Rumi Apa Final

8/8/2019 Rumi Apa Final

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INTRODUCTION

Organization OverviewOrganization Overview

Bank Asia began its journey on the 27th of November 1999 with

the inauguration of the banks Corporate Office at the Rangs

Bhaban. The overwhelming public response has enabled the Bank

to keep up the plan of expanding its network. The opening of the

Principal Office was the big leap forward and successively the

opening of Gulshan and Chittagong Branch expanded the horizon

of Bank Asia to bring its services to the valued clients more

effectively.

Bank Asia conducts all types of commercial banking activities. The

core business of the bank comprises of import, export, working

capital finance and corporate finance. The bank is also rendering

personal credit, services related to local and foreign remittances.

The Personal Credit scheme of the bank, which is designed to

help the fixed income group in raising standard of living is

competitively priced and has been widely appreciated by thecustomers. The banks strategy is to gradually cover the total

arena of banking. The objectives of Bank Asia are to provide high

quality service to its customers, to participate in the growth and

expansion of our national economy, to set high standards of

integrity, to bring total satisfaction to our clients, shareholders

and employees, and to become the most sought after bank in the

country, rendering technology driven innovative services by the

dedicated team of professionals.

Bank Asia came into the headlines and attention of everyone

when it acquired the operation of Bank of Nova Scotia, a Canadian

Bank. This is the first time that a local private bank acquired any

operation of a foreign bank in Bangladesh. The breakthrough was

possible for some visionary decision-makers and also dedicated

team of professionals who are constantly putting all their best


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efforts to establish the bank as one of the leading concern in the

industry.

Origin of the report

Present world is changing rapidly to face the challenge of the

competitive free market economy. To keep pace with the trend

banks need executive with modern knowledge. After complete the

MBA course, I am assigned to write a report (which is known as

internship) on the experience that I gain two months long

orientation in the different departments of khatungonj branch of

Bank Asia Limited.

Background of the study

I have tried to prepare the report in such a way that it reflects

what I learn during the orientation period. I tried to clarify my

experience with practical knowledge on overall banking activities.

ObjectivesObjectives

1. The primary objective in this research paper is to fulfill the

partial requirement in the Masters of Business Administration

(MBA) degree.

2. Besides fulfilling the degree requirement, this internship report

intends to cover a comprehensive analysis of banking activities

of khatungonj Branch of Bank Asia.3. The report is aimed at studying and understanding the various

products offered by the Banks each Department to its clients

as well as the several activities carried out to achieve the

departmental objectives.

4. In addition, the report also studies how Bank Asia, khatungonj

branch is maintaining growth in overall banking activities.


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5. Finally, this internship report also aims to analyze the

performance of the branch as well as Bank Asia Limited as a

whole by analyzing CAMEL rating system.


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Scope of the studyScope of the study

Bank Asia limited is one of the leading banks in Bangladesh. The

scope of the study is limited to the khatungonj Branch only. The

report covers the organizational structure, background, banking

activities, functions and the performance of the branch. I

mentioned about the government rules and regulations on

different banking activities.

MethodologyMethodology

Certain methods and techniques were utilized to collect data forthis report. Both primary and secondary sources were chosen as

effective means of collecting data relevant for this report.

Interview was the basic technique that was employed to collect

primary data from people within the organization. For the

procedure of different banking operations, I had observed the

operations and worked with the officers at the same time. I had

interviewed the Bank Asia Officials for getting more information.

On the other hand, secondary sources were used to collect data

regarding the companys performance since its inception.

Publications and database within the organization helped me to

gather data not only about the organization. In addition, further

more the secondary sources of information are the different

annual report kept in the banks.


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LimitationsLimitations

This report may have some incompleteness due to some of the

limitations I encountered while completing it, that are mentioned

below:

1. One major limitation was the time constraint as every

department has many activities. This report could have been

prepared in a much broader and extensive manner with more

time and space availability.

2. Some essential data could not be gathered because of

confidentiality concerns.

3. I was not able to visit the different branches of Bank Asia Ltd.

and had to depend on the Khatungonj Branch for all the

information regarding overall banking.

4. Another limitation was that the information gathered could not

be verified for accuracy.


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ORGANIZATION BRIEFING

Corporate Information Letter of intent received on 24/02/1999

First meeting of the promoters held on 15/04/1999

Certificate of incorporation received on 28/09/1999

Certificate of commencement of business received on

27/09/1999

First meeting of the board of director held on 01/10/1999

Banking license received on 06/10/1999

Branch license received on 31/10/1999

Inauguration held on 28/11/1999

Authorized capital :800 million

Paid up capital: 218 million

Total number of promoters: 22

Total number of director : 13

Auditor : S.F. Ahmed &Co(SFACO)chartered accountants

Legal advisor: Lee, Khan ,&Associates

Registered office : 113-116 old airport road (8th floor)

Tejgaon Dhaka -1215, Bangladesh


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Organizational hirarchy of Bank Asia Limited

CHAIRMAN

VICE CHAIRMAN

MANAGING DIRECTOR

SENIOR EXECUTIVE VICE PRESIDENT

EXECUTIVE VICE PRESIDENT

SENIOR VICE PRESIDENT

VICE PRESIDENT

FIRST EXECUTIVE VICE PRESIDENT

SENIOR EXECUTIVE OFFICER

EXECUTIVE OFFICER

SENIOR OFFICER

OFFICER

MANAGEMENT TRAINEE OFFICER

JUNIOR OFFICER

ASSISTANT OFFICER

BANKING OFFICER

TELLER

Management hirarchy of Bank Asia Limited Khatungonj

Branch


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SENIOR VICE -PRESIDENT & MANAGER

SENIOR EXECUTIVE OFFICER

EXECUTIVE OFFICER

SENIOR OFFICER

OFFICER

MANAGEMENT TRAINEE OFFICER

ASSISTANT OFFICER

BANKING OFFICER

TELLER


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On 24th September, 2002 Khatungonj branch (17th Branch of Bank

Asia) started their business activities in khatungonj area.

Khatungonj Branch is the chartered member of SWIFT (Society for

Worldwide Inter-bank Financial Telecommunication) among Bank

Asias other branches. SWIFT is widely used for purposes like fund

transfers, L/C and guarantee issuance that can be made instantly.

Khatungonj branch is operated with 20 employees, three of whom

were previously engaged with MCB (Muslim Commercial Bank),

two were previously engaged with FSBL (First Security BankLimited), and rests were brought from different branches of Bank

Asia. Currently, the Khatungonj Branch offers corporate banking,

correspondent banking, and treasury services to its customers

including local corporations, multinational companies,

multinational agencies, domestic missions and other donor

agencies, NGOs, and financial institutions. It also offers a limited

range of retail banking products to provide for individual banking

needs as well.

Mission StatementMission Statement

To assist in bringing high quality service to our customers and to

participate in the growth and expansion of our national economy.

To set high standards of integrity and bring total satisfaction to

our clients, shareholders and employees.

To become the most sought after bank in the country, rendering

technology driven innovative services by our dedicated team of

professionals.


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Corporate ObjectivesCorporate Objectives

Bank Asias objectives are reflected in the following areas.

Highly personalized service.

Customer-driven focus.

Total commitment to quality.

Outstanding products.

Contribute in the economy

Quality of human resources

Commitment to its clients at each level

The company believes that communication with, and feedback

from, its clients help it achieve its goal of providing world-class

products and services. Bank Asia Ltd. regularly conducts client

satisfaction surveys and make immediate accommodations andadjustments where needed. It also constantly monitors its

standards, and strives to meet clients requirements.

Values that are considered to be the guiding factor:

All the activities and decisions of Bank Asia are based on, and

guided by, these values.

