My work on preparing an internship report on “Investment Risk Management &
Financial Performance of National Bank Limited.” is a great experience for me in the
light of the course Internship, which has a great significance as an emerging and
flourishing renowned organization in the banking sector in Bangladesh. I strongly
believe works like this will surely help me to have a clear concept about investment
management and its impact on financial performance in banking sector of Bangladesh.
My first thanks goes to my internship supervisor Sulatana Shahida Abedin, Lecturer
FBA, Eastern University who gave me the opportunity to work on the topic,
“Investment Risk Management & Financial Performance of National Bank Limited”.
She has been gracious enough to spare time out from her busy schedule for giving us
all the necessary assistance throughout the entire period of the semester and the report
writing time. Without her help this report might not have been a comprehensive one.
I would like to express my gratitude to Mr. Md. Akber Hossain, Vice President &
Manager for his assistance and help whenever I got confuse of looking for assistance
with admirable patience.
I would like to express special thanks to Jahanara Begum; Piya Yasmin; Sharifa
Akter; Toslima Begum from accounts opening department for giving me time from
their busy schedule to discuss the things and guide me by giving me suggestions.
I would like to express special thanks to, Md. Sohel Rana; Jahanara Ferdous from
remittance dept. for kind advices and guidance regarding the topic.
I would like to express my gratitude to Shafik Islam; Md. Mehedi Habib; Md. Sultan
Mahmudur Rahman from loans & advance dept. for their assistance, guidance,
suggestions and giving me relevant information about investment risk management to
complete my report with admirable patience.
To make this report I needed lots of information about National Bank Limited and
throughout the session different officer or corporate personnel provided me different
relevant information. All the people who have helped me with the raw data and
information, my warmest regards to them. Thanks to all the employee of National Bank
Limited Rokeya Sarani Branch from the core of my heart.
Kishuwara Binta Kabir
LETTER OF TRANSMITTAL
Sultana Shahida Abedin
Faculty of Business Administration
Sub: Submission of Internship Report on “Investment Risk Management & Financial
Performance of National Bank Limited.”
It is my great pleasure to submit my internship report on Investment Risk
Management & Financial Performance of National Bank Limited.” I have tried my
best to complete this report properly following the guidelines provided by you and
I have confidence that the internship program has increased both of my practical
experience and theoretical knowledge to a great extent. I will be obliged to answer
any query that may arise during the evaluation of this report. So, I am fervently
requesting and hope that you would be kind enough to accept my report and oblige
Kishuwara Binta Kabir
DECLARATION BY SUPERVISOR
This is certifying that internship report on “Investment Risk Management & Financial
Performance of national bank Ltd.” submitted for the partial completion of bachelor of
business administration (BBA) degree from Eastern University. Kishuwara Binta
Kabir, ID: 141200045 has done this report under my supervision. This internship report
has not been submitted for any degree or title recognition before. I wish it will help in
her future career life.
She is permitted to submit the report.
Sultana Shahida Abedin
Faculty of Business Administration
List of Acronyms:
BB : Bangladesh Bank
BDT : Bangladeshi Taka
BL : Bad Loan
CA : Current Account
CC : Cash Credit
CRA : Credit Rating Agency
CRISL : Credit Rating Information & Service Ltd.
CRM : Credit Risk Management
CRR : Cash Reserve Requirement
DBA : Double Benefit Account
DD : Demand Deposit
DF : Doubt Full
DL : Demand Loan
DPS : Deposit Pension Scheme
EHBL : Employee House Building Loan
FDR : Fixed Deposit Receipts
HO : Head Office
HBL : House Building Loan
IBCA : Inter Branch Credit Advice
IBDA : Inter branch Debit Advice
LC : Letter of Credit
LD : Loan Deposit account
LO : Local Office
MDS : Millionaire Deposit Scheme
MGR : Money Gram
NBL : National Bank Limited
NBR : National Board of Revenue
NFCD : Non Resident Foreign Currency Deposit Account
NMS : National bank Monthly Saving Scheme
OBS : Off Balance Sheet
PD : Pending Deposit
PS : Police Station
PO : Pay Order
RR : Revised Rate
RFCD : Resident Foreign Currency Deposit Account
SB : Savings Bank account
SD : Sundry Deposit
SM : Special Mention
SND : Special Notice Deposit
SOD : Secured Over‐Draft
STD : Short Term Deposit
SS : Sub Standard
TP : Transaction Profile
TIN : Tax Identification Number
TT : Telegraphic Transfer
VAT : Value Added Tax
This Study contains practical information and observation of Loans and Advance
Department of National Bank Limited at Rokeya Sarani, Mirpur, Dhaka.
The study is on “Investment Risk Management & Financial Performance of
National Bank Limited.” This report gives us elaborate information about activities,
strategies of operation, process of credit grading policy, investment risk management
system of NBL in terms of guidelines prescribed for NBL and management of
Financial Administration Division of NBL.
The first part of this report contains Introduction that deals with origin, objectives,
scope & limitation.
The second part of this report contains an overview of National Bank Limited.
The third part of this report contains literature review of the works that previously
made by others on National Bank Limited.
The fourth part of this report contains methodology followed in this report.
The fifth part of this report contains information about overall investments, its
growth at NBL.
The sixth part of this report contains financial performance of NBL.
The seventh part of this report includes findings and recommendations
The eighth part of this report includes conclusion that deals with what necessary
steps should be taken by NBL.
