Transcript
CHAPTER 1
INTRODUCTION
1.1 BACKGROUND OF THE STUDY
A project is a flexible, practical assignment, geared to providing a young person with
meaningful opportunity to develop knowledge. The study of project implies structural
learning experiences.
This report is prepared in order of partial fulfillment of our BBA-BI course. It is prepared as a
requirement of the BBA-BI program of Pokhara University. This is a field work report which
contains the information about Everest Bank. This report describes about the bank and work
done in the treasury department. This profile is to avail information about the overall working
activities and environment of the bank. This report provides a business learning experience in
a formal, monitored program to a real world organization setting, which enhances the
academic experience. It tells about how project helps the student to understand and identify
the importance of organizational functioning, process, working business environment and
problems in a real life situation.
1.2 OBJECTIVES
The main objective of preparing this report is to access the work situation in Nepalese
Banking organization. The objective of the study is simply to present and test the model that
identifies customer attitude and customer adaptation of banking within the context of Everest
Bank of Nepal.
To identify problems and their underlying cause and evaluate potential solutions that
optimizes organization’s strength, weakness, opportunities and barriers.
To give suggestions for improvement.
To identify how closely the theoretical aspect of treasury management are practiced in
commercial banks of Nepal.
1.3 LIMITATIONS
As everything has its limitations, this study too is not an exception. During the survey few
limitations and constraints faced. They are as follows:
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Unavailability of enough secondary data.
Information regarding only a specific branch.
Time constraints.
Validity of report fully depends on the information provided by the concerned
authorities.
Knowledge about a specific department.
Reluctant of employees to involve the students in core and confidential activities.
1.4 SCOPE OF THE STUDY
This report has all the detailed information about the different departments of the bank which
includes the customer service department, remittance department, treasury department, credit
department and share department that could be very helpful to determine the major tasks
performed by them.
The report will also be helpful for the students and individuals who seek for the information
about the banking activities and the services provided by it. This study also helps to
understand the scope of banking sector in the Nepalese market.
1.5 METHODOLOGY
For the preparation of this report, mainly two sources have been used:
Primary source
Studying the work methodology and processes in the organization. Regular discussion with the employees of the bank. Discussion with customers about their relation with the bank. From the queries with the bank employees.
Secondary source
Brochures and prospectus of the bank. Annual report of the bank. Internal record of the bank. Other material provided by the bank Articles published in the newspaper Website of the bank
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CHAPTER 2
LITERATURE
2.1 MEANING OF BANK
A bank is an institution, which deals with money and credit. It accepts deposits from the
public and mobilizes the fund to productive sectors. It also provides the remittance facility to
transfer money from one place to another. Bank is therefore, known as a dealer of money. In
addition to this, bank may be engaged in different types of functions such as exchange
currency, joint venture, underwriting, bank guarantee, discounting bills etc. bank is also the
principal source of credit for individuals, organization and government.
Finally, we can say that bank is the financial institution providing all kind of monetary
services that is necessary for the industrialization and development of a country.
2.2 DEVELOPMENT OF BANKING
Banking industries are indispensable for the overall financial development of the country.
Without investment of the banks, modern business can never be able to run smoothly. Bank
assists in the process from initial level of production to the final level of consumer service.
Bank also assists in the development of financial activities of the government owned
corporations. It provides important part of financial system i.e. monetary system of making
or receiving payment in the country.
In the era of financial concept bearing world of today, banking has proved to be a nerve of
the economic development. Therefore, that cannot be ignored. Commercial bank plays an
important role in the modern economy. They are regarded as the heart of financial system
because they accept deposits of individuals and institutions. And mobilize such savings and
make available funds for investments to borrowers’ i.e. needy persons and businesses. It
provides credit to the people with economic confidence.
The history of modern banking in Nepal begins with the establishment of Nepal Bank
Limited in 1937A.D as a semi-government Commercial Bank. Later Nepal Rastra Bank, the
central Bank of the country was established in 1956, with the objective of issuing paper
currency, circulation of Nepalese currency all over the kingdom, maintaining stability in
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exchange rate, mobilizing capital to give boost to economic development and industry and
trade, developing banking sector in the country. The second commercial bank of Nepal is
Rastriya Banijya bank established in 2022 B.S as a fully government-owned Bank. With the
purpose of enhancing industry and Agriculture, Nepal industrial Development Corporation
(NIDC) as a specialized institution to finance industries was established in 1959. Likewise,
the cooperative bank established in 1963 was converted into Agriculture Development Bank
in 1968 with the financial liberalization after restoration of multiparty democracy many
financial institutions as well as joint venture banks have been established. At present there are
all together 28 Commercial Banks operating in the country.
COMMERCIAL BANKS IN NEPAL
Agriculture Development Bank Ltd. Nepal credit & commercial Bank
Bank of Asia Nepal Bank Ltd. (NBL)
Bank Of Kathmandu Kist Bank Limited
Citizens Bank International Ltd. Kumari Bank Limited
Development Credit Bank Ltd.(DCB) Lumbini Bank Limited
Everest Bank Limited Laxmi Bank Limited
Global Bank Machhachapuchhre Bank Limited
Himalayan Bank Prime Commercial Bank
Nepal Industrial & Commerce Bank Rastriya Banijya Bank (RBB)
Nepal Investment Bank Sunrise Bank Ltd
Nabil Bank Siddhartha Bank Limited
Nepal SBI Bank Limited Standard Chartered Bank
NMB Bank Annapurna Bank
Nepal Bangladesh Bank Limited
Table 1:Lists of Commercial Banks
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2.3 EBL AT A GLANCE
2.3.1 Background of Ebl
Everest Bank Limited (EBL) started its operations in 1994 with a view and objective of
extending professionalized and efficient banking services to various segments of the society.
