Risk management:The process which is used to avoid, reduce or control any banking company's chances to losing on an investment.

Credit risk : The possibility of loss that the bank or financial institution may suffer as a consequence of inability of the counterparty to meet its
repayment or other commitments in accordance with agreed terms and thereby default.

Techniques to measures credit risk:1)Five C's: Character: The customer's willingness to meet credit obligations. Capacity: The customer's
ability to meet credit obligations out of operating cash flows. Capital: The customer's financial reserve. Collateral: An asset pledged in case of
default. Conditions: General economic conditions in the customer's line of business.2) Credit Risk Grading (CRG) Manual, BB, June 2007:
Credit Risk Grading is an important tool for credit risk management as it helps the banks and financial institutions to understand various
dimensions of risk involved in different credit transactions. At pre-sanction stage, credit grading helps the sanctioning authority to decide whether
to lend or not to lend. At the post sanction stage, the bank can decide about the depth of review/renewal, frequency of review/renewal,
periodicity/quality of the grading, and other precautions to be taken.

Liquidity risk: The risk that a bank may be unable to meet short term financial demands. This usually occurs due to the inability to convert a
security or hard asset to cash without a loss of capital and/or income in the process. Strategies to be followed to deal with banks' liquidity
problem: 1. Asset Liquidity Management: Reliance on liquid assets that can be readily sold for cash to meet a bank's liquidity needs. Also
called asset conversion strategy. 2. Borrowed Liquidity Management: Reliance upon borrowed funds to meet a bank's liquidity needs. Also
called liability management strategy. 3. Balanced Liquidity Management: The combined use of liquid asset holdings and borrowed liquidity to
meet bank's liquidity.

The following steps can minimize liquidity risk: (i) Large off-Balance Sheet exposures should be managed prudently. Adequate arrangement
for funding of the same should be made beforehand. (ii) Rapidly growing assets should also be managed cautiously by making timely
arrangement for liquidity. (iii) Credit Risk and Market Risk should be well managed. (iv) Asset concentration should be done very cautiously
taking all factors into consideration. (v) Changes in interest rate in the market as well as loan default should receive proper attention of the Risk
Management personnel.

Operational risk arises from human or technical error or act of omission and commission such as effectiveness or breakdown in the internal
control and internal audit systems. This risk can lead to losses through fraud, error or failure in performance in a timely manner.

Operational risk can be minimized if: (i) Board and Executive Management recognize and be well conversant about management of all
categories' operational risk. (ii) Operational risk and procedures that clearly define the way in which all aspects of operational risk are to be
managed, should be documented and communicated. (iii) All business and support function of the institution operates as an integral part of the
overall operational risk management framework. (iv) Operational risk management policies and procedures are aligned to the overall business
strategy and support the continuous improvement of risk management.

Interest rate risk: Interest rate risk is defined as "the exposure of a bank's financial condition to movements in interests rates. In mismatching the
maturities of assets and liabilities, banks expose themselves to interest rate risk. For example, a bank that issues liabilities (deposits) of one year
maturity to finance assets (loans) of a two years maturity. Suppose the cost of liabilities is 9% and the return on asset is 10% per year. Over the
first year, the bank can lock in a profit spread of 1%. If interest rates rise to 11% in the second year, its profit spread is actually (10%-11% -1%)
negative. Alternatively, if a bank issues liabilities of two years maturity to finance assets of a one year maturity. In that case, banks also
potentially expose themselves to interest rate risk.

The structure of funds approach to measure liquidity risk: i. The bank's deposits and other sources of funds are divided into categories based
on their estimated probability of being withdrawn. a. Hot Money Deposits/Liabilities: Deposits and other borrowed funds that are very sensitive
or that management is sure will be withdrawn during the current period. b. Vulnerable funds: Customer deposits of which a substantial portion
will probably be withdrawn from the bank. c. Stable Funds: Funds that management considers most unlikely to be withdrawn from the bank
(except for a minor percentage of the total).

