An Internship Report of Mutual Trust Bank Ltd.

A Working Report on

The Risk Assessment of Mutual Trust Bank Ltd

By

Muhammad Nazmul Amin

ID# 2009-2-10-296

An Internship Report Presented as the Partial Fulfillment of the

Requirements for the Degree Bachelors of Business Administration

East West University (EWU)

27th August, 2013

A Working Report on

The Risk Assessment of Mutual Trust Bank Ltd

By


ID# 2009-2-10-296

This report has been approved by

Kashfia Ahmed

Assistant Professor

Department of Business Administration

East West University

Letter of Transmittal

27 August, 2013

Kashfia Ahmed

Assistant Professor

Department of Business Administration


Subject: Submission of Internship Report

Dear Mam,

With due respect, I would like to thank you for assisting me to prepare the internship report.

This task has given me the opportunity to explore the activities of banking sector. The report

contains a working procedure of General Banking Department which is based on its

operational activities and the Risk Assessment of Mutual Trust Bank Limited. It was a great

pleasure for me to have the opportunity to work on this bank which remains a very well

position than other bank in Bangladesh. I endeavor my best to come out with a good one.

I would be very happy to provide you with any clarification regarding the report. Please

contact with me if you have any query. Therefore, I pray and hope that you would be kind

enough to accept my Internship Report and oblige thereby.

Sincerely Yours,

_ _ _ _ _ _ _ _ _ _ _ _ _ _ _


ID# 2009-2-10-296

Department of Business Administration,


Acknowledgement

Completion of anything requires supports from various sources. I am very much fortunate to

get the sincere guidance and supervision from a number of persons.

My sincere gratitude goes to Mr. Abdul Latif, SVP & Manager of MTBL Baridhara branch,

for reviewing the whole report so carefully and for giving me valuable advices and

suggestions to complete the whole thing in a right manner.

My heartiest gratitude also goes to the Mr. Md. Shahinoor Rahman, JAVP & DM as well

as to other Officers of MTBL Baridhara Branch who have been so kind and helpful to me

during my Internship period. They helped me in every possible way even though they used to

remain busy all through the day. Their contribution towards this report is worth than ever. It

was a great honor to work with such kind, hard-working and helpful officers.

I am deeply indebted to my Supervisor Kashfia Ahmed, Assistant Professor of Dept. of

Business Administration (East West University) for her whole-hearted supervision to me.

Without her supportive hand and recommendations, it would be difficult for me to complete

this Report.

Thanks for all from the core of my heart.

Executive Summary

Now-a-days banking sector is modernizing and expanding its hand in different financial

events every day. At the same time the banking process is becoming faster, easier and is

becoming wider. Mutual Trust Bank LTD is a third generation private bank in Bangladesh. It

started its operation in 1999. The Company (Bank) operates financial activities through its

Head Office situated at Gulshan Dhaka and 83 branches. MTB provides various Consumer

Banking Products, such as- Brick by Brick Savings Scheme, Monthly Benefit Plan, Save

Everyday Plan, Childrens Education Plan, Consumer Credit Scheme,Best Invest Plan.

Beside these, Banking services of MTBL include Online Banking Service, MTBL Tele

Banking Services, SWIFT Services, Pay Order, Demand Draft (DD) Issue, MTBL SMS

Banking, Locker Service, Credit Card Service, and Visa Electronic Debit Card Service.

Panthapath branch is the 51stBranch of MTBL which is the most profitable branch of MTBL.

This branch is structured with General Banking & Advance Department and this branch is

supervised under one SVP & one JAVP. General Banking consists three different sections in

this branch and these are: Front Desk, Accounts Department and Cash Counter Section.

Various activities are carried out under these three sections, such as- opening of an account,

issuing of cheque books, closing of an account, stopping payment & dishonoring of a cheque,

transfer, clearing, bills collection, cash payment and cash receipt.

MTBL offers different types of account, these are- Current Deposit, Savings Deposit, Short

Term Deposit and Fixed Deposit Receipt. There are some other types of accounts which are

basically known as Festival Shanchay Prokalpa (FSP) that are offered due to different types

of religious festivals. There are several prerequisites for opening an account. After opening an

account MTBL issues a fresh cheque against that account. A client can ask for a new cheque

book for his/her old account through the requisition slip. If the cheque is lost by the client

then theres an opportunity to have a duplicate cheque book from MTBL. Moreover, MTBL

gives the opportunity to transfer an account from one branch to another branch of MTBL.

Upon the request of a customer, an account can be closed. A banker can also close the

account of his customer or stop the operation of the account under several considerable

circumstances. A banker can stop payment of cheque of his customer under several

considerable circumstances. If the cheque is dishonored, MTBL sends a memorandum

(cheque return memo) to the customer stating all the reasons. Those documents that are enter

in the branch or exit of the branch must go through dispatch section. MTBL Baridhara

Branch receives different types of instruments, such as cheque, PO, DD etc. from its

customers for collection. It also pays on behalf of its customers for those instruments that

come to it through clearing house. The amount of Cheques, Pay Order (P.O), and Demand

Draft (D.D) Collection from other banks on behalf of its customer is a basic function of a

Clearing Department. Clearing is a system by which a bank can collect customers fund from

one bank to another through clearing house. There are two types of clearing and they are-

Outward Clearing & Inward Clearing. Beside this, customer does pay and receive bill from

their counterpart as a result of transaction. Commercial banks duty is to collect bills on

behalf of their customer. There are two types of bills for collection and they are- Outward

Bills for Collection (OBC) & Inward Bills for Collection (IBC). The cash section plays a

significant role. It is a very sensitive part of the bank because it deals with most liquid assets.

Mutual Trust Bank Limited, Baridhara Branch has a well equip cash section. This section

receives cash from depositors and pays cash against cheque, Demand draft, Pay order, and

Pay-in-Slip over the counter. The main functions of this section are cash receipt and cash

payment. Mutual Trust Bank Ltd. has an established and most importantly a reliable General

Banking section.

The risk conditions of MTB compare to other banks is comparatively low. Liquidity

condition of this bank is so strong. Again to manage the different risk MTB has an

independent Risk Management Unit (RMU), which works deliberately to protect the risks of

the bank and monitor overall risk management performance.

Mutual Trust Bank fulfills the consumer needs in almost every case with its dignity and

honor. MTBL wants to be in the top most position in private banking sector of Bangladesh.

CHAPTER 01

Introduction

1. INTRODUCTION

In general sense we mean Bank as a financial institution that deals with money. There are

different types of banks like Central bank, Commercial bank, Savings bank, Investment bank,

Merchant bank, Co-operative bank etc. But when we use the term bank it generally means

commercial bank that is one which is concerned with accepting deposit of money from the

public, repaying on demand or otherwise and withdraw able on demand or otherwise and

employing the deposits in the form of loan and investment to meet the financial needs of

business and other classes of society.

Now-a-days banking sector is modernizing and expanding its hand in different financial

events every day. At the same time the banking process is becoming faster, easier and is

becoming wider. In order to survive in the competitive field of the banking sector all

organizations are looking for better service opportunities to provide their fellow clients. So it

has become essential for every person to have some idea on the bank and banking procedure.

Mutual Trust Bank is a financial institution whose main objective is the mobilization of fund

from surplus unit to deficit unit. In the process of acceptance of deposits and provision of

loan, Bank creates money. This characteristics feature sets Bank apart from other financial

institution. The bank can influence the money supply through lending and investment. The

bank is an economic institution whose main objective is to earn profit through exchange of

money and credit instruments.

1.1 Origin of the Report

As a part of academic requirement of completing Bachelors of Business Administration

(BBA), every student needs to undergo an Internship/Project program. Now you may ask

what an Internship is. Well Internship is an agreement between a university and an

organization that offers an opportunity for students like us to undertake a temporary work

assignment in the organization which enables us to have a realistic exposure to job and

organizational conditions. It is called an earn while you learn program of training. It helps us

bridge up the gap between classroom learning and actual job conditions eventually preparing

us for a prospective job. According to my experience an internship is a perfect blend of

theoretical and practical knowledge. Although it is not a compulsory in many universities in

the country, but in East West University it is a mandatory course for all. In fact it weighs 3

credits out of 123 for completion of BBA. It has to cover duration of at least 8 to 10 weeks

under a supervisor assigned by the students perspective departments.