Table of Content
SL. No. Topics Page
1 Introduction 1-5
1.1. Background of the study 1
1.1.1. Investment 1
1.1.2. Investment Risk Management 2
1.1.3. Financial Performance 2
1.1.4. Risk Management and Financial Performance 3
1.1.5. Commercial Banks in Bangladesh 4
1.2. Objectives of the study 4
1.2.1. Broad Objective 4
1.2.2. Specific Objective 4
1.3. Rational of the study 4
1.4. Scopes of the Study 4
1.5. Limitations of the study 5
2 Overview of the Organization 6-10
2.1. About the organization 6
2.2. History of the organization 6
2.3. Mission Statement 8
2.4. Vision Statement 8
2.5. Products and Services: 8
2.5.1. Deposits Products: 8
2.5.2. Credit Products 8
2.5.3. Card Service 9
2.6. Management Hierarchy 9
2.6.1. Organogram of NBL: 10
3 Literature Review 11
4 Methodology 12
4.1. Analysis design 12
4.2. Sources of the data 12
4.3. Sample size and selection procedures of the data 12
5 Investment Risk Management 13-22
5.1. Different types of advances offered by NBL 13
5.2. Procedure for giving advance: 14
5.3. Factors Considered in case of advances 16
5.3.1. Liquidity 17
5.3.2. Profitability 17
5.3.3. Safety and Security 17
5.3.4. Purpose 17
5.3.5. Sources of Repayment 17
5.3.6. Diversification of Risk 18
5.3.7. Social Responsibility 18
5.4. Credit Principles that NBL follows 18
5.5. Credit Evaluation process of NBL 19
5.6. Investment Risks that NBL faces 20
5.6.1. Credit Risks 20
5.6.2. Market Risks 20
5.6.3. Liquidity / Bank Run Risk 20
5.6.4. Business Risk 20
5.7. Investment Risk Management procedures of NBL 21
5.8. Investment made by NBL over the years 21
6 Financial Performance 23-27
6.1. Financial Highlights 23
6.2. NBL Income Statement (Horizontal Analysis) 23
6.3. Ratio Analysis 24
6.3.1. Cash Ratio 24
6.3.2. Cost Income Ratio 25
6.3.3. Return on Asset 25
6.3.4. Return on Equity 26
6.3.5. Loan To Asset Ratio 26
6.3.6. Net Interest Margin 27
6.4. Relationship between Investment and NBL Profit & EPS 27
7 Findings & Recommendation 28
7.1. Findings 28
7.2. Recommendation 28
8 Conclusion 29
Table of Figures
2.1.1. Managerial Hierarchy of NBL 9
2.1.2 Organogram of NBL 10
1 Overall Investment made by NBL 22
2 Investment in securities made by NBL. 22
3 Cash Ratio 24
4 Cost Income Ratio 25
5 Return on Asset 25
6 Return on Equity 26
7 Loan To Asset Ratio 26
8 Net Interest Margin 27
9 Relationship between Investment and NBL Profit & EPS 27
Investment Risk Management & Financial Performance of National Bank Ltd. Page | 1
Bangladesh is one of the developing country based on the world economy. There are
many functional institutions that control the national economy of the country and a bank
is one of the institutions of such kind.
The term bank can be defined as a financial institution that controls the monetary flow
of a country by means of investment, saving, issuing loans & through other financial
According to Cayern Cross, “A bank is a financial intermediary - dealer of loans and
In other words, bank is an intermediary who collects fund from the surplus group and
provide them to deficit group of the economy as loans in return of some interest.
1.1 Background of the study:
To sustain in the competitive market, a firm needs to a very good market impression
through its activities. Bank as a financial intermediary makes some vital decision
besides its general activities. One of its vital decisions is investment and minimizing its
risk through proper management. A bank invests its deposited fund as a loan to its
customers. Besides, it also invest funds in different government development projects,
securities or in individual or bank development activities. Some of its investments are
risky because such decisions are taken under an estimated judgment that the investment
will influence the profitability and its value in the market.
Investment is sacrificing of existing consumption for future consumption. Its
main aim is to create future wealth. It can also refer to resource provision for long or
medium term and the anticipated outcome is recovering cost of investments plus a great
profit. Investment can be related to a product or asset bought for the purpose of income
generation or appreciating given some investment time. Therefore, investment is the
expenditure accrued for income producing assets.
Investment decisions are among the three most fundamental decisions that a
firm does take on its usual day to day operations, the other two fundamental decisions
are the financing decisions and operational decisions. Investments may be classified
into non-current assets which entails, plan t property and equipment or financial
instruments ordinary shares, fixed investment securities such as bond and others.
Business enterprises can achieve growth and diversify risk if they invest in various
forms of investments. Firm investment can also be viewed in terms of replacement
decisions where an asset is normally replaced or firm investment may be in front of net
investments where the company adds new forms of investments and acquires new
Investment Risk Management & Financial Performance of National Bank Ltd. Page | 2
On the other hand, commercial banks normally invest in government securities,
which include government bonds, treasury bills etc. Other investments of a bank mainly
include listed private companies’ and firms’ listed shares, debentures etc. They also
invests in subsidiaries, associates, joint ventures and other miscellaneous investment
which are either directly purchased or acquired through takeovers, merging or
consolidation. Additionally, commercial banks also invest in real estate properties like
commercial buildings, residential real estate and other forms of real estate.
1.1.2Investment/Credit Risk Management:
The concept of risk management has been derived in order to manage the risk
or uncertain event. Risk Management refers to the exercise or practice of forecasting
the potential risks thus analyzing and evaluating those risks and taking some corrective
measures to reduce or minimize those risks.
Today risk management is practiced by many firms or entities in order to curb
the risk which they can face it in near future. Whenever a firm makes any decision
related to investments they try to find out the number of financial risk attached with it.
Financial risks can be in the form of high inflation, recession, volatility in capital
markets, bankruptcy etc. The quantum of such risks depends on the type of financial
instruments in which an organization or an individual invests.
So, in order to reduce or curb such exposure of risks to investments, fund
managers and investors practice or exercise risk management. For example an
individual may consider investing in fixed deposit less risky as compared to investing
in share market. As investment in equity market is riskier than fixed deposit, thus
through the practice of risk management equity analyst or investor will diversify its
portfolio in order to minimize the risk.
Risk is inherent particularly in financial institutions and banking organizations
and even in general. Banking sectors used working in regulated environment and were
not much exposed to the risks but due to the increase of severe competition banks have
been exposed to various types of risks such as financial risks and non-financial risks.
The function and process of Investment Risk Management in Banks is complex,
so the banks are trying to use the simplest and sophisticated models for analyzing and
evaluating the risks.