L/C:The letter of credit is a conditional guarantee and constitutes one of the most important methods of financing foreign trade.

Precautions of opening L/C: i) Buyer's creditworthiness, ii) Import Trade Regulations, iii) Exchange Control Regulations, iv) Supplier's
creditworthiness report, v) Marketability of goods.

Parties involved in Letter of Credit (L/C): a)Applicant/Importer: The person who requests the bank (opening bank) to issue a letter of credit.
b) Opening Bank/Issuing Bank: The bank which open/ issue L/C on behalf of the applicant/importer. c) Advising Bank/Notifying Bank: The
bank through which the L/C is advised to the beneficiary (exporter). d)Reimbursing/Paying/settlement Bank: The bank nominated in the L/C
by the issuing bank to make payment against stipulated documents, complying with the L/C terms. Normally issuing bank maintains account with
the reimbursing bank. e) Confirming Bank: Where the exporter is not satisfied with the undertaking of only the issuing bank, bank in an
exporter's country confirms that the L/C established by the importer will be honored once the conditions therein are fully complied with.f)
Beneficiary/Exporter: Beneficiary of the L/C is the party in whose favor the letter of credit is issued. Usually they are the seller or exporter. g)
Negotiating Bank: The bank which negotiate documents and pays the amount to the beneficiary when presented complying L/C terms. Normally
negotiating bank is the banker of the beneficiary. h) Transferring Bank: Original beneficiary may transfer L/ C to second beneficiary as per
clause of the L/C. Transfer may be made once only. The bank of the original beneficiary authenticates the transfer and the bank is known as
transferring bank.
Types of L/C: 1. Import/Export L/C:The same L/C which would be termed an import L/C by the importer and an export L/C by the exporter.2.
Revocable L/C can be changed/cancelled at any time by either the buyer or the issuing bank. 3. Irrevocable L/C only allows change or
cancellation of the L/C by the issuing bank after application by the buyer and approval by the beneficiary. 4. Confirmed L/C is typically used
when the issuing bank of L/C may have questionable creditworthiness and the seller seeks to get a second guarantee to assure payment. 5.
Transferable L/C is commonly used when the beneficiary is simply an intermediary for the real suppliers of the goods and services. 6. Red
clause L/C allows the beneficiary to receive partial payment before shipping the products or performing the services. Originally these terms were
written in red ink.7. Back to back L/C It is actually made up of two letters of credit, one issued by the buyer's bank to the intermediary's bank
and the other issued by the intermediary's bank to the seller.

Method of Import Finance: 1)Payment Against Documents (PAD):The negotiating bank, on receipt of the shipping documents from the
exporter, scrutinize the documents to ensure that they are in strict conformity with the terms of L/C. If the documents are in order, payments is
effected by the negotiating bank to the beneficiary.2)Loan against Imported Merchandise (LIM)At the time of opening L/C, the opening bank
obtains from the importer an agreement on stamped paper which provides for financing and if necessary clearance and storage of goods by
debiting importer's account at his risk and responsibility.

Export Trade and Financing:1)Pre-shipment Finance: When an exporter seeks financial assistance before loading the goods on shipment is
called Pre-Shipment finance. 2)Post-shipment Finance: Finance which is provided after the goods have been shipped is called post-shipment
finance.

Pre-shipment stages:1) Packing Credit: Packing credit is essentially a short-term advance with a fixed repayment date granted by the bank to
an eligible exporter for the purpose of buying, processing, manufacturing, packing and shipping of the goods. The packing credit facility may he
extended in the form of (i)Hypothecation: In this case possession/legal ownership of the goods to be exported remain with the exporter. Credit is
proposed for procuring and processing of raw materials into finished product for export. (ii)Pledge: Under this form of credit, the goods to be
exported remain in the possession of the bank. Bank can sell the goods for adjustment of the advance by giving notice to the exporter on his
failure to honor commitment.(iii) Export Trust Receipt: Credit is allowed against trust receipt and the exportable goods remain in the custody of
the exporter. He is required to execute a stamped trust receipt in favor of the bank wherein a declaration is made that the loan amount will be
repaid upon the sale of the goods.