The bank is providing customer-friendly services through a network of 29 branches all over
the country. EBL joined hands with Punjab National Bank (PNB), India as its joint venture
partner in 1997.
PNB joined hands with EBL as a Joint Venture in 1997 and turned it around to a highly
profitable bank. There has been no looking back since then. PNB provides top management
support under the Technical Service Agreement. Punjab National Bank (PNB), our joint
venture partner one of the largest nationalized bank in India having 114 years of banking
history, holds 20% equity.
Drawing its strength from its joint venture partner, EBL has been steadily growing in its size
and operations and established itself as a leading Private Sector Bank. The Banker, a
publication of Financial Times, London, has conferred the bank with “Bank of the Year-
2006, Nepal”. Similarly, Nepal India Chamber of Commerce also bestowed the bank with the
“NICCI Excellence Award” twice for its spectacular performance under finance sector. The
bank's performance under all parameter has been outstanding during the financial year 2005-
06.
This sustained growth of the Bank is attributable to its strong systems and procedures,
professional approach, quality lending and highly motivated staff members. EBL is playing
pivotal role in facilitating remittance to and from across the globe being the first Nepalese
bank to open a representative office in Delhi India, the Nepalese in India can open account in
Nepal from designated branches of Punjab National Bank and remit their savings
economically through banking channels to Nepal. The Bank is also offering Cash
Management System through HDFC Bank, India for managing the funds of corporate
exporting to India by collecting their funds from about 183 locations in India the Bank’s own
Web based online remittance product “Everest Remit” facilitates remittance from UAE and
Qatar to more than 100 payout locations in Nepal. With India Remit, the Bank has same day
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remittance facility with India in association with PNB’s 2200 Networked Branches at 550
locations, besides draft drawing arrangement with 218 PNB branches across India.
All the branches of the bank are connected through Anywhere Branch Banking System
(ABBS), which enables customers to do all their transactions from any branches other than
where they have their account. EBL in association with Smart Choice Technology (SCT) is
providing ATM services for its customers. EBL Debit Card can be accessed at more than 50
ATMs and over 800 Point of Sales across the country. ATM sharing arrangements with PNB
has facilitated usage of EBL Debit Cards at more than 870 PNB ATM outlets across India at
a normal rate. Similarly, Indian tourists and businessmen having PNB cards will be able to
use EBL ATM, in Nepal.
The Bank recognizes the value of offering a complete range of services and have pioneered
in extending various customer friendly products such as Home Loan, Education Loan, EBL
Flexi Loan, EBL Property Plus (Future Lease Rentals), Home quity Loan, Car Loan, Loan
Against Shares, Loan Against Life Insurance Policies and Loan for Professionals. With an
aim to encourage the saving habit among the individuals, the bank has introduced Sunaulo
Bhavisya Yojana- suitable for accumulations small savings into substantial amount. EBL has
been established with the objective of extending professionalized banking services to various
sections of society in the Kingdom of Nepal and thereby contributes in the economic
development of the country.
EBL was one of the first banks to introduce Any Branch Banking System (ABBS) in Nepal
EBL has introduced “Bank on Wheel” system, whereby the bank is installed in a vehicle and
moves around to various places to serve the segment deprived of proper banking facilities
through its Birtamod Branch. EBL is the only bank having representative office in a foreign
soil. The office facilitates remittance and Nepalese working in India can even open accounts
through the office.
2.3.2 Corporate Vision
Bank’s corporate vision is to “Evolve & position the bank as a progressive, cost effective &
customer friendly institution providing comprehensive financial and related services;
Integrating frontiers of technology & servicing various segments of society; Committed to
excellence in serving the public & also excelling in corporate values”
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2.3.3 Corporate Mission
“Provide excellent professional services & improve its position as a leader in the field of
financial related services; Build & maintain a team motivated & committed workforce with
high work ethos; Use latest technology aided at customer satisfaction & act as an effective
catalyst for socio-economic developments.”
2.4 SHAREHOLDING PATTERN
Shareholding Percent
Nepalese Promoters 50
Punjab National Bank 20
General Public 30
Table 2: Shareholding Pattern of EBL
As shown in above table the Nepalese promoters, general public and Punjab National bank
hold ownership of EBL. Nepalese Promoters holds 50%, PNB holds 20% and the General
Public holds 30% ownership this is also shown in the pie chart below.
