The Liquidity Management In Bank Al-Sharq MBA-V Professional Thesis Prepared by: Agob Marsho Supervised by: Dr. Elie Salameh MBA-V Master in Business Administration 2010 / 2012
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The Liquidity Management
In Bank Al-Sharq
MBA-V Professional Thesis
Prepared by: Agob Marsho
Supervised by: Dr. Elie Salameh
MBA-V
Master in Business Administration
2010 / 2012
The Liquidity Management
In Bank Al-Sharq
MBA-V Professional Thesis
Prepared by: Agob Marsho
Supervised by: Dr. Elie Salameh
Submitted in fulfillment of the requirements for the Degree of
Master in Business Administration
MBA-V
2010 / 2012
________________________________________________________________
The Higher Institute of Business Administration (HIBA) hereby states that this project paper includes
opinions that reflect points of view of its authors; HIBA cannot be held responsible of its contents.
ادارة السیولة في بنك الشرق
آكوب مرشو لمي من إعداد الطالب:بحث ع
یلي سالمةإ الدكتور: بإشراف
إدارة األعمالفي من متطلبات الحصول على درجة الماجستیر
MBA-V
2010 / 2012
________________________________________________________________
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معّدیھ وال یتحمل المعھد أیة مسؤولیة عن محتواه.
I
Acknowledgment
First of all, I would like to express my deepest gratitude to all the people that help for the
successful completion of this project.
Second, My best gratitude to Dr. Elie Salmeh who his guidance, patience and encouragement
were of great value, he provided me the best advised during preparation of this project.
Third, I would like to thanks all the doctors in HIBA and UAB, who provide me a lot
knowledge and experience .
Fourth: I would like to thanks for HIBA and UAB university that always opens the door to
learn more and more.
Finally, I would like to thanks my family for all the love and support they gave me which
encouraged me more and more.
II
Abstract
This study has underlined the importance of sound bank liquidity management and how the
banks measure the liquidity, and the factors that affect liquidity risk . In addition, the role of
Central Bank of Syria in regulating and monitoring the liquidity ratios in banks.
In this paper, we study the liquidity management in Bank Al-Sharq and what procedures the
management follows when liquidity ratio falls under the for authorized limit and its impact on
the bank profitability.
Moreover, the study shows the positive and negative effects of the current policies followed
by Bank Al-Sharq to deal with any drop in liquidity ratio and suggestions made to improve
liquidity management and increase profitability.
III
خالصة البحث
وباإلضافة مخاطر السیولة. في تؤثر والعوامل التي، ھا قیاس وكیفیة المصرفیة إدارة السیولة على أھمیة ھذه الدراسة تأكد
.العاملة في سوریة المصارف في نسب السیولة ورصد في تنظیم مصرف سوریة المركزي، دور إلى ذلك
المسموحالحدود عن نسبة السیولة نقصان عند اإلداریة تواإلجراءا بنك الشرق في إدارة السیولة دراسة في تنظر ھذه ال
.المصرف على ربحیة ذلك وأثر من مصرف سوریة المركزي بھا
نسبة انخفاض في للتعامل مع أي بنك الشرقل الراھنة للسیاسات السلبیةو اإلیجابیة اآلثار تظھر الدراسة، وعالوة على ذلك
.زیادة الربحیةالسیولة و ارةلتحسین إد واالقتراحات المقدمة السیولة
IV
Table of Contents
Introduction 1
Problem Statement 2
Objectives 2
Methodology 2
Chapter 1: Liquidity Management in Traditional Banks 3
1.1. What is Liquidity 3
1.1.1. Liquidity Management 4
1.1.2. Liquidity Ratio 4
1.2. What is Bank Liquidity 5
1.2.1. Asset Management Baking 5
1.2.2. Liability Management Banking 6
1.2.3. Key to Liability Management 6
1.2.4. Liquidity measurement 6
1.3. Principles’ of liquidity management 7
1.3.1. Banks must develop a structure for liquidity management 7
1.3.2. Banks must measure and monitor net funding requirements 8
1.3.3. Banks should manage market access 8
1.3.4. Banks should have contingency plans 8
1.3.5. Banks should manage their foreign currency liquidity 8
1.3.6. Each bank must have an adequate system of internal controls over its
liquidity risk management process 9
1.4. Liquidity requirement in Banks 9
1.4.1. Liquidity Ratio in Banks 9
1.4.2. Limits on Cumulative Cash Flow Mismatches 10
1.5. Liquidity performance 10
1.5.1. Liquidity performance effect 11
Chapter 2: Liquidity Risks in Banks 12
2.1. What is risk 12
2.2. Types of Risk 12
2.2.1. Credit Risk 13
V
2.2.2. Market Risk 13
2.2.3. Interest Risk 13
2.2.4. Operational Risk 14
2.2.5. Country Risk 14
2.2.6. Liquidity Risk 15
2.3. Liquidity Risk in Banks 15
2.3.1. Manifest of Liquidity Risk 15
2.3.2. Liquidity Gaps and Liquidity risk 16
2.3.3. Liquidity Gaps and Maturity Mismatch 16
2.3.4. Cash Matching 17
2.3.5. The Benefit of Cash matching 17
Chapter 3: Role of the Central Bank of Syria in Banks Liquidity Management. 18
3.1. Introduction of Central Bank of Syria 18
3.2. Introduction the Credit and Monetary Council (CMC) 18
3.3. Liquidity regulation of credit and monetary policy-588 20
3.3.1. Liquidity and maturity of liquidity IN CBOS 20
3.3.2. Liquidity Ratios in CBOS 20
3.3.3. Elements of liquidity IN CBOS 21
3.3.4. Measuring Liquidity Ratios in CBOS 26
3.3.5. Fines on low liquidity Ratios in CBOS 26
Chapter 4: Liquidity Management in Bank Al-Sharq 27
4.1. Introduction of Bank Al-Sharq 27
4.1.1. Bank object 27
4.1.2. Bank Al-Sharq's capital structure 27
4.1.3. Strategy of Bank Al-Sharq 28
4.1.4. Services of Bank Al-Sharq: commercial, treasury, Retail and
Private banking 29
4.2. Finance Department 31
4.2.1. Accounting division 32
4.2.2. Budget and financial control 32
4.3. The liquidity report at Bank Al-Sharq 33
4.4. Reasons behind the drop in liquidity ratios in Bank Al-Sharq 37
VI
4.5. Policy for increasing the liquidity ratio in Bank Al-Sharq. 37
4.6. The downside of the bank’s current solutions. 38
Conclusions 39
Recommended Solutions 40
References 42
Appendix
Lists of Figures:
Discretion Page Number
Figure 1 Liquidity Ratio at Bank Al-Sharq in Syrian Pound 35
Figure 2 Liquidity Ratio at Bank Al-Sharq in Foreign Currency 36
Figure 3 Liquidity Ratio at Bank Al-Sharq in Global Currency 36
Lists of Tables:
Discretion Page Number
Table 1 Maturity of Over Draft (facilities) 23
Table 2 Maturity of Current and Saving Accounts 24
Table 3 Maturity of other Liabilities 25
Table 4Maximum percentage of negative cumulative gap in all
currencies25
Table 5 Authorized liquidity ratios in Syrian Banks 34
1
Introduction
The topic of liquidity is of utmost importance in all companies, where liquidity occupies the
highest attention in bank management, it has been crucial what is the minimum limit bank
should have in order to maintain its operations smoothly and efficiently.
As a result Credit Monetary Council issued so far two decrees to regulate banks liquidity. By
doing that, the Credit Monetary Council makes sure that the banks are able to maintain
specific ratio of liquidity so that any financial crisis that could arise from fake figures of
liquidity is avoided. (like what happened in 2008 world’s financial crisis).
The CMC obliged banks to send liquidity reports on a regular basis (daily, weekly and
monthly) in order to observe and control how much liquidity a bank has.
From here, the idea of this study has emerged to explain more about liquidity in general and
liquidity regulations for banks in Syria where a case study about Bank Al-Sharq has been
presented to better understand the study problem statement.
2
Problem Statement:
The problem statement discusses the role of banks in managing their liquidity ratios as drawn
by Central Bank of Syria , and to what extent the banks abide by Credit and Monitory
Council regulations. Moreover, the study shows what benefits the banks incur in dealing with
liquidity ratio and how effective they are facing any deteriorations happen to that ratio.
Finally, the effects of liquidity on maintaining high profitability.
Objective:
The objective of this study is to show how the Central Bank of Syria through Credit and
Monitory Council specifies the liquidity ratios in Syrian banks and how banks manage
liquidity and study the risk incurred by liquidity drop. Moreover, Bank Al-Sharq is taken as a
case study to examine more the liquidity reports done by the bank on daily, weekly and
monthly bases. In addition, the study identifies the procedure taken by Bank Al-Sharq to
maintain the liquidity ratios under the authorized limits drawn by the Credit and Monitory
Council.
Methodology:
This study is based on both qualitative and quantitative methods. The qualitative part explain
and analyzes the instructions given by Central Bank of Syria to manage the liquidity ratios
and how banks respond to them. In addition this paper show the last researches that studied
the liquidity management. The quantitative part shows in figures and numbers how Bank Al-
Sharq handle the liquidity ratio to keep it under the authorized limits specified by Credit and
Monitory Council.
