participatory
three sectors banking model;

Formal Sector: Commercial banking with latest technology.

Non-Formal Sector: Family empowerment Micro-credit & Micro-enterprise program.
Voluntary Sector: Social Capital mobilization through CASH WAQF and others.
Finally, "Reduction of Poverty Level" is the vision, which is a prime object as stated in
Memorandum of Association of the Bank with the commitment "Working Together for a Caring
Society.

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2.3 Mission
The missions of the SIBL are given below:
 Establishing Three Sector Banking Model
 Transformation to a service oriented technology driven profit earning Bank
 Fast, accurate and satisfactory customer service
 Balanced & sustainable growth strategy
 Optimum return on shareholders’ equity
 Introducing innovative Islamic Banking Products
 Attract and retain high quality human resources
 Empowering real poor families and creating local income opportunities
 Providing support for social benefit organizations by way of mobilizing funds and social
services.

2.4 Objectives of SIBL

 Build up a low cost fund base.
 Make sound loan and investment.
 Meet capital adequacy recruitment at all time.
 Ensure 100% recovery of all advances.
 Ensure a satisfied work force.
 Adopt an appropriate management technology.

2.5 Changed Logo

SIBL has passed a successful year 2011 through generating highest business growth in terms of
profit and also set superior service delivery for its customers through implementation of real time
on line state of-the-heart banking technology. In its journey towards continuous excellence in
2012 the bank has decided to change its logo.

The new logo depicts bird’s wing, 9 (nine) feathers, to represent its comfortable and safe flying in
the economic sky of the country connecting it with the global sky by passing the territorial
Boundary. The wings are colored in red in a green background. Red symbolizes the vigor and

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enthusiasm of youth and the green symbolizes love for the dear motherland, Bangladesh a country
of greenery. Moreover- 9 (nine) feathers represent- Honesty, Transparency, Efficiency,
Accountability, Reliability, Innovation, Flexibility, Security and Technology flying towards
continuous excellence.

2.6 Corporate Slogan

With the new journey, SIBL has started its new slogan to add a new dimension in their service.
The slogan is “Journey Towards Excellence” that indicates its continuous improvement to create
the excellent service condition for the clients.

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2.7 Hierarchy of the Management Team

Chairman

Vice Chairman (VC))

Board of Directors

Managing Director (MD)

Additional Managing Director (AMD)

Deputy Managing Director(DMD)

Senior Executive vice president(SEVP)

Executive Vice President(EVP)

Senior Vice President(SVP)

Vice President(VP)

Senior Assistant Vive President(SAVP)

Assistant Vive President(AVP)

First Assistant Vive President(FAVP)

Page 8 of 35
2.8 Performance of the bank at a glance

Table 1: SIBL financial performance: (Taka in Millions)

Sl No. Particulars 2013 2014 2015 2016 2017

1. Authorized 10,000.00 10,000.00 10,000.00 10,000.00 10,000.00
Capital
2. Paid-up Capital 7031.42 7031.42 7031.42 7382.99 7382.99

3. Total 11083.43 12143.38 12950.32 14187.80 14183.67

Shareholder’s
Equity
4. Total deposit 102104.48 124535.01 149773.62 190564.52 228798.90
5. Investment 85922.33 107899.96 134116.85 174196.13 210045.51
6. Operating Profit 2914.55 3964.27 4849.82 5698.08 6226.86

7. Profit Before Tax 2024.66 3307.52 3479.17 4192.19 6166.21

8. Total Assets 126616.56 1537374.67 180112.11 227704.18 276348.95

9. Earning Per Share 1.74 2.71 2.81 3.10 1.97

10. Number of 94 100 111 125 142

Branches

2.9 Products & Services

Like conventional banking, Islamic banks offer a variety of unique banking, saving and
investment solutions that operate in strict compliance with Shari’ah Law. SIBL offered large
number of different produces. Some basic products and services of SIBL are given below:
Deposit products:

A. Al Wadiah Current Account: AL-WADIAH Current Deposit are opened on proper

introduction with minimum initial deposit fixed by the Bank. AL-WADIAH Deposit
is accepted on AL-WADIAH principles which mean al Amanah with permission to
use.
B. Mudaraba Notice Deposit Account