This report is originated for the fulfillment of my internship program for which I have been

placed in one of the best reputed private banks in the country-Mutual Trust Bank Ltd. I

worked in the General Banking Division, Baridhara Branch for about 3 months starting from

20th May 2013 to 22nd August 2013. And as assigned the report I came up with is about the

Risk Assessment of Mutual Trust Bank Ltd.

1.2 Scope of the Report

I always disliked the fact what my other fellow students did that they always chose studying

the department they are assigned at, as their report topic, which according to me is the easiest

way to get through as department information is all readily available in the company websites

and there is nothing new to find out or research. Thus I have arranged my report in a way that

the first part gives all the Company Details starting from its history to its recent products,

services and likewise. In the second part I put information about the 3 most important

divisions of a MTBL which are General Banking Division, Credit Division and finally the

Foreign Exchange Division.

Then the last part contains my ultimate report which may be very insignificant to great

researchers but at least I have attempted to do something which requires some studying and

investigating- The Risk Assessment of Mutual Trust Bank Ltd.

1.3 Limitation of the Report

Mutual Trust Bank is one of the new generation banks of Bangladesh. There were

innumerous topics to be researched and studied but that could not happen due to lack of time,

information and other accessibilities.

Data collection was the biggest pain ever. I could sense a little bit of fear factor in all

employee levels regarding the sharing of data whereas I have not asked them any confidential

data.

In the company part all the departments could not be presented in an elaborative way. It is

due to lack of accessibility and most of all the employees reluctance to talk about anything

without a favor in return.

I have used many useful ratios and graphs to present my analysis along financial

statements of the past 3 years starting from 2010 to 2012. Again my study was limited to the

data given by the organization only. No external factors could be measured which is highly

critical to Risk Factors of any private banks of Bangladesh.

Also there are many soft wares nowadays to assess bank risk factors but I was not literate

of that either. So my study and conclusions are all based on the ratios and trends in financial

data.

The information obtained was directly used for analysis. They could not be checked or

verified for 100% accuracy

1.4 Methodology

I have used both primary and secondary sources very thoroughly for information. I could

manage the primary source while I worked there physically. Every now and then I tried to

talk to different officials to find out relevant facts even in unofficial manners like in tea

breaks and lunch breaks. And talking about secondary source I have used to the fullest extent

possible. My readers, you will get that very evidence and gain confidence over my report if

you just check the bibliography at the end of this report. Whatever data I received, I tried to

recheck them from other different sources to confirm accuracy. For example I got MTBLs

financial statements from their companys website and I rechecked them with the ones posted

in the website of Dhaka Stock Exchange.

Primary Sources:

Practical experience and desk work.

Personal observation and discussion with staff members

Interview of different officials including the Deputy Manager of the branch.

Secondary Sources:

Annual reports of MTBL of the years 2010,2011and 2012.

CDs from Dhaka Stock Exchange

A few Financial Institution and Risk Management related Text Books

Financial articles in Newspaper

Circulars published by Bangladesh Bank

Other relevant data from the Internet.

CHAPTER 02

An Overview

Of

MUTUAL TRUST BANK LIMITED

.

1.1 Introduction of MTBL

Mutual Trust Bank Limited (MTBL) is a Public Limited Company by shares in the

Bangladesh, with commendable operating performance. Directed by the mission to provide

with prompt and efficient services to clients, MTBL provides a wide range of commercial

banking services also. The bank has achieved success among its peer group within a short

span of time with its professional and dedicated team of management having long experience,

commendable knowledge and expertise in convention with modern banking. With all the

resources, management of the bank firmly believes that the bank would be able to encounter

problems that may arise both at micro and macro economic levels.

2.2 Historical Background of MTBL

The Company was incorporated on September 29, 1999 under the Companies Act 1994 as a

public company limited by shares for carrying out all kinds of banking activities with

Authorized Capital of Tk. 38,00,000,000 divided into 38,000,000 ordinary shares of Tk.10

each.

The Company was also issued Certificate for Commencement of Business on the same day

and was granted license on October 05, 1999 by Bangladesh Bank under the Banking

Companies Act 1991 and started its banking operation on October 24, 1999. The bank

conducts all types of commercial banking activities including foreign exchange business and

other financial services. During the first two years of operations, the bank's main focus was

on the delivery of personalized customer services and expansion of its clientele base.

As envisaged in the Memorandum of Association and as licensed by Bangladesh Bank under

the provisions of the Banking Companies Act 1991, the Company started its banking

operation and entitled to carry out the following types of banking business:

1. All types of commercial banking activities including Money Market operations.

2. Investment in Merchant Banking activities.

3. Investment in Company activities.

4. Financiers, Promoters, Capitalists etc.

5. Financial Intermediary Services.

6. Any related Financial Services.

The Company (Bank) operates financial activities through its Head Office situated at Dhaka

and 83 branches. The Bank carries out international business through a Global Network of

Foreign Correspondent Banks.

Memberships of MTBL

1. Metropolitan Chamber of Commerce and Industry, Dhaka (MCCI, D)

2. The Institute of Bankers Bangladesh (IBB)

3. Bangladesh Foreign Exchange Dealers Association (BAFEDA)

4. Bangladesh Institute of Bank Management (BIBM)

5. International Chamber of Commerce Bangladesh Limited (ICCB)

6. Association of Bankers Bangladesh Limited (ABB)

7. Bangladesh Association of Publicly Listed Companies (BAPLC)

8. American Chamber of Commerce in Bangladesh (AMCHAM)

2.3 Mission & Vision of MTBL

Mission

We aspire to be one of the most admired banks in the nation and be recognized as an

innovative and client-focused company, enabled by cutting-edge technology, a dynamic

workforce and a wide array of financial products and services.--- MTBL Group.

Vision

Mutual Trust Bank's vision is based on a philosophy known as MTB3V. The organization

envisions MTB to be:

1. One of the Best Performing Banks in Bangladesh.

2. The Bank of Choice.

3. A Truly World-class Bank.

2.4 Banks Philosophy

With the mission to become a dependable client focused financial institution in the country

by proving service with trust and integrity.

2.5 Objectives

The main object of the Mutual Trust Bank Limited (MTBL) had been to offer an interest free

banking system in the financial market. Apart from that, the bank started its operation in the

country with a view to realizing the following objectives:

To establish a partnership relationship with customers and to eliminate the idea of the

debtor-creditor relationship of traditional banks.

To establish welfare oriented banking system.

To mobilize savings towards productive sectors.

To invest on profit and risk sharing basis.

To accept deposits on profit and loss sharing basis.

To create employment opportunities by investing savings towards prospective

economic sectors.

To extend banking services towards the poor, helpless and low-income group of

people in the society in order to uplift of their standard of living.

To contribute to establishment of a society by equitable distribution of wealth.

To establish justice in trade and commerce in the country.

To render services for the economic development of the nation.

2.6. Functions

The functions of Mutual Trust Bank Limited are as follows:

To maintain all types of deposit accounts with online facilities.

To conduct foreign exchange business.

To extend other banking services.

To conduct social welfare activities.

2.7 Products and Services

2.7.1 Retail Banking Products

MTBL aims to satisfy all clients, regardless of how big or small they may be. Individuals are

counseled on the best type of accounts suitable to them such as Current, Savings, Short Term

Deposits, Fixed Deposits, Consumer Asset and Liability Products, etc.

Apart from the conventional banking operations MTB strives to introduce an array of

products and services and already launched a number of consumer banking products with the

aim of popularizing consumer banking operations and offer higher return to its clients.

MTB Retail Banking Products are:

Regular Savings Account

Current Account

Brick by Brick

MTB Double Saver

MTB Education Plan

Fixed Deposit

MTB Millionaire Plan

Monthly Benefit Plan

MTB Inspire

MTB Ruby

MTB Junior

MTB Graduate

MTB Senior

MTB Shanchay

MTB Kotipati

MTB Care

Regular Savings Account :

Features and Benefits:

Wide network of branches

Access to largest ATM fleet of the country

Bank conveniently with facilities like Internet Banking and SMS Banking

Cheque-book facility

Opportunity to apply for safe deposit locker facility

Collect foreign remittance in both T.C. & Taka draft.

