Treasury Management

and Compliance
Issues in Bangladeshi
Banks

Md Habibur Rahman
Additional Director
This presentation explores the
importance of treasury
management and compliance in
the banking sector of Bangladesh
 Objectives
• Objective 1: Understand the concept
of treasury management in banks
• Objective 2: Identify the key
compliance issues faced by banks in
Bangladesh
• Objective 3: Explore strategies for
effective treasury management and
compliance
 Treasury Management in Banks

Treasury management refers to the strategic handling

of financial assets and liabilities by banks to optimize
liquidity, profitability, and risk management
 Component

• Asset Liability Management

• Liquidity Management
• Cash Management
• Risk Management
• Investment Management
• Foreign Exchange Management
• Finally profit Maximization
 Liquidity

Liquidity refers to the ability of a bank to meet the

demands of its counterparties and customers for:
– Withdrawals from deposits.
– Repayment of other liabilities.
– Funding of new loans.
– Settlement of letters of credit.
– Performance on other off-balance sheet
obligations, such as guarantees.
 Importance of Liquidity Management in Banks

 Despite adequate capital levels Many banks experiences difficulties because they
do not manage their liquidity in a prudent manner.
 A substantial impacts of liquidity crisis are:
oBank run oHigh liquidity premium

oNegative credit growth oDirect impact on profitability

oHigh call money rate oImage crisis (loss of goodwill)

oNegative impact on Off-balance sheet

exposure
 Liqudity Indicators
 Related to Required Reserve
oCRR (Cash Reserve Ratio)
oSLR (Statutory Liquidity Ratio)
 Basel III Liquidity Ratio
oLCR (Liquidity Coverage Ratio)
oNSFR (Net Stable Funding Ratio)
 Monitoring liquidity ratios as per ALM guidelines
oWholesale borrowing
oCommitment
oSLP (Structural Liquidity Profile)
 Liqudity Indicators
 Others
oExposure with FI (EFI)
oInvestment in Commercial Paper (CP)
oNon Banking Assets (NBA)
o Ship Building Refinance Scheme

 Special Assignment
oPadma Bank ltd.
SL Statement Frequency
1 CRR Monthly
2 SLR Monthly
3 Amortization of Yearly
Securities
4 LCR Monthly
5 NSFR Quarterly
6 SLP Monthly
7 CRF Monthly
8 WBRF Biweekly
9 EFI Monthly
10 CP Quarterly
11 NBA Monthly
12 Refinance Case to case basis
13 Padma Bank related Case to case basis
 Cash Reserve Ratio (CRR):

CRR is maintained according to the article #36 of the

BANGLADESH BANK ORDER, 1972

Component of CRR
Balance with Bangladesh Bank (unencumbered portion), for Offshore banking operation a bank can use
balance of FC clearing account maintained with BB.
CRR is maintained on bi-weekly basis
1st bi-week : 1-14 days
2nd bi-week : 15 to rest of the day for the month.
Current Rate: for DBO 4% bi-weekly basis; 3.5% daily minimum.
for OBO 2% bi-weekly basis; 1.5% daily minimum.
 Statutory Liquidity Ratio (SLR):

SLR is maintained by the Article 33 of the

BANK COMPANY ACT, 1991.

Current Rate
for Conventional Bank: 13% of ATDTL
for Islamic Shariah based banks/branches: 5.5% of ATDTL
Component of SLR:
 Cash in Hand
 Excess Reserve with Bangladesh Bank
 Balance with Sonali Bank Ltd as an agent of Bangladesh Bank
 Balance with FC Clearing account of BB
 Approved Bangladesh Government Securities (Unencumbered)
1. Bangladesh Government Treasury Bill
2. Bangladesh Government Treasury bond.
3. Bangladesh Government Islamic Investment Bond (BGIIB)
4. Sukuk
5. Other approved securities.
 Statutory Liquidity Ratio (SLR):