3
Chapter 1: Liquidity Management in traditional Banks
1.1. What is Liquidity
There are many definitions about liquidity:
Bodie1 define liquidity as “the speed and ease with which asset can be converted to cash.”
They add that liquidity is the” relation between the time dimension ( how long it will take to
sell) and the price dimension ( the discount from fair market price) of an investment asst.”
Mishkin2 defines the liquidity as how quickly an asset can be converted into cash at low
costs. the demand for an asset is affected by the degree to which an asset or security can be
bought or sold in the market without affecting the asset's price. Liquidity is characterized by a
high level of trading activity. Assets that can be easily bought or sold are known as liquid
assets.
It is safer to invest in liquid assets than illiquid ones because it is easier for an investor to get
his/her money out of the investment. Examples of assets that are easily converted into cash
include blue chip and money market securities.
Liquidity is the amount of capital that is available for investment and spending. Most of the
capital is credit rather than cash. That's because the large financial institutions that do most
investments prefer using borrowed money. Even consumers have traditionally preferred credit
cards to debit cards, checks or cash. High liquidity means there is a lot of capital. That usually
happens when interest rates are low, and so capital is easily available. Low interest rates mean
credit is cheap, which reduces the risk of borrowing. That's because the return only has to be
higher than the interest rate, so more investments look good.
A liquidity surplus develops when there is too much capital looking for too few investments.
This can lead to inflation. As cheap money chases fewer and fewer good investments, whether
they are houses, gold, or high tech companies, then the prices of those assets increase. This
1 Bodie,Z. Essentials of Investments. 20072 Mishkin,S. The Economic of Money, Banking and Financial Market. 2009
4
leads to "irrational exuberance." Investors only think that the prices will rise, and everyone
wants to buy more now so they don't miss any profit.
Eventually, a liquidity surplus means more of this capital becomes invested in bad projects.
As the ventures do not pay out their promised return, investors are left holding worthless
assets. Panic follows, resulting in a withdrawal of investment money. Prices go down, as
investors want madly to sell before prices drop further. This is what happened with mortgage-
backed securities during the Subprime Mortgage Crisis. This phase of the business cycle,
known as contraction, usually leads to a recession.
1.1.1. Liquidity Management
Bessis3 define the liquidity management “is the continuous process of raising new funds, in
case of deficit , or investing excess resources when there are excesses of funds. The
Benchmark remains the cash matching case, when both asset and liabilities amortize in
parallel.”
1.1.2. Liquidity Ratios
A class of financial metrics that is used to determine a company's ability to pay off its short-
terms debts obligations. Generally, the higher the value of the ratio, the larger the margin of
safety that the company possesses to cover short-term debts.
The three most important liquidity ratios are:
1. Current Ratio: current assets divided by its current liabilities. A ratio representing the
ability of the firm to pay off its current liabilities by liquidation current asset
2. Quick Ratio: The current asset excluding inventories divided current liability. The
business can't count its inventory or prepaid expenses that can' be easily sold.
3 Bessis, J. Risk Management in Banking. 2002
5
3. Cash Ratio: A company’s receivables are less liquid than its holding of cash and
marketable securities. Ratio of cash and marketable securities to current liabilities.
These ratios means the firm’s ability to pay bills coming due with its most liquid asset.
1.2 Bank Liquidity4
The ability to fund all contractual obligations of the bank, notably lending and investment
commitments and deposit withdrawals and liability maturates, that is the ability to fund
increases in assets and meet obligations as they come due.
Liquidity for a bank means the ability to meet its financial obligations as they come due.
Bank lending finances investments in relatively illiquid assets, but it funds its loans with
mostly short term liabilities. Thus one of the main challenges to a bank is ensuring its own
liquidity under all reasonable conditions.
1.2.1. Asset Management Baking
Commercial banks differ widely in how they manage liquidity. A small bank derives its
funds primarily from customer deposits, normally a fairly stable source in the aggregate. Its
assets are mostly loans to small firms and households, and it usually has more deposits than it
can find creditworthy borrowers for. Excess funds are typically invested in assets that will
provide it with liquidity such as government securities. The holding of assets that can readily
be turned into cash when needed, is known as asset management banking.
1.2.2. Liability Management Banking
In contrast, large banks generally lack sufficient deposits to fund their main business dealing
with large companies, governments, other financial institutions, and wealthy individuals.
4 Web site: http://wfhummel.cnchost.com/
6
Most borrow the funds they need from other major lenders in the form of short term liabilities
which must be continually rolled over. This is known as liability management, a much riskier
method than asset management. A small bank will lose potential income if gets its asset
management wrong. A large bank that gets its liability management wrong may fail.
1.2.3. Key to Liability Management
The key to liability management is always being able to borrow. Therefore, a bank's most
vital asset is its creditworthiness. If there is any doubt about its credit, lenders can easily
switch to another bank. The rate a bank must pay to borrow will go up rapidly with the
slightest suspicion of trouble. If there is serious doubt, it will be unable to borrow at any rate,
and will go under. In recent years, large banks have been making increasing use of asset
management in order to enhance liquidity, holding a larger part of their assets as securities as
well as monitoring their loans to recycle borrowed funds.
1.2.4. Liquidity measurement5
Liquidity measurement is quite a difficult task and can be measured through stock or cash
flow approaches. The key ratios, adopted across the banking system are
Loans to Total Assets,
Loans to Core Deposits,
Large Liabilities (minus) Temporary Investments to Earning Assets (minus)
Temporary Investments,
Purchased Funds to Total Assets,
Loan Losses/Net Loans,
5 Web Site: International Institute for Science, Technology and Education. Research Journal of Finance andAccounting. 2011.
7
Thus, analysis of liquidity involves tracking of cash flow mismatches. For measuring and
managing net funding requirements, the use of maturity ladder and calculation of cumulative
surplus or deficit of funds at selected maturity dates is recommended as a standard tool.
1.3. Principals’ of liquidity management
The following principles, from Publication No. 69, dated February 2000, of the Bank for
International Settlements’ Basel Committee on Banking Supervision, details the key elements
for effectively managing liquidity. Banks should formally adopt and implement these
principles for use in the overall liquidity management process.
1.3.1. Banks must develop a structure for liquidity management.6
1. Each bank should have an agreed strategy for day-to-day liquidity management. This
strategy should be communicated throughout the organization.
2. A bank Governing Board should approve the strategy and significant policies related to
liquidity management. The Governing Board should also ensure that senior management of
the bank takes the steps necessary to monitor and control liquidity risk. The Governing Board
should be informed regularly of the liquidity situation of the bank and immediately if there
are any material changes in the bank current or prospective liquidity position.
3. Each bank should have a management structure in place to effectively execute the liquidity
strategy. This structure should include the ongoing involvement of members of senior
management. Senior management must ensure that liquidity is effectively managed, and that
appropriate policies and procedures are established to control and limit liquidity risk. Banks
should set and regularly review limits on the size of their liquidity positions over particular
time horizons.
4. Banks must have adequate information systems for measuring, monitoring, controlling and
reporting liquidity risk. Reports should be provided on a timely basis to the banks Governing
6 Web site: Central Bank of Timor-Leste
8
Board, senior management and other appropriate personnel, and to the CPO as required by
this instruction.
1.3.2. Banks must measure and monitor net funding requirements7.
1. Each bank should establish a process for the ongoing measurement and monitoring of net
funding requirements.
2. Banks should analyze liquidity utilizing a variety of what if scenarios.
3. Banks should frequently review the assumptions utilized in managing liquidity to
determine that they continue to be valid.
1.3.3. Banks should manage market access.
Each bank should periodically review its efforts to establish and maintain relationships with
liability holders, to maintain the diversification of liabilities, and aim to ensure its capacity to
sell assets.
1.3.4. Banks should have contingency plans.
In place that address the strategy for handling liquidity crises and which include procedures
for making up cash flow shortfalls in emergency situations.
1.3.5. Banks should manage their foreign currency liquidity.
1. Each bank should have a measurement, monitoring and control system for its liquidity
positions in the major currencies in which it is active. In addition to assessing its aggregate
foreign currency liquidity needs and the acceptable mismatch in combination with its
domestic currency commitments, a bank should also undertake separate analysis of its
strategy for each currency individually.
2. A bank should, where appropriate, set and regularly review limits on the size of its cash
flow mismatches over particular time horizons for foreign currencies in aggregate and for
each significant individual currency in which the bank operates.
7 Web Site: Reserve Bank of Fiji. 1995
9
1.3.6. Each bank must have an adequate system of internal controls over its liquidity
risk management process.
A fundamental component of the internal control system involves regular independent
reviews and evaluations of the effectiveness of the system and, where necessary, ensuring that
appropriate revisions or enhancements to internal controls are made.
Finally, each bank should have in place a mechanism for ensuring that there is an adequate
level of disclosure of information about the bank in order to manage public perception of the
organization and its soundness.