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 C. Mudaraba Saving Deposit: Mudaraba Savings Deposit is the deposit of one party
and on the basis of operation by another party this deposit is taken. By providing
Introducer of the account as required by the bank and by depositing a minimum
amount any depositor or multiple depositor can open single or joint account.
D. Mudaraba Term Dposit: Mudaraba Term Deposits are accepted by the bank with a
sum of Tk. 5000 or above (multiple of 1000) from individuals (single and joint),
firms (proprietorship/partnership), limited companies, autonomous bodies, charitable
institutions, association, educational institution, local bodies, trusts, etc. against
issuance of non-transferable receipts in acknowledgement of MTD account may be
opened in the names of minors jointly. With their guardians. The mudaraba term
deposits are accepted for periods of
 1 Month
 3 Month
 6 Month
 12 Month
E. Mudaraba Scheme deposit: SIBL offered many different types of Scheme deposit
like:
 Swapner Siri
 Kafela
 Sachchondo Protidin
 SIBL Young Star Account, etc.

Investment Deposit:

A. Bai-Murabaha: Bai-Murabaha is a contract between a Buyer and Seller under which

the Seller sells certain specific goods permissible under Islamic Shariah and Law of
the land to the Buyer at a cost plus agreed profit payable in cash on any fixed future
date in lump sum or by installments.
B. Bai-Muajjal: Bai-Muajjal is a contract between Buyer and Seller under which the
seller sells certain specific goods ( permissible under Shariah and Law of the country
), to the Buyer at an agreed fixed price payable at a certain fixed future date in lump
sum or within a fixed period by fixed installments. The other investment deposits are:
C. Mudaraba
D. Musharaka
E. Bai-salam

Service Deposit:

A. Online banking

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 B. Mobile banking
C. SMS Banking
D. Offshore Banking
E. School Banking
F. ATM 24/7
G. CARD (Local & Foreign)
H. Automated Clearing
I. Electronic Fund Transfer

2.10 Special Features of SIBL

As an Islami bank, SIBL is unique with their products, strict with their principle &
uncompromising with their honesty. Some of the special features that make them notable in
Islami banking sector are as follows:

 SIBL is a pioneer in introducing on-line banking among all the Islami Banks of the
country with state-of-the-art banking software.
 SIBL has set its strategy to convert all its banking activities from traditional branch-based
banking system to an ideal blending of both centralized processing unit (CPU) and
effective operation of branch that is based on modern essence of banking.
 SIBL has its unique feature to mobilize capital through CASH WAQF programme.

2.11 Overview of SIBL Savar Branch

In 2008 SIBL has launched 4 new branches in the several place of Bangladesh. The 28th branch
Savar was my working branch where I have joined to complete my internship program.

Address:
Social Islami Bank Limited
Savar Branch
Yousuf Tower (2nd Floor), 35 Tatti, Dilkusha Bagh
Savar Bus Stand, Savar, Dhaka.

Number of Employee: 14

Department:
General Department, Foreign Exchange Department & Investment Department

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2.12 My work in General Banking:

 Account Opening – First thing I learnt here is how to open an account, MSD, AWCD,
MTDR or DPS. In SIBL officials generally fill up the form for the client.
 Processing of Cheque Book – I have learned the processing of the Cheque book
requisitions and other formalities. I have also took part in the delivering the Cheque
book when a client comes to acquire it.
 Pay Order – Payment order is another option for clients to transfer money. I helped
many customers to have their pay order form filled up.
 Writing Cheque for MTDR: When a client opens up MTDR then the bank has to
prepare a check of the same amount the client is going to keep for a certain time. I
prepared few cheques as well as the entry on MTDR register.

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 CHAPTER 3

Project Part

3.1 Islami banking in Bangladesh:

Banking plays an important role in the economy of any country. Bangladesh is the third largest
Muslim country in the world. The people of our country possess strong faith on Allah and they
want to lead their lives as per the construction given in the holy Quran and the way shown by the
prophet Hazrat Mohammad (Sm). But Islamic banking system was developed here up to 1983
was centered to interest, which strongly prohibited repeatedly in Islam. This interest based
banking system had been in action right from the British colonial period and employment of the
Muslims in banks was more or less restricted. During the period 1947-1971 when country was a
part of Pakistan but the rulers did not take any practical attempt to establish economic system
based on Islamic Principles. In August 1974, Bangladesh signed in the Charter of Islamic
Development Bank and committed itself to refom its economic and financial system according to
Islamic Shariah.

