Internship Report on Risk Management Assessment of JBL

Risk Management of JBL
Department of Accounting and Information Systems
Comilla University, Comilla. Page | 1
CHAPTER-1
Introduction

INTRODUCTION
1.1. BACKGROUND OF THE STUDY
In the middle of an economic crisis and a still uncertain future that stemmed mainly from
mismanagement of financial risk, the whole literature and managers have turned back to the
basics: the meaning of proper management of risk. Especially banks were affected first and the
most and now have to face the ongoing consequences: unpaid or delayed loans, expensive
deposits, limited new revenues, low trustworthiness and confidence.
Risk management in banking contains a combination of processes and models, results of
scientific research, that banks base on them to implement risk based policies and practices.
Banks are not any more practice traditional financial intermediation in low risk environment.
A broad range of innovative and evolutional financial products, available globally at current
time, have taken place and turned banking into a dynamic and active risk management process
of assets and liabilities in a low regulated, high-risk environment.
A complex system of techniques and management tools are used from banks to measure,
monitor and control risks that are mainly categorized in credit risk, market risk, interest rate
risk, liquidity risk and operational risk. In fact, risk is referred to any uncertainty that might
bring losses and good management of this enhances the return profile of the bank portfolio.
Main progress and goal in this area is the creation of new quantified risk measures for all above
categories, providing also new categories of risks and the creation of more realistic indicators.
The fact that today’s risks may become tomorrow’s losses and that maybe is not something
immediate visible makes risk measurement imperative need for the banks and the department
that deals with it essential for the survival of the organism. The basic reasons that made the
risk-based practices to develop quickly are: banks have major incentives to move rapidly in
that direction, regulations developed guidelines for risk measurement and for defining risk-
based capital (equity) and the risk management ‘toolbox’ of models enriched considerably, for
all types of risks, providing tools making risk measures instrumental and their integration into
bank processes feasible.
1.2. RATIONALE OF THE STUDY
Bank is a financial institution, which accepts money from its customers as deposit and gives
money as loan to the borrowers. A bank is financial intermediary a dealer in loans and debts.
After completing my Bachelor of Business Administration (BBA) as a student of “Comilla
University”, I wanted to complete my Internship program from a reputed Bank which would
be helpful for my future professional career. I got the opportunity to perform my internship in
the Janata Bank Limited. I was sent to Chawk Bazar Branch, Comilla. It was three months
practical orientation program. This report is originated as the requirement of Janata Bank
Limited.

This is the last part of BBA program. It is essential to fulfill all, the requirements the program
demand. Only after preparing & submitting the report this program becomes completed.
Internship is highly needed to gain practical idea, knowledge and experience. I have selected
Credit (Loan and advancement and its policies and procedures) department of Janata Bank
Limited because here all loan types can be known. Beside all types, how the loans are given,
what is the requirement of giving loan, how the loans can take back from the customers and
many more things.
I had to prepare a report under the supervision of Mr. Md. Tofael Hossain Majumder,
Assistant Professor, Faculty of Business Administration, Comilla University. On the other
hand, in charge of Loan and advancement department of Janata Bank Limited (Chawk Bazar
Branch), supervised me as an organization.
1.3. OBJECTIVES OF THE REPORT
Broad Objective: The broad objective of report is to evaluate and scrutinize the total Risk
Management activities of Janata Bank Limited.
Specific Objectives: To attain the broad objective the following specific objectives will be
pursued:
 Identification of risk management guidelines and inspect whether the bank’s risk
management comply with it.
 Identification of risk management framework- its risk management committee and their
sub-committee and of course the segregation of their duties and responsibilities.
 Risk identification process, Risk mitigation methodology and Risk reporting procedures.
 A broad investigation in “what kinds of risks the bank faces and how does it mitigates these
risks”
 Assessing the effectiveness of the risk management framework in terms of qualitative data.
 To give some recommendations for improving the risk management of JBL.
1.4. SCOPE OF THE STUDY
As I’ve worked only in Loans and Advances Division in Janata Bank, Chawk Bazar Branch
and specifically I’m told to report on the “Risk Management of Janata Bank”. So, this report
only includes the risk factors, risk management framework, identification process of risk,
analyzing and mitigating of related risk by respective risk committee of the Janata Bank. This
report does not includes deposit service, credits and foreign exchange services of Janata Bank.
Besides this report does not include the services of other private and public commercial banks
and non-banking institutions.

1.5. METHODOLOGY OF THE STUDY
The study is performed based on the information extracted from different sources collected by
using a specific methodology. To fulfill the objectives of this report total methodology has
been divided into two major parts:
In order to make the report more meaningful and presentable, two sources of data and
information have been used widely.
Primary Sources
 Three months practical participation in internship
 Face-to-Face conversation with the respective officers and staffs
 Relevant file study provided by the officers concerned
Secondary Sources
 Risk Management Guideline for banks, published by Department of Off-site Supervision,
Bangladesh Bank.
 Banking Risk Management Manual.
 Annual Reports of Janata Bank, 2013 (5 years of audited financial statement)
 Relevant books, Research papers, Newspapers and Journals.
 Internet and various study selected reports.
1.6. LIMITATION OF THE STUDY
To prepare a report on the topic like this in a short duration is not easy task. From the beginning
to end, the study has been conducted with the intention of making it as a complete and truthful
one. In preparing this report some problems and limitations have been encountered which are
as follows:
 Insufficiency of required information. There is various information the bank employees
cannot provide due to security and other corporate obligations.
 As the data, in most cases, are not in organized way, I failed to process all information.
 Due to time limitation, many of the aspects could not be discussed in the report.
 Since the bank personnel were very busy, they could not pay enough time.
 Lack of opportunity to access to internal data.
 I had to base on secondary data for preparing this report.
 Legal action related information was not available.
 Lack of in-depth knowledge about quantitative data analysis.

1.7. ORGANIZATION OF THE REPORT:
These report is divided into eight chapter:
 Chapter 1 is designed to introduce you with the report. You will come to know the
background, objective, and scope of the report. The limitations the author faces are also
included. You will come to know in this section, how the research is performed and how
they are described.
 Chapter 2 is designed to introduce the history of banking business in Bangladesh and
Janata Bank’s overview. All about the bank is bring here together in a summary form.
History, vision, mission, core values, strategic objectives, management system and the
services it offered includes this chapter.
 Chapter 3 is designed to review the theoretical framework about risk, risk management
and “Risk Management Guideline for Banks” by Bangladesh Bank. Scope of application,
objectives, overview, and elements of a sound risk management system of the guideline
are given. Besides these policies, procedures and limit structure, risk measurement,
monitoring and management reporting systems and internal controls and comprehensive
audits about risk management are also discussed.
 Chapter 4 is designed to provide the information about JBL’s Risk Management System
in broad way. It includes the risk management framework, risk identification process, risk
mitigation process, various risk that are occurs in banking business and how they are
mitigated and also the reporting system of risk. Various committee who are charged with
responsible for which risk mitigation process.
 Chapter 5 is completely discussed with quantitative data. An effort is given to find out
whether risk management system of JBL is good enough or not. Data analysis, presentation
and interpretation are made in this chapter with utmost care and honesty. All quantitative
data are collected from annual reports of JBL and some ratio are directly picked up.
 Chapter 6 is deals with SWOT analysis of JBL which represents only Risk Management
matters.
 Chapter 7 contains with recommendations and conclusion.
 Finally, references, and bibliography are given with accurate information.

CHAPTER-2
Organization Part

2.1 HISTORY OF JANATA BANK LTD
JANATA Bank Limited welcomes you to explore the world of progressive Banking in
Bangladesh. It is a state owned commercial bank and is catering the need of the mass business
people. It was corporatized on 15th
November 2007. Janata Bank was born with a new concept
of purposeful banking sub serving the growing and diversified financial needs of planned
economic development of the country. Our commitment and the people’s belief in us have
given us the edge over others to earn this trust about the safe keeping of their money in the
right kind of banking channel.
Janata Bank Limited, one of the state owned commercial banks in Bangladesh, has an
authorized capital of BDT 20000 million (approx. US$ 283.33 million). The total asset of the
bank in FY 2013 was BDT 586,083 million which was BDT 511,129 million in the previous
year. Net profit of the bank stood at BDT 9,551.39 million in the FY 2013 as against BDT
15,280.34 million net losses in the previous year. The deficit of capital of bank was BDT
20,117 million in the FY 2012 which has transformed into a surplus of BDT 908 million in the
FY 2013. As a result capital adequacy ratio rose from 3.70% to 10.27%.
Credit Rating Agency of Bangladesh (CRAB) assigned Janata Bank Ltd. A+ in the long run &
AR-2 in the short run as Entity Rating (2012) and AAA in the long run & AR-1 in the short
run as Government owned Bank.
Janata Bank Limited operates through 897 branches including 4 overseas branches at United
Arab Emirates. It is linked with 1239 foreign correspondents all over the world and a subsidiary
in Italy. Number of Employees 15485 ad number of exchange house 68. The corporate head
office is located at Dhaka with 35 (thirty five) Divisions. As a part the conscious development
of existing Human Resources, Janata Bank through its three training institutes imparts training
to officers and staffsAll of 897 branches are computerized and 42 branches running online
banking. JBL has installed 14 ATM booths and shares 3,689 ATM of other banks across the
country. A plan for installation of more ATM booths by end of this year.
The Board of Directors is composed of 13 (Thirteen) members headed by a Chairman. The
Directors are representatives from both public and private sectors. The Bank is headed by the
Chief Executive Officer & Managing Director, who is a reputed banker. The corporate head
office is located at Dhaka with 10 (ten) Divisions comprising of 38 (thirty eight) Departments.
2.2 VISION
“To become the effective largest commercial bank in Bangladesh to support socio-
economic development of the country and to be a leading bank in South Asia.”

