Documente Academic
Documente Profesional
Documente Cultură
Introduction 1
Problem Statement 2
Objectives 2
Methodology 2
I
2.2.1. Credit Risk 13
II
4.2.2. Budget and financial control 32
4.3. The liquidity report at Bank Kotak Mahindra 33
4.4. Reasons behind the drop in liquidity ratios in Bank Kotak Mahindra 37
4.5. Policy for increasing the liquidity ratio in Bank Kotak Mahindra . 37
4.6. The downside of the bank’s current solutions. 38
Conclusions 39
Recommended Solutions 40
References 42
Appendix Lists
of Figures:
Discretion Page
Number
Figure 1 Liquidity Ratio at Bank Kotak Mahindra in Syrian Pound 35
Lists of Tables:
Discretion Page
Number
Table 1 Maturity of Over Draft (facilities) 23
III
Introduction
The topic of liquidity is of utmost importance in all companies, where liquidity occupies the
highest attention in bank management, it has been crucial what is the minimum limit bank
As a result Credit Monetary Council issued so far two decrees to regulate banks liquidity. By
doing that, the Credit Monetary Council makes sure that the banks are able to maintain
specific ratio of liquidity so that any financial crisis that could arise from fake figures of
The CMC obliged banks to send liquidity reports on a regular basis (daily, weekly and
monthly) in order to observe and control how much liquidity a bank has.
From here, the idea of this study has emerged to explain more about liquidity in general and
liquidity regulations for banks in Syria where a case study about Bank Kotak Mahindra has
1
Problem Statement:
The problem statement discusses the role of banks in managing their liquidity ratios as drawn
by Central Bank of Syria , and to what extent the banks abide by Credit and Monitory Council
regulations. Moreover, the study shows what benefits the banks incur in dealing with liquidity
ratio and how effective they are facing any deteriorations happen to that ratio.
Objective:
The objective of this study is to show how the Central Bank of Syria through Credit and
Monitory Council specifies the liquidity ratios in Syrian banks and how banks manage
liquidity and study the risk incurred by liquidity drop. Moreover, Bank Kotak Mahindra is
taken as a case study to examine more the liquidity reports done by the bank on daily, weekly
and monthly bases. In addition, the study identifies the procedure taken by Bank Kotak
Mahindra to maintain the liquidity ratios under the authorized limits drawn by the Credit and
Monitory Council.
Methodology:
This study is based on both qualitative and quantitative methods. The qualitative part explain
and analyzes the instructions given by Central Bank of Syria to manage the liquidity ratios
and how banks respond to them. In addition this paper show the last researches that studied
the liquidity management. The quantitative part shows in figures and numbers how Bank Al-
Sharq handle the liquidity ratio to keep it under the authorized limits specified by Credit and
Monitory Council.
Chapter 1: Liquidity Management in traditional Banks
2
Bodie1define liquidity as “the speed and ease with which asset can be converted to cash.”
They add that liquidity is the” relation between the time dimension ( how long it will take to
sell) and the price dimension ( the discount from fair market price) of an investment asst.”
Mishkin2defines the liquidity as how quickly an asset can be converted into cash at low costs.
the demand for an asset is affected by the degree to which an asset or security can be bought
or sold in the market without affecting the asset's price. Liquidity is characterized by a high
level of trading activity. Assets that can be easily bought or sold are known as liquid
assets.
It is safer to invest in liquid assets than illiquid ones because it is easier for an investor to get
his/her money out of the investment. Examples of assets that are easily converted into cash
Liquidity is the amount of capital that is available for investment and spending. Most of the
capital is credit rather than cash. That's because the large financial institutions that do most
investments prefer using borrowed money. Even consumers have traditionally preferred credit
cards to debit cards, checks or cash. High liquidity means there is a lot of capital. That usually
happens when interest rates are low, and so capital is easily available. Low interest rates mean
credit is cheap, which reduces the risk of borrowing. That's because the return only has to be
A liquidity surplus develops when there is too much capital looking for too few investments.