1. Placing the interests of clients and customers first.

2. A continuous quest for quality in everything the company does.

3. Treating everyone with respect and dignity.

4. Conduct that reflects the highest standards of integrity.

5. Teamwork from the smallest unit to the enterprise as a whole.

6. Being good citizens in the communities, in which they live andwork.


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A Brief Overview of the Principal Businesses of

Bank Asia, Khatungonj Branch

Trade FinancingTrade Financing

The acquisition of Khatungonj Branch gave Bank Asia new

strength in its trade financing activities. Previously Bank Asia was

not facilitated with SWIFT which is very crucial in efficient

modern banking correspondence. Now the Khatungonj Branch has

correspondence with over 800 financial institutions worldwide.Khatungonj Branch provides L/C payment, L/C advising,

negotiation, reimbursement, shipping guarantee, export bill

collection services to its valued clients. Khatungonj Branch

becomes, in effect, Bank Asias one of the strongest international

banking arms, helping to serve their clients through its global

network.

Corporate BankingCorporate Banking

Bank Asia Ltd. Khatungonj Branchs corporate banking arm

provides a range of products and services that address the

financing needs and transaction structuring requirements of large

and mid-sized corporate customers. Services provided include

loan syndication and asset sales, corporate advisory, tradefinance, and working capital and term financing. Working closely

with the Banks trading professionals; Corporate Banking also

provides a range of foreign exchange, interest rate management

and risk management products.


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Private BankingPrivate Banking

The Private Bank at Bank AsiaLtd. Khatungonj Branch meets client

needs with a line of discretionary portfolio management, custodial

services, foreign exchange, deposit services, credit facilities, and

personal banking services.

Retail BankingRetail Banking

Retail Banking at Bank Asia Ltd, Khatungonj Branch provides all

types of clients with typical banking services such as, savings

accounts, current accounts, call and short-term deposit accounts,fixed deposit accounts, time deposits, foreign currency accounts

and secure locker services.

Treasury ServicesTreasury Services

The treasury department of Bank Asia Ltd, Khatungonj Branch,

equipped with Reuters dealing system, provides the following

services:

Competitive foreign exchange rates in all major

currencies.

Attractive rates for foreign currency deposits.

Forward covers to hedge trade transactions.

Dealing rooms in all major financial centers.


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0 8 5Export 1,75,58,765.00 25,68,675.97 29,29,410.00

From the above data, it observed that Bank Asia Ltd, Khatungonj

Branch try to contribute every month in profit or loss then other

branch. In the month of July, Khatungonj branch earn more profit

then zonal head office as well as rest of other branch in

Chittagong city.

Performance overview of Bank Asia Ltd.

Capital Adequacy

The authorized capital of the Bank is being raised to TK.4.450

million as approved by the regulatory authority, compared to TK

1,200 million at present, the paid up capital from TK.930 million in

2006 t0 TK. 1,116 million in 2007.The Bank ended the year 2007

with a total shareholders equity of TK.1, 949.74 million compared

to TK. 1,566.98 million in the year 2006.The Bank attained capital

adequacy of 11.23% compared to the current regulatory

requirement of 9%.

Capital Composition 2005 2006 2007Paid up Capital 744.00 930.00 1116.00Capital-core (Tier I) 1,183.47 1,473.98 1,949.74

Capital-supplementary (Tier II) 117.62 183.11 273.58Total capital 1,301.09 1,657.09 2,223.32

*Core capital (Tier I) includes paid-up capital, issued bonus

share, share premium account, statutory reserve and

retained earnings.


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**Supplementary capital (Tier II) includes general

provision (on unclassified loans), exchange equalization

account, and asset revaluation reserve.


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2003 2004 2005

Year

2006 2007

Increased Financial Strength

Year on year directors have strived to strengthen financials. In the

year 2007, the financial base of the Bank was further

strengthened .It achieved an operating profit of TK. 1,071.88

million compared to TK.800.72 million in the previous year. An

amount of TK. 491.34 million has been set aside for tax payment

to the National Exchequer. After making necessary and regulatory

provisions net profit stood at TK.475.76 million as of December31,2007.Deposit increased to TK. 25,289.36 million in 2007

compared to TK.18,500.07 million in 2006 and loans and advances

increased to TK.22,255.64 million compared to TK. 17,869.84

million in the previous year.

2003 2004 2005

Year2006 2007


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2003 2004 2005 2006 2007

Year

2003 2004 2005 2006 2007

Year

200 3 2004 200 5 2006 200 7

Year


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Branches

The Bank has spread its network over the country through twenty

eight branches including all the privileges like ATM, Locker &

Foreign Exchange services. It has six rural branches as well.


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Product & Services provided by Bank AsiaProduct & Services provided by Bank Asia

Gradually Bank Asia increases its product list. Every year theyGradually Bank Asia increases its product list. Every year they

launch 2 products. Since establish, our product list is solaunch 2 products. Since establish, our product list is so

healthy and includes most features. Whenever, they launch ahealthy and includes most features. Whenever, they launch a

product, they look deeply in its technical issue. Its mean, howproduct, they look deeply in its technical issue. Its mean, how

the product will be techno based and support online features.the product will be techno based and support online features.

Considering these criteria, they have produced six products.Considering these criteria, they have produced six products.

Each product contains its specific link. However anotherEach product contains its specific link. However another

related service or special features are also displayed here.related service or special features are also displayed here.Products Include

SMS Banking

Mobile Banking

Internet Banking

Customized Loan

Special Features

Real-time Online Banking

Any Branch Banking

Internet Banking

SMS Banking

ATM Service

Loan Syndication

Corporate Banking

Locker Facilities

Bonus Savings Schemes

Poverty Alleviation

ATM Service

Credit Card


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Service

There are mainly three departments in Bank Asia Ltd for providing

service to the clients.

Major Findings and Analysis:

Every organization is composed of some internal strengths and

weaknesses and also has some external opportunities and threats

in its whole life cycle. The following will briefly introduce the

audience to the Bank Asias internal strengths and weaknesses,

and external opportunities and threats as I have explored in the

past ten weeks.

Service of Bank Asia

General Banking Credit/Loan Foreign Exchange

Cash

Personnel Loan

Term Loan

Housing Loan

Auto Loan

Overdraft

Accounts

Remittance

Clearing

Customer service

SOD

Consumer

Durable

Import

Export

Remittance


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StrengthsStrengths

Superior quality

Bank Asia provides its customers excellent and consistent quality

in every service. It is of highest priority that customer is totally

satisfied.

Dynamic

Bank Asia draws its strength from the adaptability and dynamism

it possesses. It has quickly adapted to world class standard in

terms banking services. Bank Asia has also adapted state of theart technology to connect with the world for better communication

to integrate facilities.

Financial strength

Bank Asia is a financially sound company backed by the enormous

resource base of the mother concern RANGS group. As a result

customers feel comfortable in dealing with the company.

Efficient management

All the levels of the management are solely directed to maintain a

culture for the betterment of the quality of the service and

development a corporate brand image in the market through

organization wide team approach and open communication

system.

State of the art technology

Bank Asia utilizes state-of-the-art technology to ensure consistent

quality and operation. The proof of that can be found in one of its

branches, Scotia that is equipped with Reuters and SWIFT. All

these facilities will be introduced in every branch very shortly.


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Expertise

One of the key-contributing factors behind the success of Bank

Asia is its employees who are highly trained and most competent

in their own field. Bank Asia provides their employees training

both in-house and out side job.

In-house utility

Bank Asia is free from dependence from the ever-disruptive power

supply of our public sources. The required power is generated bythe company through generator fed on diesel. Water generation at

present is also done by deep tube wells on site and is abundant in

quantity.

Excellent working environment

Bank Asia provides its workforce an excellent place to work in.

Total complex has been centrally conditioned. The interior

decoration was done exquisitely with the choice of soothing colors

and blend of artiste that is comparable to any multinational bank.


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WeaknessesWeaknesses

Limited workforce

Bank Asia has very limited human resources compared to its

financial activities. There are not many people to perform most of

the tasks. As a result many of the employees are burdened with

extra work loads and works late hours without any overtime

facilities. This might cause high employee turnover that will prove

to be too costly to avoid.

Problem in delivery

Few of the Bank Asias products offered to its clients like Money+

+ and Personal Credit (PC) are lying idle due to proper

marketing initiative from the management. These products can

easily be made available in attractive way to increase its client

base as well as its deposit status.