Transfer of fund from one branch to another by Demand Draft /Telegraphic

Transfer

Online banking service

Current Account:

A Current account is ideal for carrying out day-to-day business transactions. With the

MTB Regular Current Account, anybody can access his/her account anytime, anywhere,

pay using payable at par cheques or deposit cheque at any MTB bank branch.


Wide network of branches

Access to largest ATM fleet of the country

Bank conveniently with facilities like Internet Banking and SMS Banking

Cheque-book facility

Opportunity to apply for safe deposit locker facility

Collect foreign remittance in both T.C. & Taka draft.

Transfer of fund from one branch to another by Demand Draft /Telegraphic

Transfer

Online banking service

Brick by Brick:


No initial deposit required

The monthly installment of this Plan is BDT 250/-, 500/-, 1,000/-, 2,000/-, 5,000/- and can

be multiples of BDT 500/-

The savings periods are 3,5, 8 and 10 years

No hassle of depositing money from long queue, rather option of depositing installment

through standing instruction.

Monthly installment & Maturity Amount

Monthly installment 3 Years 5 Years 8 Years 10 Years

250/- 10,913.00 20,734.00 40,743.00 58,751.00

500/- 21,826.00 41,468.00 81,487.00 117,502.00

1,000/- 43,652.00 82,936.00 162,974.00 235,004.00

2,000/- 87,304.00 165,872.00 325,948.00 470,008.00

5,000/- 218,260.00 414,680.00 814,870.00 1,175,020.00

MTB Double Saver:

MTB Double Saver is a fixed deposit scheme where the deposit doubles in 6 (six) years


Minimum Deposit amount of Tk. 50,000/- or its multiple and there is no limit for

maximum amount

The deposit amount will be double in 6 years

Customers can avail credit facility up to 90% of deposit amount

More than one account can be opened by the same depositor

Customer can encash the facility before maturity

MTB Education Plan:


No initial deposit required

Monthly installments are Tk. 1000 or multiples of Tk. 1000 but not exceeding Tk 20,000

The savings periods are 4, 7, 9 and 12 years

No hassle of depositing money from long queue, rather option of depositing installment

through standing instruction

Overdraft facility against deposited amount

Fixed Deposit:

Automatic renewals: Upon maturity, your deposit will be automatically renewed for the same

tenor at the prevailing interest rate unless you instruct otherwise.

Overdraft facility: You can use your Fixed Deposit as collateral to apply for an overdraft

facility at a competitive rate.

MTB Interest Rates on Fixed Deposit

Types of Deposit Interest Rate

1. Savings Deposits a) MTB Regular 5.50%

b) NRB 5.75%

2. Special Notice Deposits (SND)

Below BDT 10.00 million 5.00%

BDT 10.00 million to below BDT 250.00 million 6.00%

BDT 250.00 million to below BDT 1.00 billion 8.00%

BDT 1.00 billion and above 11.00%

3. Fixed Deposits:

1 month

Any Amount 9.00%

3 months

Any Amount 12.00%

6 months

Any Amount 12.00%

12 months

Any Amount 12.00%

4. MTB Monthly Benefit Plan (12 months) BDT 1,000.00 per lac @

12.00%

(before Tax)

MTB Millionaire Plan:

Monthly installment & Deposit:

Monthly installment Year Payable after the tenure (in BDT)

9,400.00 6 1,000,000.00

6,140.00 8 1,000,000.00

4,260.00 10 1,000,000.00

3,060.00 12 1,000,000.00

1,950.00 15 1,000,000.00

1,030.00 20 1,000,000.00

Monthly Benefit Plan:


The minimum deposit is Tk. 100,000/= or in multiples of Tk. 100,000/=

This plan is for 1 (one) year term.

You will require to open a savings/ current account. Monthly income will be credited to

your account

Sample Return Table shown below:

Deposited

Amount Tenure

Monthly Benefit

(before tax)

Monthly Benefit

for TIN holder

(deduction of

10% source tax)

Monthly Benefit

for non-TIN

holder (deduction

of 15% source

tax)

100,000.00 1 Year 1,000.00 900.00 850.00

200,000.00 1 Year 2,000.00 1,800.00 1,700.00

300,000.00 1 Year 3,000.00 2,700.00 2,550.00

400,000.00 1 Year 4,000.00 3,600.00 3,400.00

500,000.00 1 Year 5,000.00 4,500.00 4,250.00

MTB Inspire:

MTB Inspire provides a range of enhanced services, while letting you enjoy unique benefits

of getting return on your deposit monthly instead of traditional half yearly. With extra access

and convenience of banking, enjoy the full convenience of a savings account and access your

savings anytime.

Elegibility:

Must be a citizen of Bangladesh

Age 18

Features:

Interest calculated on daily basis and paid monthly

Free Debit Card*

Free internet banking

Online banking facility across MTB branches and access to largest ATM network

MTB Ruby:

MTB Ruby enables todays independent women to enjoy hassle-free banking services. Besides the core MTB banking advantage, MTB Ruby, an exclusive savings account for

women, is packed with special benefits for our women customers. Enjoy your present and

plan for the future, with this rewarding savings account.


Interest will add on daily basis and it will be credited monthly

Higher interest rate

Minimum account opening balance is Tk 10,000. Minimum daily qualifying balance to

earn interest is Tk 10,000

No debit card fee for 1st year

Free Internet Banking

MTB Junior:

We know how important it is to plan for child's financial security. MTB has the solution to

help anyone do that while showing the virtue of saving, in child. MTB Junior is a savings

account for minors that offer the opportunity to save for today and the future.

Eligibility:

MTB Junior is a savings account for school and college students below 18 years.

Features:

Attractive interest rate

Free debit card

Free internet banking.

No account maintenance fee

MTB Graduate:

Eligibility:

MTB Graduate is a savings account for college and university students who are 18 years

and above.

Features:

Attractive interest rate

Interest adds on daily and pays out monthly

Free debit card


No account maintenance fee.

MTB Senior:

MTB Senior has been designed keeping in mind the fact that a senior citizen's banking

requirements are wholly different and deserve special attention. We like to empower our

senior citizens, so that they can carry out their day-to-day banking transactions

independently, and with dignity and confidence. Now the true pleasure of seniority in your

grip!

Eligibility:

Must be a citizen of Bangladesh

Age 60 and above

Features:

Lifetime free Debit Card


Attractive discount on locker charge

Free cheque books*

Interest calculated on daily basis and paid monthly

Unlimited transactions

Online banking facility across MTB branches and access to largest ATM network

2.7.2. Banking services:

Online Banking Service

Mutual Trust Bank is playing a pioneering role among its competitors in providing real time

online banking facilities to its customers. Mutual Trust Bank online banking offers a

customer to deposit or withdraw any sum of money from any branch anywhere. Any account

holder having an account with the bank can avail this service.

Facilities available at present:

- Access account from anywhere in the world through a telephone.

- Ability to make balance inquiries without visiting the bank.

- Ability to listen to last 5 transaction detail over the phone.

- Provides a language selection being available in English and Bangla.

MTBL Tele Banking Services:

The centralized Tele Banking service introduced in the Bank brings a world of banking

convenience to the customers. Through the Tele Banking System, customers can access their

Bank Accounts over the telephone on a 24X7 basis. The facility is secure as the customer is

given a unique identification number to access his bank account through the telephone. The

voice response system prompts the customer to dial the digits that will help him/ her meet his

requirement of placing instructions or retrieving account information.

MTB Contact Centre is now at your service 24 hours a day 7 days a week and 365 days a

year. To have the services please dial the following numbers:

In Bangladesh: 16219 or 096040 16219

From Overseas: +880 96040 16219

The services can be availed through the MTB Contact Centre are:

Retail Deposits & Loan Product Enquiries

Requests & Requisitions for Statements & Cheque Books

Accounts Services

Cards Services

SME, NRB & Remittance Enquiries

Customer Feedback

SWIFT Services

The Society for Worldwide Inter-bank Financial Telecommunication or S.W.I.F.T. is a

worldwide community. 7,800 financial institutions in 200 countries connected to one another

through SWIFT. In their own word SWIFT "consistently delivers quantifiable business value

and proven technical excellence to its members through its comprehensive messaging

standards, the security, reliability and five nines availability of its messaging platform and

its role in advancing STP. The guiding principles of SWIFT are clear: to offer the financial

services industry a common platform of advanced technology and access to shared solutions

through which each member can build its competitive edge." Mutual Trust Bank has already

become the member of SWIFT community and has started its operation from March 2004.