Late President Ziaur Rahman, In January 1981, while addressing the 3rd Islamic Summit
Conference held at Makkah and Taif suggested, “The Islamic countries should develop a separate
Banking system of their own in order to facilitate their trade and commerce.” This statement
indicated favorable attitude of the Government of the People’s Republic of Bangladesh towards
establishing Islamic Banks and financial institutions in the country. Islamic banking as a new
paradigm started in Bangladesh in 1983 with the establishment of the first Islamic bank “Islami
Bank Bangladesh Limited”. The innovation of interest-free banking systems, proved its worth in
the country’s money market and many new banks have been established to operate in compliance
with Shari’ah and many traditional banks have opened their Islamic banking branch.

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3.2 Liquidity of a bank:
Liquidity means the ability of a bank to meet its financial commitments or obligations at all time.
That means how easily it can convert its assets into liquidity. Every banks need a minimum level of
liquid money to meet up its day to day transaction and fulfil their customer needs. Liquidity can be
divided into several types, such as:

Quick liquidity: It is used to fulfil the requirement of the daily customers.

Short-term liquidity: It is used to meet the monthly requirement of the customers.

Long-term liquidity: It is used to meet the financial obligations such as customers demand for cash
on the basis of fixed assets.

Contingent liquidity: It arises when an unexpected situation have been came out. These type of
situation can be generated by the big bank robbery, fraud, or other accidents.

Economic cyclical liquidity: It can be occur when based on good or bad economic situation in the
country for political instability, war, the pressure created by the different interest groups relating to
the banking activities etc.

3.3 Liquidity management of Islami Bank:

Liquidity management is one of the main function of the treasury department. This department deals
with sources of fund and identified how it will be implemented in the appropriate field. It is so
important for all banks to manage the liquidity appropriately. If any liquidity crisis occurs the ban will
face a great disastrous situation. For this bank can loss their goodwill. Every bank needs to have a
balanced procedure in liquidity management that will involve identification, measurement and control
against liquidity exposure. To maintain a sound liquidity some key components of liquidity risk
management process are followed by Islami Banks. The process are given below:

 Corporate governance and accountability.

 Policies, procedures, and limits.
 Risk measurement, monitoring, and reporting systems.
 Intraday liquidity management.
 Funding diversification.

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  Maintenance of a cushion of highly liquid assets.
 Comprehensive contingency funding plans
 Internal controls.

3.4 Sources of liquidity:

It is essential for every bank to manage its liquidity position to avoid the deficiencies of required
reserves. Effective liquidity management includes properly utilizing of all the reserves by managing
major source of liquidity. They can be include into two parts:

1. Primary sources of liquidity:

primary sources of liquidity is the sources that a bank uses for their daily transactions
like cash received from sales, collection of receivables, short-term investment, trade
credit from suppliers, working capital by effectively managing its cash.
2. Secondary sources of liquidity:
It’s not a part of regular operations, but when time for needs these source may be
used. Secondary reserves can be short maturity, high credit quality and high
marketability.

3.5 Importance of liquidity:

Liquidity refers converting of assets into cash within a short period of time. If a bank cannot fulfil the
demand of its customer in time and continue not to respect its liability to the suppliers of credit,
services, and goods can be declared a bankrupt bank. The daily operations may be harmed if there is a
lack of short- term liquidities, for that it may lost its reputation. Lack of cash or liquid assets on hand
may force a company to miss the incentives given by the suppliers of credit, services, and goods. It
may result in higher cost of goods which in turn affect the profitability of the bank. So it needs to
maintain a certain degree of liquidity in every bank.

Liquid assets are an essential part for a bank as it operates largely with the funds. It also a very
important for the financial statements which encourages the depositor to deposit or invest their fund
to the bank. Which increases the level of intangible assets of the bank.

Liquidity enable a bank to meet three types of risk. They are:

Page 15 of 35
  Funding risk: The ability to replace the net cash flow due to unexpected withdrawals or
deposits not renewed by the depositors.
 Time risk: Risk of compensating of non- receipt of expected inflows of funds s if the
borrower or borrowers fail to meet their commitments.
 Call risk: Risk of acquiring contingent liabilities and incapability to acquire beneficial
business opportunities, when desirable.