OpportunitiesOpportunities

Government support

Government of Bangladesh has rendered its full support to the

banking sector for a sound financial status of the country, as it is

becoming one of the vital sources of employment in the country

now. Such government concern will facilitate and support the

long-term vision for Bank Asia.

Evolution of e-banking

Emergence of e-banking will open more scope for Bank Asia to

reach the clients not only in Bangladesh but also in the global

arena. It will also facilitate wide area network in between the


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buyer and the production unit of Bank Asia to smooth operation to

meet the desired need with least deviation.

ThreatsThreats

Mergers and acquisitions

The worldwide trend of mergers and acquisition in financial

institutions is causing concentration the industry and competitors

are increasing in power in their respective areas.

Poor telecommunication infrastructureAs previously mentioned, the world is advancing towards e-

technology very fast. Though Bank Asia has taken effort to join the

stream, it is not possible to complete the mission due to the poor

technological infrastructure of our country.

Frequent currency devaluation

Frequent Taka Devaluation and foreign exchange rate fluctuations

and particularly South-East Asian currency crisis adversely affects

the business globally.

Emergence of competitors

Due to existence of unserved demand in financial sector, it is

expected that more financial institutions will be introduced in the

industry very shortly. And we have already seen such cases in our

country that lots of new banks are coming in the scenario with

new services. Bank Asia should always be prepared for the

competition in the coming years.


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CAMELS RATING

How to Calculate CAMEL Rating? The criteria for the performance of all the commercial banks

includes capital adequacy, assets quality, management standard,

earning and liquidity maintenance (CAMEL). In some countries it is

called camels, because system and sensibility is also a barometer

to judge a banks success or failure. Every areas of banking may

be good but the system might not be a good bank or a good

financial institution.

In capital adequacy only when a banks risk weighted asset to

capital and reserves is 10 percent and above, it is given the

numbers like.

1. Strong

2. Satisfactory

3. Fair

4. Marginal and

5. Unsatisfactory

The assets quality is judged on the basis of the percentage of

classified loans and advances to total loans and advances and it is

given top rating if the percentage is less than 3.00 percent.

Of the five criteria, management quality is base on the banks

performance in (2 other four critical areas. According to the

CAMEL report, management itself has no rating. It is determined

on the average of ratings attributed to capital, assets quality,

liquidity and earnings. It is based on operating ratio, profit per


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employee, overhead expenses per employee, gross earning assets

to total assets and classified assets to earning assets.

Earning of the banks are judged on the basis of return on assets

(ROA). It is lated on the basis of net profit after taxes (deduction

of shortfall) divided by assets. If the ROA is 1.8 percent and

above, it is given the top ranking. Other being (2) satisfactory

(ROA between 0.60 and 1.80 percent, (3) fair (ROA 0.25 and less

than 0.60 percent), (4) marginal (ROA between 0.01 and less than

0.25 percent) and (5) unsatisfactory (if incurring losses).

The liquidity of a bank is determined on the basis of four

considerations. They are: a) maintenances of cash reserve ratio

(CRR) and statutory reserve ratio (SLR), (b) loan deposit ratio is up

to 80 percent. If exceeds 80 percent, then availability of adequate

resources of fund (net worth, bills payable, provision etc.), (c)

dependence on inter bank deposits/borrowing for maintaining

proper liquidity and (d)profitability.


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Camel Rating Analysis

Global approach:

Due to radical change in the banking sector in the recent days the

central banks of the world have improved their supervision quality

and techniques. In evaluating the function of the bank, many of

the developed countries are now following the Uniform Financial

Rating System (CAMEL RATING) along with other existing

procedures and techniques of supervision. Bangladesh Bank

(Central Bank) is also following the above techniques in evaluating

the function of the banks. Its has also developed the system of itson site supervision.

Under CAMEL RATING ANALYSIS first rating of capital adequacy,

asset quality, management ability, earning capacity and liquidity

position of a bank are to be calculated on the basis of approved

formulas and then on the basis of average of the above ratings.

Composite rating of the bank will be found asses the overall

financial position of a bank. There are five categories of the

composite rating. These are:

RATING COMPOSITE RANGE

DESCRIPTION

1 1.00-1.49 strong

2 1.50-2.49 satisfactory

3 2.50-3.49 fair

4 3.50-4.49 marginal

5 4.50-5.00 unsatisfactory


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Meaning of composite rating under camel rating analysis

1. Composite rating 1: (1.00-1.49) strong

Basically sound in every respect

Findings are of minor nature and can be handled routinely

Resistant to external economic and financial disturbances

No cause for supervisory concern

2. Composite rating 2: (1.50-2.49) satisfactory

Fundamentally sound

Findings are of a minor nature and can be handled routinely

Stable and can withstand business fluctuation well

Supervision concerns are limited to the extent that findings

are corrected

3. Composite rating 3: (3.50-4.49) Fair Financial, operation or compliance weakness ranging from

moderately severe to unsatisfactory.

Vulnerable to the onset of adverse business condition

Easily deteriorate if action are not effective in correcting

weaknesses.

Supervision concern and more than normal supervision to

address deficiencies.

4. Composite rating 4: (3.50-4.49) marginal

Immoderate volume of serious financial weakness.

Unsafe and unsound condition may exist which are not being

satisfactorily addressed.


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Without correction, this condition could develop further and

impair future viability.

High potential for failure

Close supervision surveillance and a definite plan for

correcting deficiencies.

5. Composite rating 5: (4.50-5.00) unsatisfactory

High immediate or near probability failure

Severity of weaknesses so critical that urgent aid from

stockholders or other financial sources is necessary.

Without immediate corrective action, will likely require

liquidation, merger or acquisition.


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Camel Rating Worksheet

Name of the Bank : Bank Asia Ltd

Camel Rating

CAMEL rating is a system that assigns a numerical rating to a

bank or thrift based on examiner judgment regarding its capital

adequacy, asset condition, management quality, earnings record

and liquidity position. Actually, CAMEL rating is a combination of

all five dimensions of performance into one overall numerical

rating.

The letters in CAMEL derived from:

C- Capital adequacy

A- Asset quality

M- Management quality

E- Earnings record

L- Liquidity position

Capital Adequacy

A bank capital adequacy ratio determined by the K/A ratio.

Here, K= Capital

A= Assets

9% and above Strong 1

8% to 8.99% Satisfactory 2

7% to 7.99% Fair 3

6% to 6.99% Marginal 4

5.99% and

lowerUnsatisfactory 5


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Showing Capital Adequacy

According to annual report BANK ASIA capital adequacy ratio is

9.54%, which indicates the bank is staying at strong position with

the ranking of 1. Therefore, banks has more chance to survive in

the market because their loss absorb power is very high.

Assets quality

It is determined by the ratio of total classified loans to total capital

& reserve.

Total Classified Loan / Total Capital & Reserve .

1% to 5% and above Strong 1

5.01% to 10.00% Satisfactory 2

10.01% to 15.01% Fair 3

15.01% to 20.00% Marginal 4

Above 20% Unsatisfactory 5

Showing Asset Quality

Total Classified Loan / Total Capital & Reserve=2200%. This

measure reminds that the bank is in unsatisfactory level with a

ranking of 5.


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Earnings Records

Earning is assessed by ROA of a bank:

Net income at the previous calendar year / Total asset (as per the

same calendar year)

.85% Strong 1

.65% Satisfactory 2

.45% Fair 3

.35% Marginal 4

Net Loss Unsatisfactory 5

Showing Earnings RecordThe calculation shows the result is 1.57% which proves that BANK

ASIA is in strong position by holding rank 1.

Liquidity position

The banks whose are dependent on more outside source, such

banks are more likely to experience a liquidity crisis because they

are forced to borrow excessive amounts of funds from outside

sources. We can measures the liquidity position by the following

two ratios

1) Liquid assets/ total demand and time liabilities

2) Total loans/Total deposits


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For next analysis, we can add the above two ratio and take the

average.