Procedure/Documents for opening an L/C: 1)The importer will sign a sales contract with the exporter. In this contract all the terms and
conditions regarding Import-export procedure should be mentioned. The importer can use proforma invoice instead of sales contract. 2) After
signing sales contract the importer will apply to his bank to have the L/C opened in favor of his exporter.3) The importer is required to fill an
application form which is called "L/C application form" or "Documentary L/C application form". After filling L/C application form the
importer is required to attach sales contract or proforma invoice.4)After evaluating L/C application, if bank is satisfied, then they go for security
payment.5) The importer will receive a draft L/C form from his bank through SWIFT message format and send it to the exporter so that he can
check it before the issuance of L/C.

Sources/ structure of bank's income:1)Interest and Discount: Interest on loans made by a bank and discount charged on bills of exchange
constitute the principal source of income. 2)Dividend Income: Dividend income which is another important source of banks' earnings.Level of
dividend income depends on the amount and composition of investments and on the rates of return. 3)Commissions, Fees, Exchange charges
and Brokerage: Another important source of bank earnings is commissions, fees, exchange charges and brokerage which the bank charges for
wide range of services performed by it.4) Other Sources of Earnings: Earnings from lockers, remittances, and service charges and fees on loans.

Sources/Structure of Bank's Expenditure:1)Interest on deposits and borrowings: The most important expense of a commercial bank is the
amount of interests paid on fixed/time, saving and other deposits and borrowings. 2)Salaries, allowances, provident Funds: The next largest
expense item of commercial banks is salaries and allowances of officers and employees. It includes salaries, allowances and other benefits such
as provident funds, bonus, etc. 3) Other expenditures: Local committee members' fees, auditors' charges, rent, insurance, depreciation and
repairs, postage, telegrams and stamps and stationery, printing and advertisements.

Factors Influencing the pattern of allocation of bank Income: (a)External Factors: 1. General State of Economy: Level of business activity
of bank and its earnings is influenced subject to general economic conditions of the country. 2. Condition of the money Market: In the event of
expensive money market, bank should retain more and more funds so that the bank may not only protect itself against any contingency but also
meet the urgent credit needs of the society at higher rate of interest. 3. State Regulation: The supervisory and regulatory authorities have
consistently pushed bank management to retain sizeable amount of earned profits. 4. Tax Policy:Sometimes, Government in order to quicken the
pace capital formation provides tax incentives to companies retaining larger share of their earnings.

Internal Factors: 1. Asset/investment structure and its risk Complexion: The amount of special reserve fund, and general reserve fund in a
bank are closely related to the risks. 2. Credit and investment losses: The losses which the bank is likely to prolong in future both in respect of
creditor's default to repay and sale of securities should be considered separately.3. Repayment of Loan: A bank which has taken debt may
extinguish it either by means of creating new obligations to replace the old debt or by retained earnings. 4. Growth rate of the Bank: A rapidly
growing bank will have constant needs of funds to seize favorable opportunities for which sufficiently large amount of funds is needed.5. Access
to Capital Market: Where a bank has easy access to capital market the management need not be too conservative to retain larger share of the
earnings. 6. Ownership of Bank: In a closely held bank with a few but wealthy of stockholders management will always retain larger share of
the profits so as to reduce tax liability of stockholders.7.Control: Control is also an important factor that influences pattern of income
distribution. Issue of additional common stocks for procuring funds dilutes control to the detriment of existing stockholders who have dominating
voice in the firm.
Stable Dividend Policy: When a bank constantly pays a fixed amount of dividends and maintains it for all the times to come regardless of
fluctuations in the level of its earnings, it is said to have pursued a relatively stable dividend policy of a fixed dividends per share. In actual
practice. Most of the banks follow stable dividend policy because of the following reasons: (i) Banks regularly paying dividends at a fixed rate
have always high credit standing in the market. (ii) Stable dividend policy promotes a rise in share value. Investors generally pay higher premium
to shares promising a certainty of dividend income than to those with fluctuating dividends. (iii) Since dividends communicate information to
investors about a bank's profitability and managerial efficiency, naturally bank pursuing stable dividend policy enjoys a great confidence of
shareholders.