1.4. Liquidity requirement in Banks
1.4.1. Liquidity Ratio in Banks
1. Banks must maintain a Liquidity Ratio of at least 15%, calculated as follows:
_______Highly Liquid Assets __ x 100
Total Liabilities not including equity
2. Highly Liquid Assets eligible for inclusion in the numerator of the ratio include the
following unencumbered assets:
a. Vault Cash
b. Precious metals (Gold)
c. Deposits with the CPO
d. Deposits in other financial institutions
e. Readily Marketable securities
f. Net inter-bank lending and borrowing with a remaining maturity period of up to one month.
1.4.2. Limits on Cumulative Cash Flow Mismatches.8
8 Bodie, Z. and Kane, A. and Marcus, A. Essentials of Investments. 2007
10
Each bank should stick to the limits established by its Governing Board on the cumulative
cash flow mismatches, that is the cumulative net funding requirement as a percentage of total
liabilities, over the following periods: next day, up to seven days, 8 days to one month.
Reporting
Each bank shall submit to the Central Bank a report as of each month-end in the format
prescribed by the Central Bank of Syria(CBOS) showing the calculation of the Short-Term
Liquidity Ratio and the cumulative cash flow mismatches in accordance with this Instruction.
In Syria, The public and private Banks should be reporting to (CBOS) and Credit and
Monetary Council.
1.5. Liquidity performance.9
The liquidity performance analysis that an increase in the money supply will lower interest
rate. This conclusion has important policy implications because it has frequently caused
politicians to call for a more rapid growth of the money supply in an effort to drive down
interest rates.
An important criticism of the conclusion that an increase in the money supply lower s interest
rate was raised by Milton Friedman, a Nobel laureate in economics. He acknowledged that
the liquidity performance analysis was correct and called the result-that an increase in the
money supply lower interest rate-the liquidity effect. However, he viewed the liquidity effect
as merely part of the story: An increase in the money supply might not leave " everything
else equal" and will have other effects on the economy that may make interest rate rise. If
these effects are substantial, it is entirely possible that when the money supply increases,
interest rate may also increase.
1.5.1. Liquidity performance effect.10
9 Mishkin, S. The Economics of Money, Banking and Financial Markets. 2009
11
1- Income effect: the income effect of an increase in the money supply is a rise in interest
rates in response to the higher level of income
2- Price-level effect: the price level effect from an increase in the money supply is a rise
in interest rates in response to the rise in the price level.
3- Expected-inflation effect: The expected-inflation effect of an increase in the money
supply is a rise in interest rates in response to the rise in the expected inflation rate.
10 Cornett, S. Financial Market and Institutions. 2007
12
Chapter 2: Liquidity Risks in Banks
2.1. What is Risk.
General Definition: effect of uncertainty on objectives. Uncertainties include events that may
or not happen and uncertainties caused by a lack of information or doubt.
Financial Definition: The probability that certain return on an investment will be lower than
expected.
“Due to regulated environment, banks could not afford to take risks. But of late, banks are
exposed to same competition and hence are complied to encounter various types of financial
and non-financial risks.”11 Risks and uncertainties form an integral part of banking which by
nature entails taking risks. There are five main categories of risks; Credit Risk, Market Risk,
Liquidity Risk, Operational Risk, and Country Risk.
2.2. Types of Risk
There are many different ways how to define and classify the Banking risks but as this study
we focuses on liquidity risk.
Banking Risk:
Credit risk
Market risk
Interest rate risk
Operation risk
Country risk
Liquidity risk
11 Dorfman, M. Risk Management and Insurance. 2006
13
2.2.1. Credit Risk.12
Credit Risk is the potential that a bank borrower/counter party fails to meet the obligations on
agreed terms. There is always scope for the borrower to default from his commitments for one
or the other reason resulting in crystallization of credit risk to the bank. These losses could
take the form outright default or alternatively, losses from changes in portfolio value arising
from actual or perceived weakening in credit quality that is short of default. Credit risk is
inherent to the business of lending funds to the operations linked closely to market risk
variables. The objective of credit risk management is to minimize the risk and maximize
bank’s risk adjusted rate of return by assuming and maintaining credit exposure within the
acceptable parameters.
2.2.2. Market Risk.13
Market Risk may be defined as the possibility of loss to bank caused by the changes in the
market variables. It is the risk that the value of on-/off-balance sheet positions will be
adversely affected by movements in equity and interest rate markets, currency exchange rates
and commodity prices. Market risk is the risk to the bank’s earnings and capital due to
changes in the market level of interest rates or prices of securities, foreign exchange and
equities, as well as the volatilities, of those prices.
2.2.3. Interest Rate Risk.14
That banks are in the business of turning deposit liabilities into loan asset, the two sides of
their balance sheet do not match up. One important difference between the two sides is that
bank’s liabilities tend to be short term, while its assets tend to be long term. This mismatch
between the maturities of the two sides of the balance sheet creates interest rate risk.
12 Raghavan, R.S. Risk Management In Bank. 200313 Raghavan, R.S. Risk Management In Bank. 200314 Dorfman, M. Risk Management and Insurance. 2006
14
2.2.4. Operational Risk.15
Operational risk involves breakdown in internal controls and corporate governance leading to
error, fraud, performance failure, compromise on the interest of the bank resulting in financial
loss. Putting in place proper corporate governance practices by itself would serve as an
effective risk management tool. Bank should strive to promote a shared understanding of
operational risk within the organization, especially since operational risk is often inter-wined
with market or credit risk and it is difficult to isolate.
2.2.5. Country Risk.16
This is the risk that arises due to cross border transactions that are growing dramatically in the
recent years owing to economic liberalization and globalization. It is the possibility that a
country will be unable to service or repay debts to foreign lenders in time. It comprises of
Transfer Risk arising on account of possibility of losses due to restrictions on external
remittances; Sovereign Risk associated with lending to government of a sovereign nation or
taking government guarantees; Political Risk when political environment or legislative
process of country leads to government taking over the assets of the financial entity (like
nationalization, etc) and preventing discharge of liabilities in a manner that had been agreed to
earlier; Cross
border risk arising on account of the borrower being a resident of a country other than the
country where the cross border asset is booked; Currency Risk, a possibility that exchange
rate change, will alter the expected amount of principal and return on the lending or
investment.
The liquidity Risk is important in the firms specially in the banks, in this case we will discuss
liquidity risk importance.
15 Cecchetti, S. Money, Banking, and Financial Markets. 200616 Dorfman, M. Risk Management and Insurance. 2006
15
2.2.6. Liquidity Risk.17
Liquidity Risk that asset owner unable to recover full value of asset when sale desired (or for
borrower, that credit is not rolled over).
Cecchetti says that all financial institutions face the liquidity risk that their liabilities holders
(depositors) will seek to cash in their claims. The holder of a checking account can always
walk into the bank and ask for the balance in cash. This risk of as sudden demand for liquid
fund. Bank face liquidity on both sides of their balance sheets. Deposit withdrawal is a
liquidity-side risk, but there is an asset-side risk as well.
2.3. Liquidity Risk in Banks.
Liquidity risk is the potential inability to meet the liabilities as they become due. It arises
when the banks are unable to generate cash to cope with a decline in deposits or increase in
assets.18 It originates from the mismatches in the maturity pattern of assets and liabilities.
Bank Deposits generally have a much shorter contractual maturity than loans and liquidity
management needs to provide a cushion to cover anticipated deposit withdrawals. Liquidity is
the ability to efficiently accommodate deposit as also reduction in liabilities and to fund the
loan growth and possible funding of the off-balance sheet claims. The cash flows are placed
in different time buckets based on future likely behavior of assets, liabilities and off-balance
sheet items.19
2.3.1. Liquidity risk in Bank manifest in different dimension.
a) Funding Risk: It is the need to replace net out flows due to unanticipated
withdrawal/nonrenewal of deposit (whole sale and retail)
b) Time risk: It is the need to compensate for non-receipt of expected inflows of funds,
i.e. performing assets turning into nonperforming assets.
17 Cecchetti, S. Money, Banking, and Financial Markets. 200618 Web Site: AllBankingSolutions.com19 Web Site: Federal Reserve Bank of San Francisco
16
c) Call risk: It happens on account of crystallization of contingent liabilities and inability
to undertake profitable business opportunities when desired.
2.3.2. Liquidity Gaps and Liquidity risk.20
When liabilities exceed assets, there is an excess of fund.. such excesses generate interest risk
rate since the revenue from the investment of these excess assets are uncertain.
When assets exceed liabilities, there is a deficit. This means that the bank has long-run
commitments, which existing recourses do not fund entirely. There is a liquidity risk
generated by raising funds in the future to match the size of assets. The bank faces the risk of
not being able to obtain the liquidity on the markets, and the risk of paying higher than normal
costs to meet this requirement.
In addition, it has exposure to interest rate risk. Liquidity gaps generate funding requirement,
or investments of excess funds. In the future, such financial transaction occur in the future, at
interest rates not yet known, unless hedging them today. Liquidity gaps generate interest rate
because of the uncertainty in interest revenue or costs generated by these transactions.