This can lead to inflation. As cheap money chases fewer and fewer good investments, whether
they are houses, gold, or high tech companies, then the prices of those assets increase. This
leads to "irrational exuberance." Investors only think that the prices will rise, and everyone
1
Bodie,Z. Essentials of Investments. 2007
2
Mishkin,S. The Economic of Money, Banking and Financial Market. 2009
3
Eventually, a liquidity surplus means more of this capital becomes invested in bad projects.
As the ventures do not pay out their promised return, investors are left holding worthless
investors want madly to sell before prices drop further. This is what happened with
mortgagebacked securities during the Subprime Mortgage Crisis. This phase of the business
Bessis3define the liquidity management “is the continuous process of raising new funds, in
case of deficit , or investing excess resources when there are excesses of funds. The
Benchmark remains the cash matching case, when both asset and liabilities amortize in
parallel.”
A class of financial metrics that is used to determine a company's ability to pay off its
shortterms debts obligations. Generally, the higher the value of the ratio, the larger the margin
1. Current Ratio: current assets divided by its current liabilities. A ratio representing the
ability of the firm to pay off its current liabilities by liquidation current asset
2. Quick Ratio: The current asset excluding inventories divided current liability. The
business can't count its inventory or prepaid expenses that can' be easily sold.
3. Cash Ratio: A company’s receivables are less liquid than its holding of cash and
3
Bessis, J. Risk Management in Banking. 2002
4
These ratios means the firm’s ability to pay bills coming due with its most liquid asset.
The ability to fund all contractual obligations of the bank, notably lending and investment
commitments and deposit withdrawals and liability maturates, that is the ability to fund
Liquidity for a bank means the ability to meet its financial obligations as they come due. Bank
lending finances investments in relatively illiquid assets, but it funds its loans with mostly
short term liabilities. Thus one of the main challenges to a bank is ensuring its own liquidity
Commercial banks differ widely in how they manage liquidity. A small bank derives its funds
primarily from customer deposits, normally a fairly stable source in the aggregate. Its assets
are mostly loans to small firms and households, and it usually has more deposits than it can
find creditworthy borrowers for. Excess funds are typically invested in assets that will provide
it with liquidity such as government securities. The holding of assets that can readily be
In contrast, large banks generally lack sufficient deposits to fund their main business dealing
with large companies, governments, other financial institutions, and wealthy individuals.
Most borrow the funds they need from other major lenders in the form of short term liabilities
which must be continually rolled over. This is known as liability management, a much riskier
4
Web site: http://wfhummel.cnchost.com/
5
method than asset management. A small bank will lose potential income if gets its asset
management wrong. A large bank that gets its liability management wrong may fail.
The key to liability management is always being able to borrow. Therefore, a bank's most vital
asset is its creditworthiness. If there is any doubt about its credit, lenders can easily switch to
another bank. The rate a bank must pay to borrow will go up rapidly with the slightest
suspicion of trouble. If there is serious doubt, it will be unable to borrow at any rate, and will
go under. In recent years, large banks have been making increasing use of asset management
in order to enhance liquidity, holding a larger part of their assets as securities as well as
Liquidity measurement is quite a difficult task and can be measured through stock or cash
flow approaches. The key ratios, adopted across the banking system are
Temporary Investments,
managing net funding requirements, the use of maturity ladder and calculation of cumulative
5
Web Site: International Institute for Science, Technology and Education. Research Journal of Finance and
Accounting. 2011.
6
1.3. Principals’ of liquidity management
The following principles, from Publication No. 69, dated February 2000, of the Bank for
International Settlements’ Basel Committee on Banking Supervision, details the key elements
for effectively managing liquidity. Banks should formally adopt and implement these
1. Each bank should have an agreed strategy for day-to-day liquidity management.
2. A bank Governing Board should approve the strategy and significant policies related
toliquidity management. The Governing Board should also ensure that senior management of
the bank takes the steps necessary to monitor and control liquidity risk. The Governing Board
should be informed regularly of the liquidity situation of the bank and immediately if there
are any material changes in the bank current or prospective liquidity position.
3. Each bank should have a management structure in place to effectively execute the
liquiditystrategy. This structure should include the ongoing involvement of members of senior
management. Senior management must ensure that liquidity is effectively managed, and that
appropriate policies and procedures are established to control and limit liquidity risk. Banks
should set and regularly review limits on the size of their liquidity positions over particular
time horizons.