Most of the components of SLR are in cash form except eligible securities. On the other hand,
eligible securities are fully and un-conditionally guaranteed by the Government and their liquidity
can be assured by following manner:
 Sale of securities in secondary market
 Repo with other commercial banks
 Repo with BB and special repo with BB
 Assured Liquidity Support (ALS), Emergency Liquidity Support (ELS) from BB
 Finally, the Government can buy back

All (61) scheduled banks are maintaining CRR. However, 3 specialized banks
(BKB, PKB, RAKUB) and BDBL are exempted from maintaining SLR.
 Penalties for shortfall:
 For CRR shortfall: Bank Rate plus 5% (currently 9%) according to BB order, 1972 and DOS Circular
no.03/2010. Penal interest is imposed separately for daily shortfall, bi-weekly shortfall, and continuous
shortfall.
 For continuous CRR shortfall: every directors of board, and MD & head of treasury are also personally
penalized.
 For SLR shortfall: Special Repo Rate (currently 8.75%) according to Sec-33(5) of Bank Company Act,
1991.
Other Penalties:
 Sec.36(7) of BB order, 1972 for misreporting of CRR statement.
 Sec.36(6) of BB order, 1972 for delay submission of CRR statement.
 Sec.109(11) of Bank Company Act, 1991 for misreporting and delay submission of SLR related
statements.
 Liquidity Coverage Ratio (LCR):

 LCR aims to ensure that a bank maintains an adequate level of unencumbered, high-quality liquid assets
that can be converted into cash to meet its liquidity needs for 30 calendar days.
 LCR goes beyond measuring the need for liquid assets over the next 30 days in a normal environment.
 It measures the need for liquid assets in a stressed environment.

Stock of high quality liquid asset (HQLA)

LCR = ≥100%
Total net cash outflows over the next 30 days
 Liquidity Coverage Ratio (LCR):

Stock of high quality liquid asset (SHQLA):

1. Cash on hand (Lcy + Fcy)
2. Balance with BB (Lcy+ Fcy, excluding lien)
3. Un-encumbered approved securities (excluding lien)

Total net cash outflows over the next 30 days =

Total cash outflows, next 30 days - Total cash inflows,
next 30 days
However, Total cash inflows is capped at 75% of Total cash
outflows
 Net Stable Funding Ratio (NSFR):

Available Stable Funding (ASF)

NSFR = >100%
Required Stable Funding (RSF)

 The NSFR aims to assessment of liquidity risk across all on- and off-balance sheet items.
 ASF consists of various kinds of liabilities and capital with percentage weights attached given their
perceived stability.
 RSF consists of assets and off-balance sheet items, also with percentage weights attached given the degree
to which they are illiquid or “long-term” and therefore requires stable funding.
 The time horizon of the NSFR is one year.
 Like the LCR, the NSFR calculations assume a stressed environment.
 Wholesale Borrowing

 WB covers call borrowing, Short Notice Deposit from banks and financial institutions,

placement received with maturity less than 12 months, commercial papers/similar

instruments and overdrawn Nostro-accounts.
 The WB Limit should be capped at 80% (for Non PD banks) and 100% (for PD

banks) of bank's eligible capital on fortnightly average basis with maximum two
deviations (not more than 90% and 110% of the eligible capital for Non PD and PD
banks respectively) in a particular fortnight.
 The eligible capital determined under Basel III for any quarter will be applicable as

eligible capital until it is determined for the next quarter.

 Investment in Commercial Paper (CP)

 Commercial paper (CP) is a short term money-market instrument, which has an original maturity
between a minimum of seven days and a maximum of one year, issued/sold usually by highly
rated large companies.
 In this context, a Guidelines on Commercial Paper (CP) for Banks has been issued by BRPD
(Circular No-07, Date: 25/09/2016).
 Banks shall maintain provision against outstanding balance of the defaulted CPs at the
following rates:
o If it is past due/overdue for 03 months or beyond but less than 06 months, the provision
requirement is 20%.
o If it is past due/overdue for 06 months or beyond but less than 09 months, the provision
requirement is 50%.
o If it is past due/overdue for 09 months or beyond the provision requirement is 100%.
 Non Banking Assets (NBA)

 BB has issued a detailed guidelines on Non-Banking Assets

through BRPD circular no 22/2021.
 Bank reports status of NBA to DOS semi-annually
 DOS checks compliance of the circular, like
oThe duration of holding of NBA
oAny NBA is sold in significant low price
oConversion to fixed asset is done properly etc.
 Padma Bank Ltd.