2.3.3. Liquidity Gaps and Maturity Mismatch
An alternative view of the liquidity gap in the gap between the average maturity dates of
assets and liabilities. If all assets and liabilities have matching maturities, the difference in
average maturity dates would be zero. If there is a time mismatch, the average dates differ.
For instance, if asset amortize slower than liabilities, their average maturity is higher than that
of liabilities, and vise versa. The average maturity date calculation weights maturity with the
book value of outstanding balances of assets and liabilities.
20 Bessis (R.Man.in Ban.)book
17
2.3.4. Cash Matching21.
Cash matching is a basic concept for the management of liquidity and interest rate risks. It
implies that the time profiles of amortization of assets and liabilities are identical. The nature
of on interest applicable to asset and maturities might also match: fixed rates with fixed rate,
floating rates revised periodically with floating rates revised at the same dates using the same
reference rate. Any deviation from the cash matching benchmark generates interest rate risk,
unless setting up hedges.
2.3.5. The Benefit of Cash matching.22
With cash matching, liquidity gap s are equal t zero. When the balance sheet amortizes over
time, it does not generate any deficit or excess of funds. If, in addition, the interest rate resets,
on both sides, the interest margin cannot change over time. Full matching of both cash and
interest rates locks in the interest income.
Cask matching is only a reference. In general, deposits do not match loans. Both result from
the customers’ behavior. However, it is feasible to structure the financial dept in order to
replicate the assets’ time profile, given the amortization schedule of the portfolio of
commercial assets and liabilities.
21 Bessis, J. Risk Management in Banking. 200222 Bessis, J. Risk Management in Banking. 2002
18
Chapter 3: Role of the Central Bank of Syria in Banks Liquidity Management.
3.1. Introduction of Central Bank of Syria23
The Central Bank of Syria is the supreme monetary authority in Syria. It is responsible for
issuing the Syrian Pound and for implementing the nationwide monetary policy.
The Central Bank has embarked on implementing a new strategy that comprises of several
new developmental plans aimed at updating the bank laws and regulations and modernizing
current operating methods.
The Central Bank of Syria announced its commitment to ensure financial stability and defend
the stability and strength of the exchange rate of Syrian pound, and secure favorable financial
and monetary climate to attract investment and promote economic growth.
3.2. The Credit and Monetary Council24
The Credit And Monetary Council (CMC) is the monetary authority which has the
responsibility for conducting the monetary policy and overseeing on the implantation it with
accordance to the macroeconomic policies in Syria.
The Credit and Monetary Council shall undertake the task of organizing the credit and
monetary institutions in the Syrian Arab Republic and coordinating their activities to fulfill
the below stated objectives within the limits of its prerogatives and within the state public
economic inclinations decided by the cabinet:
A- Development of the monetary and financial market and the organization according to the
national economy needs .
B- Maintain the purchasing power of the Syrian currency.
C- Realize stability of the foreign exchange rate of the Syrian currency and secure free
exchange to other currencies.
23 The Central Bank of Syria official web site24 The Central Bank of Syria official web site
19
D- Expand possibility of utilizing resources and potentials and work towards the
development of national income.
E- Follow up on the banking apparatus, discuss all issues relevant to banking work, activities
of relevance and take appropriate decisions through the Central Bank of Syria .
F- Supervise banking profession and direct its activities.
G- The government shall consult it regarding the measures and matters related to the
financial, monetary and banking situation of the S.A.R.
In October 27th 2002 the Central Bank of Syria under the approval of the Syrian President
and the Syrian Parliament issued legislative decree n° 23. Legislation n° 23 of 2002 is the
basic monetary order of Syria which included all the rules and legislations that governs the
Syrian monetary policy and the regulation of the Syrian public and private banking sector.
One of the main articles of this legislative decree was the creation of the Credit and Monetary
Council, by this law this council was given the highest legislative and executive authorities to
govern and regulate the banking industry in Syria.
The Credit and Monetary Council has the exclusive supervision authority on banks in Syria
through daily and monthly reports sent by banks in Syria, By These reports the CMC studies
and scrutinizes the operations of deposit and withdrawals that the place in the banks as well as
interest rate and liquidity ratios.
The main focus of this study is the liquidity management. Therefore, we will take a closer
look at the liquidity operations.
20
3.3. Liquidity regulation of Credit and Monetary policy25-588
On November 11th 2009 the Monetary and Credit Council of the Central Bank of Syria issued
circular n° 588 that applies to all operating banks in Syria. The legislation addresses the
operating banks’ liquidity management issues. All banks should maintain an adequate level of
liquidity to insure safety of its financial position.
This legislation presented a tool to measure the banks’ ability to pay their financial
obligations when matured. The legislation defined liquidity as the bank’s ability to meet its
obligations and to finance its assets increase without having to liquidate its assets with unfair
values and without using a higher cost financial resources. Under this legislation all banks are
obligated to have a liquidity ratio above 20% at all times. The liquidity ratio is calculated by
dividing the sum of liquid assets (current assets) by the sum of the liquid liabilities (clients’
deposits and other financial obligations). If the liquidity ratio slipped below 20% the bank is
fined a daily penalty on every day it spends below the minimum level.
Demand from all banks operating in the Syrian Arab Republic comply with the instructions of
liquidity ratio and maturity gap set out below:
3.3.1. Liquidity and maturity of liquidity in CBOS
a-Liquidity: The extent of the bank's ability to fulfill the liabilities and finance the
increase in the asset side, without having to liquidate assets at unfair prices at high cost.
b – Maturity table: A method for measuring liquidity, based on a comparison of future
cash inflows and future cash outflows during certain time periods.
3.3.2. Liquidity Ratios in CBOS
Each bank that keeps every working day by liquidity in all currencies of not less than 30%
not be less than the proportion of liquidity in Syrian pounds for 20%, calculated by dividing
25 Credit and Monetary Council, circular n° 588. 2009
21
the cash and cash equivalent on deposits and other liabilities and off balance sheet, as shown
below:
Numerator and denominator includes liquidity ratio the following elements:
a-Numerator elements:
Numerator elements include cash and cash equivalent in central bank and current account and
deposit in public, private, correspondent, and sister banks. All these elements in assets side in
balance sheet26.
b-Denominator elements:
Denominator elements include all deposits in central banks, public, private, correspondent,
and sister banks other liabilities (current accounts, savings, term deposits block accounts). All
theses element in liabilities side in balance sheet27.
Other elements in denominator include off balance sheet (letter of credit import, acceptances
import, letter of guarantees clients and unutilized lines of credit)28.
3.3.3. Elements of liquidity in CBOS.
The cash inflows classified according to the maturity of assets. The cash outflows classified
according to maturity of liabilities. Assets and liabilities banks should be included in maturity
table, and within this table its calculated the difference between cash inflows and cash
outflows whether this difference is a surplus or a deficit. The difference is called inadequate
benefits assets and liabilities, and in accordance with the following time periods:
- Category I : up to 7 days.
- Category II: more than 7 days to a month.
-Category III: more than a month to 3 months.
-Category IV: more than 3 months to 6 months.
-Category Fifth: more than 6 months to 9 months.
26 Appendix 1-1 CBOS report (form of liquidity).27 Appendix 1-2 CBOS report (form of liquidity).28 Appendix 1-3 CBOS report (form of liquidity).
22
-Category Six: more than 9 months to a year.
-Category Seven: more than a year
Maturity tables measured at three levels:
1. Total currency.
2. Syrian pounds.
3. Foreign currency.
The distribution of assets and liabilities according maturity table:
Assets29:
-Assets are stated at their net, after excluding special provision constituent of these assets.
-Excluded from the above assets:
Nonperforming loans, interest and provision. Any item of assets can not be liquefied when the
need for being locked up or conditional or restricted for any reason
-Assets are distributed as follows:
The included in the first category of each of the following items:
Cash balances with the Central Bank, including cash reserve on deposits and current
accounts with financial institutions.
Treasury bills and bonds and instruments of the Syrian government with the exception
of public bonds on the state (excess liquidity and the budget surplus), which are
included within the period of more than a year and included revenue only by the
remaining period to maturity.
Securities that available for trading that the bank can be liquidated when you need it
at a reasonable price as follows:
1. Certificates of deposit for trading and available-for-sale and held to maturity
by weighting 95%
29 Appendix 3-1 CBOS report (form of liquidity).
23
2. Shares traded by weighting 75%
3. Instruments and bonds held for trading classified degree of investment (by
companies international rating) by weighting 90%
4. Instruments and available-for-sale bonds or seed to maturity investment degree
after weighting the following proportions:
85% If the maturity date one year or less.
80% if the maturity date more than a year for up to 5 years.
70% if the maturity date more than 5 years.
Including within the category of more than one year:
Net equity contributions to the banks and financial institutions and fixed
investment in the companies’ capital.
Values and assets to meet for doubtful debts collected by weighting 60%
Net assets under investment (except assets of the bank in fulfillment of its
debt) by weighting 90%
General on the state bonds (excess liquidity and the budget surplus).
The facilities based on the remaining periods to maturity except for the overdraft where
periods distributed as follows:
Table 1 30
Till 7
Days
More
than
seven till
one
month
More than
one
month till
three
month
More than
three
month till
six month
More than
six month
till nine
month
More than
nine
month till
one year
More
than one
year
Over
Draft0% 5% 8% 12% 15% 20% 40%
30 Source: Credit and Monetary Council, circular n° 588. 2009
24
The rest of the assets included based on the remaining periods to maturity.