2.3 MISSION
“Janata Bank Limited will be an effective commercial bank by maintaining a
stable growth strategy, delivering high quality financial products, providing
excellent customer service through an experienced management team and ensuring
good corporate governance in every step of banking network.”
2.4 CORE VALUES
2.5 ETHICAL PRINCIPLES
Bank deals with public money where ethics, integrity and trust is the most essential. Janata
Bank protects and upholds these principle issues in every area of its management activities
and customer services. The basic characteristics of employees’ code of ethics and business
conduct are as follows:
 Ensure customer service with utmost care, respect, dedication, integrity and unwavering
responsibility.
 Protect privacy and confidentiality of customers’ information.
 Prevent money laundering and fraud forgery.
 Protects and upholds corporate values.
Core Values
Professionalis
m
Commitment
Diversity
Accountibility
TransparencyIntegrity
Quality
Dignity
Growth

2.6 CORPORATE PROFILE OF JBL, 2013

2.7 AWARDS AND RECOGNITIONS
Since its commencement back in 1972 Janata Bank has earned plaudits time to time and again
and again from the global society. As a token of its acclamation the bank has been adorned
with a number of lofty awards and recognitions by esteemed organizations of home and abroad
which testify the bank’s dedication towards professionalism, customer services and success as
well. The supercilious performance of the bank translated into its claiming laudation through
appreciable contribution to the spurring economic development of the country.

2.8 CORPORATE LEVEL OF ORGANIZATION STRUCTURE
The Corporate Headquarter of The Janata Bank has nine divisions and each comprising of
various departments. The major divisions in headquarter are as follows:
A. HUMAN RESOURCE DEPARTMENT:
In the Janata Bank, this department deals with the employees as the core resources of the
organization. This department mainly emphasize on the recruitment, selection of the
employees. They are also motivating the employee to work efficiently and effectively.
B. IT DEPARTMENT:
This department mainly deals with the computer’s hardware and software relates
problems. This department also works on the network system establishment in all
branches. They store up-to-date information in their website.
C. MARKETING DEPARTMENT:
The Marketing department mainly works for –
 To promote the different types of services of information to people
 To improve the marketing network throughout the country
 To implement the marketing strategies and the concept of Trade marketing
D. AUDIT & INSPECTION DEPARTMENT:
Head Office Audit and Inspection Division comprising sufficiently experienced and
skilled manpower carried out internal audit and inspection work on regular basis. Bank
were audited at least once. Surprise inspections were also undertaken in many branches.
Bangladesh Bank audit teams also conducted comprehensive and foreign exchange related
inspections on the affairs of many branches during the year under report.
E. CREDIT DEPARTMENT:
The credit department mainly deals with different types of loan and advances. This
department analysis the proposal, approvable, monitoring the credit, disbursement, credit
recovery position and credit policy that is given by all branches.
F. INTERNATIONAL BANKING DEPARTMENT:
The foreign exchange department mainly deals with export, import and foreign currency
of different branches of the Bank.
G. COMMON SERVICES DEPARTMENT:
They take care of banks assets and utilize their assets properly.
H. PUBLIC RELATION & PROTOCOL DEPARTMENT:
This department deals with people & coveys people’s views to the management.
I. DEAD STOCK & STATIONERY:
This department prints all security documents of Bank & looks after of this security
items.

2.9 HIERARCHY OF THE JANATA BANK
Board of Director
Managing Director
Deputy Managing Director
General Managers
Deputy General Managers
Senior Principle Officer
Principle Officers
Senior Officers
Officers
Assistant Officer
Management Trainee
Officer

2.10 PRODUCTS AND SERVICES OFFERED BY JBL
JBL render both corporate and retail banking services with a strong focus on socio-economic
development of the country. The bank typically provides short term working capital loan and
limited long term credit exposure. Moreover, JBL offers micro enterprise and special credit as
well as rural banking. Under corporate banking services JBL provides trade finance, project
finance, syndicate finance. On the other hand, consumer loan, deposit scheme, remittance
facilities are provided through retail banking. In 2013, JBL launched its own innovation to
remittance payment system at all branches which facilitate Deposit/withdrawal from any
branch in this system. Services that are provided by JBL-
 Retail And Personal Banking
 General Credit Line
 International Banking
 Export Finance
 Import Finance
 Financing It Sector
 Industrial Credit Finance
 Development Of Women Entrepreneurs Financing
 Financing Small And Medium Enterprise
 Foreign Remittance Services
 Non Resident Foreign Currency Deposit Account (NFCD)
 Resident Foreign Currency Deposit Account (RFCD)
 Non-Resident Investor's Bdt Account (NITA)
 Wage Earners Development Bond (WEDB)
 Us Dollar Investment Bond And Us Dollar Premium Bond
 Utility Services

2.11 HIGHLIGHTS OF JBL PERFORMANCE
15722
14534
12127
a) Operating Profit (BDT in million)
2011
2012
2013
361677
409767
478536
b) Deposits (BDT in million)
2011
2012
2013
257801
305340
285748
c) Loans and Advances (BDT in
million)
2011
2012
2013
72285
100089
103982
d) Foreign Remittances (BDT in
million)
2011
2012
2013
197285
188284
176671
e) Imports(BDT in million)
2011
2012
2013
257801
156525
153252
f) Exports(BDT in million)
2011
2012
2013

CHAPTER-3
Theoretical Framework

THEORETICAL FRAMEWORK
3.1 BANKING RISKS
3.1.1 Definition of Risk
In order to study and understand the term “risk management”, risk alone, and especially in case
of banking, has to be defined first.
Risk can be defined as the combination of the probability of an event and its consequences
(ISO/IEC Guide 73). In business industry, risks are invisible and intangible uncertainties which
might materialize into adverse variations of profitability or in future losses.
More specifically, financial risk in a banking organization is the possibility that the outcome
of an action or event could bring up adverse impacts on profitability of several distinct sources
of uncertainty. These outcomes could either result in a direct loss of earnings / capital or may
result in creating difficulties on bank’s ability to meet its business objectives. These kinds of
difficulties increase the potential that the bank could not manage its ongoing business or take
benefit of opportunities to enhance its business.
Banks often classify the losses connected with the banking risks into expected or traditional
and unexpected or non-traditional losses. Expected/ traditional losses are those that the bank
knows with reasonable certainty will occur and arise from the basic functions of banks (e.g.
the expected default rate of corporate loan portfolio or credit card portfolio). Unexpected/ non-
traditional losses are those associated with unforeseen events and arise from the developments
in banking environment domestically or globally- (e.g. regulation, losses due to a sudden down
turn in economy or falling interest rates). Usually banks use their capital to deal with these
kinds of losses.
3.1.2 Types of Banking Risks
Credit Risk:
Credit risk is considered as the most important of all risks. It is referred to the customers’
inability or unwillingness to serve their debts, and constitutes a major source of loss not only
on bank’s profitability but also on the initial asset; the loss could be as much partial as total of
any amount lent to the counterparty.
Credit risk is also the risk of a decline in the credit standing of an obligor of the issuer of a
bond or stock. Such a possibility does not mean default, but it means that the probability of
default increases because an upward move is needed of the required market yield to
compensate the higher risk which brings a value decline.
The real risk from credit is the deviation of portfolio performance from its expected value.
Accordingly, credit risk is diversifiable, but difficult to eliminate completely and that because

it depends on a number of borrower-specific factors and of systemic risk outlined above. Credit
risk is not easily transferred, and accurate estimates of loss are difficult to obtain.
Market Risk:
Market risks are risks arising from changes in financial market conditions and affect negatively
the value of financial products, and, therefore, the net income and net worth of banking
institutions. It is critical here the liquidation of transactions’ period, especially in assessing
such adverse deviations from the current market value.
Market risk involves the risk that prices or rates will adversely change due to economic forces
and contains the movements in equity and interest rate markets, currency exchange rates, and
commodity prices (factors that also affect systemic risk). Market risk can also include the risks
associated with the cost of borrowing securities, dividend risk, correlation risk and liquidation
risk.
Interest Rate Risk:
Interest rate risk is the risk of a reduction in profits due to unexpected and unfavourable
fluctuations in interest rates that may negatively affect both the price of the bank assets and the
income derived from them. The main sources of interest risk are volatility of interest rates and
mismatch in the timing of interest on assets and liabilities.
The magnitude of interest rate risk depends on the asset and liability mismatch, the gap between
the interest rate - sensitive assets and the interest rate -sensitive liabilities (net income risk) and
the direction and the percentage in the change of interest rate (position risk).
To conclude, the impact of unexpected interest rate fluctuations on bank income and net worth
depends on the structure of its balance sheet, and more specifically on the relation of interest-
sensitive assets and liabilities and their maturity length.
Foreign Exchange Risk:
Foreign exchange risk is referred to the unexpected and unfavourable fluctuations of foreign
currency exchange rates which affect negatively the value of financial flows and the net worth
of the assets and liabilities of banking institutions that rely on foreign currency.
Foreign exchange risk is divided into the conversion or position foreign exchange risk which
is associated with open foreign currency-denominated asset or liability positions and the
transaction or net income risk which is associated with the conversion of certain consolidated
balance sheet contents for banks that are engaged in overseas operations.
The total gains or losses depend on the short or long position (open position) in each foreign
currency and the size of the movement of the specific currency. For market transactions,
foreign exchange rates are a subset of market parameters, so that techniques applying to other
market parameters apply as well.
Liquidity Risk:
In general, liquidity risk is referred to the bank’s inability to make its daily money transactions.
More specific, liquidity risk is the probability that a bank cannot meet its obligations and