Figure 1:Shareholding Pattern
2.5 BOARD OF DIRECTORS
Mr. Bishnu Kumar Shrestha Chairman
Mr. Indra Dev Singh Executive Director
Mr. Ved Krishna Shrestha Director
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Mr. Arun Man Sherchan Director
Dr. Bal Gopal Baidhya Director
Mr. Nabin Bhakta Shrestha Director (Shareholders)
Mr. Shiv sharan K. C. Director (Shareholders)
Mr. Ratna Sansar Shrestha Director
2.6 MANAGEMENT TEAM
Mr. Ravinder Kumar Ummat Chief Executive Director
Mr. Pradeep Kumar Pradhan Dy. General Manager
Mr. Indrajeet Arora Dy. General Manager
Mr. Hum Nath Gurung Asst. General Manager
Mr. Pramod Raj Sharma Company Secretary
2.7 SERVICES OFFERED BY EBL
EBL has persistently been mounting different techniques and ideas to serve its customers and
stakeholders the best it can offer. In context of this some of the services offered by EBL are
discussed below:
2.7.1 Accepting Deposit
EBL offers a wide range of products and services designed to make banking easier and to
match each and every customer's requirements. One of the services offered by the bank is
accepting deposit. Bank collects money from its customers in form of deposit and provides
them interest as per their rule some. Deposits vary in types some of the types of deposits
offered by EBL are:
a) Current Account
b) Saving Account
c) Saving Premium Accounts
d) Fixed Deposit
I. Cumulative Deposit Scheme
II. Sunaulo Bhawishya Yojana
III. Saral Samridhi BachatEverest Bank Limited 8
IV. Unfixed Fixed Deposit Scheme
V. USD Deposits
2.7.2 Loans and Advance
EBL is also involved in service like providing credit facilities to its customers. The various
credit facilities are:
a) Home Loan Scheme
b) Home Equity Loan
c) Flexi Loan
d) EBL Property Plus
e) Professional Loan
f) Vehicle Loan
g) Educational Loan
2.8 DEPARTMENTS IN EBL
EBL has different department for catering the services to be offered to its customer and are as
follows:
2.8.1 Remittance Department
This department is involved in transfer of fund inside or outside the country in addition to the
conventional facilities like demand draft, travelers cheques etc. The bank has also introduced
a facility for the Nepalese living in the Gulf for transfer of their savings to their homes in
Nepal by entering into drawing arrangements with Exchange Houses in U.A.E., Bahrain and
Kuwait. The services provided by this department is very effective in the sense that is give
attention to the beneficiary, the service is very fast, coordinate with the head office, motivate
to open account and identify the regular customer and provide privilege services.
2.8.2 Customer Service Department (CSD)
Every branch of the EBL has CSD. The Customer Service Department of the bank deals with
the customers of the bank and helps them in every possible way. The major task of the
department is handling queries of the customers, opening and closing accounts, providing
statement, OCD and many more.
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2.8.3 Treasury Department
There is a single Treasury Department in EBL that is responsible for over all treasury
management of the bank. It does not exist in all branches, all the function of treasury is
performed in this single department whether it be of branches or the head office. Treasury
Department is involved in liquidity management of the company and ensuring the bank has
sufficient liquid funds and identifying the profitable investment sector. Therefore we can also
say that the Treasury management is all about management of the fund. Its function also
includes the currency management, dealing in foreign exchange markets and management of
foreign exchange risks.
2.8.4 Share Department
The share department of the company deals with all the share related activities of the
company may it be issue of share, transfer of share, dividend payment, issuing bonus shares
etc. Share department also provides and handles all the queries related to the share of the
company.
2.8.5 System Department
The System Department of the company handles all the IT related activities of the company.
Every branch has a system department. But the head office has a very significant system
department in it. EBL long term IT strategy is to be updated in the organization’s technology
to keep abreast of current trends in IT and also to be the leader in implementing new
technology for the benefit of the organization. The main business strategy is to increase the
deposit base so that more loans can be disbursed. IT is helping to achieve that goal through
various methods like ATM cards, POS machines, SWIFT, online remittances. The
technological infrastructure plan was made and being implemented all throughout Nepal at all
the 29 branches. The bank has risk monitoring system and mitigation strategies to avoid or
mitigate the risk.
2.8.6 Human Resource Department (HRD)
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EBL has a single Human resource department, which is in head office of the bank. HRD is a
separate department in the bank that deals with and for the human beings present in an
organization and is concerned with recruitment, selection of the new employees. Besides that,
Human Resource department function also involves giving orientation class to the new
employees, providing training and development programs to the current and newly recruited
employees to make people more updated and well equipped so that they can cope with the
changes. This department manages the need of the people by its systematic recruitment
procedure.
2.8.7 Marketing Department
Marketing Department is the heart of the banking system. This department is basically
concerned with the maintenance of the quality of the information since the existing use of the
information is vital towards the daily transaction in a more systematic way. This department
is basically concerned with the public relation i.e. it is concerned about making good relations
with the customers as well as suppliers, providing information to the customers, giving adds
in an effective way so that the people become attracted toward the bank, organizing events,
designing the sites and try to make the site more informative so that people become more
clear about the services that the bank is providing and the opportunity that they might get
from the bank and many more. It is the responsibility of the marketing department to make
people aware of the facility provided by the bank.