Liabilities31:
A - Include all liabilities that can be an obligation to pay the bank in a certain period of time,
either direct or indirect.
B - Liabilities distributed as follows:
Distribution of deposits by the remaining period to maturity except demand
deposits and savings deposits distributed as follows:
Table 2 32
Till 7
Days
More
than
seven till
one
month
More than
one
month till
three
month
More than
three
month till
six month
More than
six month
till nine
month
More than
nine
month till
one year
More
than one
year
Current
Account and
Saving
Account
20% 15% 15% 15% 15% 10% 10%
The liabilities that have a specified maturity date such as cash margins within
the periods by the due date.
The liabilities that do not have a specific maturity date and is expected to be
an outflow from the bank (such as proposed dividends, and tax provision, and
provision for indemnity) within the expected period during which payment of
these liabilities.
Other Liabilities (such as direct facilities granted non-used and non-
cancellable) is distributed as follows (refer to Appendix 3-3):
31 Appendix 3-2 CBOS report (form of liquidity).32 Credit and Monetary Council, circular n° 588. 2009
25
Table 3 33
Till 7 DaysMore than seven
till one month
More than one
month till three
month
More than three
month till six
month
Other
liabilities40% 30% 20% 10%
The rest of account in off balance sheet for which information is available with
the bank that will result in an obligation to pay within the appropriate
category34.
C- The maximum limits of non-alignment benefits assets and liabilities:
1. Financing gap is measured between cash inflows and cash outflows for each period
and then on a cumulative basis for periods of time.
2. Cumulative gap is measured for each period as a percentage of total liabilities
accumulated during the same period.
3. Banks must verify compatibility between the maturities of assets and liabilities and
avoid gaps between these maturities, and must not exceed the cumulative gap
negative in all currencies for each period the following limits.
Table 4 35
Time periodMaximum percentage of negative
cumulative gap in all currencies
Till 7 Days 10%
More than seven till one month 20%
More than one month till three month 30%
More than one month till three month 40%
33 Web site: Central Bank of Syria. Credit and Monetary Council, circular n° 588. 200934 Appendix 3-3 CBOS report (form of liquidity).35 Web site: Central Bank of Syria. Credit and Monetary Council, circular n° 588. 2009
26
More than three month till six month 50%
3.3.4. Measuring Liquidity Ratios.
1- The liquidity ratio of banks is measured daily and models 1 and 2 are sent to the
Central Bank of Syria (Directorate of the Office of the Government) at the end of each
month. In case of violation of the bank liquidity ratio by the banks has to send models
on a daily basis to insure the bank’s commitment to the prescribed minimum limits36.
2- The bank’s table maturity is measured monthly and models 3, 4 and 5 are sent to the
Central Bank of Syria (Directorate of the Office of the government) at the end of each
month. In case of violation of a bank it has to send models on a weekly basis to make
sure of the bank's commitment to the ceilings prescribed.
3- Send all the forms mentioned in the appendix to the Directorate of the Office of
Government attached models cyclical conditions in a maximum period of the seventh
day of the month following the month in which organizes about these models
accompanied by a CD-ROM containing their own information.
3.3.5 Fines on low liquidity Ratios in CBOS.
1- In the event of decrease in specified liquidity ratios, CMC imposes a fine of lack of
value for each day that the shortage continues to be a minimum of / on the bank at a
rate of 100,000, and restrict the fine on the bank account with the Central Bank of
Syria.
2- In addition to the stated in the previous item entitled to the Central Bank of Syria on
the proposal of the Directorate of the Office of the Government to take action it deems
appropriate against the offending bank, especially in the case of repeated
overtaking
36 Appendix 2-1, 2-2 CBOS report (form of liquidity).
27
Chapter 4: Liquidity Management in Bank Al-Sharq
4.1. Introduction of Bank Al-Sharq37
Decree no. 26/ dated 10/4/2008 issued by the Syrian Prime Ministry, granted Bank Al-Sharq
founders the license to establish Bank Al-Sharq as a Syrian Joint Stock Company with a total
share capital of SYP 2.5 billion, consisting of 2.5 million equity shares of SYP 1,000 each.
4.1.1. Bank object
Bank Al-Sharq's main object is to receive and invest deposits, and to undertake all types of
banking and financial activities for its own account or on behalf of others, in line with
applicable Syrian laws and regulations.
Bank Al-Sharq's affiliation to Banque Libano-Française Group constitutes one of its main key
strengths as it furnishes it with deeply rooted and well established experience of the Syrian
market and its associated risks together with close ties with the commercial and industrial
sectors of the Syrian economy as well as with prominent Syrian businessmen. Moreover,
Bank Al-Sharq stands to benefit from Banque SBA SA and its management's extensive
activity and strong ties with both the private and public economic sectors of the Syrian Arab
Republic.
4.1.2. Bank Al-Sharq's capital structure
Bank Al-Sharq's capital structure is as follows:
Banque Libano-Française SAL: 49% (major shareholder),
Syrian investors: 30.5%,
Initial Public Offering: 20.5%.
37 Bank Al-Sharq official Web Site.
28
4.1.3. Strategy of Bank Al-Sharq
Bank Al-Sharq's main strategy and objectives are summarized by the following:
Achieve financial strength and growth, including expanded market share, and to
generate income for its shareholders through continued profitability.
Contribute to rooting the banking culture in the Syrian market through strengthening
trust and partnership with our customers and an on-going focus on providing
professional and quality customer service.
Hire, retain local qualified personnel, and continually develop their skills and
expertise to provide banking services and manage operational risks in line with
industry best practices. Apply equal opportunity employment principle to encourage
performing personnel to grow within the bank.
Invest in a large branch network in order to cover the banking needs of the different
Syrian regions and sectors to gain both market share and optimize asset quality.
Invest in technologies that reduce operational risks and promote the implementation of
best practices in the industry.
Create and develop new banking products and services, inspired from Banque Libano-
Française Group line of products and services, which are responsive to the Syrian
markets needs and conform to Syrian banking and monetary laws and regulations.
Contribute actively to Syrian economy growth through attracting foreign investment,
financing investment projects in Syria and promoting foreign trade with the Syrian
Arab Republic.
Promote sustainable development in Syria through continuous corporate sponsoring of
social activities.
29
4.1.4. Services of Bank Al-Sharq38
Our commercial Division offers a wide and complete range of products and services to help
small, medium-sized enterprises as well as a large corporate entities manage the demands of a
growing business. Our commercial banking services and products include the following:
Cash Management services, these include traditional services such as:
Account services (account sweeping, pooling, interest management, etc).
Local and international payment and collection services (remittances, bank
drafts issuance, and collection).
Liquidity management.
Trade Finance and Working Capital Financing services, these include:
Import / export letters of credit.
Bonds and letters of guarantee.
Documentary collection (including import/export documentary credits and
bills).
Working capital lines of credit.
Corporate Finance and Investment Banking:
Medium and long term loans.
Project financing.
Structured finance.
Loan syndication.
38 Bank Al-Sharq official Web Site.
30
Treasury services:
Bank Al-Sharq will offer its individual and corporate clients Treasury services and solutions
designed to help minimize foreign exchange risks and capitalize on opportunities in the
currencies and bonds market.
Retail banking:
Retail banking constitutes one of the main activities of Bank Al-Sharq and a launch pad for
developing its banking operations. Accordingly, and as of operations start, the bank intends to
launch the following set of Retail banking products to cover the personal financial needs of 20
million customers across Syria.
Bank accounts:
Current accounts, checking accounts, sight saving accounts term deposit
accounts.
Consumer loans:
Depending on the different happenings in your life, a personal loan from Bank Al-
Sharq's will give you the extra funds you need to cover your credit needs and make the
most of life's opportunities and experiences. Our offer will include:
Personal loans designed as per specific individual needs.
Housing loans.
Car loans.
Domiciliation and payment services:
Payroll domiciliation.
Bills domiciliation.
31
E-payment:
Credit cards (Visa, MasterCard) including internet cards in local and foreign currencies within
the local regulations.
ATM services across the Syrian territory.
Phone Banking services through a dedicated call center.
E-banking.
SMS banking.
Private banking:
In order to maximize service benefits to its clientele, Bank Al-Sharq S.A.S will launch
investment advisory services whereby a dedicated private banker will help clients to
manage their wealth and plan for the future. Such services are:
Fixed income products, including capital guarantee investments.
Derivative products.
Structured products.
Brokerage services for the purchase of stocks and bonds.
Funds management
4.2. Finance department:
The finance department in Bank Al-Sharq includes two divisions:
1- Accounting division.
2- Budget and financial control.
32
4.2.1. Accounting Division:
Accounting is the collection and recording of information on all financial transactions of an
entity, the results of those transactions and interpreting those results. The main function of
accounting department in Bank Al-Sharq is reporting the daily, weekly and monthly reports
required by Central Bank of Syria (Directorate of the Office of the Government). Also,
reporting to general management, and preparing the financial statements (Balance Sheet,
income statement, Cash Flow, Statement of Changes in Shareholders’ Equity). In addition,
Reconciling NOSTRO accounts, assessing any risk that may result from a suspense and
notifying the relevant departments for its liquidation.