With introduction of SWIFT, MTB ensures its customers the quickest and most secured

financial transaction around the world.

Pay Order

MTBL provide this type of service. When clients want to give money to others for any

purpose they can give pay order. It is safe because they should not carry the money and the

receivers can encash the money. There is no option for dishonor, the client have to deposit

money before do PO. The commission of the PO is given below:

Demand Draft (DD) Issue

Sometimes customers use demand draft for the transfer of money from one place to another.

It is must need for sending money outside Dhaka city. MTBL charges .15% commission on

the face value of DD as service charge.

MTB SMS Banking brings your account to your fingertips--- MTBL Group. It enables

customers to send and receive textual information anywhere 7 days a week and 24 hours a

day. It allows them to access information as well as receive transaction alerts on their account

by using their mobile phone.

Facilities available at present

ty to make balance inquiries without visiting the bank.

POS transaction on their account.

Locker Service

MTBL provide locker service to their clients. Clients can rent a locker for one year. Every

year they have to pay a fee. They can keep any documents, ornaments and valuable thing in

the locker. One key is given to the clients. There are three types of locker at MTBL: small,

medium and big. The fee of this locker is Taka 1500, 2000, and 2500.

Credit Card Service

Bank Name: Mutual Trust Bank Ltd.

Card Type: Local gold & Local Classic credit card

Description:

50% Cash Advance facility.

Useable at all ATMs bearing Visa logo.

5000 outlets for shopping in Bangladesh.

Buy now pays later.

Up to 45 Days Interest free period.

Visa Electronic Debit Card Service:

Bank Name: Mutual Trust Bank Ltd.

Card Type: Debit Card

Description: MTB Visa Electron Card will be offered to each and every

Savings, Current & STD Account holders of the Bank. This electron Card can be used at any

Dutch-Bangla Banks ATM all over the country.

No card fee for first year.

No transaction fees on POS & DBBL ATMs.

No time bindings for cash withdrawal.

No need to come to Branch for cash withdrawals.

There are 5000 outlets for shopping in Bangladesh.

MTB Internet Banking Service:

View account information, summary of all your accounts and access account statements

Order chequebook(s)

Transfer funds to any MTB account

Set up payees (within MTB), to whom you transfer funds

regularly

View credit card details and pay any MTB credit card bill

Pay utility bills

Manage your profile information

2.7.3Organizational Hierarchy of MTBL:

At Mutual Trust Bank there is one Managing Director (MD) who mainly controls and

supervises the major divisions of this bank. He directly supervises the overall activities and

Divisions. One senior Executive Vice Presidents (SEVP) and Three Executive Vice President

(EVP) and two senior Vice President report to the Managing Director. Executive Vice

Presidents control the credit, loan administration, international, information technology, the

financial control & accounts division, treasury division, credit division,card division. Senior

Vice President controls the human resource and marketing divisions. The Vice Presidents

work under the Senior Executive Vice President and Executive Vice President Directly report

to the senior Executive Vice President (SEVP). The daily activities directly control by senior

Executive Vice President (SEVP).

2.7.4 Management of MTBL:

For any financial and non-financial organization, management is the most valuable and

important aspect and a well organize management provides the organization to reach its

ultimate goal. Management means planning, organizing, staffing, directing and controlling of

all financial and non-financial resources of an organization. Different aspects of management

practice in Mutual Trust Bank are discussed below.

Planning: Mutual Trust Bank has done its planning within the preview of the

corporate plan. Each branch can make plan according to the goal imposed by the

corporate level. Mutual Trust Bank has a planning division. The department is mainly

responsible for the overall planning.

Organizing: Mutual Trust Bank is organized as per the existing business locations. It

has branches, each of which is a separate entity. Each unit is responsible for own

performance. Within each branch it is organized functionally.

Staffing: The recruitment in Mutual Trust Bank is done in two ways. One as a

MTO for the management program and it has a probation period of one year.

Another one is non-management level as Assistant officer. Management Trainee

Officer is recruited in officer category and their career path is headed towards

different managerial jobs.

Directing and Controlling: Works of Mutual Trust Bank are designed in such a way

that one leave without clearing the tasks as he is assigned for a day. Sitting

arrangement in all office is done in a way that the superior can monitor the

subordinate all time. Budgeting, rewarding, punishing, etc are also practiced as

control mechanism.

2.7.5 Corporate Culture

Mutual Trust Bank Limited is one of the most disciplined banks with a distinctive corporate

culture. Here they believe in shared meaning, shared under sting and shared sense making.

Their people can see and understand events, activities, objects and situation in a distinctive

way. They should their manners and etiquette, character individually to suit the purpose of

the bank and the needs of the customers who are of paramount importance to them. The

people in the bank see themselves as a tight knit team/family that believes in working

together for growth. The corporate culture they belong has not been imposed. It has rather

been achieved through their corporate conduct.

Branch Control & Expansion Department (BCED): The duties of this division are

to preparing test key arrangement among the branches to maintain inter branch

accounts and overall control of the branches. Another most duties of this division are

to study the feasibility of opening new branches.

Public Relation Department (PRD): Another important division under

administration department is public relation division. The main activities of this

division are as follows:

Circulation of important notices

Issuance of power of attorney to the officers of the bank.

Customer service

Legal affairs

General correspondence within Bangladesh

Cash affairs of the bank

Financial Administration Department (FAD): This division can be called as the

central accounts division because all the account related are done here. All the

branches send their monthly statements to the Head office and this division prepares a

consolidated statement by using those branch statements, which shows monthly

position of the bank in cumulative basis.

Audit & Inspection Department (AID): This division works directly under the

control of the managing director. This division is responsible to arrange periodical

internal audit in each branch to conduct special audit, and to follow-up and monitor

the banks overall activities.

Operational Department (OD): Under the operational department the following

divisions of Mutual Trust Bank limited conduct their respective works.

Credit division

Investment division

International division

Card division

Treasury operation division

Computer and Engineering division

Miscellaneous/Other Department: There are some other important divisions

performing their respective works for the success of Mutual Trust Bank Limited

which are as follows:

Marketing Division: Marketing division is directly related to the marketing of

the banks products and services to the customers. It takes all the arrangements

in deposit mobilization, customer service related activities and all other

marketing related activities. The main task of this division is to formulate

strategies for achieving banks corporate goals and objectives.

Training Division: The principal activities of the Staff Development and

Training Division (CHRM.3) are to design and implement staff development

and training plans to ensure that the Bank staff have at all times the necessary

knowledge, skills and competencies and that they are continuously being

developed for performance excellence in their current jobs and future

responsibilities. The division takes the lead for and coordinates the

implementation of the Bankss performance management system. The division

is also charges with the responsibility for charting out career paths and

planning for career succession. The division will ensure that each and every

staff is accorded and receive full consideration for developmental

opportunities to enhance their competencies, leadership skills and for career

advancement.

2.7.6 Career Opportunity at MTBL:

Mutual Trust Bank is an equal opportunity employer, offering competitive compensation

packages, excellent career development programs and a friendly working environment. This

section of the website will be updated as and when any job vacancies arise.

2.7.7 Customer Services of MTBL:

Professional merit and Competency, Flexibility, Determination and Dedication are the core

resources that MTBL consider to be of paramount importance for building a client oriented

modern banking. Customer satisfaction is MTBL foremost professional undertaking.

Therefore, a satisfied client is MTBL precious product and they consider them MTBL

ambassador in the market.

Chapter 3

My Job at MTBL

Baridhara Branch

3.1. Preface:

I was assigned at the Baridhara Branch of Mutual Trust Bank Limited to complete my

internship program. During my internship program I had a lot of fun, but most importantly I

realized how to work under the pressure of responsibilities. This practical orientation is

necessary for the development and preparation of a person before entering into the corporate

world. The things that I have learned at Mutual Trust Bank are:

Meaning of responsibility

Necessity of commitment

Punctuality and regularity is very important

Ability to interact with different sorts of people

Mutual Trust Bank Limited has always been prepared the internship program for its internees.