3.6 The Liquidity Management Process:

Liquidity management refers to the ability of a firm that who immediately it can convert its assets into
cash. Some steps of liquidity management process are given below which help to maintain an
effective liquidity management.
Determining the liquidity is the basis of the entire liquidity management process. It involves
identifying the balances and positions of the bank by accessing and gathering information of
currencies, accounts etc.
Maintaining liquidity it involves determining the liquidity within a bank’s corporate treasury to
support the bank’s revenue generating activities.
Optimizing liquidity is a process that focus on maximizing the value of the bank’s funds. It requires
a clear understanding of the bank’s liquidity positions through all the currencies, accounts, business
lines and counterparties.
Resources availability is the biggest challenge in the liquidity management process of a bank. It is
necessary to reserve a certain amount of liquid resource which may support them in an unexpected
situation.

3.7 Requirement of Bangladesh Bank:

To maintain a certain degree of liquidity, all scheduled banks in Bangladesh have to follow the
requirement of Bangladesh Bank. The instruction of Bangladesh Bank for all scheduled banks are to
maintain sufficient amount of Cash Reserve Ratio and Statutory Liquidity Ratio.

A. Cash Reserve Ratio (CRR):

Every scheduled bank has to maintain a balance in cash with BB the amount of which shall not be
less than such portion of its total demand and time liabilities as prescribed by BB from time to time,
by notification in the official Gazette. At present, the required CRR is 6.5% on bi-weekly average

Page 16 of 35
basis of the average total demand and time liabilities (ATDTL) with a provision of minimum 6% on
daily basis of the same ATDTL. Banks are advised to follow the circular issued by Monetary Policy
Department of BB in this regard.

B. Statutory Liquidity Ratio:

Every scheduled bank has to maintain assets in cash or gold or in the form of un- encumbered
approved securities the market value of which shall not be less than such portion of its total demand
and time liabilities as prescribed by BB from time to time. At present, the required SLR is 13% daily
for conventional banks and 5.5% daily for Islamic Shari'ah based banks and Islamic Shari'ah based
banking of conventional banks of their average total demand and time liabilities. Banks are advised to
follow the circular issued by Monetary Policy Department of BB from time to time in this regard.
According to Basel III, Bangladesh Bank issued a relevant guideline of Bank for international
settlement has identified the (1) Liquidity Coverage Ratio, (2) Net Stable Funding Ratio.

3.8 Methods used to measure liquidity Risk:

The fundamental methods that are used to measure liquidity position are:

I. Cash Reserve Requirement

II. Statutory liquidity Ratio

Nevertheless, according to Basel III, the following methods are mandatory for measuring the liquidity
position.

a. Liquidity Coverage Ratio: LCR helps to maintain an adequate level of stock of high quality
liquid assets that can easily converted into cash to meet the liquidity shortages over the next
30 calendar days.
The Equation of LCR= (Stock of high quality liquid assets /Total net cash outflows over the
next 3 calendar days) ≥100%.

b. Net Stable Funding Ratio: The NSFR aims to limit over-reliance on short-term wholesale
funding during times of abundant market liquidity and encourage better assessment of
liquidity risk across all on- and off-balance sheet items. The minimum acceptable value of
this ratio is 100 percent, indicating that available stable funding (ASF) should be at least
equal to required stable funding (RSF).

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 The Equation NSFR= {Available amount of stable funding (ASF)/ required amount of stable
funding (RSF)}>100%.

3.9 Liquidity Management system of SIBL:

In SIBL, the liquidity risk is managed by the Treasury Division under the oversight of ALCO which
is headed by the Managing Director and CEO along with other senior management. Treasury Division
upon reviewing the overall funding requirements on daily basis sets their strategy to maintain an
adequate liquidity position taking into consideration of Bank’s approved credit deposit ratio, liquid
assets to total assets ratio, assets-liability maturity profile, banks earning or profitability as well as
overall market behavior etc. It also monitor and measure the liquidity risk management tools
mentioned in Basel III, namely LCR, NSFR, Leverage Ratio etc.