Under the decision of the Prime Minister No. 4844 dated 05-08-2012, the Central Bank of
Syria requires the banks to provide the credit and monetary council with periodic reports
which reflect the financial position the reports contains the following main issues:
Daily report: Withdrawal and deposit for clients and Banks
Weekly report: Obligatory Reserve on deposits
Monthly report: Samples of asset, liabilities and off balance sheet.
Balance sheet and Income statement..
Statistical report.
Risk of Banks Concentration.
Interest rate risk.
Liquidity Reports (this study explains liquidity reports)
4.2.2. Budget and financial control:
Budget and financial control is the function of managing and analyzing the financial
operations, including decisions on methods of obtaining funds, evaluating the acquisition of
assets, budgeting and managing financial investments.
Moreover, the budget and financial control division is responsible for:
33
Financial Management reporting to the General Management and Board of Directors.
The annual budget of the bank and following it up.
The profitability of the bank’s services.
Consolidation and assistance to subsidiaries.
Financial consultant / Helpdesk to different entities of the bank.
The finance function depends on the information produced by the accounting department.
After having a closer look at the finance department, we move on to study the preparation of
liquidity report at Bank Al-Sharq.
4.3. Liquidity report at Bank Al-Sharq.
The accounting department prepares the daily report to general management, this report
shows the movements of withdrawals and deposits for clients and banks. Also, it shows daily
liquidity ratio calculated by this formula:
Cash & Semi Cash
Daily Liquidity=
In balance sheet commitments + off balance sheet commitments)
Cash & Semi Cash:
a) Cash in hand.
b) Current accounts with bank.
c) Short term placements with banks
In Balance Sheet commitments:
a) Current account from banks.
b) Term deposits from banks.
c) Clients deposits (cash margin is not considered as deposits).
34
d) Payment orders in process.
e) Certified cheques and bank cheques.
f) Commitments to suppliers.
g) Commitments to lawyers, auditor, taxes, stamp fee, dividends etc.
Off Balance Sheet commitments:
a) Confirmed letters of credit.
b) Letters of guarantee.
c) Acceptances.
d) Unutilized lines of credits.
According to Credit and Monetary Council decree No.588 mentioned in chapter 3, the
liquidity ratios should not be less than the below percentages:
Table 5 39
Currencies Authorized liquidity ratios
Syrian pounds (SYP) 20%
Foreign currencies (FC) 30%
Global (SYP+FC) 30%
The finance department monitors the liquidity ratios on a daily basis. Therefore, If the ratio
declined to the minimum authorized level, the finance department informs the general
management and proposes a suitable solution to raise the liquidity ratio.
In quarter three 2010 the liquidity ratio in Syrian Pounds at Bank Al-Sharq has dropped down
to 30% (refer Figure1).
39 Credit and Monetary Council, circular n° 588. 2009
35
Bank Al-Sharq responded toward hedging the gap by borrowing (placement) from other
banks on long term maturity. This decision supported the bank to raise the liquidity ratio to
33% in quarter four 2010 and 35% in quarter one 2011.
Figure 1 40
In quarter two 2011, the liquidity ratio in foreign currency was 32%, knowing that, the
authorized limit 30%. The General manager instructed to branch management to collect as
much term deposit in foreign currency as possible, and due to high paid interest in tern
deposits accounts, it resulted to easing the process for attracting new term deposits clients.
Consequently, in quarter three 2011(Figure 2), the liquidity ratio went up to 53%, and it
continued to raise to around 70% from quarter four 2011 until the end of quarter two
2012.
40 Prepared by researcher
36
Figure 2 41
If we take a look over global liquidity ratio which represents the combination between the
previous SYP and FC ratios, we see in Figure 3, this ratio dropped down to 32% in quarter
two 2011. When the bank took the action in collecting new term deposits, it resulted in raising
the ratio.
Figure 3 42
41 Prepared by researcher42 Source: Bank Al-Sharq official web site
37
4.4. Reasons behind the drop in liquidity ratios in Bank Al-Sharq.
There are many factors that affect the bank liquidity. Those factors have different impact on
the matching between funding and investments,. As discussed earlier, the bank liquidity is
affected by the following factors:
Bank’s available working capital (current assets-current liabilities)
Mismatch between short term deposits versus long term loans.
Customers preference for the short term deposits instead of long term deposits.
The ratio of loans in Syrian pounds exceeds 80% of total clients’ deposits in SYP.
As a result of the current crises, the value of Syrian pounds dropped by 50% against US
Dollar as lots of clients transferred their deposits to foreign currencies which led to a decline
in total deposits in Syrian pound which in turn, led the bank liquidity to decline in reaching
28%. Simultaneously, a lot of businessmen went off market or moved abroad; therefore, a lot
of debtors’ failed to meet their obligations forcing banks to constitute provisions which
declined Profits and in turn affected liquidity of the Bank.
4.5. Policy for increasing the liquidity ratio in Bank Al-Sharq.
The general management has adopted many steps in order to control failing liquidity rate as
the followings:
Increase the interest rate on term deposits especially the deposits that have long term
maturity. Where the interest rates reached 10% on the Syrian Pound for amounts
exceed 100 million.
At the same time, and in order to minimize the cost of risk resulted from liquidity, the
bank engaged in relatively long term inter-bank borrowings at reasonable interest rates
(between 4.5%-6.5%).
38
The bank started to widen its loans maturities’ distribution by focusing on loans
matured between one to three years in order to hedge the liquidity gap resulted from
deposits-loans mismatch.
Another decision was taken in 2012 where loans portfolio are to be limited to
corporate clients rather than retail, owing to this segment relative low risk and high
financial capacity which decreased the risk of writing off.
4.6. The downside of the bank’s current solutions.
When liquidity ratio drops down, the bank must take steps as mentioned to recover the ratio,
and for not paying penalty fees to Central Bank of Syria as well as avoiding any risks incurred
on the bank operations as discussed in chapter three. This issue forces the bank to borrow
with high interest rates and/or give its depositors high interest rates to attract sources of
funding. These solutions affect the interest spread and in turn decrease the bank profitability.
Although these solutions maintain the bank liquidity ratio, they decrease the bank profitability
due to higher interest rates. Moreover, this crises has affected all sectors in the country and
banks are no exception and although the bank has never reached the minimum authorized
liquidity ration from CBOS, it is crucial to take precautionary measures to immediately deal
with any further risk that might happen in future.
39
Conclusion:
To sum up, this study examines the importance of liquidity in banks operations. First, it
discussed liquidity management in conventional banks and five liquidity management
principles. Then, it shows the types of risks in a bank in general and expands on liquidity risk
in specific. Afterwards, the study has an overview about the role of Central Bank of Syria in
bank liquidity management and the role of Credit of Monitory Council in regulating and
monitoring the liquidity ratios in Syrian banks. Finally, and most importantly, the case study
discusses Bank Al-Sharq liquidity management, liquidity reports, bank policies for facing the
possible drop in liquidity ratio, and the downsides of the bank’s current solutions regarding
liquidity.
40
Recommended Solutions.
In order to maintain the liquidity limits authorized by regulation and to keep the bank
profitable, I highly recommend to apply the following alternative solutions:
The Asset Liability Management should be enhanced to study the maturity of loans
and deposits in order not to create a maturity gap. For example, the bank should give
loans on short term, not over three years, to assure the money will be paid off quickly.
By doing that, the bank makes sure the cash inflows and outflows are kept balanced.
In other words, the current policy of the bank is to give loans due after 5-7 years, and
the long-term deposits are for just one year. This creates a gap in liquidity. It is true
that the bank may get a higher interest rate during 5-7 years, but for immediate
solution, it is better to shorten the loan terms and decrease the interest rate. In this
way, the bank would be better prepared to face any financial turmoil that might
happen because of the crisis.
Bank Al-Sharq could offer a new product for clients. One suggested product is to
focus on deposit terms and benefits. The maximum term deposit in the bank now is
for one year with 9% interest rate. To keep the liquidity ratio stable, and if possible
higher, Bank Al-Sharq gives a two-year term deposits with 10-11% interest rate, this
percentage is reasonable. On the other hand, Bank Al-Sharq ensures that the client
would keep their money in the bank for one more year and that keeps the liquidity
high in return.
The main depositors at Bank Al-Sharq are corporate in Syria where they account for
more than 85% of the bank deposits. The bank should diversify the segments of
depositors. In other word, the bank should encourage retail depositors to keep on the
safe side. The bank especially during this crisis, might face a major loss if corporate
depositors choose to withdraw or liquidate part of their deposits. Moreover, the bank
41
pays high interest rate to encourage big corporations to deposit in the Bank (around
9%) which puts the bank under higher pressure to pay for their interest. That means,
the bank would collect less profit and liquidity ratio would suffer.
That leads us to the diversification solution. As said earlier, the bank could
concentrate more on retail clients because that would save the bank more money (the
suggested interest rate for retailers is around 6-7%) due to less payments on interest
rate and, at the same time, eliminate the deposits’ concentration.