It is strictly followed by both parties. There are 3 different departments in

Baridhara branch and they are:

1. General Banking (GB)

2. NRB

3. Credit Department

I was rotated across all 3 different departments in the past 3 months. However, my main

concentration was General Banking section and thereby, I allocated maximum time to work at

GB section. Therefore, in this report I have described about my job responsibilities at GB.

3.2. Nature of the Job:

General Banking is the starting point of all the banking operating. General Banking

department aids in taking deposits and simultaneously provides some supplementary services.

It provides those customers who come frequently and those customers who come one time in

banking for enjoying supplementary services. In some general banking activities, there is no

relation between banker and customers who will take only one service form bank. On the

other hand, there are some customers with who bank are doing its business frequently. It is

the department, which provides day-to-day services to the customers. Every day it receives

deposits from the customers and meets their demand for cash by honoring cheques. It opens

new accounts, demit funds, issue bank drafts and pay orders etc. since bank in confined to

provide the service everyday general banking is also known as retail banking.

The job was really hard at GB. I also had to hear a lot of complaints from the customers.

At first I was demoralized. But later on I learned how to deal with it.

3.3. Responsibilities & Learning:

As an intern in the MTBL (Baridhara branch) there were a number of activities in which

I was involved. The activities are given below:

Receiving cheques and pay order vouchers.

Preparing pay orders.

The process of account opening and closing, transfer of account.

Preparing KYC, TP.

Updating the record book of Clearing, FDR.

Administrative Activities like drafting letters or any other papers.

Assisting the person who works on auditing.

Assisting customers with necessary information.

Collecting necessary papers from customers such as- photocopy of National

ID card, Passport, Trade License etc.

Inputting data to and retrieving necessary information from Flora Software.

Beyond these Activities there were other tasks that I was given to accomplish related to

general banking activities. I have learned many things. The working pressure was high yet

pleasant. All the activities are based on this software Bank Flora.

3.4 Observations:

It was very interesting working at Mutual Trust Bank. The people there are really nice and

talented. The things that I have noticed and observed are:

Work is never left pending for the next day unless it is absolutely necessary.

The work process could be made faster with better operating systems and Intra

Networking System.

A good job performance is always praised which motivates the employees.

There is always a rush of customers on this branch so the number of transaction is

high. Thereby, the employees remain very busy throughout the day.

The work activities are always set and divided for each of the employees. Each and

every employee has a certain set of responsibilities. He/she carries out those

responsibilities throughout the day. It is also easy to assign duties that way. Moreover, I

often saw everyone help each other out.

CHAPTER 04

RISK ASSESSMENT OF MTBL

4.1 Introduction

With the emergence of time, everything has changed into a new sophisticated version and

along with that made our lives more complex and difficult. Every day our market is growing,

technology is alleviating and the products and services we use are also enriching. No wonder

there is a mushroom of private banks in our country at this moment. Before going through

this internship program, I used to have a rear feeling that -except a few, all these banks are

surely facing great difficulties to survive in such a poor economy like ours.

However my idea really changed after having practical experience of 3 months first time in a

bank. I found it really challenging-the way these banks are flourishing in spite of the fact that

there are so many competitors and moreover a struggling economy. Therefore I could not

resist my curiosity to find out how they managed such a prominent existence carrying so

many risks in shoulder.

The last chapter that is chapter 3 is the project part of my internship report and as you may

already have guessed, it deals with the risk analysis of MTBL. In this section, as the title

already implies, I have showcased the most widely used financial indicators to measure both

the quality and quantity of MTBLs performance. It centers on the most important

dimensions of performance especially focusing on the banks risk associated with it. (All the

analysis has been done on the basis of my accessibility to company data).

4.2 Background of Banking in Bangladesh

The history of banking sector of Bangladesh is not new rather it started from the very

moment of independence. The banking system at independence consisted of two branch

offices of the former State Bank of Pakistan and seventeen large commercial banks, two of

which were controlled by Bangladeshi interests and three by foreigners other than West

Pakistanis. There were fourteen smaller commercial banks. Virtually all banking services

were concentrated in urban areas. The newly independent government immediately

designated the Dhaka branch of the State Bank of Pakistan as the central bank and renamed it

the Bangladesh Bank. The central bank was responsible for regulating currency, controlling

credit and monetary policy, and administering exchange control and the official foreign

exchange reserves. The new banking system succeeded in establishing reasonably efficient

procedures for managing credit and foreign exchange. (News Bangladesh, The Economy of

Bangladesh: The Banking System, 2012, Para 1)

4.3 Current Status of Banking Sector of Bangladesh

As we all must have seen that the banking system of our country has grown very prominent.

They are striving to reach people at every corner of the country and is available almost

anywhere these days. Remarkably the private banks are one of the highest growth sectors of

the country at this moment. The number of banks in all now stands at in Bangladesh. Out of

the 55 banks, four are Nationalized Commercial Banks (NCBs), 38 local private commercial

banks, 9 foreign banks and the rest four are specialized banks.

However, regardless of all these facts, risks associated with this banking sector are many.

Bangladesh being a developing country has innumerous risks, especially financial risks are

inescapable. Although banks earn high yields, and trade finance in the emerging markets like

ours offers some of the highest returns available in conventional banking, there are many

drawbacks too. Balancing risk and reward is critical to maintaining profits and reputations in

an emerging market like in Bangladesh.

4.4 Commercial Banks- The Risk Takers

Commercial banks are in the category of one of the riskiest businesses. In the process of

providing financial services, they assume various kinds of financial risks. Over the last

decade our understanding of the place of commercial banks within the financial sector has

improved substantially. We, the general public seek the services of these financial institutions

because of their ability to provide market knowledge, transaction efficiency and funding

capability. In performing these roles they genera lly act as a principal in the transaction. And

to do this they use their own balance sheet that is their assets and other funds to facilitate the

transaction and most importantly to absorb risk associated with it. However there are also

risky activities which do not have direct implication to the banks balance sheet. These

activities include agency and advisory activities. For example: trust and investment

management; private and public placement or facilitating contracts; underwriting; the

packaging, securitizing, distributing and servicing of loans in the relevant areas. Thus we

understand from here that a good amount of risk lies out of the banks balance sheet.

Nevertheless, the overwhelming majority of risks facing the banking firm are in their on-

balance-sheet businesses.

4.5 Why Banks Endeavor Risks?

Why do banks endeavor risks? Because it is about peoples money and since you are dealing

with other peoples (stakeholders) money, government is always on the scene to intervene.

This is how all the risks are originated. Every single bit of information has to be exposed in

public and thus you are reliable of all mistakes. Therefore in simpler words banks are always

in a risk of making mistakes of peoples money for which they will be held reliable. After all,

financial institutions are simply businesses, organized to maximize the value of the

shareholders wealth invested in the firm at an acceptable level of risk. The objectives of

maximum or at least satisfactory profitability with a level of risk acceptable to the

institutions owners, is not easy to achieve, as recent institutions failure around the globe

suggest. Banking is a risk business; one mistake can wipe out a years profits or more.

Why are financial institutions under such heavy scrutiny today? As already mentioned above,

the key reason is that banks and other financial institutions rely heavily upon the open market

to raise the funds they need by selling stocks, bonds and likewise. Entry into the open

market to raise money means that a financial firms financial statements will be gone over

with a fine tooth comb by stock and bond market investors, credit rating agencies,

regulators, and scores of other people and institutions. (Rose & Hudgins, 2009-2010, pp.

163-164).

4.6 Extent of Risks Being Absorbed

Not all sorts of risks banks have to absorb. In a developing country like Bangladesh there are

uncountable types of risk factors. However, these commercial banks only need to worry about

the risks contained in the banks principal activities that is-those involving its own balance

sheet and its basic business of lending and borrowing, are not all borne by the bank itself. In

many instances the institution will eliminate or mitigate the financial risk associated with a

transaction by proper business practices or in other words it will shift the risk to other parties

through a combination of pricing and product design. Thus they only take risks at firm level

and solve them as efficiently as possible. However the extent of risk can be broadly divided

in two categories which are Systematic Risk and Unsystematic Risk.