Financial performance is a subjective measure of how well an organization
employs its primary assets to generate revenue for the organization. The term can also
be referred as a broad measure of an organizations overall financial health over a
predetermined period of time. Financial performance also refers to the processes of
using various financial instruments to measure the performance or profitability of the
organization. Financial performance indicates the financial health of a firm in a given
period of time. Financial performance may be used to relate or differentiate firms with
Investment Risk Management & Financial Performance of National Bank Ltd. Page | 3
similar characteristics similar firms or to evaluate sectors or industries in total to enable
an entity to decide on how well to enhance the existing circumstances or carry on a
To appraise a firm’s performance, firms normally apply financial ratios since
they provide a simplified description of the entities current financial state in contrast to
previous accounting period and they provides clues on how a firms management can
improve performance. Managers of various firms use financial ratios to carry out
quantitative and in-depth analysis of the firm’s financial statements. Analysis of
financial ratios by managers helps to determine whether organizational goals and
objectives are being achieved, hence financial ratios also serve as a control to and help
the management to formulated future strategies. Ratio analysis entails the relative
measures of an organization performance in financial terms and provides clues on the
financial state of the company.
Financial performance in the banking industry can be evaluated using proxies
like profitability, return on equity, liquidity and the interest coverage ratio. The return
on investment indicates the amount of profit a bank is generating from its investments
which are financed by shareholders and other investors while the interest coverage
ration depicts the ease with which a bank can pay interest on outstanding debt. The
return on assets is the mostly used comprehensive measurement of overall performance
by banking institutions on the accounting viewpoint. Therefore, ROA will be employed
to measure financial performance.
1.1.4Credit Risk Management and Financial Performance:
Strengthening of firms financially suffers a lot due to lack of compliance to the
regulations as risk management continues to expand. However, by ensuring proper risk
management, a firm gets strong financial standing and enables to reduce losses. The
Financial growth is a result of efficiency in balancing the risk profiles and proper
compliance to regulation as set out by various regulators such as IRA. Financial
analysts of banks concluded that managers ought to assess those sorts of hazards they
would face and therefore come up with approaches to oversee them adequately. They
added that managers have the responsibility of managing risks properly through
accepting and controlling only risks that have a clear prediction. This lowers the level
of risk exposure. A bank can reduce its risks by precautionary strategies. It will not only
reduce risks but also drive profitability of the firm. Proper risk administration and
reduction procedures results increase in shareholders worth. It is essential for every
bank to hold and effectively deal with some level of hazard in the event that it is to
expand its productivity or market esteem for money related pain is to be reduced.
1.1.5Commercial Banks in Bangladesh:
There are various banking in Bangladesh after liberation. After the attainment
of independence in 1971, the government of the newly found Bangladesh the Dhaka
branch of the State Bank of Pakistan declared the new Central Bank and called it the
Investment Risk Management & Financial Performance of National Bank Ltd. Page | 4
‘Bangladesh Bank’. Bangladesh Bank was responsible for the control of currency and
credit risk and monitoring foreign exchange controls. It was also the official Reserve.
The government takes over all national banks and renamed them. The existing foreign
banks are given permission to continue their business in Bangladesh. At present 56
banks are working in Bangladesh including 08(Eight) foreign banks. Most of the private
banks are working well.
1.2 Objectives of the study:
1.2.1 Broad Objective:
To determine the relation between of investment risk management and
financial performance of National Bank Limited.
1.2.2 Specific Objective:
To get an overall idea about the investment risk management of National
To get an overall idea about the financial performance of National Bank
To know about the impact of investment decisions on financial performance
of National Bank Limited.
1.3 Rational of the study:
Any education is incomplete without practical experience in that field. So the
Internship Program is considered as necessary to complete the BBA course. Such
exercise enables a student to get familiar with the practical business activities through
working closely with the people of an organization and learn the overall function of the
organization. This program also enables a student to develop his/ her analytical skill
and corporate attitude.
The report is developed with the blend of theoretical knowledge and practical
experience under current market circumstance. So it will enrich my academic and
department based learning. It will also help the institution to invest the fund more
efficiently and improve their financial performance in the competitive market.
1.4 Scopes of the Study:
Within such a short time, the study will try to cover the investment policies and
procedures of the institutions, how they manage their investment risk, performance of
the institution for last 5 years, and compare its current performance in the market with
Investment Risk Management & Financial Performance of National Bank Ltd. Page | 6
2.1 About the organization
National Bank Limited has its prosperous past, glorious present, prospective future
and under processing projects and activities. National Bank Limited was born as the
first hundred percent Bangladeshi owned Bank in the private sector. NBL has been
flourishing as the largest private sector Bank with the passage of time after facing many
stress and strain. The members of the board of directors are creative businessmen and
leading industrialists of the country. From the very inception, it was the firm
determination of National Bank Limited playing a vital role in the national economy.
We are determined to bring back the long forgotten taste of banking services and
flavors. We want to serve each one promptly and with a sense of dedication and dignity.
To keep pace with time and in harmony with national and international economic
activities and for rendering all modern services, NBL, as a financial institution,
automated all its branches with computer networks in accordance with the competitive
commercial demand of time. Moreover, considering its fourth-coming future, the
infrastructure of the Bank has been rearranging. The expectation of all class
businessmen, entrepreneurs, and the general public is much more to NBL. At present,
we have 200 branches. In addition, our effective and diversified approach to seize the
market opportunities is going on a continuous process to accommodate new customers
by developing and expanding rural, SME financing and offshore banking facilities.
2.2 History of the organization
When the nation was in the grip of severe recession, the government took the
farsighted decision to allow the private sector to revive the economy of the country.
Several dynamic entrepreneurs came forward for establishing a bank with a motto to
revitalize the economy of the country.
The then President of the People's Republic of Bangladesh Justice Ahsanuddin
Chowdhury had inaugurated the bank formally on March 28, 1983, but the first branch
at 48, Dilkusha Commercial Area, Dhaka started commercial operation on March 23,
1983. The 2nd Branch was opened on 11th May 1983 at Khatungonj, Chittagong.
At present, NBL has been carrying on business through its 200 branches & Agri
Branches spread all over the country. Since the very beginning, the bank has exerted
much emphasis on overseas operations and handled a sizable quantum of homebound
foreign remittance. It has drawing arrangements with 415 correspondents in 75
countries of the world, as well as with 37 overseas Exchange Companies located in 13
countries. NBL was the first domestic bank to establish agency arrangements with the
world famous Western Union in order to facilitate quick and safe remittance of the
valuable foreign exchanges earned by the expatriate Bangladeshi nationals. This has
meant that the expatriates can remit their hard-earned money to the country with much
ease, confidence, safety and speed.