commitments to its depositors and borrowers. Furthermore, this probability depends on other,
further factors, like industry and economy-wide factors (systemic risk), and bank specific risks.
Liquidity risk arises on both sides of the balance bank sheet. On the liability side, liquidity risk
represents the inability of banks to satisfy their depositors, especially in period of panic and
loss of trust to the banks which leads to massive deposit withdrawals. On the asset side,
liquidity risk represents the bank’s inability to have the appropriate assets to contract new
loans, advances or facilities, and make new investments in opportunities. So, the perfect
combination for a bank’s viability and the elimination of liquidity risk is the simultaneous
maturity of its assets and liabilities.
Liquidity risk might become a major risk for the banking portfolio and maybe end up as the
risk of a funding crisis. That results from unexpected events: a large charge off, loss of
confidence, or a crisis of national proportion such as a currency crisis. Extreme lack of liquidity
results in bankruptcy and that makes liquidity risk a fatal risk. However, extreme conditions
are often the outcome of other risks.
Operational Risk:
Operational risk is the risk of loss resulting from inadequate or failed internal processes, people
and systems or from external events.
Money Laundering Risk:
Money laundering is commonly defined as happening in three steps: the first step involves
introducing cash into the financial systems by some means (Placement); the second involves
carrying out complex financial transactions to camouflage the illegal source (layering); and the
final step entails acquiring wealth generated from the transactions of the illicit funds
(integration).
Money laundering is the process in which the proceeds of crime are transformed into ostensibly
legitimate money or other assets.
Internal Control Risk:
Internal Control, as defined in accounting and auditing, is a process for assuring achievement
of effectiveness and efficiency, reliable financial reporting and compliance with laws,
regulations and policies. A board concept, internal control involves everything that controls
risks to an organization. It is a means by which an organization’s reasources are directed,
monitored and measured.
3.2 RISK MANAGEMENT
3.2.1 Definition of Risk Management:
Risk Management is a systematic method of identifying, analyzing, assessing, rating,
monitoring, controlling and communicating risks associated with any bank’s activity, function
or process so as to avoid or minimize losses and maximize opportunities. It should address
methodically all the risks surrounding the organization’s activities past, present and in
particular, future.

Risk management framework is important for banks. The risk management strategy must be
integrated with its overall corporate strategies (Froot and Stein, 1994). In conjunction with the
underlying frameworks, basic risk management process that is generally accepted is the
practice of identifying, analyzing, measuring, and defining the desired risk level through risk
control and risk transfer (Rosman R., 2014).
BCBS (2001) defines financial risk management as a sequence of four (4) processes: (1) the
identification of events into one or more broad categories of market, credit, operational and
other risks into specific sub-categories; (2) the assessment of risks using data and risk model;
(3) the monitoring and reporting of the risk assessments on a timely basis; and (4) the control
of these risks by senior management.
3.2.2 The Model of Risk Management Process:
Figure-3: The model of risk management process

Concerning the model of risk management process, it embraces all the factors that are needed
so as the risk management approach to be effective and successful. In other words, the risk
management concept evolves with the gradual emergence of new risk measures and involves
the combination of some basic steps.
Although the most simplified and basic procedure is the one that is presented at the figure
above, the risk management process for different banks varied because of the different risk
profiles they adopt. Therefore, it is important at first, to be defined the bank’s strategic
objectives which better suit to its risk profile.
Once the organizations strategic objectives have been defined, risk assessment has to follow.
Risk assessment is defined as the overall process of risk analysis and risk evaluation (ISO/
IEC Guide 73).
Risk analysis begins with risk identification; an evaluation of the bank’s exposure to
uncertainty. This requires a detailed view, not only of the bank’s philosophy and operation but
also of the market and of the general environment in which it operates and exists. Additionally,
it has to be clearly defined its strategic and operational objectives, including factors critical to
its success and the threats and opportunities related to the achievement of these objectives.
Risk identification should be approached methodically to ensure that were found all the risks
that are stemming from the bank’s significant activities.
Risk description is part of risk analysis and has as objective to display the identified risks in
a structured manner so as to ensure a comprehensive risk identification, description and
assessment process. After evaluating the consequence and probability of each of the risks, key
risks should be categorized (strategic, project/ tactical, operational) and analyzed in more
detail. It is important to apply risk management the same at first stage of projects and
throughout the life of a specific project.
Risk estimation is the final step of risk analysis and can be quantitative, semi quantitative or
qualitative in terms of the probability of occurrence and the possible consequence. For
example, consequences both in terms of threats (downside risks) and opportunities (upside
risks) may be high, medium or low but with different definitions for each term. Different
organizations will find that different measures of consequence and probability will suit their
needs best.
When the risk analysis process has been completed, it is necessary to compare the estimated
risks against risk criteria which the organization has established. The risk criteria may include
associated costs and benefits, legal requirements, socioeconomic and environmental factors,
concerns of stakeholders, etc. Risk evaluation therefore, is used to make decisions about the
significance of risks to the organization and whether each specific risk should be accepted or
treated. Therefore, the different management levels within the bank should be informed
accordingly from the risk management process, so as the appropriate decisions to be made.
After the decisions are taken, the risk treatment follows in order to cure the risks; it is the
process of selecting and implementing measures to modify them. Risk treatment mainly

includes risk control/mitigation, but also extends further to functions like risk avoidance, risk
transfer, risk financing, etc. No matter of risk treatment system is used, should provide the
effective and efficient operation of the organization, effective internal controls and compliance
with laws and regulations.
A reporting and review procedure follows in order to ensure that risks are effectively
identified and assessed and that appropriate controls and responses developed. Regular audits
of policy and standards compliance should be carried out and standards performance reviewed
to identify opportunities for improvement.
Furthermore, because banks are dynamic and operate in dynamic environments, changes in the
bank and the environment in which it operates must be identified and immediate, applicable
modifications to systems should be made.
Finally, the monitoring process should reassure that the controls for the bank’s activities are
appropriate and the procedures are understood and followed. Any monitoring and review
process should also prove that the measures adopted resulted in what was intended, the
procedures and the information resulted from the risk assessment were appropriate, the
improved knowledge helped to reach better decisions and today’s mistakes can be used for
future assessments and management of risks.
The above model requires the risk management processes to develop and be innovated in fields
like the creation of risk-based practices to meet better the riskbased capital requirements, the
bankers’ preventing acts against the forthcoming risks, the gradual implementation of regulator
guidelines for imposing risk-based techniques and the reassuring of a general safety for the
financial system, the methods of recognizing risks and the techniques for managing them in
order to enhance the risk-return profile and the creation of new organizational processes for
better applying of these advances.
Without risk models, such innovations would remain limited. Risk estimation helps risk
models to have a more balanced view of income and risks and to control better the adverse
expecting consequences before they materialize into losses. By connecting the activities with
the risk makes the risk management tools, models and processes more effective and by feeding
risk processes with adequate risk-return measures, risk management develops in new levels.
In addition, as suggested by Al-Tamimi (2002), in managing risk, commercial banks can follow
comprehensive risk management process which includes eight (8) steps: exposure
identification; data gathering and risk quantification; management objectives; product and
control guidelines; risk management evaluation; strategy development; implementation; and
performance evaluation (Baldoni, 1998; and Harrington & Niehaus, 1999).
A comprehensive explanation of risk management in Islamic banking are made by Akkizidis
and Khandelwal (2008) covering the aspect of risk management issues in Islamic financial
contracts, Basel II and Islamic Financial Services Board (IFSB) for Islamic financial risk, and
examining the credit, market and operational risk management for Islamic Banks.

As per G.Dalai, et al, Risk is intrinsic to banking. However the management of risk has gained
prominence in view of the growing sophistication of banking operations, derivatives trading,
securities underwriting and corporate advisory business etc. Risks have also increased on
account of the on-line electronic banking, provision of bill presentation and payment services
etc. The major risks faced by financial institutions are of course credit risk, interest rate risk,
foreign exchange risk and liquidity risk.
Chief Risk Officer, Alden Toevs of Commonwealth Bank of Australia states that a major failure
of risk management highlighted by the global financial crisis was the inability of financial
institutions to view risk on a holistic basis.
3.3 RISK MANAGEMENT GUIDELINE
These guidelines are issued by Bangladesh Bank (BB) under section 45 of “Bank Company
Act, 1991”, and introduced to provide a structured way of identifying and analyzing potential
risks, and devising and implementing responses appropriate to their impact. These responses
generally draw on strategies of risk prevention, risk transfer, impact mitigation or risk
acceptance. BB is going to make these guidelines as mandatory for all scheduled banks
working in Bangladesh from February 2012.
The guidelines are structured on following four aspects:
a) Risk Management Objectives;
b) Risk Management Structure;
c) Risk Management Requirements;
d) Risk Management Process.
In these guidelines, 'credit' means all types of loans and advances and 'borrower' means obligor
or counterparty.
3.3.1 SCOPE OF APPLICATION
These guidelines pertain to all scheduled banks operating in Bangladesh. The risk management
process described in these guidelines is supplementary to the standards set by the legislative
requirements. This document does not replace or supersede them.
3.3.2 RISK:
Risk in a banking organization is possibility that the outcome of an action or event could bring
up adverse impacts. Such outcomes could either result in a direct loss of earnings / capital or
may result in imposition of constraints on bank’s ability to meet its business objectives.
Risks are usually defined by the adverse impact on profitability of several distinct sources of
uncertainty. While the types and degree of risks an organization may be exposed to depend
upon a number of factors such as its size, complexity business activities, volume etc., it is

believed that generally the banks face Credit, Market, Liquidity, Operational, Compliance /
legal / regulatory and reputation risks.
3.3.3 RISK MANAGEMENT
Risk management is the deliberate acceptance of risk for profit-making. It requires informed
decisions on the tradeoff between risk and reward, and uses various financial and other tools
to maximize risk-adjusted returns within pre-established limits.
Risk-taking is an inherent element of the banking business and, indeed, profits are in part the
reward for successful risk taking in business. On the other hand, excessive and poorly managed
risk can lead to losses and thus endanger the safety of a bank's depositors.
3.3.4 OBJECTIVES OF RISK MANAGEMENT
The objective of risk management is to identify and analyze risks and manage their
consequences. The banking sector has perhaps the most specific focus on the management of
financial risks. The guiding standard that is a key influence on central banks and banking
regulations comes from the Swiss-based Bank for International Settlements (BIS), and
particularly it's BCBS.
Risk Management is a discipline at the core of every financial institution and encompasses all
the activities that affect its risk profile. It involves identification, measurement, monitoring and
controlling risks to ensure that-
a) The individuals who take or manage risks clearly understand it.
b) The organization’s Risk exposure is within the limits established by Board of Directors.
c) Risk taking Decisions are in line with the business strategy and objectives set by BOD.
d) The expected payoffs compensate for the risks taken
e) Risk taking decisions are explicit and clear.
f) Sufficient capital as a buffer is available to take risk
3.3.5 OVERVIEW OF RISK
Risks are considered warranted when they are understandable, measurable, controllable and
within a banking company's capacity to readily withstand adverse results. Sound risk
management systems enable managers of banking companies to take risks knowingly, reduce
risks where appropriate and strive to prepare for a future, which by its nature cannot be
predicted with absolute certainty.
Risk management is a discipline at the core of every banking company and encompasses all
activities that affect its risk profile. Banks should attach considerable importance to improve
the ability to identify measure, monitor and control the overall risks assumed. Risk
management is very important especially when the banks are dealing with multiple activities,
involving huge funds having both local and international currency exposure.