2.8.8 Credit Department
Every branch of the bank has Credit Department. This department is concerned with granting
loans to its customers. EBL provides various credit facilities to its customers in order to cater
their needs, such as overdraft, term loan, working capital loan, trust receipt loan, home loan,
vehicle loan, education loan and so on. The whole work of providing credit to its customer is
done by the credit department. While extending credit to customers the credit 4C’s are taken
into consideration i.e. capacity, capital, collateral, and condition. Loan supervision is also one
of the responsible of the department. Loan supervision implies keeping in close contact with
the borrower and monitoring his financial activities. This may include frequent plan visits,
securing the borrower’s periodic financial statements and reviewing requests for renewable or
additional funds. The department also records graded accounts, Non-Performing Assets as
per Nepal Rastra Bank directives
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2.8.9 Account Department
The Account Department of the bank maintains all the transaction of the bank that is related
to payment to the vendors or any party. It keeps the record of every transactions occurred in
the bank like administrative expenses.
2.8.10 Cash Department
The Cash counter is where all the transaction of deposits and withdrawal by the customers are
done in the bank. It is one of the most important sections of the bank in the operational area.
The cash department has to maintain records of deposits, withdrawals and transfers done by
customers and has to tally the records on a daily basis.
3.9 SWOT ANALYSIS
The SWOT analysis of the bank is analyzing the Strength, Weaknesses, Opportunities and
Threats of the banks.
Strength
Bank was awarded as “Bank of the Year 2006”.
High paid-up capital and strong financial condition
EBL has a good relationship with the existing clients and strong relationship with the
foreign competitors.
Bank has been adopting the credit monitoring policy, which improves credit situation
and helps in recovering possible losses without the arrangement of the additional funds.
Technologically well developed.
Absence of trade union, so the firm’s activities can be operated smoothly.
Experience and well skilled work force.
Proper information flow between the departments and good interpersonal relationship
between every individual of the organization.
Being a joint venture bank is one of the strength of the bank as it has helped an
improved a lot in operation of the bank.
Weakness
Lack of feedback from the clients.
No credit card facilities.
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Lack of employee satisfaction regarding the financial factors.
Lack of spacious infrastructure.
Opportunities
With the improvements of economic and political situations in Nepal, EBL can collect
as much as savings and grant credit, loans and make various investments.
EBL has the advantages to make investment in various government bonds as well as in
various shares and debentures of other institutions.
The development of the technology has helped bank to widen up its area of services
provided to its customers.
Threats
Unstable political situation of the country is the major threat for the operation of the
bank.
Market of commercial bank is very competitive in context of Nepal, so EBL has lot of
competitors in the market.
By near future lot of foreign banks will be entering the market so EBL needs to be
strong to compete with those international bank.
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CHAPTER 3
SPECIFIC AREA OF THE STUDY
3.1 MEANING AND FUNCTIONS OF TREASURY DEPARTMENT
To survive in today’s complex financial environment, businesses need to be able to actively
manage both their ability to undertake the opportunities, and their exposure to risks. They
need to be aware of the expanding range of hybrid capital instruments and financial
instruments and be able to select from these the ones which are appropriate to the businesses’
needs in the prevailing circumstances in order to gain competitive advantage. Therefore every
organization has to have a Treasury Department. Treasury function is the proper
management of the assets and liabilities as well as financial risks and is also concerned with
the raising finance, management of liquid resources, management of currency and interest
rate risks, and management of relationships with banks. A separate Treasury function is more
likely to develop the appropriate skills, and it should also be easier to achieve economies of
scale; for instance, in achieving lower borrowing rates, or netting off-balances. The Treasury
function varies in different organization depending on its size, complexity, geography and
organizations for e.g. in larger companies and groups, treasury will usually be centralized at
head office providing a service to all the various units of the entity and thereby achieving
economies of scale.
The functions or the activities of the Treasury Department can be grouped in three main area
i.e. firstly the Investment decision which determines how scarce resources in terms of funds
available are committed to different available projects ensuring to get the maximum return
from it. Secondly the Financing decision that is related in acquiring the optimum finance to
meet financial objectives and seeing that fixed and working capital are effectively managed.
It is also concerned with knowing the different sources of capital and its cost, ensuring that
the entity has a sound capital structure and maintaining proper balance between equity and
debt of the company. Thirdly the Dividend decision which is to decide what part of the
company’ profit should be retained in the company in form of retained earnings in order to
support the growth of the entity and what part should be distributed among the shareholders
as dividend which is a significant factor in determining the market value of the stock. Fourth
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one is the Liquidity management which involves the working capital and money management
to ensure that the company has enough working capital to conduct its regular activities and
has sufficient liquidity and surplus fund is invested in some profitable. The Treasury function
also includes the Currency management that is involved in forecasting the exchange rate
which will help in adopting the procedure to manage such exchange rate risk. Dealing in the
foreign exchange markets and day-to-day management of foreign exchange risks becomes the
key functions of the Treasury department.
3.2 OBJECTIVES OF TREASURY DEPARTMENT
The treasury function exists in every business, though in small businesses it may form part of
a department covering other functions where as in a larger company, it is likely to be a
separate department reporting to the chief financial officer, but communications with the rest
of the organization need to be in good order if an effective service is to be provided.
Therefore in context to this the main objectives of the Treasury Departments can be listed in
following points”
Acquiring the optimum finance for the business to meet its financial objectives.
To manage the banks investment portfolio and ensure that the banks liquidity
requirements are met at all times i.e. maintain Cash Reserve Ratio(CRR) as per the central bank
guidelines
Maintain the Statutory Liquidity Ratio (SLR) as per the central bank guidelines
Management of liquid assets, interest and exchange rate and risks.