That means, Unsatisfactory =5

Satisfactory =1

Liquidity position= (5+1)/2=3

Finally, we can conclude that the bank liquidity position is in fair

level. It means Bank Asia depends more on internal funds. So,

there is no chance of facing liquidity crisis by Bank Asia.

Management Quality

Management quality can be determined by the average of the

ratings of above four ratios. Here the regulators verify whether

the management are efficient enough to handle any unfavorable

situations or economic inflation or deflation. We can calculate the

management ratio by the following formula (C+A+E+L)/ 4.

Management Quality = (1+5+1+3)/4

= 2.5

Here we consider the total rating of these four sub-factors. The

ranking of management are as follows

1 to 1.49 Strong 1

1.5 to 2.49 Satisfactory 2

2.5 to 3.49 Fair 33.5 to 4.49 Marginal 4

4.5 to 5 Unsatisfactory 5


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Showing Management Quality

Management administrative skill and ability is average or we can

say good but improvement is required since the relation falls

under the category of fair and can be ranked 3.

Composite rating

It is determined by the average of rating of all five components of

CAMEL as follows:

Composite rating = (C+A+M+E+L)/5

= (1+5+1+3+3)/5= 2.6

Composite rating is classified as bellow:

1 to 1.4 Strong 1


2.5 to 3.4 Fair 3

3.5 to 4.4 Marginal 4


Showing the Composite Rating

Thus, BANK ASIA falls under the category of 3 with a fair financialposition and management quality.


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CAMEL Rating:

The regulator of banks and other financial institutions, Bangladesh

Bank in Bangladesh, regularly assess the financial condition of

each bank and specific risks faced via on-site examinations and

periodic reports. According to Bangladesh Bank rules, the

performance of the banking sector is evaluated under CAMEL

framework and all of the schedule banks are rated according to

their performance under CAMEL rating.

CAMEL rating involves analysis and evaluation of the five crucial

dimensions of banking operations. The five indicators used in the

rating system are-

C = Capital adequacy

A = Asset quality

M = Management soundness

E = Earnings and

L = Liquidity.

In this report, I have tried to evaluate the performance of

Bangladesh Banking Sector as well as Bank Asia Ltd. Limited by

analyzing these five dimensions. The measurement procedure of

each indicator is briefly described below.

Capital Adequacy:

Capital Adequacy signals the institutions ability to maintain

capital commensurate with the nature and extent of all types of

risk and the ability of management to identify, measure, monitor,

and control these risks.


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It focuses on the total position of bank capital and protects the

depositors from the potential shocks of losses that a bank might

incur. It helps absorbing major financial risks, like credit risk,

market risk, foreign exchange risk, interest rate risk and risk

involved in off-balance sheet operations.

In my report the Capital Adequacy position of the schedule banks

is calculated by Capital Adequacy Ratio (CAR). The formula of

Capital Adequacy Ratio is-

Capital Adequacy Ratio (CAR) =

edAssetsRiskWeight

alTotalCapit

=

aryCapitalSupplementlCoreCapita +


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a) Total Capital:

According to the current regulation, capital is categorized into two

tiers, Tier I or Core Capital, and, Tier II or Supplementary Capital.

The constituents of each are as follows:

CORE CAPITAL (TIER I) SUPPLEMENTARY CAPITAL

(TIER II)A. Paid-up Capital

B. Non-repayable Share

premium account

C. Statutory Reserve

D. General Reserve

E. Retained Earnings

F. Minority interest in

Subsidiaries

G. Non-Cumulative

irredeemable

Preference Shares

H. Dividend Equalization

Account

A. General provision

(1% of Unclassified loans)

B. Assets Revaluation

Reserves

C. All other Preference Shares

D. Perpetual Subordinated

Debt

E. Exchange Equalization

Account

b) Total Risk Weighted Assets:

Risk weighted assets are the total of risk-adjusted assets where

the risk weights are based on risk classes of assets. The riskweighted assets consist mainly of loans and securities and

exclude cash, plant and equipment and miscellaneous bank

assets.


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Management Soundness

Sound management is the most important pre-requisite for the

strength and growth of any financial institution. It is difficult to

draw any conclusion regarding management soundness on the

basis of monetary indicators, as characteristics of a good

management are rather qualitative in nature. Nevertheless, the

total expenditure to total income, operating expenses to total

expenses, earnings and operating expenses per employee are

generally used to gauge management soundness.

For the convenience of preparing this report, Expenditure to

Income (EI) ratio is considered as a determiner of management

soundness. In particular, a high and increasing Expenditure to

Income Ratio indicates the operating inefficiency that could be

due to flaws in management.

a) Total Expenditure:

The expenses that a bank incurs to run the business are called

expenditure. It includes salary of employees, rent, legal expenses,

directors fee and expenses, auditors fee, etc.

b) Total Income:

Total income of a bank includes interest income, investment

income, commission, and other operating income. Banks

generates revenue from this income.

Expenditure to Income Ratio =eTotalIncom

ditureTotalExpen


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Earnings:

Strong earnings and profitability profile of a bank reflect its ability

to support present and future operations. More specifically, this

determines the capacity to absorb losses by building an adequate

capital base, finance its expansion and pay adequate dividends to

its shareholders. Although there are various measures of earning

and profitability, the best and widely used indicator is return on

assets (ROA), which is supplemented by return on equity (ROE)

and net interest income (NII).

a) Return on Equity (ROE):

ROE measures the percentage return on each Taka of

stockholders equity. It is the aggregate return to stockholdersbefore dividends. The higher the return the better, as banks can

add more to retained earnings and pay more in cash dividends

when profits are higher.

b) Return on Asset (ROA):

ROA measures net income per Taka of average assets owned

during the period. It indicates how capably the management of

the bank has been converting the institutions assets into net

earnings.

c) Net Interest Income (NII):

NII indicates how well management and staff have been able to

keep the growth of revenues, which come primarily from the

banks loans, investments and service fees, ahead of rising costs,

a. ROE =rsEquityStockholde

ofitxNetafterta Pr

b. ROA =TotalAsset

ofitxNetafterta Pr

c. Net Interest Income = Interest Income Interest Expenses


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principally the interest on deposits and money market borrowings

and employees salaries and benefits.

Liquidity:

A bank is considered to be liquid if it has ready access to

immediately spend able funds at reasonable cost at precisely the

time those funds are needed. It is one of the most important tasks

faced by the management of any bank to ensure adequate

liquidity. This suggests that a liquid bank either has the right

amount of immediately spend able funds on hand when they are

required or can quickly raise liquid funds by borrowing or byselling assets.

Commercial banks deposits are at present subject to a Statutory

Liquidity Ratio (SLR) of 18 percent inclusive of average 5 percent

(at least 4 percent) Cash Reserve Requirement (CRR) on bi-weekly

basis. The CRR is to be kept with the Bangladesh Bank and the

remainder as qualifying secure assets under the SLR, either in

cash or in government securities. SLR for the banks operating

under the Islamic Shariah is 10 percent and the Specialized Banks

are exempted from maintaining the SLR. Liquidity indicators,

measured as percentage of demand and time liabilities (excluding

inter-bank items) of the banks, indicate that all the banks had

excess liquidity.

To assess the degree to which a bank might be exposed to

adverse financial market conditions, Bangladesh Bank added a

new characteristic named as Sensitivity to market risk to what

was previously referred to as the CAMEL ratings. In particular,

Bangladesh Bank started placing much emphasis on banks


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sensitivity to interest rate movement through the introduction of

revised CAMELS rating system since July 1, 2006.


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Presently Bangladesh Bank is employing Early Warning System

(EWS) of supervision to address the difficulties faced by the banks

in any of the areas of CAMEL. Any bank found to have faced

difficulty in any areas of operation, is brought under Early Warning

category and monitored very closely to help improve its

performance.


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How to Calculate CAMEL Rating?

The criteria for the performance of all the commercial banks

includes capital adequacy, assets quality, management standard,

earning and liquidity maintenance (CAMEL). In some countries it is

called camels, because system and sensibility is also a barometer

to judge a banks success or failure. Every areas of banking may

be good but the system might not be a good bank or a good

financial institution.