Systematic Risk: This risk is also called Market Related Risk or Non-diversifiable Risk.

These type of risks cannot be eliminated no matter how much perfect a financial firm or its

management is. However a firm can be advantageous if it takes precautious measures, the

extent of loss will be less compared to other firms.

Unsystematic Risk: This risk is also called Firm-specific or Company-unique Risk or

Diversifiable Risk. These types of risks can be reduced or eliminated altogether if the firm

has a good posture at all aspects. For each of the types of risk listed below, is mentioned

whether it is a systematic risk or an unsystematic risk.

4.7 Types of Risks Associated with Commercial Banks

What do we mean by the word perform when it comes to financial firms? In this case

performance refers to how adequately a financial firm meets the needs of its stockholders

(owners), employees, depositors and creditors, and other borrowing customers. At the same

time financial firms must find a way to keep government regulators satisfied that their

operating policies, loans and investments are sound, protecting the public interest. Therefore

a financial firm is fully entitled to all these responsibilities thus involving a lot of risks.

Risk to a manager of a bank or a financial institution means the perceived uncertainty

associated with a particular event. For example, will the customer renew his or her loan? Will

deposits and other sources of funds grow next month? Will the financial firms stock price

rise and its earnings increase? Are interest rates going to rise or fall next week?

Each of these forms of risk can threaten a financial firms day-to-day performance and its

solvency and long run survival. The types of risks are:

A. Credit risk

B. Liquidity risk

C. Market risk

D. Operational (Transactional) risk

E. Legal and Compliance Risk

F. Reputation risk

G. Strategic risk

H. Capital risk

I. Other risk

To measure the extent of these risks I have used several ratios which are illustrated below

with values and graphs (where applicable). Also an excel spreadsheet is provided for detailed

computations of the ratios. The spreadsheet also contains the financial statements of MTBL

of the 3 years from 2010 to 2012, on which I have done the analysis.

4.8 Credit Risk

The probability that some of a financial firms assets, especially its loans will decline in value

and perhaps become worthless is known as credit risk. In simple words It is a risk that a

borrower will not pay a loan as called for in the original loan agreement, and may eventually

default on the obligation. Credit risk is one of the primary risks in bank lending, in addition to

Interest Rate Risk.(Answers.com, Banking Dictionary, 2013).

Credit risk is the risk of loss due to a debtor's non-payment of a loan or other line of credit-

either the principal or interest or both. Most financial firms (lenders) employ their own

models (credit scorecards) to rank potential and existing customers according to risk, and

then apply appropriate strategies and rates. With products such as unsecured personal loans or

mortgages, lenders charge a higher price for higher risk customers and vice versa. With

revolving products such as credit cards and overdrafts, risk is controlled through the setting

of credit limits. Some products also require security, most commonly in the form of property.

Compared to other banks, MTBL does not have too much a record of Default loans, which

implies they have a well equipped management team and good handling power on loans.

Further statistical detail is given in the later part. The following are four of the most widely

used indicators of credit risk and I have used them to demonstrate a clear view of the Credit

Risk of MTBL.

The ratio of nonperforming assets to total loans and leases

The ratio of net charge-offs of loans to total loans and leases

The ratio of the annual provision for loans losses to total loans and leases or to equity

capital

The ratio of allowance for loan losses to total loans and leases or to equity capital

The ratio of nonperforming assets to equity capital

The ratio of total loans to total deposits

Nonperforming assets are income generating assets, including loans that are past due for 90

days or more. In other words they can be called doubtful loans in the sense that they are not

written off and there is still hope of getting it back. Charge offs, on the other hand are loans

that have been declared worthless and written off the lenders books which we mostly know

as bad loans or loan losses. If some of these loans ultimately generate income, the amounts

recovered are deducted from gross charge-offs to yield net charge-offs. As these ratios rise,

exposure to credit risk grows, and failure of a lending institution may be just around the

corner. The final two credit risk indicator ratios reveal the extent to which a lender is

preparing for loan losses by building up its loan-loss reserves (the allowance for loan losses)

through annual charges against current income (the provision for loan losses). The last ratio

of total loans to total deposits is a very popular and long standing credit risk measure. It is an

alarming situation if this ratio grows because loans are usually among the riskiest of all assets

for depository institutions and therefore deposits must be carefully protected. A rise in bad

loans or declining market values of otherwise good loans relative to the amount of deposits

creates greater depositor risk.

year Total Loans Total Deposits

Total Loans to Total

Deposits

2010 37,704,921,351 45,129,483,249 83.55%

2011 44,887,866,922 59,050,804,354 76.02%

2012 54,093,323,785 75,140,144,506 71.99%

Exhibit 1: Credit Risk 1

Explanation: As we know Loan-To-Deposit Ratio - LTD' is commonly used statistic for

assessing a bank's liquidity by dividing the banks total loans by its total deposits. This

66.00%

68.00%

70.00%

72.00%

74.00%

76.00%

78.00%

80.00%

82.00%

84.00%

2010 2011 2012

83.55%

76.02%

71.99%

Year

Toat Loans to Total Deposits

number, also known as the LTD ratio, is expressed as a percentage. If the ratio is too high, it

means that banks might not have enough liquidity to cover any unforseen fund requirements;

if the ratio is too low, banks may not be earning as much as they could be.

Here we can see that, the LTD ratio of MTB was decreasing in 2012 compare to 2012, which

created an indication that earning of MTB had decreased as like other banks in 2012. On the

same way, MTB credit liquidity condition was much better in 2012 than 2010.

Year Total Loans &

Advances

Annual

Provision For

Loans &

Advances

Equity

Capital

Credit Risk

(a)

Credit Risk

(b)

2010 5,738,964,774 508,837,012 4,163,403,283 8.87% 10.46%

2011 7,433,997,532 200,049,000 4,834,348,126 2.69% 4.14%

2012 9,505,597,361 455,657,130 4,863,104,870 4.79% 9.37%

Exhibit 2: Credit Risk (a)

8.87%

2.69%

4.79%

0.00%

1.00%

2.00%

3.00%

4.00%

5.00%

6.00%

7.00%

8.00%

9.00%

10.00%

2010 2011 2012

% Change in Credit Risk

Year

Annual Provision For Loan & Advances vs Total Loans & Advances

Credit Risk (a)

Explanation: Since the ratio was lower in 2011 and bit higher in 2012, it was really good in

context of performance scenery in 2012. But in 2010 there was more than enough provision,

that wasrealy good and it made MTB negative chance to loan default.

Exhibit 3: Credit Risk (b)

4.9 Liquidity Risk:

Banks having insufficient cash to meet customers cash withdrawals, loan demands and other

cash needs is referred as Liquidity risk. Faced with liquidity risk a financial institution may

be forced to borrow emergency funds at excessive cost to cover its immediate cash needs,

reducing its earnings. However, very few financial firms ever actually run out of cash because

of the ease with which liquid funds can be borrowed from other institutions. I have used four

ratios to measure the exposure of MTBLs Liquidity risk.

Cash and Cash Equivalents to Total Assets

Purchased funds to Total Assets

Balance held at other Banks and Financial Institutions to Total Assets

Cash Assets and Government securities to Total Assets

0.00%

2.00%

4.00%

6.00%

8.00%

10.00%

12.00%

20102011

2012

10.46%

4.14%

9.37%

% change in Credit Risk

Year

Annual Provision for loans & Advances vs Equity Capital

Credit Risk (b)

Cash and Cash Equivalents include ready cash and quickest accessible assets like Cash in

hand (including foreign currency), cash with Bangladesh Bank and its Agent Banks. Also

balances in other financial institutions inside and outside Bangladesh are considered to be

comparatively liquid assets as they can be withdrawn if necessary yet banks do not usually do

this. Purchased funds comprise of Eurodollars or other currencies bought, government

securities, large CDs, Repurchase Agreements and Commercial Paper. (Rose & Hudgins,

2011-2012, p. 178). Lastly it includes Money at call or short notice. It includes funds lent to

discount houses, money brokers, the stock exchange, bullion brokers, corporate customers,

and increasingly to other banks. At call money is repayable on demand whereas short notice

money implies that notice of repayment of up to 14 days will be given. After cash, money at

call and short notice are the banks' most liquid assets. They are usually interest-earning

secured loans but their importance lies in providing the banks with an opportunity to use their

surplus funds and to adjust their cash and liquidity requirements.