Investment Risk Management & Financial Performance of National Bank Ltd. Page | 7
NBL was also the first among domestic banks to introduce international Master
Card in Bangladesh. In the meantime, NBL has also introduced the Visa Card and
Power Card. The Bank has in its use the latest information technology services of
SWIFT and REUTERS. NBL has been continuing its small credit program for
disbursement of collateral free agricultural loans among the poor farmers of Barindra
area in Rajshahi district for improving their livelihood.
NBL focused on all key areas covering capital adequacy, maintaining good asset
quality, sound management, satisfactory earnings, and liquidity. As a consequence, it
was possible to a record growth of 175.51 percent with Tk. 8,809.40 million pre-tax
profit in the year under review over the preceding year. The net profit after tax and
provision stood at Tk. 6,860.34 million which was Tk. 2,070.47 million in the previous
year registering a 231.34 percent rise. The total deposits increased to Tk. 102,471.83
million being 33.37 percent increase over the preceding year. Loans and advances stood
at Tk.92,003.56 million in the year under report which was Tk. 65,129.289 million
representing 41.26 percent rise over the preceding year. Foreign trade stood at Tk.
144,255.00 million in 2010 compared to Tk. 115,939.00 million, increased by 24.42
percent compared to that of the previous year. During 2010, the bank handled inward
remittance of Tk. 49,145.30 million, 10.73 percent higher than that of the previous year.
Return on Equity (ROE) registered a 77.84 percent rise over the preceding year.
National Bank, has now acquired strength and expertise to support the banking
needs of the foreign investors. NBL stepped into a new arena of business and opened
its Off Shore Banking Unit at Mohakhali to serve the wage earners and the foreign
investors better than before.
Since its inception, the bank was aware of complying with Corporate Social
Responsibility. In this direction, we have remained associated with the development of
education, healthcare and have sponsored sporting and cultural activities. During times
of natural disasters like floods, cyclones, landslides, we have extended our hand to
mitigate the sufferings of victims. It established the National Bank Foundation in 1989
to remain involved with social welfare activities. The foundation runs the NBL Public
School & College at Moghbazar where present enrolment is 1140. Besides awarding
the scholarship to the meritorious children of the employees, the bank has also extended
financial support for their education. It also provided financial assistance to the Asiatic
Society of Bangladesh at the time of their publication of Banglapedia and observance
of 400 years of Dhaka City.
The Transparency and accountability of a financial institution are reflected in its
Annual Report containing its Balance Sheet and Profit & Loss Account. In recognition
of this, NBL was awarded Crest in 1999 and 2000, and Certificate of Appreciation in
2001 by the Institute of Chartered Accountants of Bangladesh.
The bank has a strong team of highly qualified and experienced professionals,
together with an efficient Board of Directors who play a vital role in formulating and
Investment Risk Management & Financial Performance of National Bank Ltd. Page | 8
2.3 Mission Statement
Efforts for expansion of our activities at home and abroad by adding new
dimensions to our banking services are being continued unabated. Alongside, we are
also putting highest priority in ensuring transparency, accountability and improved
clientele service as well as to our commitment to serve the society through which we
want to get closer and closer to the people of all strata. Winning an everlasting seat in
the hearts of the people as a caring companion in uplifting the national economic
standard through continuous up gradation and diversification of our clientele services
in line with national and international requirements is the desired goal we want to reach.
2.4 Vision Statement
Ensuring highest standard of clientele services through the best application of latest
information technology, making due contribution to the national economy and
establishing ourselves firmly at home and abroad as a front-ranking bank of the country
are our cherished vision.
2.5 Products and Services:
2.5.1 Deposits Products:
Fixed Deposit Receipt
Monthly Saving Scheme
Monthly Earning Scheme
Double Benefit Account
Millionaire Deposit Scheme
Apon Thikana Shanchoy Prakalpa
Luxury Savings Deposit Scheme
Higher Education Deposit Scheme
2.5.2 Credit Products
Small Medium Enterprise
Consumer Credit Scheme
Investment Risk Management & Financial Performance of National Bank Ltd. Page | 11
Banks are considered as the backbone of the nation’s economy. The banking sector of
Bangladesh is dominated by commercial banks with huge debt burdens. A bank mainly
is the dealer of debt and loans. NBL as a private commercial bank is being the part of
the economy since 1983 and effectively maintaining its financial performance in the
course of their operations, NBL invariably faced with different types of risks that may
have a potentially adverse effect on its business’ profit. NBL as one of the commercial
bank is obliged to establish a comprehensive and reliable risk management system,
integrated in all business activities and keep its risk profile in line of risk propensity.
Risk is inherent in all commercial operations. NBL mainly faces liquidity risk, credit
risk, settlement risk, market risk, interest rate risk, foreign exchange exposure,
operational risk, and legal risk etc. Not only NBL, for any other financial institutions,
credit risk is an essential factor, which needs to be managed properly. Credit risk
virtually is the possibility that a borrower may fail to repay his/her debt in accordance
with the terms of sanction. Credit risk therefore arises from the bank’s lending
operations. In the present day’s state of deregulation and globalization, banks range of
activities have increased, so also are the risks. Expansion of bank’s lending operations
covering new products have forced the banks to confront newer risk areas and therefore
to work out proper risk addressing devices. Credit risks are so exhaustive that a single
device cannot encompass all the risks, Moreover, investment/ credit risks today have
assumed such diverse nature, that newer techniques are to be applied to effectively
contain the risks, In order to effectively contain risks, credit risk management has to be
done in order to enable the bank to proactively manage loan portfolios in order to
minimize losses and earn acceptable level of return for the shareholders. In the present
scenario of fast changing, dynamic global economy and the increasing pressure of
globalization, liberalization, consolidation and disintermediation, it is essential to
undertake robust credit risk management policies and procedures, sensitive and
responsive to these changes. In the back drop, National Bank Limited underscoring the
need of effective credit risk management process has prepared the policy guidelines for
credit risk management. The policy should be reviewed annually by the Board of
Directors of the Bank. The policy is distributed to the concerned officials, all divisional
heads, Branches, Regional Offices and top management officially. The policy is strictly
followed by all concerned. Any deviation from the guidelines is to be clearly identified
and justification for approval is to be provided. Besides, other risks occur mainly due
to political imbalance and changes in monetary policies or some internal changes. Even
though NBL faces so many risks, it is maintaining a very good impression in the equity
market as well as towards its customers. Its deposit schemes and internal activities are
very attractive to all segments of customers which help them to retain its customers for
longer period of time. Besides, NBL is able to give a good feedback to its shareholders
and credit holders which gives them a competitive boost in the market.