 The first crisis of former the farmers bank ltd was liquidity crisis. Hence, we tool the
first remedial actions like reconstruction of board, removal of MD, injection of
capital etc.
 As the part of reconstruction, we embargoed on loan disbursement on 4 January
2017.
 Merging ongoing
 Investment in Securities Market

• Govt securities Market

• Stock Market
 What is Government Securities?

• Government Securities (G-Sec) means a security created and issued by the

Government for the purpose of raising public loan or any other purpose as
notified by the Government.
Types of Government Securities Available in BD

 Marketable Securities:

a) Treasury Bills
b) Bangladesh Government Treasury Bonds (BGTB)
c) Sukuk

 Non-Marketable Securities:

a) Special Treasury bonds

b) Savings instruments (Sanchayapatra)
c) Savings bonds.
 Types of Government Securities Available in BD

• G-Sec Market in Bangladesh The G-Sec market in Bangladesh offers both tradable
and non-tradable instruments.
• Tradable Securities: As marketable instruments, the government issues 91-day, 182-
day, and 364-day T-bills, as well as 2, 5, 10, 15, and 20-year T-bonds.
• In 2019, the Floating-Rate Treasury Bond (FRTB)

• Treasury Bills (T-bills): T-bills are risk-free money-market instruments issued by the
government and traded on the secondary market. T-bills are issued by the government
to meet its short-term funding needs. T-bills are scripless and sold at a discount, with
the face value redeemed when they mature.
• Treasury Bonds (T-bonds): T-bonds are plain vanilla bonds with periodic (halfyearly
coupon payments and face value redemption at maturity.
Types of Government Securities Available in BD
• Bangladesh Government Investment Sukuk: Till now, the government has issued
three Bangladesh Government Investment Sukuk.
• The first one, an Ijarah (lease) Sukuk, was issued in 2020 to fund a project to provide
safe drinking water to the public.
• The second one, also Ijarah (lease) Sukuk, was issued in 2021 for the development of
infrastructure in government primary schools.
• The third, istisna'a (manufacturing) and Ijarah (lease) Sukuk, was issued in 2022 to
finance the implementation of the Important Rural Infrastructure Development Project
(IRIDP)-3 for social impact. BB served as both the Special Purpose Vehicle (SPV) and
the trustee in the issuance of the Bangladesh Government Investment Sukuk.
 Issuance of Treasury Bill and Treasury Bond

• On behalf of Government, Bangladesh Bank issues T-Bills and T-bonds and

Sukuk through auction.
• Cash and Debt Management Committee (CDMTC) comprised of different
ministry, NBR and Bangladesh Bank headed by joint secretary, finance division,
MoF finalize the calendar based on expected net cash flow of govt.
• Finance Division sends the calendar to BB to execute it.
 Secondary Trading of G-sec The Secondary G-sec Market
 Secondary Trading Of G-sec The Secondary G-sec Market In Bangladesh:

• Trading In BB’s Own Electronic System And

• Trading Through Stock Exchange (DSE & CSE) Platform.

 Secondary Trading Through Bb’s Electronic System

• .Over-the-counter (OTC): If A Bargain Is Reached Through Negotiation, It Must Be

Reported To The System For Settlement Subsequently.
• Government Securities Order-matching Trading Platform (GSOM): Gsom Is An
Anonymous Order-matching Trading System Of G-sec That Is Electronic, Screen-based,
And Order driven.
Secondary Trading through Stock
Exchange:
• Any investor having a BOID can purchase T-Bonds from Stock Exchange (DSE & CSE)
platform.
• After the purchase a BPID will be opened (if not available beforehand) against the
investor in order to settle the securities in BB‟s Electronic System.
• An investor (existing holder of BPID) can transfer his bond portfolio from BB‟s
Electronic System to Stock Exchange for trading there.
• The investor require to fill in the relevant transfer forms and submit it to the
corresponding bank to block partial or entire portion of their holding of T-bond in BB‟s
Electronic System.
 Taxation

 For corporate, tax is applicable as per finance bill

 For individual no tax on capital gains of T-bills or BGTBs

 For individual 5% tax at source on interest income from T-bills or BGTBs.