SIBL also measure the future cash flows in different time buckets. The time buckets shall be
distributed as under:

i) 1 day to 30/31 days (one month)

ii) Over one month and up to two months
iii) Over two months and up to three months
iv) Over three months and up to six months
v) Over sixth months and up to one
vi) Over ten years

3.10 CRR & SLR of SIBL:

Cash Reserve Requirement (CRR) and Statutory Liquidity Ratio (SLR) have been calculated and
maintained in accordance with the clause (1) of Article 36 of Bangladesh Bank Order, 1972 (as
amended upto 2003)and clause (1) of Section 33 of the Bank Companies Act, 1991.
The Cash Reserve Required on bank’s time and demand liquidities at 6.50% on bi-weekly average
basis and minimum 6.00% on daily basis has been calculated and maintained with Bangladesh Bank
in current account and 5.50% Statutory Liquidity Ratio on the same liabilities has also been
maintained in the form of Bangladesh Bank Government Islamic bond including Foreign Currency
balance with Bangladesh Bank. Both the reserves maintained by the bank are in excess of the
statutory requirements, as shown below:

Table 2: Cash reserve requirement

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 CRR 2013 2014 2015 2016 2017
Required 5,682.04 6,917.45 7,721.63 10,335.68 12,497.85
reserve
Actual reserve 6,534.21 10,612.71 13,091.92 15,173.30 20,699.99
held
Surplus/(deficit) 852.17 3,695.26 5,370.29 4,837.62 8,202.14
Maintained (%) 14.65% 16.13% 6.17% 10.67% 13.23%

Figure 1: Cash reserve requirement

CRR
25000

20000

15000

10000

5000

0
CRR 2013 2014 2015 2016 2017

In this above table & graph, the SIBL has maintained a surplus cash reserve requirement. It indicates
that SIBL maintain a good liquidity management.

Page 19 of 35
 Table 3: Statutory liquidity ratio

SLR 2013 2014 2015 2016 2017

Required 10,890.58 5,853.22 7,078.16 9,474.37 11,456.367
reserve
Actual reserve 14,394.75 10,148.28 12,707.241 15,957.63 18,960.74
held
Surplus/(deficit) 3,504.18 4,295.05 5,629.08 6,483.26 7,504.375

Maintained (%) 20.17% 20.43% 21.27% 16.58% 19.40%

Figure 2: Statutory liquidity ratio

SLR
20000

15000

10000

5000

SLR Required reserve Actual reserve held Surplus/(deficit)

The graph showed that the SLR of SIBL is increasing. It has maintaining surplus in SLR also from
year 2013 to 2017.

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 CHAPTER 4

Data Analysis and Findings

Cash Position Indicator:

The cash position is a sign of financial strength and liquidity. The cash position indicator compares
value of the cash and demand deposits at other banks including the central bank to the total asset base
of the institution:
Cash Position Indicator = (Cash and deposits due from bank / Total assets)

Table 4: Cash position indicator

Year Amount Ratio
2013 (7627.79+3077.77-6383.25) 0.034195
/126401.39
2014 (11145.08+2844.19+9374.71) 0.15197
/153737.47
2015 (13535.89+3860.06-4258.08) 0.07298
/180008.65
2016 (16131.32+1266.64+482.08) 0.07848
/227815.30
2017 (21457.53+898.17+13953.83) 0.13142
/276290.48

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 Figure 3: Cash position indicator

Ratio

0.2 0.15197
0.13142
0.07298 0.07848
0.1 0.034195

0
2013 2014 2015 2016 2017

Ratio

The recommended value for CPI is between 0 and 1. A large amount of cash indicates that bank is in
a stronger position to handle its immediate cash needs. The CPI of SIBL was reduced in year 2015 &
2016 but it was increased in year 2017.

Liquid Securities Indicator:

Liquidity is the entity which convert its assets into cash to meet the short-term obligations. It
evaluates short-term financial position of the bank. Higher liquidity indicator indicates that the bank
do better in their financial position.
Liquid securities indicator = government securities / total assets

Table 5: Liquid securities indicator

Year Amount Total Assets Ratio
2013 5500 126401.39 4.35%
2014 5116 153737.47 3.33%
2015 6040 180008.64 3.36%
2016 9150 227815.30 4.02%
2017 9100 276290.48 3.29%

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 Figure 4: Liquid securities indicator

Liquid Securities indicator

6.00% 4.35%
4.00% 3.33% 3.36% 4.02%
3.29%
2.00%
0.00%
2013 2014
2015
2016
2017

Ratio

The liquid securities indicator of SIBL shows, there was a fluctuating ratio in 2013 to 2017. In 2017,
the liquid securities indicator was 0.0329.