Investment Risk Management & Financial Performance of National Bank Ltd. Page | 12
The study is made both qualitative and quantitative manner.
4.1 Analysis design:
4.2 Sources of the data:
4.2.1 Primary Source:
Face to face conversation with the bank officers and staffs.
4.2.2 Secondary Source:
Annual reports of NBL.
Financial performance of NBL in equity market or on DSE website.
Different published articles on NBL.
Different text books.
4.3 Sample size and selection procedures of the data:
To make the study valid and reliable, the financial statement of NBL from 2012 to
2016 has been collected from Lanka Bangla website based on availability of data as a
Investment Risk Management & Financial Performance of National Bank Ltd. Page | 13
One of the core functions of commercial banks is to create the claim against individual
borrower or real purpose of sanctioning credit. Bank grants loan in the form of different
securities. By the primary security, we mean the financial claim of holder against the
real sector of economy. In banking sector, the financial claim of bank against issuer,
(called investor, borrower and deficit units). The core function of bank is performed by
credit department of the bank. In this case, the relationship of bank and customer is that
of the creditor and debtor.
5.1 Different types of advances offered by NBL:
Types of Advances Features
A short term arrangement by which a customer is allowed to
borrow money up to a certain limit is sanctioned by the bank for
a certain time. Given against Registered mortgage of land and
building, hypothecation of goods and personal guarantee of
Given against Personal guarantee, hypothecation of goods, land
House Building Loan
Given against Personal guarantee, hypothecation of land and
House Building Loan
Given against Personal guarantee, hypothecation of land and
Car Loan (Staff) Given against Personal guarantee, hypothecation of vehicles.
Demand Loan Given against Personal guarantee, and cash collateral securities.
Given against land and building along with machinery, personal
guarantee of directors and hypothecation raw materials.
Continuous advance facility given for one year but can be
renewed after the expiry of the time. Given against ICB unit, FDB,
Sanchaypatras and Work orders.
Advance allowed for retirement of shipping documents and
release of goods imported through L/C. The goods are handed
over to the importer under trust with the arrangement that sale
proceeds should be deposited to liquidate the advances within a
given period. Given against Bills receivable, hypothecation of
imported goods, trust receipt, personal guarantee, and registered
mortgage of land and building.
Investment Risk Management & Financial Performance of National Bank Ltd. Page | 14
5.2 Procedure for giving advance:
The procedure for advances is given below:
A. The potential borrower will submit application to NBL for loan by filling up a
specific application form.
The application form contains the following particulars:
a) Name of the Borrower
b) Account no.
c) Residential Address and Permanent Address(with valid contact number)
d) Introducer’s Name
i. Introducer’s Account No.
ii. Introducer’s Address
e) Date of establishment/incorporation
f) Trade license number, date of expiry(Enclosed Photocopy)
g) TIN (Enclosed Photocopy)
h) Type of the business
i) Details of business members
iii. Father’s/Husband’s Name
iv. Present & Permanent Address(with contact number)
v. Percentage of shares held in the business
j) Experience and background of the authority
k) Details of assets owned by authority with address and valuation
l) Name of the subsidiaries, percentage of the shareholding and nature of
m) Nature of the business and products, market and estimated sales for next
n) Credit facilities required(type, amount, period, purpose and mode of
o) Details of the securities offered with estimated value(primary security,
Collateral security, market value of the security)
p) Details of the liabilities in the name of the client or in the name of any
other partners, directors or subsidiaries/ affiliates nature of advance,
amount security and validity of limit
q) Balance sheet/ Income statement of the following years(3years
r) Other relevant information
s) Proposed debt/equity ratio
Investment Risk Management & Financial Performance of National Bank Ltd. Page | 15
t) Signature of the Applicant
B. After receiving the loan application form, NBL sends a letter to Bangladesh
Bank for obtaining a report from there. This is called CIB (Credit Information
Bureau) report. This report is usually collects a report on if the loaning amount
exceeds Tk. 50lac. But NBL usually collects this report if the loan amount
exceeds Tk. 10Lac. The purpose of this report is to being informed that whether
the borrower has taken loan from any other bank; if “yes” then whether these
loans are classified or not.
C. After receiving report if the Bank thinks that the prospective borrower will be
good borrower, the bank will scrutinize the documents. In this stage, the bank
will look whether the documents are properly filled up and signed.
D. Then comes processing stage. In this stage, the bank will prepare a Proposal. A
proposal contains the following relevant information
a. Name of the borrower
b. Nature of limit
c. Purpose of limit
d. Extent of limit
g. Rate of interest
Branch Incumbent has the discretionary power of sanction loan (SOD) up to Tk. 30
Lac against financial obligations by informing head Office. But in that case, the
branch manager has to give attention to the following matters:
The interest rate of the loan must not less than the declared rate by HO.
The borrower must maintain 20% of the margin.
Except this case, the branch has to send the proposal to the HO. HO will prepare a
minute and submit it to the EC. The minute has to be passed by EC. After passing the
minute, it will be sent to BB for approval in case of following:
If the proposal limit exceeds 20% of Bank’s equity;
If the proposed limit against cash collateral securities exceeds 30% of bank’s
E. After the sanction advice, Bank will collect necessary documents (charge
documents). These documents are-
a. Joint Promissory Note
b. Single Promissory note
c. Letter of Undertaking
Investment Risk Management & Financial Performance of National Bank Ltd. Page | 16
d. Loan Disbursement Letter
e. Debit Figure Confirmation Sheet
f. Letter of Continuity
g. Letter of Authority
h. Letter of Revival
i. Right of recall the loan
j. Letter of Guarantee
k. Letter of Indemnity
l. Trust Receipt
m. Hypothecation of goods/vehicales/land & building
n. Counter Guarantee
o. Letter of Lien
p. Letter of Lien in case of advance against FDR
q. Letter of Lien and Authority for advances to third parties against Fixed
Deposit/ Call Deposit/ Special Deposit or Margin or margin deposits.
r. Letter of Authority to encase FDR
s. Letter of Agreement for Packing Credit
t. Charges over bonds or certificates or shares etc. etc by third person, firm
or company to secure specific and general liability
u. Guarantee by third party.