4. Banks must have adequate information systems for measuring, monitoring, controlling
andreporting liquidity risk. Reports should be provided on a timely basis to the banks
Governing Board, senior management and other appropriate personnel, and to the CPO as
required by
6
Web site: Central Bank of Timor-Leste
7
this instruction.
1. Each bank should establish a process for the ongoing measurement and monitoring of
netfunding requirements.
3. Banks should frequently review the assumptions utilized in managing liquidity to determine
Each bank should periodically review its efforts to establish and maintain relationships with
liability holders, to maintain the diversification of liabilities, and aim to ensure its capacity to
sell assets.
In place that address the strategy for handling liquidity crises and which include procedures
1. Each bank should have a measurement, monitoring and control system for its
aggregate foreign currency liquidity needs and the acceptable mismatch in combination with
its domestic currency commitments, a bank should also undertake separate analysis of its
2. A bank should, where appropriate, set and regularly review limits on the size of its
cash flow mismatches over particular time horizons for foreign currencies in aggregate and
7
Web Site: Reserve Bank of Fiji. 1995
8
1.3.6. Each bank must have an adequate system of internal controls over its liquidity risk
management process.
reviews and evaluations of the effectiveness of the system and, where necessary, ensuring that
Finally, each bank should have in place a mechanism for ensuring that there is an adequate
level of disclosure of information about the bank in order to manage public perception of the
2. Highly Liquid Assets eligible for inclusion in the numerator of the ratio include
a. Vault Cash
f. Net inter-bank lending and borrowing with a remaining maturity period of up to one month.
9
1.4.2. Limits on Cumulative Cash Flow Mismatches.8
Each bank should stick to the limits established by its Governing Board on the cumulative
cash flow mismatches, that is the cumulative net funding requirement as a percentage of total
liabilities, over the following periods: next day, up to seven days, 8 days to one month.
Reporting
Each bank shall submit to the Central Bank a report as of each month-end in the format
prescribed by the Central Bank of Syria(CBOS) showing the calculation of the Short-Term
Liquidity Ratio and the cumulative cash flow mismatches in accordance with this Instruction.
In Syria, The public and private Banks should be reporting to (CBOS) and Credit and
Monetary Council.
The liquidity performance analysis that an increase in the money supply will lower interest
rate. This conclusion has important policy implications because it has frequently caused
politicians to call for a more rapid growth of the money supply in an effort to drive down
interest rates.
An important criticism of the conclusion that an increase in the money supply lower s interest
rate was raised by Milton Friedman, a Nobel laureate in economics. He acknowledged that the
liquidity performance analysis was correct and called the result-that an increase in the money
supply lower interest rate-the liquidity effect. However, he viewed the liquidity effect as
merely part of the story: An increase in the money supply might not leave " everything else
equal" and will have other effects on the economy that may make interest rate rise. If these
8
Bodie, Z. and Kane, A. and Marcus, A. Essentials of Investments. 2007
9
Mishkin, S. The Economics of Money, Banking and Financial Markets. 2009
10
effects are substantial, it is entirely possible that when the money supply increases, interest
1- Income effect: the income effect of an increase in the money supply is a rise in interest
2- Price-level effect: the price level effect from an increase in the money supply is a rise
supply is a rise in interest rates in response to the rise in the expected inflation rate.
11
10
Cornett, S. Financial Market and Institutions. 2007
Chapter 2: Liquidity Risks in Banks
2.1. What is Risk.
General Definition: effect of uncertainty on objectives. Uncertainties include events that may
Financial Definition: The probability that certain return on an investment will be lower than
expected.