Providing advice to management on capital structure and dividend policy issues.
Liaison with the organization’s banks.
3.3 ORGANIZATIONAL STRUCTURE Of EBL
The Treasury function varies in different organization depending on its size, complexity,
geography and organizations. Similarly EBL also has its Treasury Department in its Head
Office i.e. in Lazimpat that deals or handles with overall function of the treasury department.
The Department of EBL can be divided into two following sections.
Dealing Section or Front Office.
Back-up Section or Back Office.
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3.3.1 Dealing Section or Front Office
This section of the department is responsible for the treasury related activities such as inter
bank borrowings and lending, buy and sale of foreign currencies, bidding and repurchases of
treasury bills or bonds, placements in financial institutions etc.
Dealing section of the EBL deals with following activities:
a) Inter-bank Lending
This is a short term placement with maturity of less than 7 days provided to other banks in
case of surplus fund in the bank for its optimum utilization and revenue generation from it.
b) Inter- bank Borrowing
Bank has to maintain sufficient liquidity to meet its financial obligation and when the bank
doesn’t have enough funds it has to borrow from the other commercial banks to meet its
obligation in case commercial bank is not in position to borrow the bank has to depend on
NRB and it receives funds from NRB by placing the treasury bonds as collateral, and this is
called inter-bank borrowing, and this function is also performed by the Dealing Section of the
office.
c) Placement
In case of surplus foreign currency and o maintain short and long position of the bank, bank
makes a placement of the foreign currency with other banks in order to avoid keeping it idle.
The placement is done for certain period of time.
d) Treasury Bill and Government Bond
Treasury bill or T- bills are the most marketable money market security. It is a debt
instrument issued by HMG/Nepal and NRB with the validity of less than one year. T-bills are
issued with 28 days, 91 days, 182 days and 364 days maturity period every Tuesday and the
dealing section deals with quoting such bills.
Government bonds are the long term bonds issued by the government when fund is required
in long term i.e. more than 5 years.
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e) Repo
In case NRB has excess fund and commercial bank has less fund, in this case NRB provides
fund to the banks but before that the commercial banks are asked to bid for the interest rate,
and NRB provides fund to that bank which has offered the lower interest rate.
f) Reverse Repo
When the commercial bank is highly liquid or has excess fund with it, and NRB has low
liquidity in this case to overcome this problem commercial banks provides fund to the NRB
for short period and NRB asks to quote the rate to the commercial banks for providing the
fund to the NRB.
g) Funds transfer from one Nostro to another Nostro account
Transferring the fund from one Nostro to another Nostro account is also one of the functions
of the front office. Nostro account refers to the account that bank has maintained with other
banks. The fund is transferable from one nostro account to other nostro account in order to
make the payment easier.
h) Intervention
Intervention means buying or selling of US dollars by the central bank i.e. NRB at the request
of the foreign exchange and money dealers of Nepal (FEDAN) in case of surplus or deficit of
US dollars in the market.
i) Forward Contract
Forward contract is a contract whereby an enterprise can lock in an interest rate today for a
period of time starting in their future. On the future date the two counterparties in the contract
settle up and, depending in which way rated go, one will pay an amount of money to the other
representing the difference between the contract rate and the actual rate.
j) Inter-branch foreign currency buy and sell
Dealing section also deals with the buying and selling of foreign currencies from and to the
different branches of EBL as and when required.
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k) Deal/ Request Slip
Deal/Request slip is the written request generated by the front office upon concluding the
department’s activities against which the Front office can carry on its activities and it is
maintained by the back office.
l) Maintaining CRR
Maintaining the CRR of the company is also one of the basic function of the Front or the
Dealing section of the Treasury Department. According to the ordinance passed by NRB
every bank has to maintain 5% CRR of its deposit and in order to fulfill this criterion the
Dealing section has to work on it.
3.3.2 Back-up Section or Back Office
Back-up section is responsible for the activities carried out by the Front office. It is
responsible for timely and efficient accomplishment of requests and deals made by the
Treasury Department and is equally responsible for submitting the reports of its activities to
the Treasury Department, Management and NRB as per the requirement.
The basic functions performed by the Back-up Section are:
Maintaining the data of every activities performed by the Front office as well as Back
office,
Treasury Bill Maintenance,
Maintaining account entries related to deal,
Sending and receiving deal confirmation,
Preparing Liquidity position and communication it with the concerned department,
Sending and settling instructions like SWIFT messages or Telex.
3.4 FUNCTIONAL RESPONSIBILITIES
Treasury department is the heart of any organization, therefore all its responsibilities is
fulfilled responsibly by the people in the department. The functional responsibilities of the
Treasury department of the bank can be grouped in following ways:
a) Determining the limits
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Treasury department is responsible for determining the limit of holding the cash as well as
foreign currencies in branches.
All the branches of EBL hold cash in their vault as per the limits specified by the bank and
policies regulated by the bank and informs the Treasury Department of the bank every day
about the cash they have. In case of excess fund such surplus funds are deposited in NRB and
then it decides how that fund should be invested to maximize the return. This is done in order
to maintain the liquidity and meet the CRR as prescribed by NRB.
Treasury Department is also responsible for maintaining the foreign currency position limits.