Banking companies in Bangladesh, while conducting day-to-day operations, usually face the
following major risks:
a) Credit risk (including concentration risk, country risk, transfer risk, and settlement risk)
b) Market risk (including interest rate risk in the banking book, foreign exchange risk, and
equity market risk)
c) Liquidity Risk
d) Operational Risk
e) Other risks (Compliance, strategic, reputation and money laundering risk)
3.3.6 ELEMENTS OF A SOUND RISK MANAGEMENT SYSTEM
The key elements of a sound risk management system should encompass the following:
a) Risk management structure with board and senior management;
b) Organizational policies, procedures and limits that have been developed and implemented
to manage business operations effectively;
c) Adequate risk identification, measurement, monitoring, control and management
information systems that are in place to support all business operations; and
d) Established internal controls and the performance of comprehensive audits to detect any
deficiencies in the internal control environment in a timely fashion.
3.3.7 BOARD AND SENIOR MANAGEMENT OVERSIGHT
The quality of board and senior management oversight is evaluated in relation to the following
elements:
a) whether the board and senior management have identified and have a clear understanding
of the types of risk inherent in business lines and whether they have taken appropriate steps
to ensure continued awareness of any changes in the levels of risk;
b) whether the board and senior management have been actively involved in the development
and approval of policies to limit the risks, consistent with the bank's risk appetite;
c) whether the board and senior management are knowledgeable about the methods available
to measure risks for various activities;
d) whether the board and senior management carefully evaluate all the risks associated with
new activities and ensure that the proper infrastructure and internal controls are in place;
and
e) whether the board and senior management have provided adequate staffing for the activity
and designated staff with appropriate credentials to supervise the activity.

3.3.8 POLICIES, PROCEDURES AND LIMIT STRUCTURE
The following key factors are to be considered in evaluating the adequacy of policies,
procedures and limits:
a) whether policies, procedures and limits are properly documented, drawn up after careful
consideration of the risks associated with the activity and reviewed and approved by
management at the appropriate level;
b) whether policies assign full accountability and clear lines of authority for each activity and
product area; and
c) whether compliance monitoring procedures have been developed. These procedures should
include internal compliance checks for adherence to all policies, procedures and limits by
an independent function within a bank such as an internal control unit.
3.3.9 RISK MEASUREMENT, MONITORING AND MANAGEMENT
REPORTING SYSTEMS
a) Effective risk monitoring requires banks to identify and measure all quantifiable and material
risk factors. Consequently, risk monitoring activities must be supported by information systems
that provide the management with timely and accurate reports on the financial condition,
operating performance and risk exposure of the bank.
b) Management information systems should provide regular and sufficiently detailed reports for
line managers engaged in the day-to-day management of the bank's business operations.
c) All banks are expected to have risk monitoring and management information systems that
provide senior management with a clear understanding of the bank's positions and risk
exposures.
d) The following factors should be considered in assessing the effectiveness of the risk
measurement, monitoring and management reporting systems:
i. the adequacy, on a historical basis, of the risk monitoring practices and reports
addressing all material risks of the organization;
ii. the adequacy and appropriateness of the key assumptions, data sources and procedures
used to measure and monitor risk, including the adequacy of analysis, documentation
and reliability testing of the system on a continuing basis;
iii. any material changes in the bank's lines of business or products that might require
changes in the measuring and monitoring systems;
iv. any changes in the information technology or management information system
environment that have significantly changed the production process for reports or the
assumptions on which reports are based;
v. how consistently management information reports and other forms of communication
monitor all meaningful exposures, check compliance with established limits, goals or
objectives and compare actual with expected performance; and
vi. the adequacy, accuracy and timeliness of reports to the Board and senior management
and whether such reports contain sufficient information for them to identify any
adverse trends and to evaluate the level of risks fully.

3.3.10INTERNAL CONTROLS AND COMPREHENSIVE AUDITS
a) A critical element of a bank's ability to operate in a safe and sound manner and to maintain
an acceptable risk management system is the adequacy of its internal control environment.
Establishing and maintaining an effective system of controls, including the enforcement of
official lines of authority and the appropriate segregation of duties, is one of management's
most important responsibilities. Serious lapses or deficiencies in internal controls such as
inadequate segregation of duties may warrant supervisory action.
b) When properly structured, a system of internal controls promotes effective operations,
provides for reliable financial reporting, safeguards assets and helps to ensure compliance
with relevant laws, regulations and internal policies. An independent internal auditor
should test internal controls and the results of these audits, including management's
response to the findings, should be properly documented.
The following factors should be considered in evaluating the adequacy of the internal
control environment:
i. the appropriateness of the system of internal controls in relation to the type and level
of risks posed by the nature and scope of the bank's business operations and products;
ii. whether the bank's organization structure establishes adequately clear lines of
authority and responsibility for monitoring compliance with policies, procedures and
limits;
iii. whether reporting lines provide for sufficient independence of the control functions
from the business areas, as well as adequate segregation of duties throughout the
organization (such as those relating to trading, custodial and back-office operations
or loan origination, marketing and processing)
iv. whether the official organizational structure reflects actual operating practices;
v. the reliability, accuracy and timeliness of all financial, operational and regulatory
reports;
vi. the adequacy of procedures for ensuring compliance with applicable laws,
regulations and internal policies and procedures;
vii. the effectiveness, independence and objectivity of internal audit or other control and
review procedures in providing adequate coverage of the bank's operations;
viii. whether internal controls and information systems are adequately tested and
reviewed;
ix. whether the coverage, procedures, findings and management responses to audits are
adequately documented; and
x. whether identified material weaknesses are given appropriate and timely high-level
attention and management's actions to correct material deficiencies are objectively
verified and reviewed.

CHAPTER-4

RISK MANAGEMENT OF JANAT BANK LIMITED
Effective risk management is fundamental to the success of the Bank, and is recognized as
one of the Bank’s five strategic priorities. Janata bank has a strong, disciplined risk
management culture where risk management is a responsibility shared by all of the Bank’s
employees. A key aspect of this culture is diversification across business lines, geographies,
products, and industries.
4.1 RISK MANAGEMENT FAREMWORK
JBL has established a robust risk management framework through strengthening risk-related
policies, procedures, processes, control mechanisms and reporting during the last few years.
With a view to preserving and enhancing resiliency capacity, the bank continues to increase its
risk management capabilities through investing in people, processes and IT infrastructure.
The primary goals of risk management are to ensure that the outcomes of risk-taking activities
are consistent with the Bank’s strategies and risk appetite, and that there is an appropriate
balance between risk and reward in order to maximize shareholder returns. The Bank’s
enterprisewise risk management framework provides the foundation for achieving these goals.
The Bank’s risk management framework is applied on an enterprisewise basis and consists of
three key elements:
A. Risk Governance,
B. Risk Appetite, and
C. Risk Management Techniques.
Figure-4: Risk Management Framework of JBL

4.1.1 RISK GOVERNANCE
Effective risk management begins with effective risk governance
The Bank has a well-established risk governance structure, with an active and engaged Board
of Directors supported by an experienced senior management team and a centralized risk
management group that is independent of the business lines. Decision-making is highly
centralized through a number of senior and executive risk management committees.
Figure-5: Risk Governance of JBL
4.1.1.1 Board’s Risk Management Committee
A risk management committee of the board has been formed as per BRPD Circular No.11
dated 27.10.2013 and Bank Company Act-1991(Amendment Act 2013) sec-15(b)(3)
comprising of three members from Board of Directors and CEO & MD. The Board of
Directors, either directly or through its committees ensures that decision-making is aligned
with the Bank’s strategies and risk appetite.
Role of the Committee
i. Formulation of policy for risk classification, assessment, control and mitigation.
ii. Formation of organizational structure for risk management.
iii. Review of risk management policy.
iv. Preservation of risk management information and reporting.
v. Supervision of the implementation of overall risk management policy.
vi. Placement/Reporting of risk management issues to the Board of Directors.

4.1.1.2 Executive’s Risk Management Committee
A risk management committee with top management has been formed as per instruction of
Bangladesh Bank to supervise risk management activities of the bank. The committee is
headed by Deputy Managing Director. Six risk management sub-committees for each core risk
headed by respective General Manager have also been formed to assist the main committee.
Deputy General Manager of risk management department works as a Member Secretary of the
committee to co-ordinates the entire risk management activities of the bank.
Figure-6: Executive Risk Management Committee
Duties and Responsibilities of the Committee
i. Risk management desk collects all risk related information from different sources.
ii. They analyze the data, identify the risk and assess the level of risk inherent in bank’s
operational activities and prepare a risk management paper on monthly basis.
iii. The committee, in its monthly meeting, produce analytical and comprehensive
discussion paper on risk management and find out the way/course of action/
corrective measures to minimize/mitigate the identified key risks.
iv. The committee also reports the identified key risks to the Board of Directors and
respective department of Bangladesh Bank.