“Due to regulated environment, banks could not afford to take risks. But of late, banks are
exposed to same competition and hence are complied to encounter various types of financial
and non-financial risks.”10Risks and uncertainties form an integral part of banking which by
nature entails taking risks. There are five main categories of risks; Credit Risk, Market Risk,
There are many different ways how to define and classify the Banking risks but as this study
Banking Risk:
Credit risk
Market risk
Operation risk
Country risk
Liquidity risk
10
Dorfman, M. Risk Management and Insurance. 2006
12
2.2.1. Credit Risk.11
Credit Risk is the potential that a bank borrower/counter party fails to meet the obligations on
agreed terms. There is always scope for the borrower to default from his commitments for one
or the other reason resulting in crystallization of credit risk to the bank. These losses could
take the form outright default or alternatively, losses from changes in portfolio value arising
from actual or perceived weakening in credit quality that is short of default. Credit risk is
inherent to the business of lending funds to the operations linked closely to market risk
variables. The objective of credit risk management is to minimize the risk and maximize
bank’s risk adjusted rate of return by assuming and maintaining credit exposure within the
acceptable parameters.
Market Risk may be defined as the possibility of loss to bank caused by the changes in the
market variables. It is the risk that the value of on-/off-balance sheet positions will be
adversely affected by movements in equity and interest rate markets, currency exchange rates
and commodity prices. Market risk is the risk to the bank’s earnings and capital due to
changes in the market level of interest rates or prices of securities, foreign exchange and
That banks are in the business of turning deposit liabilities into loan asset, the two sides of
their balance sheet do not match up. One important difference between the two sides is that
bank’s liabilities tend to be short term, while its assets tend to be long term. This mismatch
between the maturities of the two sides of the balance sheet creates interest rate risk.
11
Raghavan, R.S. Risk Management In Bank. 2003
12
Raghavan, R.S. Risk Management In Bank. 2003
13
Dorfman, M. Risk Management and Insurance. 2006
13
2.2.4. Operational Risk.14
Operational risk involves breakdown in internal controls and corporate governance leading to
error, fraud, performance failure, compromise on the interest of the bank resulting in financial
loss. Putting in place proper corporate governance practices by itself would serve as an
effective risk management tool. Bank should strive to promote a shared understanding of
operational risk within the organization, especially since operational risk is often inter-wined
This is the risk that arises due to cross border transactions that are growing dramatically in the
recent years owing to economic liberalization and globalization. It is the possibility that a
country will be unable to service or repay debts to foreign lenders in time. It comprises of
process of country leads to government taking over the assets of the financial entity (like
nationalization, etc) and preventing discharge of liabilities in a manner that had been agreed to
earlier; Cross border risk arising on account of the borrower being a resident of a country
other than the country where the cross border asset is booked; Currency Risk, a possibility
that exchange rate change, will alter the expected amount of principal and return on the
lending or
investment.
The liquidity Risk is important in the firms specially in the banks, in this case we will discuss
14
Cecchetti, S. Money, Banking, and Financial Markets. 2006
15
Dorfman, M. Risk Management and Insurance. 2006
14
2.2.6. Liquidity Risk.16
Liquidity Risk that asset owner unable to recover full value of asset when sale desired (or for
Cecchetti says that all financial institutions face the liquidity risk that their liabilities holders
(depositors) will seek to cash in their claims. The holder of a checking account can always
walk into the bank and ask for the balance in cash. This risk of as sudden demand for liquid
fund. Bank face liquidity on both sides of their balance sheets. Deposit withdrawal is a
Liquidity risk is the potential inability to meet the liabilities as they become due. It arises
when the banks are unable to generate cash to cope with a decline in deposits or increase in
assets.17It originates from the mismatches in the maturity pattern of assets and liabilities. Bank
Deposits generally have a much shorter contractual maturity than loans and liquidity
the ability to efficiently accommodate deposit as also reduction in liabilities and to fund the
loan growth and possible funding of the off-balance sheet claims. The cash flows are placed in
different time buckets based on future likely behavior of assets, liabilities and off-balance
sheet items.18
16
Cecchetti, S. Money, Banking, and Financial Markets. 2006
17
Web Site: AllBankingSolutions.com
18
Web Site: Federal Reserve Bank of San Francisco
15
b) Time risk: It is the need to compensate for non-receipt of expected inflows of funds,
When liabilities exceed assets, there is an excess of fund.. such excesses generate interest risk
rate since the revenue from the investment of these excess assets are uncertain.