For advances a LD account is formed by the bank for the individual and the amount is
deposited advance in that account. Customer pays his/her loaned amount in
installments. If a customer misses any installment then another account is formed
called PD account.
5.3 Factors Considered in case of advances:
Bank lending policy refers to the policy and guidelines adopted by a bank in order
to make its lending process systematic and methodical. Banks deal with other people’s
money. They lend the money which they themselves borrow from the depositors.
Unless these.-deposits are prudently utilized banks are destined to incur losses. Banks
cannot effort to either keep the deposits idle in the vaults or lend the deposits and not
recollect. Hence, it is essential that a proper lending policy is in place.
So NBL analyzes following factors at the time and before sanctioning loans to the
The term ‘liquidity’ implies the ability to produce cash on demand. NBL mainly
utilizes its deposits for the purpose of granting advances as these deposits are repayable
on demand or on the expiry of a specified period.
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To meet the demand of the depositors in time, NBL keeps their funds in liquid
state. As we know that, fund locked up in long-term loans are less liquid and may not
be received back on time. So NBL confines more of its lending to short-term loans only.
Like all other commercial institutions NBl runs for profit. NBL tries to invest its
fund in such a way so that it can earn profit to pay interest to depositors, declare
dividend to shareholders, meet establishment charges and other expenses, provide for
reserve and for bad and doubtful debts, depreciation, maintenance and improvements
of property owned by the bank and sufficient resources to meet contingent loss.
NBL invest its fund which it supposed to pay its employees as provision in
security market besides giving advances to its customers.
5.3.3 Safety and Security:
NBL ensures that the borrower has the ability and the willingness to repay the
advances as par agreement. Closely allied to this point is that before granting a secured
advance, he should carefully consider the margin of safety offered by the security and
possibilities of fluctuations in value.
If it is an unsecured advance, its repayment depends on the creditworthiness of
the borrower, and that of the guarantor. In such cases, the cardinal principles which the
advance officer follows is considering character, capacity, and capital (popularly
known as the 3 C’s) or reliability, responsibility, and resources (popularly known as the
3 R’s) of the borrower and the guarantor.
The advance officer carefully examines the purpose for which the advance has
been applied for. For advances, the purpose should be productive, can be anticipated
reasonably so that cash flows arising for productive activities will result in prompt
repayment. Besides, the officer carefully monitors the exact purpose for which the
advance is actually utilized.
5.3.5 Sources of Repayment:
Before giving financial accommodation, an officer considers the source from
which repayment is promised. To some extent, debentures which are to be redeemed in
few months’ time or a life insurance policy which is to mature in near future may be
offered as security. Advances against such security give no trouble.
Sometimes customers apply for loans for additional working capital for their
business and undertake to repay out of the profits over a period. In such cases the rate
at which the customer can reasonably hope to repay should be ascertained.
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5.3.6 Diversification of Risk:
The security consciousness of an advance officer and the integrity of the borrower
are not adequate factors to keep the officer on safe side. In such case, the most important
thing that is considered is the diversification of risk. As a result, NBL never lends its
major portion of its loan-able fund to any single borrower or to an industry or to one
particular region. Because an adverse change (i.e. change in interest rate, political &
market instability, Tax or VAT) in the economy may affect the entire banking business.
In such as a case repayment becomes highly difficult and the survival of the bank
becomes questionable. Therefore NBL follows the wise policy of “do not put all the
eggs in a single basket.” NBL provides advances its moderate sums to a large number
of customers spread over a wide area and belonging to different industries.
5.3.7 Social Responsibility:
While admitting that banks are essentially commercial ventures, a bank should
not forget the fact that it is not enough that only people of means are given bank finance.
Through productive effort bank finance makes people credit worthy, and turn them into
people of means.
Technical competence of the borrower, operational flexibility, and economic
viability of the project, rather than the security which the borrower can offer are
considered by NBL to evaluate a loan proposal.
The identification of priority sectors for the purpose of extending NBL’s credit
considers the positive development in the banking system, aimed at effectively
discharging its responsibility towards society. So, NBL provides advance product
includes small & medium enterprises, women empowerment loan (Nari Jagoron). It
also involves in other social activities.
5.4 Credit Principles that NBL follows:
To achieve the goal for maximizing the stockholder’s value and protect the interest
of the depositors as well as to improve the quality of banks assets as fundamentally
sound financial institution, NBL is abide by but will not be limited to the following
credit principles, which should guide the behavior in lending decisions:
1 Assessment of the customer’s character, integrity and willingness to repay will
from basis of lending.
2 Customers having capacity and ability to repay shall only be lent.
3 Possibility of default will be worked out before lending.
4 Credit will be extended in the areas risks of which can be sufficiently
understood and managed.
5 Independent Credit participation in the credit process shall be ensured.
6 Ethical behavior in all credit activities shall be ensured.
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7 Be Proactive in identifying, managing and communicating credit risk.
8 Be diligent in ensuring that credit exposures and activities including
processing function complying with NBL requirements as well as requirement
of regulatory authority.
9 Risk and reward to be optimized.
10 Diversified Credit Portfolio to be built and maintained.
11 Credit will normally be financed from customers’ deposits and not out of
short‐term temporary funds or borrowing from other banks.
12 The bank shall provide suitable credit services and products for the market in
which it operates.
13 Credit will be allowed in a manner which will in no way compromise with the
Bank’s standard of excellence and to customers who will not compromise such
14 All credit extension must comply with the requirement of banking companies
Act.1991 and amendments thereof from time to time.
5.5 Credit Evaluation process of NBL:
National Bank Limited follows the following credit evaluation process:
Prevailing credit practices in the market.
Credit worthiness, background and track record of the borrower.
Financial standing of the borrower supported by financial statement and other
Legal jurisdiction and implications of applicable laws.
Effect of any applicable regulations and laws.
Purpose of the loan/facility.
Tenure of the loan/facility.
Viability of the business concern.
Cash flow analysis and also projections thereof.
Quality, value and adequacy of security, if available.
Risk taking capacity of the borrower.
Entrepreneurship and managerial capabilities of the borrower.
Reliability of the sources of repayment.
Volume if risk in relation to the risk taking capacity of the bank or company
Profitability of the proposal to the bank or company concerned.
Credit Risk Grading.