Guidelines for dividend payment:1)No dividend can be declared with shortfall in capital. Banks will have to comply with the following
conditions in respect of maintenance of provision: -Provision against adversely classified loan shall have to be maintained at the rate specified by
Bangladesh Bank.-General provision @1% against unclassified loans shall have to be maintained. -Provision against "investment in other assets"
shall have to be maintained at the rate specified by Bangladesh Bank. 2)Prior to declaration of dividend, the concerned bank shall have to obtain
specifically a certificate from the external auditor to this effect that provisions have been properly maintained and no short fall in respect of
maintenance of capital adequacy and provision. 3)In case of declaring dividend beyond 20%, a sum equal to the amount of dividend in excess of
20% shall have to be kept deposited in the Dividend Equalization Account. 4)If any investigation reveals any deviation in compliance of the
above conditions in declaring dividend of any year, prior permission from Bangladesh Bank shall have to be obtained before declaration of
dividend for the next year.

The banker may open a savings account (not a current account) in the name of a minor, in the following ways:1)In the name of the minor
to be operated upon by the natural guardian of the minor or guardian appointed by the court. 2)Such account can be opened in the joint names of
the minors to be operated by his/her guardian.3)The banker should record the date of birth of the minor as disclosed by his/her guardian at the
time of opening the account. 4)On the attainment of majority, the account of the minor in the name of the guardian should be closed and the
balance payable to the minor be transferred to a new account in his/her own name. 5)In the event of death of a minor the money will be payable
to his guardian. In case the guardian dies before the minor attains majority and the account is a joint account or to be operated by the guardian
only, the money should be paid by the bank to the minor on attaining majority or to some person appointed by the court as guardian. 6) No risk is
involved if an account is opened in the name of a minor so long as the account is not overdrawn by the minor. 7) A minor can never be appointed
as trustee. 8)A minor cannot be judged as an insolvent either on his own petition/appeal or of others.

Executor and Administrator are persons who are appointed to conduct the affairs/dealings of a person after his death.

The banker should observe the following precautions while dealing with Executor or Administrator: 1) On the death of the customer, the
banker must stop payments from his account. The executor should be permitted to operate the account of the deceased after he has obtained the
"Letter of Probate”. The administrator is authorized to do so after securing "Letter of administration". 2) An account in the name of an executor/
administrator is opened and the balance in the account of the deceased is transferred to such account. 3) In case of two or more persons appointed
as executors or administrators, it is usual for a banker to obtain a clear mandate from all the executors or administrators stating the power of each
executor/administrator and the name/names of the persons who will operate the account. 4) The banker should not permit transfer of funds from
the estate account to the personal account of the executor to repay an overdraft taken by the executor. 5) On the death or insolvency of one of the
executors or administrators a check issued on such account should not be dishonored even if he is one of the two or more joint signatories,
because on the death or insolvency of one of the executors or administrators, his powers are vested in the surviving executors or administrators.
6) If the executor requires an overdraft or a loan before he obtains the probate in order to discharge some urgent obligations of the deceased, the
banker may allow such loans on the personal security of the executor. The executors are made jointly and individually liable for such loans. 7)
After the Court grants probate or issues a letter of Administration, the executor or administrator may pledge specific assets of the testator to
obtain an overdraft from the banker.