When assets exceed liabilities, there is a deficit. This means that the bank has long-run
commitments, which existing recourses do not fund entirely. There is a liquidity risk
generated by raising funds in the future to match the size of assets. The bank faces the risk of
not being able to obtain the liquidity on the markets, and the risk of paying higher than normal
In addition, it has exposure to interest rate risk. Liquidity gaps generate funding requirement,
or investments of excess funds. In the future, such financial transaction occur in the future, at
interest rates not yet known, unless hedging them today. Liquidity gaps generate interest rate
An alternative view of the liquidity gap in the gap between the average maturity dates of
assets and liabilities. If all assets and liabilities have matching maturities, the difference in
average maturity dates would be zero. If there is a time mismatch, the average dates differ.
For instance, if asset amortize slower than liabilities, their average maturity is higher than that
of liabilities, and vise versa. The average maturity date calculation weights maturity with the
19
Bessis (R.Man.in Ban.)book
16
Cash matching is a basic concept for the management of liquidity and interest rate risks. It
implies that the time profiles of amortization of assets and liabilities are identical. The nature
of on interest applicable to asset and maturities might also match: fixed rates with fixed rate,
floating rates revised periodically with floating rates revised at the same dates using the same
reference rate. Any deviation from the cash matching benchmark generates interest rate risk,
With cash matching, liquidity gap s are equal t zero. When the balance sheet amortizes over
time, it does not generate any deficit or excess of funds. If, in addition, the interest rate resets,
on both sides, the interest margin cannot change over time. Full matching of both cash and
Cask matching is only a reference. In general, deposits do not match loans. Both result from
the customers’ behavior. However, it is feasible to structure the financial dept in order to
replicate the assets’ time profile, given the amortization schedule of the portfolio of
The Central Bank of Syria is the supreme monetary authority in Syria. It is responsible for
issuing the Syrian Pound and for implementing the nationwide monetary policy.
The Central Bank has embarked on implementing a new strategy that comprises of several
new developmental plans aimed at updating the bank laws and regulations and modernizing
20
Bessis, J. Risk Management in Banking. 2002
21
Bessis, J. Risk Management in Banking. 2002
22
The Central Bank of Syria official web site
17
The Central Bank of Syria announced its commitment to ensure financial stability and defend
the stability and strength of the exchange rate of Syrian pound, and secure favorable financial
The Credit And Monetary Council (CMC) is the monetary authority which has the
responsibility for conducting the monetary policy and overseeing on the implantation it with
The Credit and Monetary Council shall undertake the task of organizing the credit and
monetary institutions in the Syrian Arab Republic and coordinating their activities to fulfill
the below stated objectives within the limits of its prerogatives and within the state public
A- Development of the monetary and financial market and the organization according to the
C- Realize stability of the foreign exchange rate of the Syrian currency and secure free
D- Expand possibility of utilizing resources and potentials and work towards the development
of national income.
E- Follow up on the banking apparatus, discuss all issues relevant to banking work, activities
of relevance and take appropriate decisions through the Central Bank of Syria .
G- The government shall consult it regarding the measures and matters related to the
23
The Central Bank of Syria official web site
18
In October 27th 2002 the Central Bank of Syria under the approval of the Syrian President and
the Syrian Parliament issued legislative decree n° 23. Legislation n° 23 of 2002 is the basic
monetary order of Syria which included all the rules and legislations that governs the Syrian
monetary policy and the regulation of the Syrian public and private banking sector.
One of the main articles of this legislative decree was the creation of the Credit and Monetary
Council, by this law this council was given the highest legislative and executive authorities to
The Credit and Monetary Council has the exclusive supervision authority on banks in Syria
through daily and monthly reports sent by banks in Syria, By These reports the CMC studies
and scrutinizes the operations of deposit and withdrawals that the place in the banks as well as
The main focus of this study is the liquidity management. Therefore, we will take a closer
On November 11th 2009 the Monetary and Credit Council of the Central Bank of Syria issued
circular n° 588 that applies to all operating banks in Syria. The legislation addresses the
operating banks’ liquidity management issues. All banks should maintain an adequate level of
This legislation presented a tool to measure the banks’ ability to pay their financial obligations
when matured. The legislation defined liquidity as the bank’s ability to meet its obligations
and to finance its assets increase without having to liquidate its assets with unfair values and
without using a higher cost financial resources. Under this legislation all banks are obligated
to have a liquidity ratio above 20% at all times. The liquidity ratio is calculated by dividing
24
Credit and Monetary Council, circular n° 588. 2009
19
the sum of liquid assets (current assets) by the sum of the liquid liabilities (clients’ deposits
and other financial obligations). If the liquidity ratio slipped below 20% the bank is fined a
Demand from all banks operating in the Syrian Arab Republic comply with the instructions of
3.3.1. Liquidity and maturity of liquidity in CBOS a-Liquidity: The extent of the bank's
ability to fulfill the liabilities and finance the increase in the asset side, without having to
cash inflows and future cash outflows during certain time periods.