Yield from the facility.
Total global exposure of the borrower
Investment Risk Management & Financial Performance of National Bank Ltd. Page | 20
5.6 Investment Risks that NBL faces:
It is often said that profit is a reward for risk bearing. Nowhere is this truer than in
the case of banking industry. Banks in Bangladesh are literally exposed to many
different types of risks. A successful banker is one that can mitigate these risks and
create significant returns for the shareholders on a consistent basis. Elimination of risks
begins by first correctly identifying the risks, why they arise and what damage can they
cause. As a private commercial bank, NBL faces the following risks in order to give
5.6.1 Credit Risks:
Credit risk is the risk that arises from the possibility of not receiving payments of
loans by the borrowers. Usually the risk of delayed payments is also included within
this category. Maximum times these cash flow risks are caused by the borrower
becoming insolvent. The profitability of a bank is extremely sensitive to credit risks.
Hence, even if credit risk rises by a small amount, the profitability of the bank can get
5.6.2 Market Risks:
Apart from making loans, NBL also hold a significant portion of securities. Some
of these securities are held because of the treasury operations of the NBL like as a
means to park money for the short term. However, many securities are also held as
collateral based on which NBL has given loans to their customers. The business of
banking is therefore intertwined with the business of capital markets.
NBL faces market risks if they are holding a large amount of equity then they are
exposed to equity risk. Also, banks by definition have to hold foreign exchange
exposing them to Forex risks. Similarly NBL also lend against commodities real estate
which exposes them to commodity risks as well.
5.6.3 Liquidity / Bank Run Risk:
Liquidity risk is another kind of risk that is inherent in the banking business in
Bangladesh. Liquidity risk is the risk that the bank will not be able to meet due to its
obligations towards its depositors, when they all come in to withdraw their money. If
all the depositors of the institution came in to withdraw their money all at once, the
bank would not have enough money. This situation is called a bank run. This has
happened countless times over the history of modern banking and this risk is inherent
in the fractional reserve banking system.
5.6.4 Business Risk:
The banking industry today is considerably advanced and diversified. Banks
today have a wide variety of strategies from which they have to choose. Once such
strategy is chosen, banks need to focus their resources on obtaining their strategic goals
in the long run. Hence, there is always a risk that a given bank may choose the wrong
Investment Risk Management & Financial Performance of National Bank Ltd. Page | 21
strategy. As a result of this wrong choice, the bank may suffer losses and end up being
acquired or simply collapse.
5.7 Investment Risk Management procedures of NBL:
Credit risk is avoided by NBL through conducting a thorough check and
sanctions of loans only to individuals and businesses that are not likely to run out of
income over the period of the loan. In this matter, the credit rating agencies provide
adequate information and enables NBL to make informed decisions in this regard.
NBL mitigates credit risks with a wide variety of measures. For instance, it
always holds a certain amount of funds in reserves to mitigate such risks.
NBL uses structured finance & securitization tools to remove the concentrated
risk from the bank’s books and diffuse it amongst the various investors in the capital
NBL is not very concerned about liquidity risk. Because in modern days the
reserve system of NBL concludes only a percentage of the deposits received are held
back as reserves, the rest are used to create loans which they have the backing in the
central bank. As a result, if NBL goes through any bank run then BB diverts all its
resources to NBL. Therefore, the depositors can be paid back when they demand their
deposits. This restores depositor’s confidence in the banks finances and the run on the
bank become averted.
NBL tries not to give loans to a borrower with lower credit score to mitigate its
5.8 Investment made by NBL over the years:
5.8.1 Overall Investment made by NBL:
From the bar chart given below, we can see that NBL’s general investment has
increased over the years whereas the investment in securities didn’t fluctuated much.
NBL emphasis to invest less in securities as the capital market is volatile and the risk
in such investment is high. So in case of investment in securities NBL is more risk
53,842 56,370 54,391 59,278 57,298
Investment 122,393 147,459 168,330 182,992 209,925
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5.8.2 Investment in securities made by NBL. :
As we have seen previously that NBL invests least in share market. From the
bar chart given below, we can see that NBL’s investment in government securities has
given more importance than the other securities.
44.86 47.51 46.32 51.35 49.55
Others 8.98 8.86 8.07 7.93 7.74
53.84 56.37 54.39 59.28 57.30
2012 2013 2014 2015 2016
Overall Investment made by NBL
(in 100 crore)
Investment in shares & securities
Loans, cash credits, overdrafts/General Investments
8.98 8.86 8.07 7.93 7.74
44.86 47.51 46.32
2012 2013 2014 2015 2016
Investment made by NBL in securities
(in 100 Crore)
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6.1 Financial Highlights:
6.2 NBL Income Statement (Horizontal Analysis)
2012 2013 2014 2015 2016
(Year) (Year) (Year) (Year) (Year)
Interest income -0.44% 8.58% -5.34% -2.88%
Interest paid on deposits
18.30% 2.14% 0.24% -10.17%
Net interest income -47.72% 45.31% -27.74% 37.67%
Income from investments 22.65% 14.38% 32.82% 31.14%
Commission, exchange and
16.26% -3.47% -11.99% -12.57%
Other operating income 14.86% -27.36% -3.27% -24.72%
Total operating income -9.65% 14.99% 4.32% 23.78%
Salaries, allowances and
0.00% 9.43% 5.06% 17.42%
Charges on loan losses and
-11.25% -100.00% 0.00% 0.00%
Other operating expense -25.07% 70.95% -37.30% -298.92%
Total operating expenses -11.39% -20.04% -16.00% 14.34%
2012 2013 2014 2015 2016
(Year) (Year) (Year) (Year) (Year)
Paid up capital 14,196 14,196 15,616 17,177 19,754
Net Working Capital 27,152 31,533 35,390 48,295 46,159
Current Asset 198,360 229,380 249,963 274,084 295,606
Total Investment 180,771 208,658 228,359 246,727 271,213
Total assets 204,614 234,927 257,380 282,716 306,555
Current Liability 171,208 197,847 214,573 225,792 249,447
Total liabilities 182,273 211,110 230,274 249,274 270,441
Shareholders' equity 22,341 23,817 33,442 33,442 36,114
Revenue 19,084 18,999 20,628 19,526 18,964.10
Operating income 12,379 11,184 12,861 13,416 16,606.42
Operating expenses 8,513 7,543 6,031 5,066 5,792.49
EBIT 3,866 3,641 6,829 8,350 10,813.92
Total provision 609 172 1,616 1,946 2,330.00
EBT 3,258 3,469 5,214 6,404 8,485.38
Net profit 1,431 2,086 2,683 3,881 5,608.56
Book Value 16 17 17 19 18
Audited EPS 1.01 1.47 1.72 2.26 2.84
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Profit before provision
against loans and
-5.83% 87.58% 22.26% 29.51%
Total provision -71.77% 839.48% 20.46% 19.73%
Extraordinary gains and
-100.00% 0.00% -100.00% 0.00%
Profit before tax 6.46% 50.31% 22.81% 32.51%
Current Tax -24.58% 82.41% 1.16% 13.37%
Deferred tax 32.42% 180.98% -139.77% -148.83%
Provision for tax -24.35% 83.10% -0.35% 14.06%
Net profit after tax 45.82% 28.59% 44.67% 44.50%
Audited EPS 45.54% 17.01% 31.40% 25.66%
6.3 Ratio Analysis:
6.3.1 Cash Ratio: Cash ratio is the ratio of cash and cash equivalents of a firm
to its current liabilities. It is an extreme liquidity ratio since only cash and cash
equivalents are compared with the current liabilities. It measures the ability of a firm to
repay its current liabilities by only using its cash and cash equivalents and nothing else.