In case of EBL foreign currency is collected by Baneshwor Lazimpat branch and new road
branch and all that sent to new road and then sent to NRB.
b) Recording and implementation of policies
All the transactions carried out in the bank should be recorded properly for the future
reference and this is one of the major and unavoidable responsibilities of the treasury
department and it should be recorded as per the accounting policies and procedures.
c) Foreign Exchange Management
Bank is equally responsible for managing the foreign exchange some of is sub functions are:
i) Exchange rates
One of the major functions related to FOREX management is related to exchange rate
determined. The Treasury department finds out the rate of foreign currency from the Reuters
which is the software that gives information about the cross currency rate of every currency,
LIBOR, SIBOR, TIBOR, gold rate, international market. The rate keeps fluctuating from
time to time so stable rate is implemented. In Nepal the USD rate is determined on the basis
of rate of INR. In order to maintain uniformity in the rate, all the commercial banks sends
their exchange rate to FEDAN and then the standard rate is determined. Every morning this
function is carried out by the department. The final rate that is determined should be
communicated to every branches of EBL and this is the function of Treasury Department.
ii) Positioning currency
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Positioning the currency means maintaining the short position or long position of the
currency. Bank maintains long position when there is expectation of increase in rate of dollar
rate. Because by maintaining the long position they buy the dollars and can sell them to other
in higher rate. Likewise bank maintains short position when the dollar rate is expected to
decrease in this case bank sells the currency so that they do not have to incur exchange loss in
future. Thus depending upon the scenario bank maintains the positioning of the currency.
iii) Purchase and sale of INR
Treasury Department of the bank is also involved in buying and selling of INR. Bank has to
make payment for DD’s and TT’s in India therefore it has to maintain its INR account in
PNB, HDFC and SCB, Calcutta. In order to maintain the account bank sends INR to those
banks by purchasing it from PNB and the rate is fixed by NRB itself and should be followed
by all commercial banks. The buy and sale of INR in the inter-market is prohibited by NRB,
there by, limiting the buy and sale of INR from and to the customers of NRB only. Treasury
department purchases NRB based on the position of INR maintained in the bank only. The
purchases are made every 4 times a month and the minimum amount is 5 Crores.
iv) Purchase and sale of USD
USD rate in Nepal is based on the dollar rate in Indian Market. The commercial banks quote
their rate and send it to the FEDAN and the standard rate is determined. Usually the rate
quoted by all the commercial banks is same because of demand and supply of USD dollar in
Indian market.
The buying and selling of USD is done through intervention and IBL. In the process of
buying USD bank practices the system to charge the mid rate to other parties where as in case
of intervention when the bank has to sell the dollars to NRB it has to charge 4 paisa less than
the mid rate and during the purchase from NRB the rated is charged according to the quoted
rate.
v) Purchase and sale of Foreign currency
The exchange rate of other foreign currencies is dependant upon the cross rate of other
foreign currencies against USD and the base rate between USD and NPR. Because of the
Everest Bank Limited 20
above underlying factors it is easier to convert other foreign currencies are volatile so
treasury department should always remain vigilant and hedge the volatility risk at all times.
The department is usually involved in selling the currency; it buys the foreign currency only
when it has to make payment of LC. Usually bank is involved in purchasing Japanese Yen for
the purpose of LC.
d) Liquidity Management
Liquidity management involves working capital management and cash management. It is the
responsibility of the treasurer to ensure that the company has sufficient liquid funds and
invest surplus fund to avoid the risk of liquidity crisis in. Liquidity should be managed in
both local as well as foreign currency. In case of foreign currency liquidity should be
managed to meet the business need as well as optimize the treasury incomes. Liquidity
management is considered as the main responsibility of the treasury department of the EBL.
i) Liquidity Management in Local Currency
Treasury Department is responsible for maintaining liquidity in local currency .It maintains
liquidity in form of balance at NRB and vaults of every branch. As per the NRB directives,
every commercial bank should maintain 5% CRR of its total deposit therefore Treasury
Department should focus on maintaining it in order to maintain the liquidity of the company.
The portfolio of loans and deposit is the determinant factor for maintaining the liquidity in a
company. Therefore the treasury department should review the trends of portfolio of both
loans and deposits in order to maintain the adequate liquidity. For this purpose treasury
department refers to Account department, Customer Service department and Credit
department of all the branches to get updated about the every transaction occurred in the
bank. Moreover, the report or information regarding the monitoring of fixed deposits serve as
a useful tool for the purpose of efficient, liquidity management and optimizing revenue
through inter bank lending/ placement and investments in treasury bills.
In some cases if bank fails to maintain liquidity as per NRB directives and meet short term
obligations it is covered through inter bank borrowings to the maximum possible extent and
Everest Bank Limited 21
thereafter through Repo on outright sale of T-bills, development bonds, whichever is cost
efficient. If even in the above cases too, the bank fails to overcome liquidity crisis, the
treasury department must inform the EBL management to acquire more deposits or reduce
the amount of loans. But referring to the history of EBL it has still not faced such problem
and this is the strong aspect of the bank.
ii) Liquidity Management in Foreign Currency
Like wise maintaining liquidity in local currency, maintaining liquidity in foreign currency is
also one of the responsibilities of the bank. It is maintained by positioning the currency for
short and long period.