 Interest income from G-sec of foreign investors is taxable.

 Registered Pension funds from NBR are exempted from tax payments on interest, while

individuals, corporate body and institutions have to pay 5% tax at source on interest
income . They can adjust it with their final tax.
 Central Bank Liquidity Support

• Repo and Assured Liquidity Support (ALS) Transactions for Conventional

Banks: BB provides 1 (overnight), 7, 14, and 28-day central bank repo facilities
to banks and FIs to alleviate transitory liquidity problems and boost the money
supply in the economy.
Central Bank Liquidity Support for Shariah based

• On December 5, 2022, BB has introduced Islamic Banks Liquidity Facility

(IBLF) for Shari‟ah based banking system in Bangladesh.
• The tenor of the IBLF is 14 days and underlying eligible securities is
unencumbered Bangladesh Govt. Investment Sukuk (BGIS).
• Further, on February 5, 2023, BB has introduced 7, 14 and 28 days collateralized
Mudarabah Liquidity Support (MLS) for the Islamic banks in Bangladesh.
• In FY 2022-23, the amount of IBLF and MLS transactions with BB was BDT
96,042.00 crore and BDT 199.00 crore respectively.
 Reverse Repo and Bangladesh Bank Bills

• Reverse repo operations are used by BB to reduce or mop up the excess liquidity
of the banking sector. They are available on an overnight (one-day) basis.
• BB Bill is a mechanism used by BB to control the liquidity of the banking sector
as an alternative to reverse repo facilities. BB issues BB bills with maturities of
7, 14, and 30 days.
 Money Market(secured)
• Interbank Repos & Reverse Repos are transactions in which one bank agrees to
sell securities (T-bill & T-bond) to another bank and then to repurchase the same
securities after a specified time, at a given price, and including interest at an
agreed-upon rate.
 Money Market(unsecured)
• In 1 st December 2021, BB has launched an automated dealing and settlement system named
“EDSMoney” for inter-bank lending and borrowing (call money, short-notice product and term product).
• EDSMoney Guidelines issued on 16 November 2021 for smooth functioning of interbank unsecured
money market transactions. All scheduled banks and FIs (except Shariah compliant institutions) are
participants of this platform.
• 50 Banks and 30 FIs are now operating through EDSMoney. For the purpose of EDSMoney, the
products or instruments are categorized as Overnight, Short Notice and Term.
a) Overnight Refers to funds placed/borrowed on an overnight basis that automatically matures on the
following business day. Here, „call money‟ means overnight transactions in the EDSMoney platform.
b) Short Notice Refers to funds transacted for a period beyond overnight and not exceeding 14 days
(maturity ranges from 2 days to 14 days). c) Term Refers to placement or borrowing of funds for periods
from 15 days up to 1 year.
 Foreign Exchange Management