In capital adequacy only when a banks risk weighted asset tocapital and reserves is 10 percent and above, it is given the

numbers like.

1. Strong

2. Satisfactory

3. Fair

4. Marginal and

5. Unsatisfactory

The assets quality is judged on the basis of the percentage of

classified loans and advances to total loans and advances and it is

given top rating if the percentage is less than 3.00 percent.

Of the five criteria, management quality is base on the banks

performance in (2 other four critical areas. According to the

CAMEL report, management itself has no rating. It is determined

on the average of ratings attributed to capital, assets quality,

liquidity and earnings. It is based on operating ratio, profit per

employee, overhead expenses per employee, gross earning assets

to total assets and classified assets to earning assets.


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Earning of the banks are judged on the basis of return on assets

(ROA). It is lated on the basis of net profit after taxes (deduction

of shortfall) divided by assets. If the ROA is 1.8 percent and

above, it is given the top ranking. Other being (2) satisfactory

(ROA between 0.60 and 1.80 percent, (3) fair (ROA 0.25 and less

than 0.60 percent), (4) marginal (ROA between 0.01 and less than

0.25 percent) and (5) unsatisfactory (if incurring losses).

The liquidity of a bank is determined on the basis of fourconsiderations. They are: a) maintenances of cash reserve ratio

(CRR) and statutory reserve ratio (SLR), (b) loan deposit ratio is up

to 80 percent. If exceeds 80 percent, then availability of adequate

resources of fund (net worth, bills payable, provision etc.), (c)

dependence on inter bank deposits/borrowing for maintaining

proper liquidity and (d)profitability.


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Camel Rating Analysis

Global approach:

Due to radical change in the banking sector in the recent days the

central banks of the world have improved their supervision quality

and techniques. In evaluating the function of the bank, many of

the developed countries are now following the Uniform Financial

Rating System (CAMEL RATING) along with other existing

procedures and techniques of supervision. Bangladesh Bank

(Central Bank) is also following the above techniques in evaluating

the function of the banks. Its has also developed the system of itson site supervision.

Under CAMEL RATING ANALYSIS first rating of capital adequacy,

asset quality, management ability, earning capacity and liquidity

position of a bank are to be calculated on the basis of approved

formulas and then on the basis of average of the above ratings.

Composite rating of the bank will be found asses the overall

financial position of a bank. There are five categories of the

composite rating. These are:

RATING COMPOSITE RANGE

DESCRIPTION

1 1.00-1.49 strong

2 1.50-2.49 satisfactory

3 2.50-3.49 fair

4 3.50-4.49 marginal

5 4.50-5.00

unsatisfactory


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Meaning of composite rating under camel rating analysis

1. Composite rating 1: (1.00-1.49) strong

Basically sound in every respect

Findings are of minor nature and can be handled routinely

Resistant to external economic and financial disturbances

No cause for supervisory concern

2. Composite rating 2: (1.50-2.49) satisfactory

Fundamentally sound

Findings are of a minor nature and can be handled routinely

Stable and can withstand business fluctuation well

Supervision concerns are limited to the extent that findings

are corrected

3. Composite rating 3: (3.50-4.49) Fair

Financial, operation or compliance weakness ranging from

moderately severe to unsatisfactory.

Vulnerable to the onset of adverse business condition

Easily deteriorate if action are not effective in correcting

weaknesses.

Supervision concern and more than normal supervision to

address deficiencies.

4. Composite rating 4: (3.50-4.49) marginal

Immoderate volume of serious financial weakness.

Unsafe and unsound condition may exist which are not being

satisfactorily addressed.


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Without correction, this condition could develop further and

impair future viability.

High potential for failure

Close supervision surveillance and a definite plan for

correcting deficiencies.

5. Composite rating 5: (4.50-5.00) unsatisfactory

High immediate or near probability failure

Severity of weaknesses so critical that urgent aid from

stockholders or other financial sources is necessary.

Without immediate corrective action, will likely require

liquidation, merger or acquisition.


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Camel Rating Worksheet

Name of the Bank : Bank Asia Ltd

Camel Rating

CAMEL rating is a system that assigns a numerical rating to a

bank or thrift based on examiner judgment regarding its capital

adequacy, asset condition, management quality, earnings record

and liquidity position. Actually, CAMEL rating is a combination of

all five dimensions of performance into one overall numerical

rating.

The letters in CAMEL derived from:

C- Capital adequacy

A- Asset quality

M- Management quality

E- Earnings record

L- Liquidity position

Capital Adequacy

A bank capital adequacy ratio determined by the K/A ratio.

Here, K= Capital

A= Assets

9% and above Strong 1

8% to 8.99% Satisfactory 2

7% to 7.99% Fair 3

6% to 6.99% Marginal 4

5.99% and

lowerUnsatisfactory 5


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Showing Capital Adequacy

According to annual report BANK ASIA capital adequacy ratio is

9.54%, which indicates the bank is staying at strong position with

the ranking of 1. Therefore, banks has more chance to survive in

the market because their loss absorb power is very high.

Assets quality

It is determined by the ratio of total classified loans to total capital

& reserve.

Total Classified Loan / Total Capital & Reserve .

1% to 5% and above Strong 1

5.01% to 10.00% Satisfactory 2

10.01% to 15.01% Fair 3

15.01% to 20.00% Marginal 4

Above 20% Unsatisfactory 5

Showing Asset Quality

Total Classified Loan / Total Capital & Reserve=2200%. This

measure reminds that the bank is in unsatisfactory level with a

ranking of 5.


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Earnings Records

Earning is assessed by ROA of a bank:

Net income at the previous calendar year / Total asset (as per the

same calendar year)

.85% Strong 1

.65% Satisfactory 2

.45% Fair 3

.35% Marginal 4

Net Loss Unsatisfactory 5

Showing Earnings RecordThe calculation shows the result is 1.57% which proves that BANK

ASIA is in strong position by holding rank 1.

Liquidity position

The banks whose are dependent on more outside source, such

banks are more likely to experience a liquidity crisis because they

are forced to borrow excessive amounts of funds from outside

sources. We can measures the liquidity position by the following

two ratios

3) Liquid assets/ total demand and time liabilities

4) Total loans/Total deposits


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1) In case of first one

1 to 1.4 Strong 1




Showing Liquidity position (1)

In case of first one, the ratio is 12.6% percent, which indicates the

BANK ASIA is staying at marginal position with a rating of 2.

2) In case of second ratio

60% Strong 1

80% Satisfactory 2

85% Fair 3

90% Marginal 4

91% Unsatisfactory 5

Showing Liquidity position (2)

In case of second ratio, the BANK ASIA ratio is 20% percent, which

reveals that it is in strong position( 1).


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For next analysis, we can add the above two ratio and take the

average.

That means, Unsatisfactory =5

Satisfactory =1

Liquidity position= (5+1)/2=3

Finally, we can conclude that the bank liquidity position is in fair

level. It means Bank Asia depends more on internal funds. So,

there is no chance of facing liquidity crisis by Bank Asia.

Management Quality

Management quality can be determined by the average of the

ratings of above four ratios. Here the regulators verify whether

the management are efficient enough to handle any unfavorable

situations or economic inflation or deflation. We can calculate the

management ratio by the following formula (C+A+E+L)/ 4.

Management Quality = (1+5+1+3)/4

= 2.5

Here we consider the total rating of these four sub-factors. The

ranking of management are as follows

1 to 1.49 Strong 1





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Showing Management Quality

Management administrative skill and ability is average or we can

say good but improvement is required since the relation falls

under the category of fair and can be ranked 3.

Composite rating

It is determined by the average of rating of all five components of

CAMEL as follows:

Composite rating = (C+A+M+E+L)/5

= (1+5+1+3+3)/5= 2.6

Composite rating is classified as bellow:

1 to 1.4 Strong 1


2.5 to 3.4 Fair 3

3.5 to 4.4 Marginal 4


Showing the Composite Rating

Thus, BANK ASIA falls under the category of 3 with a fair financial

position and management quality.