Each bank that keeps every working day by liquidity in all currencies of not less than 30% not
be less than the proportion of liquidity in Syrian pounds for 20%, calculated by dividing the
cash and cash equivalent on deposits and other liabilities and off balance sheet, as shown
below:
Numerator elements:
Numerator elements include cash and cash equivalent in central bank and current account and
deposit in public, private, correspondent, and sister banks. All these elements in assets side in
Denominator elements include all deposits in central banks, public, private, correspondent,
and sister banks other liabilities (current accounts, savings, term deposits block accounts). All
25
Appendix 1-1 CBOS report (form of liquidity).
26
Appendix 1-2 CBOS report (form of liquidity).
20
Other elements in denominator include off balance sheet (letter of credit import, acceptances
The cash inflows classified according to the maturity of assets. The cash outflows classified
according to maturity of liabilities. Assets and liabilities banks should be included in maturity
table, and within this table its calculated the difference between cash inflows and cash
outflows whether this difference is a surplus or a deficit. The difference is called inadequate
benefits assets and liabilities, and in accordance with the following time periods:
- Category I : up to 7 days.
1. Total currency.
2. Syrian pounds.
3. Foreign currency.
Assets28:
-Assets are stated at their net, after excluding special provision constituent of these assets. -
27
Appendix 1-3 CBOS report (form of liquidity).
28
Appendix 3-1 CBOS report (form of liquidity).
21
Nonperforming loans, interest and provision. Any item of assets can not be liquefied when the
need for being locked up or conditional or restricted for any reason -Assets are distributed as
follows:
• Cash balances with the Central Bank, including cash reserve on deposits and current
• Treasury bills and bonds and instruments of the Syrian government with the exception
of public bonds on the state (excess liquidity and the budget surplus), which are
included within the period of more than a year and included revenue only by the
• Securities that available for trading that the bank can be liquidated when you need it at
by weighting 95%
3. Instruments and bonds held for trading classified degree of investment (by
22
• Net equity contributions to the banks and financial institutions and fixed
• Values and assets to meet for doubtful debts collected by weighting 60%
• Net assets under investment (except assets of the bank in fulfillment of its
• General on the state bonds (excess liquidity and the budget surplus).
The facilities based on the remaining periods to maturity except for the overdraft where
Table 1 29
Till 7 More than More than More than More than More than More than
Days seven till one three six month nine one year
one month month till month till till nine month till
three six month month one year
month
The rest of the assets included based on the remaining periods to maturity.
Liabilities30:
A - Include all liabilities that can be an obligation to pay the bank in a certain period of
29
Source: Credit and Monetary Council, circular n° 588. 2009
30
Appendix 3-2 CBOS report (form of liquidity).
23
Table 2 31
Till 7 More More than More than More than More than More than
Days than one three six month nine one year
seven till month till month till till nine month till
one three six month month one year
month month
• The liabilities that have a specified maturity date such as cash margins within
• The liabilities that do not have a specific maturity date and is expected to be an
outflow from the bank (such as proposed dividends, and tax provision, and
provision for indemnity) within the expected period during which payment of
these liabilities.
Table 3 32
Till 7 Days More than seven More than one More than three
till one month month till three month till six
month month
The rest of account in off balance sheet for which information is available with
the bank that will result in an obligation to pay within the appropriate
category34.
31
Credit and Monetary Council, circular n° 588. 2009
32
Web site: Central Bank of Syria. Credit and Monetary Council, circular n° 588. 2009
34
Appendix 3-3 CBOS report (form of liquidity).