4.1.1.3 Risk Management Sub-Committees:
Risk Management Framework includes six risk management sub-committees for six core risks.
The sub-committees perform the beginning part of risk management process. They collect data
from different sources, analyze it and report the findings to the Executive’s Risk Management
Committee.
i. Credit risk Sub-Committee: Comprising of 7 members headed by GM (Credit)
ii. ALM Sub-Committee: Comprising of 6 members headed by GM (Treasury)
iii. AML Sub-Committee: Comprising of 4 members headed by GM (Overseas Banking
Division)
iv. Foreign Exchange Risk Sub-Committee: Comprising of 5 members headed by GM
(Overseas Banking Division)
v. ICC Sub-Committee: Comprising of 6 members headed by GM (Internal Control &
Compliance)
vi. ICT Sub-Committee: Comprising of 3 members headed by GM (Information and
Communication Technology.
4.1.2 RISK APPETITE
Effective risk management requires clear articulation of the Bank’s risk appetite
and how the Bank’s risk profile will be managed in relation to that appetite.
The Bank’s risk appetite framework governs risk taking activities on an enterprise-wide basis.
Figure-7: Risk Appetite Framework
 The Bank’s Risk Appetite Framework
consists of four components, and
combines qualitative as well as
quantitative terms of reference to
guide the Bank in determining the
amount and types of risk it wishes to
prudently undertake.

4.1.2.1 Risk management principles
Provide the qualitative foundation of the risk appetite framework. These principles include:
i. Promotion of a robust risk culture,
ii. Accountability for risk by the business lines,
iii. Independent oversight exercised by Global Risk Management (GRM),
iv. Avoidance of excessive risk concentrations, and
v. Ensuring risks are clearly understood, measurable, and manageable.
4.1.2.2 Strategic principles
Provide qualitative benchmarks to guide the Bank in its pursuit of the Governing Financial
Objectives, and to gauge broad alignment between new initiatives and the Bank’s risk appetite.
Strategic principles include:
i. Placing emphasis on the diversity, quality and stability of earnings,
ii. Focusing on core businesses by leveraging competitive advantages, and
iii. Making disciplined and selective strategic investments.
4.1.2.3 Governing financial objectives
Focus on long-term shareholder value. These objectives include sustainable earnings growth,
maintenance of adequate capital in relation to the Bank’s risk profile, and availability of
financial resources to meet financial obligations on a timely basis at reasonable prices.
4.1.2.4 Risk appetite measures
Provide objective metrics that gauge risk and articulate the Bank’s risk appetite. They provide
a link between actual risk taking activities and the risk management principles, strategic
principles and governing financial objectives described above. These measures include capital
and earnings ratios, market and liquidity risk limits, and credit and operational risk targets.

4.1.3 RISK MANAGEMENT TECHNIQUES
Effective risk management includes techniques that are guided by the Bank’s Risk
Appetite Framework and integrated with the Bank’s strategies and business
planning processes.
Figure-8: Risk Management Techniques
4.1.3.1 Policies, Procedures and Limit Structure of JBL
i. Risk Management policies, procedures and limits are properly documented;
ii. Policies are reviewed annually or on demand basis;
iii. All policies and procedures are duly approved by the Board of Directors;
iv. Policies are assigned with full accountability and clear lines of authority for each activity
and product area;
v. A compliance monitoring procedures have been deployed for all policies;
vi. An independent internal control unit is in JBL to check internal compliance.
4.1.3.2 Guidelines, Processes and Standards
For guidelines, processes and standards, Janata Bank follows Risk Management Guidelines for
Banks published by Bangladesh Bank on February 2012.
4.1.3.3 Risk Measurement, Monitoring and Management Reporting System
i. An effective risk monitoring procedure exists in the bank to identify and measure all
quantifiable and material risk factors;
ii. JBL has a separate Management Information Systems Department which provides
necessary information to Risk Management Department and senior management for
understanding the bank’s positions and risk exposures in time;
iii. A strong risk management monitoring culture has been framed in JBL to address all sorts
of material risks;
 Risk management techniques are
regularly reviewed and updated to
ensure consistency with risk-
taking activities, and relevance to
the business and financial
strategies of the Bank.

iv. Adequate and accurate reports containing sufficient information are being produced to
senior management for identifying any adverse trends and evaluating the level of risk.
4.1.3.4 Stress testing
Stress testing has become an essential and very prominent tool in the analysis of financial
sector stability and development of financial sector policy. It measures the shock absorbing
capability of a bank.
Different shocks in stress testing:
i. Minor shock
ii. Moderate shock
iii. Major shock
Risk Factors in Stress Testing- Credit risk; Interest rate risk; Exchange rate risk; Equity price
risk and Liquidity risk.
4.2 IDENTIFICATION OF RISKS
Risk identification is the first step in the proactive risk management process. It provides the
opportunities, indicators, and information that allows an organization to raise major risks
before they adversely affect operations and hence the business. If all the risks are not identified
earlier, it may adversely affect the banking business.
4.2.1 Objectives of risk identification:
With an aim to the following risks are identified:
i. Proper identification of all risks.
ii. Covering all aspects where risks are inherent.
iii. Detecting all sorts of risks.
iv. Prioritizing risks on the basis of weight
v. Determining the acceptable level of each risk considering the risk appetite.
vi. Lessen the risks up to the tolerance level which may not remove entirely.
vii. Complete mitigation of some risks.
4.2.2 Risk identification process
i. Collecting data/information from the following models and information system:
 various internal reports
 reports from Credit Committee Meeting
 reports of ALCO paper and minutes of ALCO meeting
 economic, political research articles from research unit.
 central bank report
 recent negative print/electric media report/different journals

ii. Assessing the quality, completeness and correctness of all relevant data
iii. Analysis of data
 trend analysis
 correlation
 comparison
 graph/chart etc.
iv. Summery/priority list
 highlight risky portfolios and deficiencies
 determining the way of mitigation
 setting time frame for mitigation
 distribution of tasks to respective department/ person for mitigation.
4.3 RISK MITIGATION METHODOLOGY
JBL has separate mitigation methodology for each risk. The vital and first step of risk
mitigation is the identification and analysis of risks. To do that a Risk Management Paper is
prepared covering all potential risks in banking. The Risk Management Committee discussed
on the paper in its monthly meeting, find out the risks, gives direction to mitigate them.
4.3.1 Risk Management Process
Risk management process of JBL is based on the Bangladesh Bank guidelines and the clear
concept of identification, assessment, parameter setting, controlling and monitoring activities.
Board integrated risk management committee oversights overall risk management identified
by the bank. Risk management process of JBL-
i. Identification of key risks inherent in business activities;
ii. Analysis and assessment of identified risks;
iii. Parameter setting for risk measurement;
iv. Control and mitigation of risks;
v. Setting up appetite and tolerance level for formulation of risk strategies;
vi. Monitoring and reporting for decision making.

Figure-9: Risk management Process
Risk management desks in different levels of the organogram collect data from various
related sources, verify the accuracy and completeness of the data, analyze and set parameter
to assess the level of risk. Tolerable risks are accepted and deal cautiously. Controlling and
mitigation actions are applied on the key risks to minimize and control them to achieve the
set goals taken as per risk appetite.
A. Credit Risk and Its Mitigation
Credit risk is simply defined as the potential that a bank borrower or counterparty will
fail to meet its obligations in accordance with agreed terms.
Credit risk comes from a bank's dealing with individuals, corporate, banks and financial
institutions or a sovereign. The assessment of credit risk involves evaluating both the
probability of default by the borrower and the exposure or financial impact on the bank in
the event of default.
Credit risk occupies the lion’s share of bank’s total risk. So credit risk management is a
crucial issue of risk management and an essential to the long-term success of any banking
organization. JBL’s goal of credit risk management is to maximize its risk-adjusted rate of
return by maintaining credit risk exposure within acceptable parameter. So, JBL’s
management has adopted appropriate policy, procedures and methods to manage the credit
risk inherent in the entire portfolio as well as the risk in individual credits or transactions.
The bank also considers the relationship between credit risk and other risks.

Credit Risk Mitigation Process considers the following credit related aspects:
 Sector concentration
 Large Borrower concentration
 Single Borrower concentration
 Geographical concentration
 Non-performing loans
 Credit growth
 Loan-deposit ratio etc.
A.1 SOUND PRACTICE IN CRM
The sound CRM practice is set out in JBL by addressing the following areas:
a) Establishing an appropriate credit risk environment;
b) Operating under a sound credit-granting process;
c) Maintaining an appropriate credit administration, measurement and monitoring
process; and
d) Ensuring adequate controls over credit risk.
A.1.1 Sustainable CRM Culture
Sustainable CRM culture in a bank is the most essential factor to enrich the asset quality
resulting in the positive curve in its profit. JBL, as a large and first generation bank, has
established a sound and sustainable CRM culture of its own over its 41 years journey.
Diversified credit portfolio, financial inclusion and regulatory guidance are the main
component of JBL’s CRM culture. JBL is practicing economic friendly CRM policies and
strategies in its borrower selection, credit processing and all other credit related activities.
A.1.2 Credit Granting Process
Although the Board of Directors holds the sole right of credit sanctioning, the power is
delegated to CEO & MD. The credit sanctioning authority is also delegated to various
lower level of the management line to strike a balance between adequate control and
flexibility in credit operations to ensure full transparency and accountability at all levels.
Even a manager of a small branch has the credit sanctioning authority. But there is a well-
defined, clear and sound credit granting process applicable for all sanctioning authority.
The process includes:
1. Selection of borrower;
2. Credit appraisal;
3. Credit assessment;
4. Credit risk grading;
5. Credit approval & sanctioning;
6. Credit disbursement;
7. Credit monitoring;