Liquidity Assets Ratio:

Liquid assets is an assets that can be converted into cash easily.

Liquidity Assets Ratio = (Cash + Government Securities + Reserves) / Total Assets

Table 6: Liquidity assets ratio

Year Cash Government Reserve Amount Ratio

Securities
2013 8895.004 5500 2129.66 126401.39 13.073%
2014 12120.68 5116 2781.29 153737.47 13.021%
2015 14681.86 6040 3480.33 180008.64 13.445%
2016 17947.66 9150 4318.77 227815.30 13.790%
2017 23826.85 9100 5034.37 276290.48 13.739%

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 Figure 5: Liquidity assets ratio

Liquidity Assets Ratio

13.79% 13.74%
14.00% 13.45%
13.50% 13.07% 13.02%
13.00%
Ratio
12.50%
2013 2014 2015 2016 2017

Ratio

The graph shows that, the liquidity assets position of SIBL is declining in recent year. It was 0.0579
in 2017 which was lower than 2016.

Capacity Ratio:

Capacity ratio is the ratio of net loans and leases to total assets. It is a negative liquidity indicator,
because loans and leases are often among the most illiquid assets that a bank can hold. SIBL
disburses majority amount in loans which can increase its income.
Capacity Ratio = (Investment/ Total assets)

Table 7: Capacity ratio

Year Investment Total Assets Ratio
2013 85,872.33 126401.39 67.94%
2014 107899.96 153737.47 70.18%
2015 133856.85 180008.65 74.36%
2016 173776.13 227815.30 76.28%
2017 209295.51 276290.48 75.75%

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 Figure 6: Capacity ratio

Capacity Ratios

74.36% 76.28% 75.75%

80.00%
75.00% 70.18%
67.94%
70.00%
65.00%
60.00%
2013 2014 2015 2016 2017

ratios

The higher the capacity ratio, the lower the institution's liquidity. Even at zero liquidity, the capacity
ratio will be less than 1, because of the necessary investment in fixed assets. In SIBL, the capacity
ratio in 2017 was 0.0225 which is better as analyzing the other financial years. It means SIBL had a
highest liquidity position in 2017.

Core Deposit Ratio:

Core deposit is divided by total asset where core deposits are defined as small denomination accounts
from local customers that are considered unlikely to be withdrawn on short notice and so carry lower
liquidity requirements. This ratio is in good condition because at this bank has less possibility of
facing liquidity crisis.

Core Deposit Ratio = Core Deposit / Total Asset

Table 8: Core deposit ratio

Year Amount Ratio

2013 82036.64/ 126,401.39 64.60%
2014 99280.29/ 153737.47 64.59%
2015 118600.66/ 180,008.64 65.89%
2016 151,718.76/ 227,815.30 66.59%
2017 180389.99/ 276,290.48 65.29%

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 Figure 7: Core deposit ratio

Core Deposit Ratio

68.00% 66.59%
65.89% 65.29%
66.00% 64.60% 64.59%
64.00%
62.00%
2013 2014 2015 2016 2017

Ratio

This ratio is in good condition because SIBL has less possibility of facing liquidity crisis. In 2017 the
ratio was 65.29%.

Deposit Composition Ratio:

The deposit composition refers to those deposits that the customers want or need immediately.
Customers like to withdraw the deposit amount via chaque writing while time deposits have fixed
maturities with penalties for early withdrawal. A decline in the ratio suggests greater deposit.

Deposit Composition Ratio = Term deposit / Total deposit

Table 9: Deposit composition Ratio

Year Amount Ratio

2013 18405.05/ 102,104.48 18.03%
2014 22607.86/ 124,535.01 18.15%
2015 29480.48/ 149,773.62 19.68%
2016 33306.38/ 190,564.52 17.48%
2017 42506.29/ 228,798.90 18.59%

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 Figure 8: Deposit composition ratios

Deposit Composition ratios

19.68%
20.00% 18.59%
18.03% 18.15%
17.48%
18.00%

16.00%
2013 2014 2015 2016 2017

ratios

In this graph the deposit composition ratio of SIBL is in reasonable condition.

Current ratio

The current ratio is one of the most commonly used financial ratio measures the banks’ ability to meet
its short term obligations.