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Camel Rating Guideline

Periodically the CAMEL Rating System to respond of the

continuing economic and regulatory changes in the lending

industry. This revision is particularly timely and prompted, in large

part, by implementation of the risk focused examination process.

Camel Background

The CAMEL Rating System was adopted by many more days ago

by the WORLD BANK .Its purpose is to provide an accurate and

consistent assessment of a credit agencies financial condition andoperation in the areas of capital adequacy, asset quality,

management standard, earnings and asset/liability management.

It is not internal to be used as a report card but as an internal tool

to measure risk and allocate resources for supervision purposes.

Significant changes

This revision to the CAMEL rating System incorporate the principal

of the risk focused examination program recently implemented. A

risk focused examination is intended to focus an examiner time on

activities and areas posing the highest risk. It is m a forward

looking approach that evaluates a credit agency current and

potential risk

Financial indicators, while useful, often represent lagging

indicators of changing risk. The key to effective risk management

is effectiveness in a credit agency overall management.

Management impacts all seven risks found in credit operations

credit, interest rate, liquidity, transaction, compliance, strategic

and reputation. An examiner overall assessment of the credit

agency is based on numerous rather than just on the credit


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agencys current financial condition. Both the composite and

management ratings are determined by several selective factors

and not based solely on a numerical average of the other

component ratings.

This revision also eliminates the separate list of key and

supplemental ratios along with their related formulas. Credit

agencies and examiners are directed to the Financial

Performance Report and users guide for Banks Financial

Performance Report to find calculate ratios and correspondingformulas. This change ensures consistency in the calculation of

ratios by providing a single reference.

Examination Guidelines

The CAMEL rating is not automatically determined by matrix ratios

alone. The matrix ratios for the capital, asset quality, and earnings

components provide minimal guidance for the examiners final

assessment of the individual component rating. For the risk

focused examination to be effective the examiner must look

behind the numbers to determine the significance of supporting

ratios, trends, projection and the interrelationships with the seven

risk categories. Likewise, when evaluating the CAMEL

components. Examiner will consider both the quantitative

measurements as well as the qualitative considerations outlined in

the enclosure before a final rating is determined. To ensure

objectivity and the uniqueness of individual credit agency during

the examination process, examiners do have the discretion to

increase or decrease any rating if in their professional judgment a

change in rating is justified.


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Camel Rating System

The camel rating system is based upon an evaluation of five

critical element of a credit agencys operation: capital adequacy,

asset quality, management, and earning and asset/liability

management. This rating system is significant financial operation

and management factors examiners asses in their evaluation of

credit agencys performance and risk profile. Examiner rate credit

agencies using a combination of financial ratios (quantitative

factors) and examiner judgment (qualitative factor).

Since the composite CAMEL rating is an indicator of the viability of

a credit agency, it is important that examiner rate credit agencies

based on their performance in absolute term rather than against

peer average or predetermined benchmarks. Peer averages or

benchmarks do not necessarily reflect that credit agencies are

operated in a safe and sound manner. The CAMEL rating should

accurately reflect the condition of the credit agency regardless of

peer performance.

Examiner use the financial ratio and trend displayed on the

Financial Performance Report and other calculated ratio to guide

them in assigning appropriate ratings Examiner are also expected

to use their professional judgment and consider both qualitative

and quantitative factors when analyzing a credit agencys

performance. Since number are often lagging indicators of a credit

agencys condition the examiner must also conduct and projected

operations when assigning g CAMEL ratings. Part of the examiner

qualitative analysis includes an assessment of the credit agencys

risk management program. Examiner assesses the amount and

direction of risk exposure in seven categories: Credit, Interest


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rate, Liquidity, Transaction, Compliance, and Reputation &

strategic and determine how the nature and extent of these risks

affect one or more CAMEL component.

Although the CAMEL composite rating should normally bear a

close relationship to the component ratings the examiner should

not derive the composite rating solely by computing an arithmetic

average of the component ratings. General definitions the

examiner utilizes for assigning the credit agencys CAMEL

composite rating follow:

Rating-1 or strong

Indicates strong performance and risk management practices that

consistently provide for safe and sound operations. Management

clearly identifies all risk and employs compensating factors

mitigation concerns. The historical trend and projection for key

performances measure are consistently positive. Credit agencies

in this group resist external economic and financial disturbances

and withstand the unexpected action of business condition more

ably than credit agencies with a lower composite rating. Any

weaknesses are minor and can be handled in a routine manner by

the board of directors and management. These credit agencies

are in substantial compliance with laws and regulations .Such

institution gives no concern for supervisory concern.

Rating-2 or Satisfactory

Reflects satisfactory performance and risk management practices

that consistently provide for safe and sound operations.

Management identifies most risk and compensates accordingly.

Both historical and projected key performance measures should


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generally be positive with any exception being those that do not

directly affect safe and sound operations. Banks in this group are

stable and able to withstand business fluctuations quite well;

however minor areas of weakness may be present which could

develop into conditions of great concern. These weaknesses are

well within the board of direction and managements capacities

and willingness to correct. These banks are in substantial

compliance with laws and regulations. The supervisory response is

limited to the extent that minor adjustments are resolved in the

normal course of business and that operations continue to besatisfactory.

Rating-3 or Fair

Represent performance that is flawed to some degree and is of

supervisory concern. Risk management practices may be less

than satisfactory relative to the bank size complexity, and risk

profile. Management may not identify and provide mitigation of

significant risk. Both historical and projected key performance e

measures may generally be flat or negative to the extent that safe

and sound operation may adversely affected. Banks in this are not

nominally resistant to the onset of adverse business condition and

could easily deteriorate if concerted action is not effective in

correcting certain identifiable areas of weakness. Overall strength

and financial capacity is present so as to make failure only a

remote probability. These banks may be in significant non-

compliance with laws and regulations. Management may lack the

ability or willingness to effectively address weakness within

appropriate time frames. Such banks require more than normal

supervisory attention to address deficiencies


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Rating-4 or Marginal

Refers to poor performance that is of serious supervisory concern.

Risk management practices are generally unacceptable relative to

the banks size; complexity and risk profile. Key performance

measures are likely to be negative. Such performance, if left

unchecked, would be expected to lead to condition that could

threaten the viability of the bank. There may be significant non

compliance with laws and regulation. The board director and

management are not satisfactorily resolving the weakness and

problem. A high potential for failure is present but is not yet Iimminent or pronounced. Lending agencies in this group require

close supervisory attention.

Rating-5 or unsatisfactory

Consider unsatisfactory performance that is critically deficient and

in need of immediate remedial attention. Such performance by

itself or in combination with other weakness, directly threaten the

viability of the bank. The volume and severity of problems are

beyond managements ability or willingness to control or correct.

Credit in this group have a high probability of failure and will likely

require liquidation and the payoff of shareholders or some other

form of emergency assistance,merger,or acquisition longstanding

policy to disclose CAMEL composite and component rating only to

the officials of the banks being rated will remain unchanged.


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Capital

Capital provides a cushion to fluctuation in earning so that can

continue to operate in period of loss or negligible earnings. It also

provides a measure of reassurance to the member that the

organization will continue to provide financial services. Likewise

capital serves to support growth as a free source of funds and

provides protection against insolvency. While meeting statutory

capital requirements is a key factor in determination capital

adequacy the banks operation may warrant additional capital

beyond the statutory requirements. Maintain an adequate level ofcapital is a critical element.

The statutory net worth categories and risk based net worth

requirements for federally insured banks. There are five net worth

categories which are :well capitalize, adequately capitalized,

undercapitalized, significantly undercapitalized, and

critically undercapitalized.