Figure 1: Cash Ratio
A cash ratio of NBL is below 1.00 which means that NBL will not be able to pay all its
current liabilities in immediate short term. But the creditors usually prefer high cash
2012 2013 2014 2015 2016
Investment Risk Management & Financial Performance of National Bank Ltd. Page | 25
6.3.2 Cost Income Ratio: It shows a company's costs in relation to its income.
Figure 2: Cost Income Ratio
As we can see that cost/income ratio was 1.45 in 2012 which steadily increased by 0.03
in 2013. Afterward from 2014 the ratio is increased from 2.13 to 2.87 in 2016. But it
indicates that bank is making more expense than the income. Bank needs to make a cost
cutting operation soon. Because it can effect bank’s profitability.
6.3.3 Return on Asset: Return on assets (ROA) is an indicator of how
profitable a company is relative to its total assets. ROA gives a manager, investor, or
analyst an idea as to how efficient a company's management is at using its assets to
Figure 3: Return On Asset
From the ROA we can see that NBL managers are being the assets into profit effectively
from 2013 to 2016 though in first place from 1.59% to 1.48% in 2013.
2012 2013 2014 2015 2016
Cost Income Ratio
2012 2013 2014 2015 2016
Return on Asset
Investment Risk Management & Financial Performance of National Bank Ltd. Page | 26
6.3.4 Return on Equity: Return on equity (ROE) is the amount of net income
returned as a percentage of shareholders equity. Return on equity measures a
corporation's profitability by revealing how much profit a company generates with the
money shareholders have invested.
Figure 4: Return On Equity
From ROE it can be said that NBL is gradually generating more profit from
6.3.5 Loan To Asset Ratio: The loans to assets ratio measures the total loans
outstanding as a percentage of total assets. The higher this ratio indicates a bank is
loaned up and its liquidity is low. The higher the ratio, the more risky a bank may be to
Figure 5: Loan To Asset Ratio
As the percentage of the ratio has increased from 2012 to 2016 it means that the NBL
has the high risk to default even though it decreased a little in 2015.
2012 2013 2014 2015 2016
Return on Equity
2012 2013 2014 2015 2016
Loan to asset
Investment Risk Management & Financial Performance of National Bank Ltd. Page | 27
6.3.6 Net Interest Margin: Net interest margin (NIM) is a measure of the
difference between the interest income generated by banks or other financial institutions
and the amount of interest paid out to their lenders (for example, deposits), relative to
the amount of their (interest-earning) assets.
Figure 6: Net Interest Margin
As the interest margin is fluctuating negatively each year it indicates that NBL is failing
to invest its fund efficiently.
6.4 Relationship between Investment and NBL Profit & EPS:
The relationship between NBL’s different investment with its profit and value can
be measured by the analytical tool named correlation. Correlation is any of a broad class
of statistical relationships involving dependence, though in common usage it most often
refers to how close two variables are to having a linear relationship with each other.
Net profit EPS
Shares & securities 1
General Investment 0.657688796 1
Net profit 0.66317207 0.966456555 1
EPS 0.717016237 0.986054285 0.991647724 1
Correlation shows NBL’s profit and EPS depends more on General investment than its
investment in securities.
2012 2013 2014 2015 2016
Net Interest Margin
Investment Risk Management & Financial Performance of National Bank Ltd. Page | 28
NBL generates its profit mainly from its general investment.
It’s EPS also very dependent on its general investment.
NBL is very much risk averse in case of investing in securities.
NBL’s operating income is too much comparative to its expense which is a good
NBL may use hedging contracts. They can use financial derivatives which will
be freely available for sale in the financial market. Using such contracts like forwards,
options and swaps, NBL able to almost eliminate market risks from their balance sheet.
They can use Green Banking which may help them to cut more of its operating
expense and earn more profit.
NBL can invest its little more fund in securities by analyzing properly the risk
and the return.
NBL can design a credit scheme in a way that increases its general investment
rate as well as its return.
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National Bank Limited (NBL) is setting new standards in the banking arena in the time
of turbulent economic conditions. As part of the long term financial reform and
modernization plan of the government, the bank had been converted into a public
limited company. NBL helps to mobilize the resources to stay strong in the key areas
of operation. In the areas of treasury operation, NBL remains the key player in the
country’s foreign exchange and money market enhancing profitability through careful
pricing and assessment of risk and return on investment, the treasury dealing is being
strengthened to facilitate transactions requiring more sophisticated products and
services for larger institutional and corporate clients. Though it has a wide range of
network and confidence from the customers but it has some problems those problems
reduce it income .It is PLC but the authority is not that flexible and it takes time to take
Although excellence in Banking is the Moto of National Bank Limited meeting the
demand of the discerning customer is not the sole objective of the Bank. Customer
relation should be increased to give appropriate service to them. And treat them as an
asset of the company. Despite of these problems, National Bank Limited is trying to
improve this condition and take some necessary measure to improve its condition.