The main loan target in the bank is corporate business that comprises 96.5% of total
loans distributed as follow industrial 32%, services 30%real estate 5% and commercial
29.5%. small-medium enterprises (SME) 3.06% and retail or individual 0.44%. Even
though dealing with corporate has been financially safer to the bank, but because of
this crisis many factories and plants have been destroyed which make it impossible for
them to meet their obligations. Even though bank has substantial guarantees presented
by them, it is difficult now to collect them. As said for deposits, the bank should
attract retail clients to take loans from Bank Al-Sharq by offering them personal loan
guaranteed by their companies (where they work) and how much salary they take.
42
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Cornett, S. (2007), “ Financial Market and Institutions” , Third Edition, The
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Dorfman, M. (2006), “ Risk Management and Insurance” , Ninth Edition, Person
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43
Web site:
The Central Bank of Syria: http://www.banquecentrale.gov.sy/
Bank Al-Sharq: http://www.bankalsharq.com/
AllBankingSolutions.com: http://www.allbankingsolutions.com/
Federal Reserve Bank of San Francisco: http://www.frbsf.org/
Banco Central De Timor-Leste: http://www.frbsf.org/publications/
http://wfhummel.cnchost.com/bankliquidity.html
Research:
R.S. Raghavan, 2003.”Risk Management In Bank”. Chartered Accountant.
Research Journal of Finance and Accounting. 2011. International Institute for Science,
Technology and Education. http://www.iiste.org/
Liquidity Risk Management Requirements for Bank. 1995. Reserve Bank of Fiji
Apendix مجلس النقد والتسلیف 1-1
مدیریة مفوضیة الحكومة
قسم الرقابة المكتبیة
بالعمالت االجنبیةباللیرات السوریةالمجموع رمز الحساباألموال الجاھزة
األموال الجاھزة
10100الصندوق
10200نقد في الطریق
10300-10330-10350-10380مصرف سوریة المركزي
10400غرفة التقاص
10500-10510-10520-10580-20400سندات على الدولة وأذونات خزینة مطروحا منھا التزامات عملیات شھادات االستثمار
10600-10650-10660-10680المصارف العامة التجاریة
10700-10750-10760-10780المصارف الخاصة التجاریة
10800-10850-10860-10880المصارف العامة المتخصصة
10900-10950-10960-10980المصارف الخاصة المتخصصة
11000-11050-11060-11080المصارف والمراسلون في الخارج
11100-11150-11160-11180المؤسسة األم والمصارف الشقیقة والتابعة
نموذج رقم (1-8)*التسھیالت االئتمانیة القابلة للتجھیز لدى مصرف سورسة المركزي
000
أعد بتاریخ .................................
أ - مجموع صافي األموال الجاھزة **
مبالغ واستحقاقات السیولة
األموال الجاھزة
بتاریخ .../.../...
القیم بآالف اللیرات السوریة اسم المصرف
* مبلغ التسھیالت القابلة للتجھیز لدى المصرف المركزي وفق االنظمة المتبعة والمصرح عنھا في النموذج (1-8) من نماذج الموجودات
** تستثنى شھادات اإلیداع غیر القابلة للتداول من بسط النسبة
** تستثنى الموجودات المحجوزة أو المرھونة أو المقیدة ألي سبب من بسط النسبة
توقیع الشخص المسؤول : ................................... ختم المصرف : ............................
1-1نموذج
Apendixمجلس النقد والتسلیف 1-2
مدیریة مفوضیة الحكومة
قسم الرقابة المكتبیة
بالعمالت االجنبیةباللیرات السوریةالمجموع رمز الحسابالمطالیب
التزامات تجاه المصارف
20100مصرف سوریة المركزي
20500غرفة التقاص
20600المصارف العامة التجاریة
20700المصارف الخاصة التجاریة
20800المصارف العامة المتخصصة
20900المصارف الخاصة المتخصصة
21000المصارف والمراسلون في الخارج
21100المؤسسة األم والمصارف والمؤسسات الشقیقة والتابعة
الودائع وااللتزامات األخرى
21600القطاع المالي غیر المصرفي
21910ودائع تحت الطلب
21920ودائع ألجل
21930ودائع التوفیر
21940ودائع االدخار السكني والصناعي
21952 حسابات مجمدة أخرى
حسابات المساھمین وأعضاء مجلس االدارة وكبار
الموظفین *21970
22000شھادات إیداع
22500القیم برسم الدفع ألجل قصیر
22700دائنون مختلفون
23000األموال المقترضة
000ب - مجموع مطالیب المصارف الودائع وااللتزامات األخرى
توقیع الشخص المسؤول : ................................... ختم المصرف : ............................أعد بتاریخ .................................
مبالغ واستحقاقات السیولة
الودائع وااللتزامات األخرى
بتاریخ .../.../...القیم بآالف اللیرات السوریة اسم المصرف
* تستثنى الحسابات المجمدة لقاء تسلیفات من حسابات المساھمین وأعضاء مجلس االدارة
2-1نموذج
Apendixمجلس النقد والتسليف 1-3
مديرية مفوضية الحكومة
قسم الرقابة المكتبية
بالعمالت االجنبيةبالليرات السوريةالمبلغ اإلجماليرمز الحسابااللتزامات خارج الميزانية
الكفاالت والتعهدات الصادرة عدا الكفاالت المؤقتة وكفاالت حسن
التنفیذ بعد تنزیل التأمینات
الكفاالت المؤقتة وكفاالت حسن التنفيذ بعد تنزیل التأمینات *
%15%15%15نسبة الترجيح (التثقيل)
000المبلغ بعد الترجيح (التثقيل)
000 مجموع الكفاالت والتعهدات الصادرة بعد تنزيل التأمينات
22352-30220القبوالت بعد تنزيل التأمينات
22311-30512االعتمادات المستندية المثبتة لالستيراد بعد تنزيل التأمينات
22353-30700عمليات القطع ألمد **
%3%3%3نسبة الترجيح (التثقيل)
000 المبلغ بعد الترجيح (التثقيل)
المباشرة الممنوحة وغیر المستغلة التسهيالت
وغیر القابلة لإللغاء
000
!DIV/0#!DIV/0#!DIV/0#
أعد بتاریخ .................................
30210-22351
مبالغ واستحقاقات السيولة
االلتزامات خارج الميزانية
بتاريخ .../.../...
القيم بآالف الليرات السورية اسم المصرف
ج- التزامات خارج الميزانية
نسبة السيولة (أ/(ب+ج))
* تدرج الكفاالت المؤقتة وكفاالت حسن التنفیذ مثقلة بنسبة 15% بعد استبعاد قیمة التأمینات النقدیة مقابلھا
** تدرج عملیات القطع ألمد مثقلة بنسبة 3% بعد استبعاد قیمة الھوامش النقدیة مقابلھا
توقیع الشخص المسؤول : ................................... ختم المصرف : ......................