e) Risk Management
There is a saying “No risk no gain”, every business has risk and similarly banking sector also
has a lot of risk such as Business Risk, Interest rate risk, currency risk, Exchange risk, market
risk, financial risk, default risk and many other risk that are faced by the bank during its
operation. Risk can also be defined as the variability of possible returns around the expected
return of an investment. Therefore to overcome such risk the Treasury department of the bank
is involved in managing such risks. These risks have broadly been classified into three
categories:
Liquidity Risk Management
Assets/ Liabilities Risk Management
Foreign Exchange Risk Management
Market Risk Management
i) Liquidity Risk Management
Bank must be able to generate sufficient cash to be able to meet its immediate obligations and
therefore continue service. Unprofitable businesses can survive for quite some time if they
have access to sufficient liquid resources, but even the most profitable business will quickly
go under if it does not have adequate liquid resources. Therefore the efficient management of
liquidity is important from every aspect of the company.
Everest Bank Limited 22
EBL need to be sufficiently liquid to overcome all possible risks arising out of liquidity crisis
and to meet business needs and such EBL must maintain adequate level of local currency,
INR, USD and other foreign currencies at its disposal at all times. The treasury department
and back office, as and when applicable, adhere to the following procedure for managing
liquidity risk:
Local Currency
Reviews the total credit and deposit portfolio on a daily basis. For review the account
department supplies the uses and sources of funds on a daily basis to the treasury department.
Coordinates with the customer service department and branches to tentatively
ascertain/estimate the liquidity position by being information on bulky inflow/outflow of
deposits in seven days to one-month period.
Coordinates with the credit department and if needed with the branches to tentatively
estimate the liquidity position by being informative on bulky repayment/ disbursement of
credits.
Reviews and monitors the maturities of fixed deposits as well as savings in the
operative call and current accounts. Large amount of fixed deposit maturities and unusual
swings in the operative call and current accounts informs to EBL management credit
department, customer service department and the concerned branches for timely checking and
necessary actions.
Reviews the Nostro account balance on a daily basis. Excessive balance is transferred to
NRB. Likewise, the deficit balances are funded through NRB of other appropriate measures.
The mirror account balances relating to Nostro accounts is provided by treasury bank office to
the treasury department on a daily basis.
INR, USD and other foreign currencies
Reviews the Nostro account balances on a daily basis. Excessive or deficit balances are
transferred from on Nostro to another depending upon the requirements as well as to optimize
revenue generation. The mirror account is provided by treasury back office also provides the
Nostro balances as available to the treasury department on a daily basis.
The branches and the departments involved in dealing with the above currencies report
to the treasury department as stated in different parts of this treasury manual.
Everest Bank Limited 23
The treasury department and all other concerned departments adhere to the limits prescribed
to the domestic and international banks as regard to the placements/ deposits of funds.
ii) Assets/ Liabilities Risk Management
It is a risk that the bank will encounter difficult in meeting its maturing liabilities with the
maturing financial assets.
Assets/ Liabilities risk management is analyzed and managed by assets and liabilities
management committee in accordance to assets and liabilities management guideline
implemented by EBL.
iii) Currency Risk Management
Currency risk is the risk of loss from movements in exchange rates. Bank has an obligation to
sell foreign currency at an agreed rate and on an agreed future date at the same time it also
has exposure risk. But in case of a bank, a payable in foreign exchange may be cancelled out
by a receivable in the same foreign exchange. Therefore in many cases banks have natural
hedging transactions. Foreign exchange risk of a bank in relation to a particular currency is
basically determined by is net position in that currency. This term refers to uncovered
currency position after taking into account all assets an liabilities and the immature spot and
forward contracts in the currency.
Devaluation and revaluation of foreign currencies against each other and local currency are
the major risks associated with foreign exchange management. The treasury department
always endeavors to maintain the foreign currencies positions within their prescribed
limits .the treasury department timely and adequately covers the longer short positions of
foreign currencies to bring them within their prescribed limits. In order to maintain the
foreign currencies positions within the limits, the branches and the concerned departments
report to the treasury department on buy or sell of foreign currency. Treasury back office
provided the foreign currencies positions of the previous business day to the treasury
department.
iv) Market Risk Management
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Market risk is the risk of loss from movements in market prices of investments. Banks need
to arrange for hedging in case there are excess liabilities and sales over assets and purchases
in case of particular currency.
3.5 RESTRICTIONS
As we know that the Treasury department should perform its functions and responsibilities
properly but it is important to note that the department has some restrictions in performing it.
Some of the restrictions are as follows:
Depending upon the bank’s capital structure and income EBL has limited the amount of
IBL.
In case of exceeding the limit the department has to take the approval from the higher
authority.
The Treasury dealers are restricted from
Accounting entries
Sending and receiving deal confirmations
Sending settlement instructions i.e. SWIFT messages/ telexes.