Banks that are less than adequately capitalized must operate

under an approved net worth restoration plan. Examiners evaluate

capital adequacy by assessing progress toward goals set forth in

the plan. Determining the adequacy of a banks capital begins with

a qualitative evaluation of critical variables that directly bear on

the institutions overall financial condition. Include in the

assessment of capital is the examiner opinion of the strength of

the banks capital position over the next year or several years

based on its plan and underlying assumptions. Capital is a critical

element in the banks risk management program. The examiner

assesses the degree to which credit interest rate, liquidity,

transaction, compliance, strategic and reputation risks may


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impact on the banks current and future capital position. The

examiner also considers the interrelationship with other areas:

1. Capital level and trend analysis

2. Compliance with risk based net worth requirements

3. Composition of capital

4. Interest and dividend policies and practices

5. Adequacy of the allowance for loan and lease losses account

6. Quality, type, liquidity and diversification of assets with

particular reference to classified assets7. Loan and investment concentration

8. Growth plans

9. Volume and risk characteristics of new business initiatives

10. Ability of management to control and monitor risk including

credit and interest rate risk

11. Earning good historical and current earning performance

enables a credit union to fund its growth remain competitive

and maintain a strong capital position.

12. Liquiduty and funds management

13. Extent of contingent liabilities and existences of pending

litigation

14. Field of membership and

15. Economic environment

Ratings

Banks that maintain a level of capital fully commensurate with

their current and expected risk profiles and can absorb any

present or anticipated losses are accorded a rating of 1 or strong

for capital. Such banks generally maintain capital, levels at least

at the statutory net worth requirements to be classified as well


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capitalized and meet their risk based net worth requirement.

Further there should be no significant asset quality problems

earnings deficiencies or exposure to credit or interest rate risk

that could negatively affect capital.

A capital adequacy rating of 2 or satisfactory is accorded to a

bank that also maintains a level of capital fully commensurate

with its risk profile both now and in the future and can absorb any

present or anticipated losses. However its capital position with not

be as strong overall as those of I rated banks. Also there shouldbe no significant asset quality problems, earnings deficiencies, or

exposure to interest rated risk that could affect the banks ability

to maintain capital levels at the adequately capitalized net

worth category. Banks in this category should meet their risk

based net worth requirements.

A capital adequacy rating of 3 or fair reflect a level of capital

that is at least at the undercapitalized net worth category. Such

banks normally exhibit more than ordinary level of risk in some

significant segments of their operation. There may be asset

quality problems, earnings deficiencies, or exposure to credit or

interest rate risk that could affect the banks ability to maintain the

minimum capital levels. Banks in this category may fail to meet

their risk based worth requirements.

A capital adequacy rating of 4 or Marginal is appropriate if the is

significantly undercapitalized but asset quality, earnings, credit

or interest rate problems will not cause the banks to become

critically undercapitalized in the next 12 months. A 4 rating may

be appropriate for a bank that does not have sufficient capital


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based on its capital level compared with the risks present in its

operations.


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A 5 or unsatisfactory rating is given to a bank if it is critically

undercapitalized or has significant asset quality problem, negative

earnings trends, or high credit or interest risk exposure is

expected to cause the banks to become critically

undercapitalized in the next 12 months. Such banks are exposed

to level of risk sufficient to jeopardize their solvency.


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Asset Quality

Asset quality is rated in relation to:

1. The quality of loan underwriting, policies, procedures and

practices.

2. The internal controls and due diligence procedures in place

to review new loan programs, high concentration and

change in underwriting procedures and practices of existing

programs.

3. The level distribution and severity of classified assets.

4 The level and composition of non accrual and restructuredassets.

5. The ability of management to properly administers its assets

including the timely identification and collection of problem

assets.

6. The existence of significant growth trends indicating erosion

or improvement in asset quality.

7. The existence of high loan concentration that present undue

risk to the bank.

8. The appropriateness of investment policies and practices.

9. The investment risk factor when compared to capital and

earnings structure and

10. The effect of fair (market) value of investments vs. book of

investments. The asset quality rating is a function of present

conditions and the likelihood of future deterioration or

improvement based on economic conditions, current

practices and trends. The examiner assesses banks

management of credit risk to determine an appropriate

component rating for asset quality.


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underwriting, documentation, collection practices and high risk

investments. Rating 5 indicates that the banks viability has

deteriorated due to the corrosive affect of its asset problems on

its earning and level of capital.


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Management

Management is the most forward looking indicator of condition

and a key determinant of whether a bank possesses the ability to

correctly diagnose and a key respond to financial stress. The

management component provide examiner with objective and not

purely subjective indicators. An assessment of management is a

not solely dependent on the current financial condition of the bank

and will not be an average of the other component rating.

Reflect in this component rating is both the board of directors andmanagements ability to identify,measure,monitor,and control the

risk of the banks activities ,ensure its safe and sound operations

and ensure compliance with applicable laws and regulations.

Management practices should address some or all of the following

risks: credit, interest rate, liquidity, transaction, compliance,

reputation, strategic, and other risks.

The management rating is based on the following areas, as well as

other factor as discussed below.

1. Businness strategy/Financial performance

2. Internal controls

A) Information system

B) Segregation of duties

C) Audit program

D) Record keeping

E) Protection of physical assets

F) Education of staff

G) Succession planning

3. Other management issues


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A) Adequacy of the policies and procedures covering each

area of the bank operation

B) Budget performance compared against actual

performance

C) Effectiveness of the system that measure and monitor

risk

D) Responsiveness to examination and suggestion,

recommendation or regulation

E) Compliance with laws and regulation

F) Loan to share trends and historyG) Market penetration

H) Rate structure

I) Cost benefit analysis of major products.

Ratings

A management rating of 1 or strong indicates that management

and directors are fully effective. They are responsive to changing

economic condition and other concern and are able to cope with

existing and foreseeable problems that may arise in the conduct

of the banks operation.

For a management rating of 2 or satisfactory, minor

deficiencies are noted, but management produces a satisfactory

record of performance in light of the institutions particular

circumstances.

A3 or fair rating in management indicates that either operating

performance is lacking in some other condition exist such as

inadequate strategic planning or inadequate response to


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supervision. Management is either characterized by modest talent

or is distinctly below average for the type and size of the bank.

A management rating of 4 or marginal indicates that serious

deficiencies are noted in management ability or willingness to

meet its responsibilities. Either management is considered

generally unable to manage the bank is safe and sound manner or

conflict of interest situations exist that suggest that management

is not properly performing its fiduciary responsibilities.

A management rating of 5 or unsatisfactory is applicable tothose instances where incompetence or self dealing has been

clearly demonstrated. In these cases, problems resulting from

management weakness are of such severity that some type of

administrative action may need to be intiated, including the

replacement of management in order to restore safe and sound

operation.


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Earnings

To continue viability of a bank depends on its ability to earn an

appropriate return on its assets which enables the institution to

fund expansion, remain competitive and replenish and or increase

capital. Key factor to consider when assessing the banks earning

are:

1. Level, growth trends and stability of earning, particularly

return on average assets

2. Quality and composition of earnings3. Adequacy of valuation allowances and their affect on

earning.

4. Future earning process under a variety of economic

condition

5. Net interest margin

6. Quality and composition of earning

7. Net worth level

8. Sufficiency of earning for necessary capital formation.

Ratings

Earning rated 1 or strong are currently and are projected to be

sufficient to fully provide for loss absorption and capital formation

with due considerations to asset quality ,growth and trends in

earning .

An institution with earning that is positive and relatively stable

may receive a 2or satisfactory rating provided its level of

earnings is adequate in view of asset quality and operating risks.


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A 3 or fair rating should be accorded if current and projected

earnings are not fully sufficient to provide for capital to meet and

maintain compliance with regulatory requirements.

Earning rated 4 or marginal may be characterized by erratic

fluctuation in net income, the development of sever downward

trend in income or substantial drop in earnings from the previous

period and a drop in projected earnings is anticipated.

A 5 or unsatisfactory rating would normally be assigned tobanks that are unprofitable to the point that capital will be

depleted within twelve months.


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Asset /Liability management

Asset /liability management is the process of evelauting,

monitoring and controlling balance sheet risk (interest rate risk

and liquidity risk). A sound asset/liability process integrates

strategic, profitability and net worth planning with risk

management.

a) Interest rate risk:

The risk of adverse changes to earnings and capital due to

changing levels of interest rates. Interest rate risk is evaluatedprincipally in term of sensitivity and exposure of the value of the

banks investment and loan portfolios to changes in interest rates.