3-1نموذج
Apendix 2-1
تاريخ أيام العمل خالل الشهرنسبة السيولة المحتسبة
في كل يوم عمل
مبلغ صافي االموال الجاهزة
في كل يوم عمل
مبالغ الودائع وااللتزامات األخرى وحسابات خارج
الميزانية المرجحة في كل يوم عمل
مبلغ صافي السيولة المتوجب
اإلحتفاظ به في كل يوم عمل
مبلغ النقص في السيولة
في كل يوم عمل
1234( %30 × 4 ) = 5( 5-3 ) = 6
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
التوقيعاالسم
اسم المصرف
ختم المصرف
مجلس النقد والتسليف
مديرية مفوضية الحكومة
قسم الرقابة المكتبية
نســب السيولة اليومية
بكافة العمالت
عن شهر
1-2نموذج رقم
Apendix 2-2
تاريخ أيام العمل خالل الشهرنسبة السيولة المحتسبة
في كل يوم عمل
مبلغ صافي االموال الجاهزة
في كل يوم عمل
مبالغ الودائع وااللتزامات األخرى وحسابات
خارج الميزانية المرجحة في كل يوم عمل
مبلغ صافي السيولة المتوجب اإلحتفاظ
به في كل يوم عمل
مبلغ النقص في السيولة
في كل يوم عمل
1234( %20 × 4 ) = 5( 5-3) = 6
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
00
ختم المصرفالتوقيعاالسم
اسم المصرف
مجلس النقد والتسليف
مديرية مفوضية الحكومة
قسم الرقابة المكتبية
نســب السيولة اليومية
بالليرات السورية
عن شهر
2-2نموذج رقم
رمز الحساب في وضع
الموجوداتأكثر من 7 أيام إلى شهرحتى 7 أيام فأقلالموجــــــودات
أكثر من شهر إلى 3
أشهر
أكثر من 3 أشهر إلى 6
أشهر
أكثر من 6 أشهر إلى 9
أشهر
أكثر من 9 أشهر إلى
سنةأكثر من سنة
أ ـ الصندوق 10100
ب ـ نقد في الطريق10200
0000000ج ـ مصرف سورية المركزي 10300
ـ الحساب الجاري 10310
0000000ـ االحتياطيات :10320
ـ االحتياطي اإللزامي النقدي على الودائع 10321
ـ االحتياطيات األخرى10329
ـ تأمينات االعتمادات المستندية وإجازات االستيراد 10330
0000000ـ شهادات إيداع مشتراة من المصرف المركزي : 10340
ـ مدرجة بالقيمة العادلة من خالل بيان الدخل10341
ـ متوفرة للبيع10342
ـ محتفظ بها لتاريخ االستحقاق10343
ـ حسابات اتفاقات المدفوعات10350
ـ قروض10360
ـ فوائد وعموالت محققة غير مستحقة القبض 10380
د ـ غرفة التقاص 10400
سندات على الدولة واذونات خزينة 10500
المصارف المحلية (باستثناء شهادات اإليداع)
المؤسسات المالية في الخارج والمؤسسة األم للمصرف والمؤسسات التابعة والزميلة والشقيقة
(باستثناء شهادات اإليداع)
شهادات اإليداع المحلية
شهادات اإليداع الخارجية
المديرية العامة والفروع في سورية والخارج11500
الشيكات والسحوبات ووثائق الشحن المشتراة 11800
مجلس النقد والتسلیف
مفوضیة الحكومة لدى المصارف
قسم الرقابة المكتبیة
توزیع الموجودات حسب المدد الباقیة الستحقاقاتھا بكافة العمالت
بتاریخاسم المصرف
Apendix 3-1
القیم بآالف اللیرات السوریة
1-3 نموذج رقم
Page 6 of 10
رمز الحساب في وضع
الموجوداتأكثر من 7 أيام إلى شهرحتى 7 أيام فأقلالموجــــــودات
أكثر من شهر إلى 3
أشهر
أكثر من 3 أشهر إلى 6
أشهر
أكثر من 6 أشهر إلى 9
أشهر
أكثر من 9 أشهر إلى
سنةأكثر من سنة
مجلس النقد والتسلیف
مفوضیة الحكومة لدى المصارف
قسم الرقابة المكتبیة
توزیع الموجودات حسب المدد الباقیة الستحقاقاتھا بكافة العمالت
بتاریخاسم المصرف
Apendix 3-1
القیم بآالف اللیرات السوریة
1-3 نموذج رقم
0000000استثمارات في أدوات مالية :11900
0000000ـ أدوات مالية مدرجة بالقيمة العادلة من خالل بيان الدخل11910
ـ أسهم 11911
ـ سندات11912
ـ مشتقات مالية11913
ـ أدوات مالية أخرى مدرجة بالقيمة العادلة من خالل بيان الدخل11915
0000000ـ أدوات مالية متوفرة للبيع :11920
ـ أسهم 11921
ـ سندات11922
ـ أدوات مالية أخرى متوفرة للبيع11925
0000000ـ أدوات مالية محتفظ بها لتاريخ االستحقاق :11930
ـ سندات 11931
المطفأة)11935 استثمارات مسجلة بالقيمة المستهلكة (
ـ فوائد وعموالت محققة غير مستحقة القبض :11980
ـ ناقص : مؤونة تدني قيمة االستثمارات في األدوات المالية11990
0000000صافي التسهيالت االئتمانية المنتجة
أ ـ محفظة السندات المحسومة 12100
ب ـ القروض والسلف 12200
ج ـ الحسابات الجارية المدينة 12300
د ـ قروض إيجار تمويلي 12500
مدينون مختلفون 13000
دفعات مقدمة على أرباح المصارف العامة لصالح صندوق الدين العام ( فائض الموازنة ) 13100
األقساط المكتتب بها غير المسددة13500
صافي األسهم والمساهمات في المصارف والمؤسسات المالية 13700
القيم العينية المعدة للبيع 14200
موجودات مختلفة 19500
0000000 المجموع
ختم المصرف:االسم:
ختم المصرف:االسم:
ختم المصرف:االسم:
--------- التوقيع :
--------- التوقيع :
--------- التوقيع :
Page 7 of 10
أكثر من سنةأكثر من 9 أشهر إلى سنةأكثر من 6 أشهر إلى 9 أشهرأكثر من 3 أشهر إلى 6 أشهرأكثر من شهر إلى 3 أشهرأكثر من 7 أيام إلى شهرحتى 7 أيام فأقلالمطــــاليب رمز الحساب في وضع المطاليب
مصرف سورية المركزي20100
عمليات شهادات االستثمار20400
غرفة التقاص20500
المصارف المحلية
المؤسسات المالية في الخارج والمؤسسة األم للمصرف والمؤسسات
التابعة والزميلة والشقيقة
المديرية العامة والفروع في سورية والخارج21500
القطاع المالي غير المصرفي21600
0000000الودائـــع :21900
ودائع تحت الطلب21910 أ-
ودائع ألجل21920 ب-
ودائع التوفير21930 جـ-
ودائع االدخار السكني والصناعي21940 0000000د-
ـ ودائع االدخار السكني21941
ـ ودائع االدخار الصناعي21942
الحسابات المجمدة21950 هـ-
حسابات المساهمين وأعضاء مجلس االدارة وكبار الموظفين :21970 0000000و-
مـ حسابات تحت الطلب21971
مـ حسابات ألجل21972
مـ حسابات توفير21973
مـ حسابات مجمدة21974
مـ حسابات أخرى21975
زـ فوائد محققة غير مستحقة الدفع على حسابات الودائع21980
شهادات إيداع22000
التأمينات المقبوضة22300
القيم برسم الدفع ألجل قصير22500
دائنون مختلفون22700
عمليات على أدوات مالية22800
األموال المقترضة23000
مؤونات متنوعة23700
الحسابات االنتقالية23800
األموال الخاصة المساندة29600
0000000المجموع
ختم المصرف:االسم:
ختم المصرف:االسم:
ختم المصرف:االسم:
القيم بآالف الليرات السورية اسم المصرف
Apendix 3-2
مجلس النقد والتسليف
مفوضية الحكومة لدى المصارف
قسم الرقابة المكتبية
توزيع المطاليب حسب المدد الباقية الستحقاقاتها بكافة العمالت
بتاريخ
تدرج الوديعة المربوطة حسب تاريخ استحقاق الدين الذي يقابلها
--------- التوقيع :
--------- التوقيع :
--------- التوقيع :
2-3 نموذج رقم
Page 8 of 10
أكثر من سنةأكثر من 9 أشهر إلى سنةأكثر من 6 أشهر إلى 9 أشهرأكثر من 3 أشهر إلى 6 أشهرأكثر من شهر إلى 3 أشهرأكثر من 7 أيام إلى شهرحتى 7 أيام فأقلالبندرمز الحساب
التسهيالت المباشرة الممنوحة وغير المستغلة
وغير القابلة لإللغاء
الكفاالت والتعهدات الصادرة30210-22351
عمليات القطع ألمد30710-30720-22353
االعتمادات المستندية المثبتة لالستيراد30512-22311
القبوالت الصادرة30220-22352
االلتزامات االخرى
0000000ج- مجموع االلتزامات خارج الميزانية
ختم المصرف:االسم:
ختم المصرف:االسم:
ختم المصرف:االسم:
القيم بآالف الليرات السورية اسم المصرف
Apendix 3-3
مجلس النقد والتسليف
مديرية مفوضية الحكومة
قسم الرقابة المكتبية
توزيع االلتزامات خارج الميزانية حسب المدد الباقية الستحقاقاتها بكافة العمالت
بتاريخ
--------- التوقيع :
--------- التوقيع :
--------- التوقيع :
3-3 نموذج رقم
Page 9 of 10
أكثر من سنةأكثر من 9 أشهر إلى سنةأكثر من 6 أشهر إلى 9 أشهرأكثر من 3 أشهر إلى 6 أشهرأكثر من شهر إلى 3 أشهرأكثر من 7 أيام إلى شهرحتى 7 أيام فأقلالبندرمز الحساب
0000000مجموع الموجودات
0000000مجموع المطاليب وااللتزامات خارج الميزانية
0000000الفجوة في كل فترة
!DIV/0!#DIV/0!#DIV/0!#DIV/0!#DIV/0!#DIV/0!#DIV/0#نسبة الفجوة الى المطاليب وااللتزامات االخرى
0000000الفجوة التراكمية
0000000المجموع التراكمي للمطاليب وااللتزامات خارج الميزانية
!DIV/0!#DIV/0!#DIV/0!#DIV/0!#DIV/0!#DIV/0!#DIV/0#نسبة الفجوة المتراكمة الى المطلوبات وااللتزامات خارج الميزانية المتراكمة
%40-%30-%20-%10-الحد االقصى المفروض للنسبة
ختم المصرف:االسم:
ختم المصرف:االسم:
ختم المصرف:االسم:
--------- التوقيع :
--------- التوقيع :
--------- التوقيع :
مجلس النقد والتسليف
مديرية مفوضية الحكومة
قسم الرقابة المكتبية
نسبة فجوة االستحقاق بكافة العمالت
بتاريخ
القيم بآالف الليرات السورية اسم المصرف
Apendix 3-4
4- 3 نموذج رقم
Page 10 of 10
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