Current ratio= current assets / current liability

Table 10: Current ratio

Year Current assets Current liability Ratio

2013 126401.39 115309.15 1.10
2014 153737.47 141594.08 1.09
2015 180008.65 167057.53 1.08
2016 227815.30 213621.97 1.07
2017 276290.48 262106.81 1.05

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 Figure 9: Current ratio

Current Ratio
1.1
1.1 1.09
1.09 1.08
1.08 1.07
1.07
1.06 1.05
1.05
1.04
1.03
1.02
2013 2014 2015 2016 2017

We know, a high current ration indicates that the company is able to meet its short term liabilities. In
this table, SIBL has a fluctuating trend in current ratio. In 2017 its current ratio is 1.05 which is lower
than 2013.

Net Working Capital:

Net Working Capital = Current assets - current liability

Table 11: Net working capital

Year Current Assets – Current Liability Net

Working
Capital
2013 126401.39 – 115309.15 11092.24
2014 153737.47 – 141594.08 12143.39
2015 180008.65 – 167053.53 12955.12
2016 227815.30 – 213621.97 14193.33
2017 276190.48 – 262106.81 14083.67

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 Figure 10: Net working capital

Net Working Capital

14193.33 14083.67
15000 12955.12
12143.39
11092.24

10000

5000

0
2013 2014 2015 2016 2017

Ratios

This table shows that net working capital was increased 11092.24 to 14083.67 in year 2013 to 2017.
Which means SIBL is enable to manage its working capital efficiently.

Debt Ratio:

Its measure the degree of protection of total assets provided by the firm’s creditors.

Debt Ratio = Total Liability / Total assets

Table 12: Debt ratio

Year Amount Total Assets Ratio
2013 115313.95 126401.39 91.23%
2014 141412.32 153737.47 92.98%
2015 167053.52 180008.64 92.80%
2016 213621.97 227815.30 93.77%
2017 262106.81 276290.48 94.87%

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 Figure 11: Debt ratio

Debt Ratios
96.00%
94.87%
95.00%
93.77%
94.00%
92.98% 92.80%
93.00%
92.00% 91.23%
91.00%
90.00%
89.00%
2013 2014 2015 2016 2017

The higher the debt ratio, the greater the risk will be associated with the firm’s operation. The debt
ratio of SIBL was 94.87% in 2017, which was greater in 2013.

Credit to Deposit Ratio:

Many banks and bank analysts monitor credit-to-deposit ratios as a general measure of liquidity. It
used to measure the liquidity portion by comparing firm’s total loans & advances to its total deposits.

Credit - to - Deposit Ratio = Total Investment / Total Deposits

Table 13: Credit-to-deposit ratio

Year Total Investment Total Deposit Ratio

2013 85872.33 102104.48 84.10%
2014 107899.96 124535.01 86.65%
2015 133856.85 149773.62 89.37%
2016 173776.13 190564.52 91.19%
2017 209295.51 228798.90 91.48%

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 Figure 12: Credit-to-Deposit ratio

Credit-to-deposit Ratios

95.00% 91.19% 91.48%

89.37%
90.00% 86.65%
84.10%
85.00%
80.00%
2013 2014 2015 2016 2017

Ratios

This table shows that, the credit to deposit ratio of SIBL was increased in 2017 than 2013 - 2016. It
means the bank are making full use of their resources. But too high ratio of deposit is not good for a
bank. The deposit ratio should be maintained in a systematic level.

Reserve Ratio:
The reserve ratio is the portion of depositors' balances that banks must have on hand as cash
according to the direction of the central bank.

Reserve Ratio = (Cash assets/Customer deposits)

Table 14: Reserve ratio

Year Amount Customer Deposit Ratio
2013 8895.00 81151.92 10.96%
2014 12120.68 98234.21 12.34%
2015 14684.86 132874.16 11.05%
2016 17947.66 145201.20 12.35%
2017 23826.85 180772.94 12.18%

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 Figure 13: Reserve ratio

Reserve Ratio

13.00% 12.34% 12.35% 12.18%

12.00%
10.96% 11.05%
11.00%
10.00%
2013 2014 2015 2016 2017

Ratio

The reserve ratio is used to maintain the monetary policy of a country. The SIBL had higher position
in 2016 and in 2017 it was moderately well position as their reserve ratio in 2017 was 12.18%.