All of the above items are done as a ratio of total assets of the bank. The more the ratio is,

more liquid is the bank. However too much liquidity is also not preferable as it means there is

a lot of idle cash which could be invested elsewhere and earn a substantial amount of interest.

Year Total Assets Cash Assets & Govt.

Securities

Liquidity

Risk

2010 57,529,205,095 11,527,067,816 20.04%

2011 76,331,366,189 22,958,166,461 30.08%

2012 92,802,685,449 27,750,978,103 29.90%

Exhibit 4: Liquidity Risk

Explanation: Cash and cash equivalents fell a little in every year but it did not increase the

liquidity risk of MTBL much as the other liquid assets had offset the impact. Purchased funds

are highest as we see in the graph in 2011and again in 2012. It is comparatively very low in

2010 because if you just go through the financial statement of MTBL or the ratios I have

calculated, you will find that it faced a big downfall in its profitability in the year 2011 and

thus it sold out a lot of their investments to meet up the target

4.10 Market Risk:

In market-oriented economies which we have in Bangladesh, the market values of assets,

liabilities and net worth of financial service providers are constantly in a state of flux due to

uncertainties concerning market rates or prices. Market risk is mainly determined by two

other risks which are Price Risk and Interest Rate Risk.

Price risk

The risk that the value of a security or portfolio of securities will decline in the future is

known to be as Price risk. Especially sensitive to these market value movements are bond

portfolios and stockholders equity (net worth), which can dive suddenly as market prices

move against a financial firm. Here the important indicators are:

0.00%

5.00%

10.00%

15.00%

20.00%

25.00%

30.00%

35.00%

2010 2011 2012

20.04%

30.08% 29.90%

% change in Liquidity Risk

Year

Cash Assets & Govt. Securities vs Total Assets

Liquidity Risk

Book value of assets to market value of those same assets

Book value of Equity capital to its market value

Book value of Bonds to its market value

Explanation: This ratio could not be derived due to lack of accessibility of information. All

the assets are presented at the market value of the respective years. Neither the book value is

mentioned anywhere nor there is enough data to calculate it ourselves. Their depreciation

method which is straight line and the rate at which they depreciate each different category of

assets are given in note # 2.6, however I could not find out when exactly they bought which

asset and thus did not know how much depreciation to add back to find out the book value. It

is because there is no list provided of how many new assets are bought at each year and how

much they had previously and for what duration. What I could do is make a rough estimation

of the book value based on the market value, but since there is a concept of time value of

money, this estimation process would be very inaccurate.

Nevertheless we all understand that Price risk factor affects all firms of all categories no

matter how precautious they are. It is because Price is a Market Risk factor which falls under

the category of Unsystematic risk and thus it is not diversifiable. Moreover with an increasing

inflation rates we understand that the Price risk did exist in the firm.

Interest Rate Risk

The impact of changing interest rates on a financial institutions margin of profit is called

Interest rate risk. Rising interest rates can greatly diminish the profit of a financial institution

if the structure of the firms assets and liabilities is such that interest expense on borrowed

money increases more rapidly than interest revenues on loans and security investments. The

most important measures are as follows.

The ratio of interest-sensitive assets to interest sensitive liabilities

The ratio of uninsured deposits to total deposits

When Interest sensitive assets exceed interest sensitive liabilities in a particular maturity

range, a financial firm is vulnerable to losses from falling interest rates. In contrast, when rate

-sensitive liabilities exceed rate-sensitive assets, losses are likely to be incurred if market

interest rate rises.

.

In a depository institution like banks, where uninsured deposits are usually government and

corporate deposits that exceed the amount covered by insurance and are usually so highly

sensitive to changing interest rates that they will be withdrawn if yields offered by

competitors rise even slightly higher. As I have gone through the notes of the financial

statements, I have not found any such uninsured deposits or likewise. Thus this ratio can be

state as 0 which means there is no risk of uninsured deposits at all.

Year 2012 2011 2010

Interest Sensitive Liabilities 73,555,048,289 59,103,065,084 45,316,571,485

interest Sensitive Assets 52,664,296,232 44,072,126,592 37,030,939,030

Interest Rate Risk 71.60% 74.57% 81.72%

Exhibit 5: Market Risk

Explanation: As I have calculated of MTBL, the ratio went down with quite an extent from

2006 to 2012. As we can see above (Exhibit: 4.4: Market Risk I). It implies that in the year

2010, interest sensitive assets were many compared to interest sensitive liabilities. In 2011 the

interest sensitive assets did not raise much but the interest sensitive liabilities rose

significantly thus making the overall ratio very low. In 2012 the ratio again fall.Therefore it

can be said that although the ratio fluctuated vigorously over the three years, MTBL reduced

its exposure to interest rate risk.

Interest Rate Risk

65.00%

70.00%

75.00%

80.00%

85.00%

20102011

2012

81.72%

74.57%

71.60%

% change in Interest Rate Risk

Year

Interest Sensitive Assets vs Interest Sensitive Liabilities

With more volatile market interest rates in recent years, bankers have developed several new

ways to defend their earnings margins against interest rate changes, including interest rate

swaps, options, and financial future contracts. MTBL also have arranged these procedures to

prevent losses from interest rate fluctuation.

4.11 Operational (Transactional) Risk:

Operational risk refers to uncertainty regarding a financial firms earnings due to failure in

computer systems, errors, misconduct by employees, floods, strikes and similar events. The

broad group of actions in this risk definition often decreases earnings due to unexpected

operating expenses. Especially in Bangladesh it is the most common phenomenon. All the

banks both government and private use the computerized system along with heavy paper

works too.

As from my own experience in MTBL I have seen the computer systems involve a patchwork

of old programs, requiring employee intervention to reconcile and create reports. Also the

software system which MTBL uses named to be as Flora Systems fails quite often mostly

during day time putting a halt in all sorts of transactions. All these together make MTBLs

operational risk high thus making its earning low. Although I have seen this physically, I

could not put the extent of loss into numbers as it needs very thorough and detailed

information of everyday transaction which I did not have access to.

4.12 Legal and Compliance Risk

Legal or compliance risk creates variability in earnings resulting from actions taken by the

legal system. Unenforceable contracts, lawsuits or adverse judgments reduce a financial

firms earnings by increasing its expenses. For example, if a depository institution fails to

hold adequate capital; costly corrective actions must be taken to avoid its closure. Fortunately

MTBL neither had this sort of records during the time I worked there, nor in its history of

past ten years.

4.13 Reputation Risk

Reputation risk is the uncertainty associated with public opinion. Negative publicity, whether

true or not, can affect a firms earnings by dissuading customers from using the services of

the institution, just as positive publicity may serve to promote a firms products and services.

I would say MTBL has a moderate amount of risk in this factor as it is neither too reputed nor

too badly reputed. As I believe the true nature of a financial firms business requires

maintaining the confidence of its customers and creditors, MTBL lacks a little bit at least in

the foreign exchange branch in which I have worked; although I am unaware of the other

branches. They have a few customers who are their only loyal and regular clients. New

customers are hardly seen at MTBL which I think is a big pull back for them. Other

commercial banks like Dutch Bangla Bank, Prime Bank, Brac Bank and a few others have a

good extent of reputation to attract new chunks of customers, which brings them a whole lot

of deposits. According to my limited point of view I think this factor is immensely pulling

back MTBL growth potentiality.

4.14. Strategic Risk

Variations in earnings due to adverse business decisions, improper implementation of

decisions, or lack of responsiveness to industry changes are parts of what is called Strategic

risk. This risk category can be characterized as the human element in making bad long-

range management decisions that reflect poor timing, lack of foresight, lack of persistence,

and lack of determination to be successful.(Rose & Hudgins,

2011-2012, p. 180)

With my limited knowledge and experience I could not find any wrong decisions made by the

officials rather I would say they have a very strong foresight of specific industry trends. No to

wonder as you will find out later in this report that they could very well figure out the

downfall of garments industry and accordingly they inclined more towards jute. Eventually

they did not face any loss due to recession and other international factors which most of the

other banks are still suffering.