Similarly the treasury back office is restricted from:
Dealing activities
Quoting the prices and deciding the exchange rates
Raising deal slips
Striking deals with counter parties
Approving counter party credit limits
Approving market risk limits
Deciding on Nostro funding
Updating position blotters
3.6 DEALING PROCESS
In a proper treasury setup, front office or the dealer deals with the other banks and informs
back office about the deal, and then the front office fills up the deal slip and gives it to the
back office. The back office then arranges for the deal confirmation with the counter party
Everest Bank Limited 25
and the other party too sends the deal confirmation to the department in other words we cans
say they exchange the deal confirmation, then the further activities carried out by the Front
office is checked to ensure that there is no any problem or mistake in the deal made by the
front office, and the dealing process ends when the money is back to the department after the
maturity period. Therefore the dealing process is very short in EBL. The dealing process can
be shown by the following flow chart:
3.7 TREND OF INVESTMENT IN EBL
Particulars 2004 2005 2006 2007 2008
1. Nepal Government Treasury Bills 2392103694 1873709702 3322443166 3614541127 3237977740
2. Nepal Government Saving Bonds
3. Nepal Government Other
Securities 74325000 226580000 226173802 1090091299 1583627004
4. Nepal Rastriya Bank Bonds
5. Foreign Securities
6. Local Licensed Institutions
7. Foreign Banks 52115000 9255150 632816092 260600000 138400800
8. Corporate Shares 17114000 19387000 19887000 19887000 16225000
9. Corporate Bonds and Debentures
10. Other Investments
Total Investments 2535657694 2128931852 4201320060 4985119426 5061157544
Provisions -804840 -804840 -1600000
Net Investments 2535657694 2128931852 4200515220 4984314586 5059557544
Particulars 2002/03 2003/04 2004/05 2005/06 2006/07
1. Investment in Shares:
1.1 31,200 Shares of Rs.100/-each in
Rural Micro Finance Co. Ltd. 2500000 2500000 3120000 3120000 3120000
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1.2 33,000 shares ( including 3000 bonus shares)
of Rs. 100/- each in Nirdhan Utthan Bank Ltd. 1200000 1200000 2500000 3000000 7752000
1.3 1,34,140 ordinary shares of Rs. 100/-
each in Himalaya Distillery Ltd.
1341400
0
1341400
0
1341400
0
1341400
0 -
1.4 3,530 Shares of Rs.100/- each
in Credit Information Center Ltd. 353000 353000 353000
2. Investments in Debentures - - - - 84927000
Total Investments
1341400
0
1711400
0
1938700
0
1988700
0
10115200
0
3.Provisioning
3.1 Up to last year - - - - -
3.2 This Year 804840 1600000
Total Provision 804840 1600000
Net Investments
1341400
0
1711400
0
1938700
0
1908216
0 99552000
Table 3: Trend of Investment in Ebl
The above table clearly indicates the trends of investment in EBL which is continuously
increasing every year. These table shows that the bank has constantly been investing its
money in different sectors thereby maintaining liquidity also it has not kept its fund idol.
CHAPTER 4
FINDINGS & CONCLUSIONS
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4.1 FINDINGS AND CONCLUSIONS
The Treasury Department of EBL has widely applied the theoretical aspects of Treasury
management as well as foreign exchange management. EBL has widely been applying the
concepts of Forward Contract, Intervention, Positioning, Inter Bank Borrowing and lending
in the Treasury Department as one of the major activities of it.
Treasury Department has two sections Front Office and Back Office. Both the sections of the
department require highly skilled and specialized staffs. The dealer of the bank is involved in
risk management as well as the fund management and making dealings with the parties which
is considered as the important responsibility of the Front officer and they are expected to
make best possible decisions in complex situation.
The work of the treasurer is complex, risky, and stressful and requires high devotion because
a small mistake in a job would lead an individual in a big trouble, therefore the senior
management should be cautious during recruiting the employees for the departments. They
should be able to cope and adopt the changes as today’s business is globalized and for this
purpose the staff of EBL has been constantly been providing training to the employees and
has highly skilled employees in the bank. There is a proper management of funds in EBL;
they invest the funds that are in surplus in all the branches in government bonds, securities
and T-bills receiving certain interest rate. Reviewing the history of EBL, the bank has still not
been suffered from any liquidity crisis this clarifies that the bank has effectively managed its
liquidity therefore we can conclude that the department has been effectively managing or
performing its responsibility.
4.2 RECOMMENDATIONS
With reference to the above findings and analysis, following recommendation are suggested
to overcome the weaknesses and drawbacks to help the bank improve its performance and
efficiency.
Bank has constantly been providing quality services to its customers and has to continue
it.
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Employees are the real asset of the organization, therefore they should be provided
various training on the job as well as off the job from time to time in order to increase the level
of their performance.
The main activities of the bank is accepting deposits and providing loans. Therefore in
order to increase the deposit bank should revise the system of maintaining minimum balance
during opening an account because it may not be applicable in case of low income people and
rural areas at the same time interest rate also definitely has lot of impact in increasing the
number of accounts in the bank.
Though the treasury department of the bank has been applying most of the theoretical
aspect of Finance, lots of derivatives and hedging tools are not implied in the banking sectors
of the country. International Market are making huge profits using different kinds of
derivatives. Now, the Central Bank has given the opportunity to increase the treasury market so
we strongly recommend bank to use this concept in their activities. This would definitely add
up value in their activities and can be used for the benefit of the organization.
Two way quote system in the exchange rate has to be implied in the banking sector, this
would provide inflows and outflows of foreign currencies and can maintain the exchange rate
risk and flexibility in exchange rates.
Trading in international shares and bonds should also be done, which as per my
information the central bank is taking necessary steps to extend the market.
Concept of Mutual Fund can be implemented for better prospects of the Organization.
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