Reconstitution of a partnership firm: Retirement of a partner:1)When a partner retires, his liability towards the banker or any other third
party stops in respect of all transactions undertaken after the date of his retirement.2)But if the banker is not informed about his retirement, the
retiring partner continues to be liable for the transactions of the firm even after the date of his retirement.3)The retiring partner should give public
notice for this purpose to terminate his liability to the third parties.4)If the bank account of the firm at time of retirement of a partner shows a
debit balance, the banker may close the account of the firm to fix up the liability of the retiring partner. 5)If an account shows a credit balance, the
banker need not close it but the cheques drawn by the retiring partner should be honored after securing confirmation from other partners.6)On the
opening of new account of the reconstituted firm or on the continuance of the existing account after the retirement of a partner, a fresh mandate
should be taken from the partners of reconstituted firm.

The banker should take the following precautions while opening an account in the name of a partnership firm: 1) Number of partners:
The banker should see that the number of partners does not exceed the statutory limit (not more than 10 persons for the purpose of carrying on
banking business and not more than 20 persons for the purpose of carrying on other business). The minimum number of partners in a firm must
be two, excluding a minor partner. 2) Title of the account: The account must always be opened in the name of the firm and not in the name or
names of individual partner/partners. 3) Opening of an account: In general, every partner has an implied authority to join a bank account in the
name of the firm except when he is expressly prohibited. 4) Partnership letter or Mandate: The banker should take a letter signed by all the
partners containing the followings: The name and address of all the partners, the nature of business, the name/names of the partners who will
operate the account on behalf of the firm. 5)Implied authority of a partner: Every partner is liable, both individually and jointly with other
partners, for all the acts of the firm. Implied authority of a partner does not empower him to do the followings: i. Submit a dispute relating to the
business of the firm to adjudication. ii. Open a bank account on behalf of the firm in his own name. iii. Compromise or relinquish any claim of
the firm. iv. Withdraw a proceeding filed on behalf of the firm. v. Admit any liability in a proceeding against the firm. vi. Acquire any immovable
property on behalf of the firm. vii. Transfer immovable property belonging to the firm. 6)Power to borrow: In case of a trading partnership firm
every active partner has implied power to :i. Borrow money for the purpose of carrying on firm's business. ii. Pledge the goods of the firm to
borrow. iii. Draw, accept, endorse bill of exchange and other negotiable instruments on behalf of the firm.

The banker should take the following precautions in opening and dealing a joint account: 1)The account should be opened only on
receiving application signed by all persons interested in the account.2)The bank should obtain clear instructions in writing, signed by all the joint
account holders, regarding the operation of the account. The joint account may be operated by (a) all the depositors jointly or (b) either survivor
of them.3) The mandate must include the name or names of the persons who are authorized to operate the joint account and must specify the
extent to which they are authorized to take advances or to pledge securities etc. In absence of such instructions, the banker should honor only
those cheques which bear the signatures of all the persons in whose name the account stands.4) The joint account holder, who is authorized to
operate the joint account, himself alone cannot appoint an agent or attorney to operate the account on his behalf. Such attorney or agent may be
appointed with the consent of all the joint account holders. 5) Any joint account holder can stop payment of a cheque issued on a joint account.
Banker must honor such order even if an agent or attorney has been appointed to operate the account.6) The power to operate and draw cheques
does not include the power to overdraw the account for which specific instructions are necessary. 7)The authority to operate the account can be
revoked by any of the persons giving such authority. 8) In case of death of one or more joint account holders, the balance in the account will vest
with the survivor or survivors. On the death of all the joint account holders, any balance in the account is payable to the legal representative of the
joint account holders provided that no such instructions to the contrary have been given.

According to Swiss Bank: "Money Laundering is a process whereby the origin of funds generated by illegal means is concealed drug
trafficking, gun smuggling, corruption etc. Money laundering includes: Fraud,Corruption, Extortion, Drug Trafficking.

Process of Money laundering : 1)Placement: Placement refers to the physical disposal of bulk cash proceeds derived from illegal activity. This
is the first step of the money-laundering process and the ultimate aim of this phase is to remove the cash from the location of acquisition so as to
avoid detection from the authorities. 2)Layering: Layering is the movement of funds from institution to hide their origin. It consists of putting
funds, which have entered the financial system, through series of financial operations to mislead potential investigators and to give the funds the
appearance of having legal origins. 3)Integration: Integration refers to the reinsertion of the laundered proceeds back into the economy in such a
way that they re-enter the financial system as normal business funds.