• Foreign exchange management refers to the process of monitoring and

controlling the conversion of one currency into another.
• It involves various activities aimed at effectively managing currency exchange
rates, mitigating risks associated with currency fluctuations, and optimizing the
use of foreign currencies in international transactions.
 Foreign Exchange Management
Exchange Rate Monitoring: This involves staying updated on global economic indicators, geopolitical
events, central bank policies, and market sentiment that influence currency values.
Currency Risk Management Foreign exchange management includes strategies to hedge against
currency fluctuations using financial instruments such as forward contracts, options, futures, and swaps.
Transaction Processing: Managing foreign exchange transactions efficiently involves ensuring timely and
accurate processing of payments and receipts in different currencies. This may include using electronic
payment systems, complying with regulatory requirements, and optimizing transaction costs.
Cash Flow Management: Effective foreign exchange management requires forecasting and managing
cash flows in multiple currencies. This involves planning for foreign currency inflows and outflows,
optimizing liquidity, and minimizing the impact of exchange rate volatility on cash flow.
 Foreign Exchange Management
Compliance and Regulatory Compliance: Compliance with relevant regulations and
regulatory reporting requirements is an important aspect of foreign exchange
management. This includes adhering to foreign exchange controls, anti-money
laundering laws, and tax regulations in different jurisdictions.
Risk Assessment and Mitigation: This includes evaluating exposure to currency risk,
interest rate risk, credit risk, and operational risk, and implementing appropriate risk
mitigation strategies.
Technology and Automation: Leveraging technology and automation tools can
streamline foreign exchange management processes, improve efficiency, and reduce
manual errors. This may include using treasury management systems, trading platforms,
and risk management software.
 Ensures liquidity: Enables banks to
meet short-term obligations and
unexpected cash needs
Importance of
Maximizes profitability: Optimizes the
Treasury returns on investments and reduces
Management funding costs

Manages risks: Mitigates credit risk,

market risk, liquidity risk, and
operational risk
Compliance Issues in Bangladeshi Banks

• Regulatory Framework: Governed by the Bangladesh

Bank and other regulatory authorities
• Anti-Money Laundering Regulations: Compliance
with AML laws and regulations to prevent money
laundering and terrorism financing
• Know Your Customer Guidelines: Verification of
customer identity and monitoring of transactions
• Cross-Border Transactions: Compliance with
international standards such as FATCA and CRS for
cross-border transactions
 Importance of staying updated with
regulatory changes

Regulatory
Updates and Proactive engagement with regulators
Adaptation

Adaptation of policies and practices

to comply with evolving regulations
 Fostering a culture of compliance
within banks

Compliance
Culture Employee training and awareness
programs

Accountability and ethical behavior

emphasized at all levels of the
organization
Strategies for Effective Compliance

• Customer Due Diligence: Thorough verification of

customer identities and monitoring of transactions
• Establishment of Regulatory Compliance
Committees: Oversight and governance of
compliance-related matters
• Continuous Improvement: Periodic assessment
and enhancement of compliance frameworks
Strategies for Effective Compliance

• Capital Management
• Ensuring Sufficient Cash Reserves
• Minimizing Idle Cash
• Cash Forecasting Techniques
• Types of Investments: Government Securities,
Bonds, Money Market Instruments
• Investment Strategies for Optimal Returns
• Managing Currency Risks
• Hedging Techniques: Forwards, Options, Swaps
• Importance of Exchange Rate Forecasting
 Automated Trading Systems

Efficient
Capital Risk Management Software
Management

Data Analytics for Decision Making

 Profit Maximization
Some key factors to maximize profits:
Interest Income: Maximizing interest income involves prudent lending practices,
efficient credit risk management, and offering competitive interest rates to attract
borrowers while ensuring profitability.
Fee-Based Income: Banks also earn revenue from various fee-based services such
as account maintenance fees, transaction fees, advisory services, and trade finance
services.
Cost Management: Controlling operating expenses is essential for profit
maximization.
 Profit Maximization
Asset Quality: Maintaining a high-quality loan portfolio is critical for profitability
Investment Portfolio Management- Maintaining pportfollio
Foreign Exchange Operations:. Profit maximization in foreign exchange operations requires managing
currency risk effectively, providing competitive exchange rates, and offering efficient remittance services.
Compliance and Risk Management: Adhering to regulatory requirements and maintaining robust risk
management practices are essential for sustainable profitability.
Diversification and Innovation: Exploring new business lines, products, and services can contribute to
profit maximization.
Overall, profit maximization for banks requires a balanced approach that encompasses efficient lending
practices, diversified revenue sources, cost management, risk mitigation, and a focus on customer
satisfaction and regulatory compliance.
Thanks to all