Figure-10: Credit Granting Process
A.1.3 Credit administration, measurement and monitoring process
The credit risk rating systems support the determination of key credit risk parameter
estimates which measure credit and transaction risk. These risk parameters – probability of
default, loss given default and exposure at default are transparent and may be replicated in
order to provide consistency of credit adjudication, as well as minimum lending standards
for each of the risk rating categories.
JBL follows Bangladesh Bank’s BRPD Circular No.14 Dated 23 September 2012 for
classification of loans & advances:
Types of Loans Classification
Status
Period for
classification
(past due)
Continuous Loan
(Overdraft, Cash credit-Hypo,
Cash credit-pledge etc.)
SMA
SS
DF
BL
2 Months
3M
6M
9M

Demand Loan
(Forced Loan, PAD, LIM, FBP, IBP etc.)
SMA
SS
DF
BL
2M
3M
6M
9M
Fixed Term Loan
(Which are repayable under a specific repayment schedule.)
SMA
SS
DF
BL
2M
3M
6M
9M
Fixed Term Loan
(loan amount below Tk 0.10 crore)
SMA
SS
DF
BL
2M
3M
6M
12M
Short term Agriculture & Micro credit SMA
SS
DF
BL
-
12M
36M
60M
 Provisioning depending on the group:
Figure-11: Provision on loan
A.1.4 Establishing Control over Credit Risk
Risk identification, measurement, mitigation and supervision are the core component of
credit risk controlling. Following the Bangladesh Bank’s guidelines JBL has formed the
structure for overall risk management, specially credit risk management as it is the critical
component of a comprehensive risk management arena. Risk management papers are
prepared and placed before the RMC on monthly basis to address the risks and find out the
way to mitigate them.

B. Asset Liability Risk and Its Mitigation
ALM is a process to manage the composition and pricing of the assets, liabilities
and off balance sheet items and aims to control bank’s exposure to market risks,
with the objective of optimizing net income and net equity value within the overall
risk preferences of the bank. It has evolved in response to the problems of banks
dealing in a wide range of diversified assets, liabilities and contingent liabilities in
times of volatile interest rates and more generally a continuously changing
economic environment.
ALM programmes focus on interest rate risk, liquidity risk and foreign exchange
risk as those represent the most prominent risks and may affect the overall balance-
sheet of the organization. Individual risk mitigation methodology is discussed
below:
 The asset and liability management committee (ALCO) is the key unit of the risk
management system. The ALCO of JBL consisting of the bank’s senior
management and headed by CEO & Managing Director is responsible for ensuring
adherence to the limits set by the Board and deciding the business strategy of the
bank (on the assets and liabilities sides) in line with the bank’s budget and decided
risk management objectives.
 The committee meets at least once in a month, addresses all the risks and tries to
find out the solution for mitigating the risks.
 Deputy General Manager of treasury department is the convener of ALCO meeting.
 The ALCO is supported by the ALCO unit who is responsible for providing
necessary inputs and reports to the committee on the bank’s current position as well
as external information necessary for making ALM decisions.

C. Market Risk
Market risk is the risk of loss from changes in market prices and rates (including
interest rates, equity prices, and foreign exchange rates), the correlations among
them, and their levels of volatility.
The major sources of Market Risk to which assets and liabilities of the Bank are exposed to
are stated below:
C.1 Interest Rate Risk
“The risk of losses resulting from adverse movement in interest rates
and their impact on future cash-flows is the interest rate risk.”
Generally, a bank may have a disproportionate amount of fixed or variable rates instruments
on either side of the balance-sheet. One of the primary causes is mismatches in terms of a bank
deposits and loans.
Change in net interest income (NII) = i(Change in interest rate) * gap
= 1% of 25,442.60 million = 254.40 million.1
According to gap analysis, the increase in market value of equity due to 1% change in interest
rate for 31 December 2013 is BDT 254.40 million.
C.2 Equity Price Risk Management
“Equity price risk is the risk of loss in value of the bank’s equity investments
and / or equity derivative instruments arising out of a change in equity prices.”
JBL’s equity investment activities like holding limit of shares, provision against them and risk
management are guided as per Bangladesh Bank policy.
C.3 Foreign Exchange Risk Management
“The risk of loss due to changes in spot and forward prices,
and thevolatility of currency exchange rates.”
-(Scotia Bank Annual Report, 2012)
Foreign exchange risk is the risk that a mismatch between the composition of foreign asset
and liabilities (in a particular foreign currency) may have an adverse effect on net cash flow
and the value of the bank’s net equity due to movements in exchange rate.
Foreign exchange risk is measured and monitored by the Treasury Department. A sound and
clear policy for dealing room is stated in the Foreign Exchange Risk Management Guidelines
of JBL. Front office, mid office and back office operations, dealing room limits, dealer’s
individual limit are maintained as per the BB guidelines to minimize the inherent risk in
foreign exchange transactions.
1
JBL Annual Report, 2013; page-133

D. Liquidity Risk
The current and prospective risks arise when the bank has not the ability to meet its
obligation as these come due without adversely affecting the bank's financial conditions.
In ALM perspective, the focus is on the funding liquidity risk of the bank meaning its ability
to meet its current and future cash-flow obligations and collateral needs, both expected and
unexpected. This mission thus includes the bank liquidity's benchmark price in the market.
Statutory Liquidity ration of JBL:
Particular Dec, 2013 Dec, 2012
Cash reserve requirement Required
Maintained
6.00%
6.01%
6.00%
6.08%
Rest of statutory liquidity ratio Required
Maintained
13.00%
44.39%
13.00%
33.24%
Structural Liquidity Profile:
Particulars Dec, 2013 Dec, 2012 Ideal Scenario
Loan deposit ration
Maximum cummulative outflow (MCO)
59.71%
(17.10%)
74.52%
(24.89%)
82%-85%
(20%)

E. Operational Risk and Its Mitigation
“Operational risk is the risk of loss resulting from inadequate or
failed internal processes, people and systems or from external events”
That means, the term Operational Risk Management (ORM) is defined as a continual cyclic
process which includes risk assessment, decision making and implementation of risk control
measures, which results in acceptance, mitigation, or avoidance of risk. ORM is the oversight
of operational risk, including the risk of loss resulting from inadequate or failed internal
processes and systems like human factors or external events.
Figure-12: Operational risk

F. Money Laundering Risk and its Mitigation
JBL treats the money laundering and terror financing issues as a vital part of its core risk
management activities. Bank has formulated its own guidelines for prevention of money
laundering approved by the Board of Directors in line with Anti Money Laundering Law and
Bangladesh Bank guidelines.
Anti-money Laundering Policy
The following major issues that bank has been incorporated in the respective policy and
followed them to mitigate money laundering risk:
i. Bank has developed, administered, and maintained an anti-money-laundering
compliance policy.
ii. The policies have been tailored to the institution and based upon an assessment
of the money laundering risks.
iii. The policy address its know your customer (KYC) policy and identification
procedures before opening new accounts, monitoring existing accounts for
unusual or suspicious activities.
iv. It also includes a description of the roles and responsibilities of the anti-money
laundering compliance officers(s)/unit and other appropriate personnel will play
in monitoring compliance with and effectiveness of money laundering policies
and procedures.
v. There is a monitoring unit to monitor unusual/suspicious transaction which needs
to be reported to Bangladesh Bank.
vi. Cash transaction report (CTR) is being sent to Bangladesh Bank on monthly basis
for cash transaction of 1.00 million or above in a day.
vii. Suspicious transaction report (STR) is reported as and when detected.
viii. Officials of the bank are trained up on anti-money laundering policies.
JBL has fully complied the above issues. To mitigate money laundering risk, JBL has assigned
CAMLCO in its head office and BAMLCO in all branches. Besides, for minimization of risks
in the banking activities, three new departments named “Foreign Exchange Audit”,
“Compliance External” and “Foreign Trade Monitoring” have been established in 2013.
Awareness and Training
Training on anti-money laundering is continuously giving to all categories of officers and
executives for developing awareness and skill for indentifying suspicious activities. More
than 13 exclusive training courses on money laundering has been organized and 500 officers
have been trained up during the current year, besides this every basic course and risk
management course include separate sessions on this topic. JBL has planned to organize more

training programs and train up its officers/executives in the coming years so that they can
contribute in money laundering risk mitigation initiatives prescribed by the bank.
G. ICC Risk and its Mitigation
Internal control and compliance policy is the policies and procedures established and
implemented alone, or in concert with other policies or procedures, to manage and control a
particular risk or business activity, or combination of risks or business activities, to which the
bank is exposed or in which it is engaged. It refers to the mechanism in place on a permanent
basis to control the activities in an organization, both at a central and at a
departmental/divisional level.
G.1 Internal Control Objectives
The primary objective of internal control system in JBL is to help the bank perform better
through the use of its resources. Through internal control system bank identifies its weaknesses
and takes appropriate measures to overcome the same. The main objectives of internal control
are as follows:
i. Performance objectives: To maintain the efficiency and effectiveness of overall
operating activities.
ii. Information objectives: To ensure the reliability, completeness and timelines of
financial and management information.
iii. Compliance objectives: To ensure the robust compliance with applicable laws
and regulations.
G.2 Management Committee (MANCOM)
In setting out a strong internal control framework within the organization the MANCOM of
JBL is responsible for overall management of the bank. The committee puts in place policies
and procedures to identify measure, monitor and control these risks and monitors the adequacy
and effectiveness of the internal control system based on the bank’s established policy &
procedure.

Figure-13: MANCOM
G.3 Internal Control Activities
Monitoring activities & correcting deficiencies:
i. Effectiveness of the bank’s internal control is monitored on an ongoing basis. Key/high
risky items are identified and monitored as part of daily activities. In addition, there is a
periodic evaluation by the business lines and internal audit team.
ii. There is an effective and comprehensive internal audit system which is carried out by
operationally independent, trained/skillful and competent staffs who are specially
designated by the management. The significant deficiencies identified by the audit team
are reported directly to the audit committee of board on a regular basis.
iii. The internal control team also reports to the audit committee /the board of directors at a
regular interval.