Effects of money laundering on society:1)Increase in Criminal Activities: Money Laundering allows drug traffickers, smugglers, and other
criminals to expand their operations. 2)Concentration of Power to Criminals: Among its other negative socioeconomic effects, money
laundering transfers economic power from the market, government, and citizens to criminals. 3)Concentration of Power to Criminals: Money
laundering transfers economic power from the market, government, and citizens to criminals. As the economic power is in the hands of criminals
so they have a corrupting effect on all elements of society. 4)Undermines Democracy: The economic and political influence of criminal
organizations can weaken the social fabric, collective ethical standards, and ultimately the democratic institutions of society.

Effects of money laundering on business: If funds from criminal activity can be easily processed through a particular business - either because
its employees or director shave been bribed or because the institution turns a blind eye to the criminal nature of such funds-the institution could
be drawn into active complicity with criminals and become part of the criminal network itself. Evidence of such complicity will have a damaging
effect on the attitudes all stakeholders of company i. e. shareholders, suppliers, customers, employees etc.

Guideline issued by Anti Money Laundering Department: i)As per provisions of the money laundering prevention laws announced earlier, all
banks and financial institutions shall preserve correct and complete information on the identity of all account holders/customers. ii)Up to date
correct and complete information on transactions in each account has to be maintained. iii)In order to properly comply with provisions under the
prevention laws, all banks and financial institutions shall establish a central compliance unit in their head offices headed by a senior /high official
and internal Monitoring and controlling System at branch level nominating a Compliance Officer therefore. iv)Banks and Financial institution
shall collect and keep the record of declaration made by their customers/account holders in respect of their accounts' probable transaction profiles
in order to monitor and detect any unusual transactions therein. v)All official of banks or financial intuitions' shall remain alert and careful during
their daily transaction activities in order to detect any unusual/doubtful transaction and as soon as any unusual /doubtful transaction that may be
linked with money laundering. vi)All banks and financial institutions shall arrange for imparting suitable training to their official in order to
ensure proper compliance of the Money Laundering prevention laws.

Power of Bangladesh Bank to combat money laundering : 1)Bangladesh bank will be capable of taking necessary measures under this act for
the prevention of money laundering : a)To call for report regarding doubtful transaction from any bank and keep such report secret, in the
absence of approval publication under the law. b) To collect and maintain all statistics and records. c) To prepare and maintain data base of
reports regarding all doubtful transaction. d) To analyze report regarding doubtful transaction. e) To issue written order to bank concerned to stop
the transactions for thirty days if there is responsible ground. f)To issue written order to bank concerned to stop the transactions for thirty days if
there is responsible ground. g)To monitor and supervise activities of banks. h)To issue instructions to banks for taking preventive measures for
the purpose of resisting financial assistance to any terrorist activities. i)To visit banks for the purpose of identifying doubtful transactions related
with terrorist activities. 2)Bangladesh bank, just immediate after identifying any bank or its customers being connected with any transaction
suspected to be related with terrorist activities, will inform the law enforcing agency. 3)No law enforcing agency will have any right of access to
any document or file of any bank without the consent of the Chief Executive Officer of the bank concerned or the approval of Bangladesh bank.

Responsibility of Bank to combat money laundering : 1)With a view to preventing or identifying any financial transaction related with any
offence under the Act through banking channel each and every bank will take necessary steps with due caution and responsibility. 2)Board of
Director of each bank will approve and issue instructions about the responsibilities of its officers and ensure compliance of instructions where
applicable for banks, issued by Bangladesh bank under section 15. 3)In the event of failure of any bank to comply with instructions issued by
Bangladesh Bank under Section 15, the said bank will be compelled to pay a fine not exceeding ten lakh taka as fixed and instructed by
Bangladesh bank.