Capital Adequacy Ratio:

Capital Adequacy Ratio reflects whether the bank has enough capital to bear unexpected losses
arising in the future. It is decided by central banks and bank regulators to prevent commercial banks
from taking excess leverage and becoming insolvent in the process.

CAR = (Tier-I Capital + Tier-II Capital)/Risk Weighted Assets.

Tier 1 capital includes permanent shareholders’ equity; perpetual non-cumulative preference shares,
Disclosed reserves and Innovative capital instruments. Tier 2 capitals include undisclosed reserves,
Revaluation reserves of fixed assets and long-term holdings of equity securities, General
provisions/general loan-loss reserves; Hybrid debt capital instruments and subordinated debt.

Table 15: Capital adequacy ratio

Year 2013 2014 2015 2016 2017

Capital Adequacy Ratio 11.64% 11.36% 12.33% 11.55% 11.59%

This ratio is used to protect depositors and promote the stability and efficiency of financial systems in
the banking sector around the world. The adequacy ratio of SIBL is highest 12.33% in 2015 but
11.59% in 2017 which is decreased.

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Findings of SIBL Regarding Liquidity Management:

From the above analysis we have seen that SIBL is maintaining a good liquidity position. It always
maintains SLR and CRR above the requirement ratio. So it never faces any liquidity crisis. But in
spite of SIBL has some short comings in the liquidity management. Some problems are given below:

 SIBL doesn’t have any full bodied liquidity management framework that ensures the
maintenance of its liquidity.
 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.
 SIBL maintains huge amount cash in hand which are kept as idle bank has failed to utilize
proper investment opportunity.
 SIBL cannot utilize proper investment opportunity because of proper forecasting about
investment.
 As interest is prohibited SIBL cannot involve in interbank transaction.

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 Chapter 5

Conclusion & Recommendation

5.1 Recommendation:

For the more progress in the liquidity position SIBL can take some principles to manage a sound
liquidity process and supervision. To maintain a sound management of liquidity risk SIBL should
established a framework that ensures it maintains a sufficient liquidity. Senior management should
develop a strategy, policies and practices to manage liquidity risk. They 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
developed by the senior managements at least annually. Bank should have a sound process for
identifying, measuring, monitoring and controlling liquidity risk. Bank should actively monitor and
control liquidity risk exposures. The bank should have the ability to forecast the unexpected and
undesirable need of liquidity. SIBL should wisely utilize its liquid cash in hand, that may increase its
profitability in future.

5.2 Conclusion:
Liquidity management is a major financial factor which directly impacts the Banks profitability,
credit and economic growth. Efficient liquidity management can lead to minimization risk and
generation of more profits through enhancing loanable funds. Liquidity risk comes from fluctuations
in the prices of either short-term assets or short-term liabilities, or both.

From the above analysis of The Social Islami Bank Bangladesh Limited’s liquidity management, it is
easily predicted that the liquidity position will be stronger than now because liquidity position is
increasing day by day to support profitable loans and investments. Secondary sources data from
Bangladesh Bank have been used to analyze the liquidity position and ratios according to the Basel III
guideline. Variables like deposit, loans & advances, profit, CRR, SLR have been used to conduct the
study. There are only few studies over the liquidity management in developing countries banking
system, findings of this study is very much similar to previous studies. SIBL also maintained higher
Liquidity Coverage Ratio and Net Stable Funding Ratio than regulatory requirement.

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5.3 References:
 Annual Report, the Social Islami Bank Bangladesh Limited, 2013-2017.
 Bangladesh Bank: https://www.bangladesh-bank.org/mediaroom/corerisks/albsrisks.pdf
 Bangladesh. Bangladesh Bank. Department of Financial Institutions and Market (2011)
Prudential Guidelines on Capital Adequacy and Market Discipline for Financial Institutions.
pp. 47, 48.
 Bangladesh. Bangladesh Bank. (2014) Guidelines on risk based capital adequacy Revised
regulatory capital framework for banks in line with Basel III. pp.3, 4, 55, 56, 70, 71.
 www.islamibankbd.com/annual_report/
 http://dspace.bracu.ac.bd/bitstream/handle/10361/3331/09204059.pdf?sequence=1
 http://www.assignmentpoint.com/business/finance/a-report-on-social-islamibank-imited-part-
1.html
 http://www.studymode.com/subjects/internship-report-on-social-islamibank-limited-of-
bangladesh-page1.html

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