Managing Core Risks of Financial Institutions: a Case Study on Brac Bank Ltd.

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A Termpaper on

Managing Core Risks of Financial Institutions: A Case Study on Brac Bank Ltd.

Course Name:Management of Financial Institutions

Submitted To:

Dr. M. Baqui Khalily
Department of Finance
University of Dhaka

Submitted By:

Md. Mustaquimur Rashid
ID # 20609058 (9th Batch)
Department of Finance
University of Dhaka

Submission date: 26th August, 2008

August 26, 2008

Dr. M. Baqui Khalily
Department of Finance
University of Dhaka

Subject: Submission of Termpaper

Dear Sir,

I, the undersigned, student under your Management of Financial Institutions Course, have the pleasure to submit herewith the Term Paper on “Managing Core Risks of Financial Institutions: A Case Study on Brac Bank Ltd.” for your kind evaluation.

It is a matter of immense pleasure for me to have the opportunity to analyze this topic, one of the major areas of financial institutions. I also certain that the knowledge and experience acquired while conducting the study will help me in many ways in future. I have tried my best to present my ideas, findings as clear as I could within the time and resources available.

I would like to mention that there might be some unintentional error in this report and also some lacks of finding the actual position. I hope that you will consider my shortcoming while evaluate the report.

Thanking you

Sincerely yours,

Md. Mustaquimur Rashid
ID # 20609058
Table of Contents

Executive Summaryv

2.Company Background2
3.Review of Theory3
4.Risk Exposures and Management by the Bank5
5.Findings, Recommendations & Conclusions9

Executive Summary

All the business activities in the world are subject to risk. Financial institutes are not different, too. Financial institutes are special in nature and face some unique risks along with the general risks faced by other business entities.

Generally financial institutes are exposed to interest rate risk, liquidity risk, market risk, credit risk, Foreign exchange risk, technology & operational risk, off-balance sheet risk, and insolvency risk. The performance of a financial institute depends on how well the management takes measures against these risks. A financial institute may collapse if these risks are not minimized properly. The best example of this type of incident is the collapse of The Oriental Bank.

This report aims to identify the risks and the steps taken by the FIs against these risks. The Brac Bank Ltd. is chosen as a sample of a FI. This report covers the interest rate risk, liquidity risk and credit risk management of the bank. This report finds that the bank is more exposed to liquidity risk in recent years than the other risks. Being a fast frowing bank, it should take strong steps to overcome this type of risk.

The purpose of the report is to learn how the risks are identified and managed by a FI. While conducting this report, some unintentional mistakes have occurred and due to inexperience some vital points may not be covered. But it may provide a brief idea about the risk management of financial institutions.

Chapter – 1



Every financial institution irrespective of its size generally exposed to interest rate risk and liquidity risk. Besides these risks there are some other risks namely credit risk, foreign exchange risk, insolvency risk, technology & operational risk etc. failure to take timely measures in giving a sense of direction threatens the existence of the institution. It is, therefore, important that the structure of the institute’s business and the level of risks it assumes are effectively managed, appropriate policies and procedures are established to...
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