H. ICT Risk and its Mitigation
Janata Bank Limited has formulated the ICT policy to use as a minimum requirement and as
appropriate to the level of its IT operation. The guidelines includes-
 IT security policy,
 physical security policy,
 password policy,
 anti-virus policy,
 server security policy,
 IT assets administration and management policy,
 disaster management policy and system audit policy.
Effective implementation of this policy will minimize unauthorized access to Janata Bank
Limited proprietary information and technology.
Janata Bank Limited has taken steps to automate its business process, data management,
accounts etc. to reflect Real Time On-Line Banking through Straight Processing (STP) and
Temenos-24, a world class banking solution has already been implemented in 42 branches.
Janata Bank has adopted sufficient measures to protect the safety and security of information
and communication platform from unauthorized access, modification, virus, disclosure and
destruction in order to ensure business continuity, data safety and security thereby protecting
customers' interest at large.
H.1 ICT Risk Management
The rapid development of information and communication technologies (ICTs) has effectively
facilitated reorganizing a bank’s business processes and streamlining the provision of its
products and services in today’s dynamic business environment. ICT provides competitive
advantage often brings organizations numerous benefits including fast business transactions,
increasing automation of business processes, improved customer service and provision of
effective decision support in a timely manner.
ICT applications have also brought organizations’ risks such as malfunctioning of system,
failure of network, lack of technological knowhow, virus attack, hacking, spoofing,
unauthorized access etc. In order to minimize and control these risks successfully, ICT risk
management policies and strategies have been developed and implemente in JBL in line with
the ICT guidelines as prescribed by Bangladesh Bank.
H.2 IT Audit
JBL has introduced IT audit system, conducting jointly with audit people and IT professional,
to ensure more safety and security of banking assets as per the Bangladesh Bank guidelines.
The IT audit team is preparing to conduct IT audit in all branches, phase by phase, on a periodic
basis and providing suggestions to higher management. IT division also organizing various IT
related training programs and IT inspection to make sure that employees are aware of IT risk
related issues and comply with the IT policies properly.

I. Environmental Risk and its Mitigation
Environmental risk is a actual or potential threat of adverse effects on living organisms and
environment by effluents, emissions, wastes, resource depletion, etc., arising out of an
organization’s activities. It is a facilitating element of credit risk arising from environmental
issues. These increase risks as they bring an element of uncertainty or possibility of loss in
the context of a financing transaction.
JBL has formulated a Environment Risk Management Guidelines with the purpose of
understanding and managing the risks that arise from environmental concerns. It is introduced
in general and sector specific environmental due diligence checklists covering poultry, dairy,
cement, chemicals, pesticides, pharmaceuticals, engineering, housing, pulp & paper, sugar,
tannery, textiles & apparels, ship breaking, medicare & hospital etc. All projects in the said
sectors will be rated as high, moderate and low using EDD check list to assess and mitigate
social & ethical risks.
J. Strategic Risk and its Mitigation
Strategic risk is the current or prospective risk relate to earnings and capital that arises from
adverse business decisions, improper implementation of decisions or lack of responsiveness
to changes in the business environment both internal and external. This risk is a function of
the compatibility of a bank's strategic goal, the business strategies developed and resources
employed to achieve strategic goal and the quality of implementation of that goal.
Internal sources includes organizational structure, work process and procedures, personnel,
information and technology.
External sources includes competition, changes of target customer group, technological
changes, economic factors and regulations.
JBL formulates 3-5 years strategic plan, in consistent with its long term goal to indentify,
measure and mitigate the strategic risks.

K. Compliance Risk and Its Mitigation
Compliance risk is the current or prospective risk to earnings and capital arising from
violations or non-compliance with laws, rules, regulations, agreements, prescribed practices,
or ethical standards, as well as from the possibility of incorrect interpretation of effective laws
or regulations.
To identify, measure and monitor compliance risk, JBL has taken the following steps:
i. Identifying the source of compliance risk inherent in all existing or new rules, procedures,
internal processes, activities, contracts and court cases.
ii. Maintaining standard process and checklists to identify the strengths and weaknesses of
the compliance risk environment.
iii. Analyzing the risk indicator like statistics or matrices that include the volume and/or
frequency of law violations, frequency of complains, fines and court expenses,
unfavorable court verdicts or number of finalized court cases on a periodical basis and
frequency of actual or suspected fraud or money laundering activities.
iv. Conducting regular legal reviews on different bank's products and services and their
relevant documentation in order to ensure that all contracts are in conformity with laws
and regulations.
L. Capital Risk Management
JBL is committed to maintain a strong capital base to support business growth, ensuring
compliance with all regulatory requirements, obtaining good credit and CAMELS rating and
having a cushion to absorb any unexpected shocks arising from credit, operational and market
risks.
JBL has formulated a five years capital plan considering the following:
i. Increasing Tier 1 and Tier 2 capital;
ii. Keeping sufficient cushion to absorb unexpected losses;
iii. Keeping sufficient capital to cover the risks associated with its activities;
iv. Maintaining a process to compare available capital with current and projected solvency
needs and address deficiencies in a timely manner.
v. Meeting regulatory requirements.
JBL also has a business plan for next three years consistent with capital requirement, business
growth, improvement of credit and CAMELS rating.

L.1 Basel-II Framework for Risk Management
Basel II recommends on banking laws and regulations for ensuring stability, safety and
soundness of overall banking system. It is a risk based capital management framework. JBL
has adopted Basel II as per Bangladesh Bank’s guidelines with a view to :
i. Prudent capital regulation.
ii. Scientific principles for banking supervision.
iii. Use of market disclosure for better focus on risk to ensure better risk management and
financial stability.
Basel II comprises of three pillars
Pillar-1 : Minimum capital requirement
Pillar-2 : Supervisory review process
Pillar-3 : Market discipline
L.1.1 Pillar-1: Pillar-1 deals with the assessment of minimum capital requirement considering
 credit risk,
 market risk and
 operational risk.
Capital position under pillar-1 is (BDT in Million):
Eligible Capital 2013 2012
Tier-1 (Core capital )
Tier-2 (Supplementary capital)
Tier-3 (eligible for market risk only)
Total Eligible capital
Total risk weighted assets (RWA)
26,225.67
8,075.36
-
34,301.03
333,923.30
5,890.18
5,890.18
-
11,780.36
318,980.03
Capital adequacy ratio (CAR)
Core capital to RWA
Supplementary capital to RWA
Minimum capital requirement (MCR)
Capital surplus/(shortfall)
10.27%
7.85%
2.42%
33,3392.33
908.70
3.70%
1.85%
1.85%
31,898.03
(20,117.67)
Capital comparison:
BDT in Million
Year 2013 2012
MCR
Eligible Capital
Capital Surplus/
(Shortfall)
33,392.33
34,301.03
908.70
31,898.03
11,780.36
(20,117.67)

L.1.2 Pillar-2
The supervisory review process (SRP) is explicitly recognized as an integral part of the New
Basel Capital Accord. It is intended to ensure not only that banks have adequate capital to
support all the risks in their business, but also to encourage banks to develop and use better
risk management techniques in monitoring and managing these risks. Such supervisory review
will enable early intervention by supervisors if banks’ capital does not sufficiently buffer the
risks inherent in its business activities.
According to Bangladesh Bank guidelines, the SRP of JBL consists of three layer structure i.e.
strategic layer, managerial layer and operational layer.
STRATEGIC LAYER The audit committee and Risk Management Committee of
JBL is responsible on behalf of the Board of Directors to implement SRP in bank. These
committee monitor the managerial lapses.
MANAGERIAL LAYER JBL has an exclusive body naming SRP team which
is constituted by the concerned departmental heads of bank and headed by Managing Director.
JBL has already drafted a document (called Internal Capital Adequacy Assessment Process-
ICAAP) for assessing bank’s overall risk profile and a strategy for maintaining adequate
capital.
OPERATIONAL LAYER The Bank has a operational unit which is responsible
for collecting information from concerned departments and branches, regularly
correspondences, compiling the required calculations of ICAAP reporting and the tasks
assigned by the SRP team.
To assess required capital in pillar-2, the risks that should be considered are :
Residual risk, concentration risk, liquidity risk, settlement risk, strategic risk, interest rate risk
in the banking book, reputational risk, appraisal of core risk management, environmental and
climate change risk and other material risk.
JBL has a five years capital plan to maintain adequate capital (required capital under Pillar-1
+ Pillar-2). JBL has also designed a roadmap for implementation of Core Risk Management
Guidelines.
L.1.3 Pillar-3
JBL has a formal disclosure framework approved by the Board of Directors containing the key
pieces of information on the assets, risk exposures, risk assessment processes, and the capital
adequacy to meet the risks. The stakeholders will be able to assess the position of JBL
regarding holding of assets, identification of risks relating to the assets and capital adequacy
to meet probable loss.