24
C- The maximum limits of non-alignment benefits assets and liabilities: 1. Financing gap
is measured between cash inflows and cash outflows for each period and then on a
3. Banks must verify compatibility between the maturities of assets and liabilities
andavoid gaps between these maturities, and must not exceed the cumulative gap
Table 4 33
1- The liquidity ratio of banks is measured daily and models 1 and 2 are sent to the
Central Bank of Syria (Directorate of the Office of the Government) at the end of each
month. In case of violation of the bank liquidity ratio by the banks has to send models
on a daily basis to insure the bank’s commitment to the prescribed minimum limits34.
2- The bank’s table maturity is measured monthly and models 3, 4 and 5 are sent to the
Central Bank of Syria (Directorate of the Office of the government) at the end of each
33
Web site: Central Bank of Syria. Credit and Monetary Council, circular n° 588. 2009
34
Appendix 2-1, 2-2 CBOS report (form of liquidity).
25
month. In case of violation of a bank it has to send models on a weekly basis to make
3- Send all the forms mentioned in the appendix to the Directorate of the Office of
day of the month following the month in which organizes about these models
1- In the event of decrease in specified liquidity ratios, CMC imposes a fine of lack of
value for each day that the shortage continues to be a minimum of / on the bank at a
rate of 100,000, and restrict the fine on the bank account with the Central Bank of
Syria.
2- In addition to the stated in the previous item entitled to the Central Bank of Syria on
the proposal of the Directorate of the Office of the Government to take action it deems
overtaking
Chapter 4: Liquidity Management in Bank Kotak Mahindra
Decree no. 26/ dated 10/4/2008 issued by the Syrian Prime Ministry, granted Bank Kotak
Mahindra founders the license to establish Bank Kotak Mahindra as a Syrian Joint Stock
Company with a total share capital of SYP 2.5 billion, consisting of 2.5 million equity shares
35
Bank Al-Sharq official Web Site.
26
4.1.1. Bank object
Bank Kotak Mahindra 's main object is to receive and invest deposits, and to undertake all
types of banking and financial activities for its own account or on behalf of others, in line with
Bank Kotak Mahindra 's affiliation to Banque Libano-Française Group constitutes one of its
main key strengths as it furnishes it with deeply rooted and well established experience of the
Syrian market and its associated risks together with close ties with the commercial and
industrial sectors of the Syrian economy as well as with prominent Syrian businessmen.
Moreover, Bank Kotak Mahindra stands to benefit from Banque SBA SA and its
management's extensive activity and strong ties with both the private and public economic
Bank Kotak Mahindra 's main strategy and objectives are summarized by the following:
• Achieve financial strength and growth, including expanded market share, and to
• Contribute to rooting the banking culture in the Syrian market through strengthening
trust and partnership with our customers and an on-going focus on providing
• Hire, retain local qualified personnel, and continually develop their skills and expertise
to provide banking services and manage operational risks in line with industry best
27
practices. Apply equal opportunity employment principle to encourage performing
• Invest in a large branch network in order to cover the banking needs of the different
Syrian regions and sectors to gain both market share and optimize asset quality.
• Invest in technologies that reduce operational risks and promote the implementation of
• Create and develop new banking products and services, inspired from Banque
LibanoFrançaise Group line of products and services, which are responsive to the
Syrian markets needs and conform to Syrian banking and monetary laws and
regulations.
financing investment projects in Syria and promoting foreign trade with the Syrian
Arab Republic.
social activities.
4.1.4. Services of Bank Kotak Mahindra 36
Our commercial Division offers a wide and complete range of products and services to help
small, medium-sized enterprises as well as a large corporate entities manage the demands of a
growing business. Our commercial banking services and products include the following:
36
Bank Al-Sharq official Web Site.
28
Local and international payment and collection services (remittances, bank
Liquidity management.
bills).
Project financing.
Structured finance.
Loan syndication.