4.15 Capital Risk:

The impact of all the risks stated above can affect a financial firms long run survival, often

referred to as its capital risk. Actually capital risk is all those risks which drag a firm to the

limit of insolvency or ultimate failure. For example, if a bank takes on excessive amount of

bad loan s or if a large portion of its security portfolio declines in market value, generating

serious capital losses when sold, then its equity capital account, which is designed to absorb

such losses, may be overwhelmed. If investors and depositors become aware of the problem

and begin to withdraw their funds, regulators may have no choice but to declare the

institution insolvent and close its doors.

Measuring the capital risk is far more extensive job to be done by me but what I did is I have

used four ratios which will give not the exact but at least an approximation of the extent of

capital risk involved.

The ratio of stock price per share to annual earnings per share.

The ratio of equity capital (net worth) to total assets.

The ratio of purchased funds to total liabilities.

The ratio of equity capital to risk assets.

If the ratio of stock price per share to annual earnings per share falls it indicates that investors

have lost belief and thinks that the firm is undercapitalized relative to the risks it has taken

on. This is when investors sell the shares immediately keeping in mind the risk involved and

eventually the equity stops growing.

A decline in the second ratio which is equity capital (net worth) to total assets indicates that

the bank do not have enough assets for example loans and investments to earn a good return

for its shareholders.

The ratio of purchased funds to total liabilities: Purchased funds usually include uninsured

deposits and borrowings in the money market from bank and non-bank corporations and from

governmental units that fall due within one year.

The last ratio of Equity capital to risk assets reflects how well the current level of a financial

institutions capital covers potential losses from those assets most likely to decline in value.

Risk assets mainly consist of loans and securities and exclude cash, plant and equipment, and

miscellaneous assets.

Some authorities also exclude holdings of short-term government securities from risk assets

because the market values of these securities tend to be stable and also there is always a ready

resale market for them.

Year EPS Stock Price Stock Price Per Share to EPS

2012 1.33 24.04 18.08

2011 2.5 37.6 15.04

2010 3.04 47.7 15.69

Exhibit 6: Capital Risk 1

Explanation: In Exhibit 6 we see that the stock price per share to earnings per share stroke

up highly in 2012 and remained almost constant also in 2010, 1011. While trying to figure out

the reason I found that in 2010 the stock price was moderate neither too high nor too low but

EPS in this year was very high. This factor boost up the stock price next year which is in

2012 but the EPS fell back and remained almost constant over the two year that is 2007 and

2008.

Therefore we can say this particular capital risk factor is low for MTBL.

Stock Price Per Share to EPS0.00

5.00

10.00

15.00

20.00

2010 2011 2012

15.69 15.04

18.08

Year

Stock Price Per Share to EPS

Year Total Assests Equity Capital Equity Capital to

Total Assets

2010 57,529,205,095 4,163,403,283 0.07

2011 76,331,366,189 4,834,348,126 0.06

2012 92,802,685,449 4,863,104,870 0.05

Exhibit 7: Capital Risk 2

Explanation: This figure looks shocking and this is an alarming situation too since the firms

equity is declining drastically. It implies that the firm has assets but they are not earning

enough for its stockholders. The risk of MTBL can be sensed high for this scenario.

0.00

0.01

0.02

0.03

0.04

0.05

0.06

0.07

0.08

20102011

2012

0.07

0.06

0.05

Year

Equity Capital to Total Assets

4.16 Ratios to Measure Management Performance

Operating Efficiency Ratio: In a financial institution a greater efficiency in

operations is desired to attain maximum profit. This usually means reducing operating

expenses and increasing the firms employee productivity through the use of

automated equipments and improved employee training.

Employee Productivity Ratio: This measures the amount of net income per

employee. The less it is means that a greater amount is spend for the employees.

Earnings spread: The spread measures the effectiveness of a financial firms

intermediation function in borrowing and lending money and also the intensity of

competition in the firms market area. Greater competition tends to squeeze the

difference between average assets yields and average liability cost.

4.17 Other Risk Factors:

In a country like Bangladesh risks are many as I have mentioned many times. Risks like

Inflation risk, Currency or Exchange rate risk, Political risk and Crime risk can also greatly

affect a firms profit adversely. Though they are among the external market forces, they have

immense impact on any banks profitability. A few of the risks and their influence are listed

below.

Inflation Risk The possibility that the value of assets or income will decrease as

inflation shrinks the purchasing power of a currency. Inflation causes money to

decrease in value at some rate, and does so whether the money is invested or not.

Thus it erodes the actual value of a banks income. A rise in inflation negatively

affects a banks asset returns, lending capacity and profitability. Several economists

have found that countries with high inflation rates have inefficiently small banking

sectors and equity markets. (Sandra, 2010, p. 4). Although it is not true in case of this

country since Bangladesh has grown quite strong in the commercial banking sector.

At present the inflation rate of Bangladesh is 7.78% according to the statistics given

by Bangladesh Bank, which is quite high compared to other developing countries. Not

only MTBL, every financial firm has got an exposure to this risk.

Currency or Exchange Rate Risk- Currency risk is a form of risk that arises from

the change in price of one currency against another. Whenever investors or companies

have assets or business operations across national borders, they face currency risk if

their positions are not hedged. (Hedge- An investment made in order to reduce the

risk of adverse price movements in a security, by taking an offsetting position in a

related security, such as an option or a short sale). MTBL is most exposed to this risk

as you already must have observed in the liquidity risk section that they invested the

most in purchased funds which includes purchase of foreign currencies like US

dollars and GBPs. Also from my personal experience I have seen that their major

transactions are export and import oriented which again involves a lot of exchange

rate risk.

Transaction risk is the risk that exchange rates will change unfavorably over

time. It can be hedged against using forward currency contracts.

Translation risk is an accounting risk, proportional to the amount of assets

held in foreign currencies. Changes in the exchange rate over time will render

a report inaccurate, and so assets are usually balanced by borrowings in that

currency.

Political Risk- Broadly, political risk refers to the complications businesses and

governments may face as a result of what are commonly referred to as political

decisionsor any political change that alters the expected outcome and value of a

given economic action by changing the probability of achieving business objectives.

There are both macro- and micro-level political risks.

Macro-level political risks have similar impacts across all foreign actors in a

given location. While these are included in country risk analysis, it would be

incorrect to equate macro-level political risk analysis with country risk as country

risk only looks at national-level risks and also includes financial and economic

risks.

Micro-level risks focus on sector, firm, or project specific risks.

Crime Risk since Bangladesh has embraced automated banking system, financial

crime risk seemed to get a rise. It is associated with default, fraud, embezzlement,

theft and illegal acts. Iindividuals and organized crime groups have historically

targeted financial institutions to obtain account information and funds by exploiting

vulnerabilities through a variety of fraudulent schemes. The value of customer

information has been recognized by organized crime for many years with theft and or

compromise of customer sensitive information increasing at an alarming rate.

In these sorts of cases the financial firm may also be financially liable for losses incurred by a

third party as a result of breaches of your data security which result in losses by other

organizations. It also happens that failures in the systems and controls leads to criminally

derived funds being transacted through your firm could result in criminal prosecution or

regulatory sanctions on both the firm and individual employees including board members.

Moreover it destroys the reputation of the firm. Financial Crime occurs from two sources.

i. External- this is done by crime groups

ii. Internal- it is done solely by employees or by a combination of both employees and the

organized crime which is the most dangerous.

(All the results of the ratios have been rounded to 3 digits for the ease of understanding)

4.18. Key Profitability Ratios:

4.18.1 Return on Equity Capital (ROE):

It is a measure of the rate of return flowing to shareholders. It approximates the net benefit

that the stockholders have received from investing their capital in the financial firm that is by

placing their funds at risk in the hope of earning a suitable profit..

Year Net Income

Shareholders' Equity ROE

2010 988,362,060 4,163,403,283 23.74%

2011 404,222,699 4,834,348,126 8.36%

An Internship Report of Mutual Trust Bank Ltd.

Documents

company bank

generation private bank

assistant professor

muhammad nazmul amin

activities of banking

internship period

financial activities

banking process