L.2 Forward looking of Basel III
Basel III is a part of continuous effort made by the Basel Committee on Banking Supervision
to enhance the banking regulatory framework to improve the regulation, supervision and risk
management within the banking sector. It mainly focuses on:
i. Strengthening capital base;
ii. Maintaining liquidity standards;
iii. Seeks to improve the banking sector's ability to deal with
iv. financial and economic stress;
v. Improved risk management;
vi. Strengthen the banks' transparency and
vii. Foster greater resilience at the individual bank level.
Measurement of shocks under Basel III
Sl.
No.
Risk Factors Minor
Shock
Moderate
Shock
Major
Shock
1. Credit Risk:
Increase in NPLs 3% 9% 15%
Increase in NPLs due to default of top 10 large
borrowers
3 Borrowers 7 Borrowers 10 Borrowers
Fall in the forced sale value of mortgaged
collaterals
10% 20% 40%
Negative shift in the NPLs categories 5% 105 15%
Increase of NPLs in particular 2 sectors 3% 9% 15%
2. Interest rate risk (change in interest rates) 1% 2% 3%
3. Exchange rate risk (change in exchange rates) 5% 10% 15%
4. Equity Price Risk (fall in the stock market
index )
10% 205 40%
5. Liquidity risk (excess of bank’s normal
withdrawal)
2% 4% 6%
Capital Adequacy as on 31 December 2013
Required CAR : 10.00% of Risk Weighted Assets
Risk Weighted Asset : 333,923.30 million
Minimum Capital Requirement: 33,392.33 million
Capital maintained: 34,301.03 million
Capital surplus: 908.70 million
Present CAR: 10.27%

Analysis of Stress Testing Result as on 31 December 2013
Minor
shock
Moderate
shock
Major
shock
a) Present CAR 10.27% 10.27% 10.27%
b) CAR reduction 3.39% 4.92% 12.19%
c) CAR after shock (a-b) 6.88% 5.35% (1.92%)
d) Present capital 34,301 34,301 34,301
e) Capital reduction 11,320 16,430 40,710
f) Capital after shock(d-e) 22,981 17,871 (6,409)
Stress test is used to measure the vulnerability or exposure to the impacts of exceptional, rare but
potentially occurring events like - interest rate changes, exchange rate fluctuations, changes in
credit rating, events which influence liquidity, etc.
4.4 DISCLOSURE OF RISK REPORTING
Risk management activities are being reported to both internal and external controlling
authorities seeking further direction for proper and timely mitigation of risks:
Figure-14: Risk reporting process
 Reporting to Management: Risk management committee reports to the CEO & MD on
monthly basis.
 Reporting to Board of Directors: Memo is being placed before the Board integrated risk
management committee.
 Reporting to Central Bank: Risk management committee submits risk management
paper along with resolution of the meeting to the respective department of Central Bank on
quarterly basis. Stress testing report is also sent to Bangladesh Bank on a quarterly basis.

CHAPTER-5
RISK MANAGEMENT TOOLS

5.1 Loans to deposit ratio
This ratio is generally used to determine the lending practices of banks. It is also used to
measure liquidity by dividing the banks total loans by its total deposits. A too high ratio
indicates liquidity problem that the bank might not have adequate funds to cover.
Calculated as:
𝐶𝑟𝑒𝑑𝑖𝑡 𝐷𝑒𝑝𝑜𝑠𝑖𝑡 𝑅𝑎𝑡𝑖𝑜 =
𝐿𝑜𝑎𝑛𝑠
𝐷𝑒𝑝𝑜𝑠𝑖𝑡𝑠
2013 2012 2011 2010 2009
Loan 285,747.65 305,339.58 257,801.03 225,732.21 166,359.48
Deposit 478,535.57 409,767.01 361,676.69 286,566.84 246,175.04
Loan to Deposit
Ratio2
59.71% 74.52% 71.28% 78.77% 67.58%
Figure-15: Credit Deposit Ratio of 5 years
The lowest ratio recorded in 2013 (59.71%) and the highest ratio was recorded in 2010
(78.77%). However, JBL’s credit deposit ratio is comparatively good.
2
Source: JBL’s Annual Report, 2013, pp74
59.71%
74.52%
71.28%
78.77%
67.58%
0.00%
10.00%
20.00%
30.00%
40.00%
50.00%
60.00%
70.00%
80.00%
90.00%
2013 2012 2011 2010 2009
Credit Deposit ratio
Credit Deposit ratio Linear (Credit Deposit ratio)

5.2 Non-performing loans ratio
This ratio looks at the proportion of net loans and advances that are not performing. A high
non-performing asset reduces asset quality and consequently affects profitability.
Calculated as:
% 𝑜𝑓 𝑁𝑃𝐿𝑠 𝑡𝑜 𝑡𝑜𝑡𝑎𝑙 𝑙𝑜𝑎𝑛𝑠 𝑎𝑛𝑑 𝑎𝑑𝑣𝑎𝑛𝑐𝑒𝑠 =
𝑁𝑃𝐿
𝐿𝑜𝑎𝑛𝑠 𝑎𝑛𝑑 𝐴𝑑𝑣𝑎𝑛𝑐𝑒𝑠
2013 2012 2011 2010 2009
NPL 31,766.86 53,201.69 15,040.00 11,827.00 14,037.00
Loans and
Advances
285,747.65 305,339.58 257,801.03 225,732.21 166,359.48
Percentage of
NPLs to total loans
and advances 3
11.12% 17.42% 5.83% 5.24% 8.44%
Figure-16: percentage of NPLs to Total Loans and Advances
NPLs to loans and advances have reduced in 2013 from 2012 (17.42% to 11.12%) this
means JBLs credit risk management performed well this year.
3
11.12%
17.42%
5.83%
5.24%
8.44%
0.00%
2.00%
4.00%
6.00%
8.00%
10.00%
12.00%
14.00%
16.00%
18.00%
20.00%
2013 2012 2011 2010 2009
% of NPLs to Total Loans and Advances
% of NPLs to Total Loans and Advances Linear (% of NPLs to Total Loans and Advances)

5.3 Risk index and probability of book insolvency
The risk index measures equity capital and average level of return available to shore-up
loss relative to volatility of returns. The risk index has the advantage of combining in a
single measure of profitability, leverage, and return volatility. The higher the risk index the
lower the probability of failure. It is mathematically calculated as:
𝑅𝑖𝑠𝑘 𝐼𝑛𝑑𝑒𝑥4 (𝑅𝐼) =
(𝑅𝑂𝐴̅̅̅̅̅̅̅ +
1
𝐸𝑀
)
𝛿𝑅𝑂𝐴
Where, 𝑅𝑂𝐴 is the average return on assets.
EM is the equity multiplier; and
𝛿𝑅𝑂𝐴 is the standard deviation of return on assets.
𝑃𝑟𝑜𝑏𝑎𝑏𝑖𝑙𝑖𝑡𝑦 𝑜𝑓 𝑏𝑜𝑜𝑘 𝑖𝑛𝑠𝑜𝑙𝑣𝑒𝑛𝑐𝑦 =
1
[2(𝑅𝐼)2]
Particulars 2013 2012 2011 2010 2009
a. ROA 1.42% (3.50%) 1.12% 0.77% 1.00%
b. Total Assets
(BDT in
million)
586,082.98 511,129.41 446,111.42 345,234.00 294,727.00
c. Total
Shareholders’
Equity (BDT
in million)
37,116.20 17,476.66 34,069.20 20,390.32 14,924.74
d. EM (b/c) 15.79 29.25 13.09 16.93 19.75
e. 1/EM 0.0633 0.0342 0.0764 0.0591 0.0506
f. RI 12.12 10.54 12.83 11.89 11.43
g. Probability of
Book
Insolvency
0.34% 0.45% 0.30% 0.35% 0.38%
Here, 𝑅𝑂 𝐴5 = 0.16% and 𝛿𝑅𝑂𝐴6 = 0.01843
4
Risk Index formula has been used by Kamal (2009), Stan (2009), Beck and Laeven (2006).
5
Average of ROA is calculated by Microsoft Excel
6
Standard Deviation of ROA is calculated by Microsoft Excel

Figure-17: Probability of book solvency and Risk Index relationship
Figure shows that in 2012 risk index was most lower (10.54) and that’s why the probability
of failure was higher (0.45%) than ever. On the other hand, in 2011 the risk index was
higher ever (12.83) and it means that JBL had lower probability of failure (0.30%). In 2013,
risk index reached it 2nd
best position and the probability of fialure is comparatively lower
than 2012.
5.4 Capital Adequacy Ratio
Capital adequacy measures of the amount of a bank's capital expressed as a percentage of
its risk weighted credit exposures. The capital adequacy ratio (CAR) determines the
robustness of a bank to withstand shocks to its balance sheet. It is a standard measure used
by banks and central banks to ensure that banks absorb reasonable level of losses before
becoming insolvent. Calculated as:
𝐶𝐴𝑅 =
𝑇𝑖𝑒𝑟 𝑜𝑛𝑒 𝐶𝑎𝑝𝑖𝑡𝑎𝑙 + 𝑇𝑖𝑒𝑟 𝑇𝑤𝑜 𝐶𝑎𝑝𝑖𝑡𝑎𝑙
𝑅𝑖𝑠𝑘 𝑊𝑒𝑖𝑑ℎ𝑡𝑒𝑑 𝐴𝑠𝑠𝑒𝑡𝑠
2013 2012 2011 2010 2009
0.34% 0.45% 0.30% 0.35% 0.38%
12.12
10.54
12.83
11.89
11.43
Probability of Book Insolvency Risk Index

2013 2012 2011 2010 2009
Ammount of Core
Capital (Tier I)
26,225.67 5,890.18 22,067.76 14,417.46 9,394.92
Amount of
Supplementary
Capital (Tier II)
8,075.36 5,890.18 9,174.24 9,036.60 5,370.01
Risk Weighted
Assets
333,923.30 318,980.32 306,426.40 255,255.70 106,927.33
Capital Adequacy
Ratio7
10.27% 3.70% 10.20% 9.19% 13.81%
Figure-18: CAR of 5 years
The CAR has witnessed some fluctuations over the past five years. CAR is increased from
3.70% to 10.27% (2012 to 2013) which is above international standards of 10%.
7
10.27%
3.70%
10.20%
9.19%
13.81%
0.00%
2.00%
4.00%
6.00%
8.00%
10.00%
12.00%
14.00%
16.00%
2013 2012 2011 2010 2009
CAR
CAR Linear (CAR)

CHAPTER-6
SWOT Analysis

Internship Report on Risk Management Assessment of JBL

Internship Report on Risk Management Assessment of JBL

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