Key factor to consider in evaluating sensitivity to interest:

1. Interest rate risk at the instrument, portfolio and balance sheet

levels.

2. Integration of risk management with planning and decision

making.

3. Balance sheet structure.

4. Liquidity management.

5. Prudence of policies and risk limits.

6. Business plan, budgets and projection.

b) Liquidity risk:

Liquidity is evaluated on the basis of the credit unions ability to

meet its present and anticipated cash flow needs such as funding

loan demand, share withdrawals, and the payment of liabilities

and expenses. Liquidity risk also encompasses poor management

of excess funds.


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Key factor to consider in evaluating liquidity management

include:

1. Balance sheet structure

2. Contingency planning to meet unanticipated events

3. Contingency planning to handle period of excess liquidity.

4. Cash flow budget and projection

5. Integration of liquidity management with planning and

decision making.

RatingsA rating of 1 or strong indicates that the exhibit only modest

exposures to balance sheet risk.Management has demonstrated it

has the necessary controls, procedures and resource to effectively

manage risks. Interest rate risk and liquidity risk management are

integrated into the banks organization and planning to promote

sound decisions.

A rating of 2 or satisfactory indicates that the banks risk

exposure is reasonable managements ability to

identify,measure,monitor,control and report risk is sufficient and

it appear to be meet its reasonably anticipated needs.

A rating of 3 or fair indicates that the risk exposure of the bank

is substantial and managements ability to manage and control

risk requires improvement. Liquidity may be insufficient to meet

anticipated operational needs, necessitating unplanned

borrowing. Improvements are needed to strength policies,

procedure, or the organization understanding of balance sheet

risks.


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Ratings of 4 or marginal and 5 or unsatisfactory indicates

that the bank exhibit an unacceptably high exposure of risk.

Management does not demonstrate an acceptable capacity to

measure and manage interest rate risk or the bank has an

acceptable liquidity position. Rating of 4 or 5 may also indicate

level of liquidity such that the bank cannot adequately meet

demands for funds.

A rating of 5 would be appropriate for a bank with an extreme or

liquidity position so critical as to constitute an imminent threat tothe banks continued viability.

Conclusion

Analysts have raised a number of questions about bank ratings,

focusing in particular on their ability to measure bank financial

health relative to alternative systems. For example, Federal

Reserve economists found that CAMELS rating were better able to

forecast bank distress than statistical monitoring regimes, but

only when the CAMELS rating were fresh (assigned within the

last six months).

Notice that these rating are not release to the public but only to

the top management of the banking company. This is to prevent a

bank which has a bad CAMELS rating.


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FOREIGN EXCHANGE MECHANISM

Foreign Exchange Department is international department of

Bank. It deals globally. It facilitates international trade through its

various modes of services. It bridges between imports and

exports. If the branch is authorized dealer in foreign exchange

market, it can remit foreign exchange from local country to

foreign country. This department mainly deals in foreign currency.

This is why this department is called foreign exchange

department.

Some national and international laws regulate functions of this

department. Among these, Foreign Exchange Act, 1947 is for

dealing in foreign exchange business, and import and export

control act, 1950 is for Documentary Credits (UCPDC 1993

revision & international Chamber of Commerce Publication no-

500) is also an important law for settlement of terms and

conditions between exporter and importer and export operation

for banks.

Foreign trade department plays an important role for bank Asia as

well as it contributes in the growth of our national economy. Like

other departments of Bank Asia Limited also gives emphasis on

smooth and quick service for this particular department.

The Meaning of Foreign Exchange

Foreign Exchange means foreign currency. It includes all deposits,

credits and balances payable in foreign currency as well as foreign

instrument such as drafts bill of exchange, promissory note in any

foreign currency.


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According to Foreign Exchange Regulation Act 1947, Any thing

that conveys a right to wealth in another country is foreign

exchange.

Foreign exchange department plays significant roles through

providing different services for the customer. Facilitating the trade

with foreign country is the most important among those services

the key instrument which facilitates this trade is L/C (Letter of

Credit).

Objective of foreign exchange

To settle the transaction related in export and import.

To help the own people in abroad to send their money.

Encourage foreign investment in the home country.

To enhance the foreign investment.

To help the own people to go in abroad.

To facilitate the foreigner to visit in our country.

To help the people to remit money who are working in

abroad or the foreigner who are working in the home

country.

To maintain the international trade.

Our study on foreign exchange mechanism covers, Export, Import

and remittance business, which are sequentially discussed

hereafter.

Foreign Exchange Department of Bank Asia, KhatungonjForeign Exchange Department of Bank Asia, Khatungonj

BranchBranch

Correspondent Banking is one of the major banking activities of

The Khatungonj branch of Bank Asia.


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Khatungonj Branch is expected to be the leader in Correspondent

Banking among Bank Asias other branches. Khatungonj Branch

provides trade finance related and international payment products

to valued clients through its international network, and as a

provider of international payment services, it allows its clients to

leverage the most advanced payment services offered today and

provide the highest quality services to the clients.

The Trade Finance Department of Khatungonj Branch is well

equipped with senior level officers with blend of both young andold and matured with years of experience in this area. They serve

the needs of the client banks and also the corporate clients and

try their best to maintain and enhance the relationships with

them.


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SubmitD

oc uments

MakesPaymen

t

Applicationfor

Openingl/C

Applicationfor

Openingl/C

PresentDoc

ument

MakesPa

ymentagainst

Document

Issue L/C

Forward Document

Makes Payment

InstructiontoPayorReimbur se

PaysorReimbu

rses

PaysorReimbu

rses

Foreign Exchange Mechanism

Foreign Exchange Department

BUYER/

IMPORTER

INDENTORSELLER

EXPORTER

BENEFICIARY

ISSUING BANK

ADVISING

BANK/

NEGOTIATING

BANK.

Advisesand/o

rconfirmsl/c

OR

REIMBURSINGBANK

FIG: FOREIGN EXCHANGE MECHANISM


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Import Department

Understanding:

Imports are foreign goods and services purchased by consumers,

firms, & Governments in Bangladesh. The importers are asked by

their exporters to open letter of credits so that their payment

against goods is ensured.

Import Procedure:

To import through Bank, a customer requires-

(i) Bank account

(ii) Import Registration Certificate (IRC)

(iii) Tax Paying Identification Number

(iv) Proforma Invoice Indent

(v) Membership Certificate

(vi) LCA (Letter of Credit Authorization) form duly attested

(vii) One set of IMP Form

(viii) Insurance Cover note with money receipt

Other import procedure can be shown by the following flow chart,

Import mechanism


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To import, a person should be competent to be Importer.

According to Import and Export Control Act, 1950, the Office Of

Chief Controller Of Import and Export provides the registration

(IRC) to the importer. After obtaining this person has to secure a

letter of credit authorization (LCA) from Bangladesh Bank. And

then a person becomes a qualified importer. He is the person who

requests or instructs the opening bank to open an L/C. He is also

called opener or applicant of the credit.

Things which are done here

The following things are done in this department:

Total supervision of Import Department (Cash/Back to Back

L/C).

Foreign Correspondence related to above.

Payment of Back-to-Back L/C and endorsement of

Export L/C against payment.

Follow-up of Back-to-Back overdue bills.

Correspondence regarding Back-to-Back L/C and Cash L/C.

Maintenance of Due Date Diary.

Maintenance & record of related L/C Documents.

Audit Compliance.

Matching of Bill of Entry with IMP, follow-up of pendingBill of Entry Quarterly Statement.

Batch Checking.

L/C opening/ Amendment (Back to Back L/C).

Endorsement of Export L/C when opening.

Batch checking.

Balancing of L/C Contingent Liability 9Back to Back L/C).


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Follow-up of Sub-judice bills and maintaining liaison

with Head Office and Foreign Correspondent.

All correspondence related to Back-to-Back L/C with

Head Office and Foreign Correspondent.

Supervision of checking, Lodgment and retirement of

Import documents under Back-to-Back L/C.

Issuance of Certificate and attestation of

papers/documents of garments clients as required by BGME,

EPB & oth

Rumi Apa Final

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