Treasury services:
Bank Kotak Mahindra will offer its individual and corporate clients Treasury services and
solutions designed to help minimize foreign exchange risks and capitalize on opportunities in
Retail banking:
Retail banking constitutes one of the main activities of Bank Kotak Mahindra and a launch
pad for developing its banking operations. Accordingly, and as of operations start, the bank
29
intends to launch the following set of Retail banking products to cover the personal financial
• Bank accounts:
accounts.
• Consumer loans:
Depending on the different happenings in your life, a personal loan from Bank
AlSharq's will give you the extra funds you need to cover your credit needs and make
the most of life's opportunities and experiences. Our offer will include:
Housing loans.
Car loans.
Payroll domiciliation.
Bills domiciliation.
• E-payment:
Credit cards (Visa, MasterCard) including internet cards in local and foreign currencies within
• E-banking.
30
• SMS banking.
Private banking:
• In order to maximize service benefits to its clientele, Bank Kotak Mahindra S.A.S
will launch investment advisory services whereby a dedicated private banker will help
clients to manage their wealth and plan for the future. Such services are:
• Derivative products.
• Structured products.
• Funds management
1- Accounting division.
entity, the results of those transactions and interpreting those results. The main function of
accounting department in Bank Kotak Mahindra is reporting the daily, weekly and monthly
reports required by Central Bank of Syria (Directorate of the Office of the Government). Also,
reporting to general management, and preparing the financial statements (Balance Sheet,
Reconciling NOSTRO accounts, assessing any risk that may result from a suspense and
31
Under the decision of the Prime Minister No. 4844 dated 05-08-2012, the Central Bank of
Syria requires the banks to provide the credit and monetary council with periodic reports
which reflect the financial position the reports contains the following main issues:
Statistical report.
Budget and financial control is the function of managing and analyzing the financial
The finance function depends on the information produced by the accounting department.
After having a closer look at the finance department, we move on to study the preparation of
32
The accounting department prepares the daily report to general management, this report shows
the movements of withdrawals and deposits for clients and banks. Also, it shows daily
a) Cash in hand.
f) Commitments to suppliers.
b) Letters of guarantee.
c) Acceptances.
33
d) Unutilized lines of credits.
According to Credit and Monetary Council decree No.588 mentioned in chapter 3, the
Table 5 37
declined to the minimum authorized level, the finance department informs the general
In quarter three 2010 the liquidity ratio in Syrian Pounds at Bank Kotak Mahindra has
Bank Kotak Mahindra responded toward hedging the gap by borrowing (placement) from
other banks on long term maturity. This decision supported the bank to raise the liquidity ratio
37
Credit and Monetary Council, circular n° 588. 2009
34
Figure 1 38
In quarter two 2011, the liquidity ratio in foreign currency was 32%, knowing that, the
authorized limit 30%. The General manager instructed to branch management to collect as
much term deposit in foreign currency as possible, and due to high paid interest in tern
deposits accounts, it resulted to easing the process for attracting new term deposits clients.
Consequently, in quarter three 2011(Figure 2), the liquidity ratio went up to 53%, and it
continued to raise to around 70% from quarter four 2011 until the end of quarter two 2012.
Figure 2 39
38
Prepared by researcher
39
Prepared by researcher
35
If we take a look over global liquidity ratio which represents the combination between the
previous SYP and FC ratios, we see in Figure 3, this ratio dropped down to 32% in quarter
two 2011. When the bank took the action in collecting new term deposits, it resulted in raising
the ratio.
Figure 3 40
4.4. Reasons behind the drop in liquidity ratios in Bank Kotak Mahindra .
There are many factors that affect the bank liquidity. Those factors have different impact on
the matching between funding and investments,. As discussed earlier, the bank liquidity is
• Customers preference for the short term deposits instead of long term deposits.
• The ratio of loans in Syrian pounds exceeds 80% of total clients’ deposits in SYP.
As a result of the current crises, the value of Syrian pounds dropped by 50% against US
Dollar as lots of clients transferred their deposits to foreign currencies which led to a decline
in total deposits in Syrian pound which in turn, led the bank liquidity to decline in reaching
28%. Simultaneously, a lot of businessmen went off market or moved abroad; therefore, a lot
40
Source: Bank Al-Sharq official web site
36
of debtors’ failed to meet their obligations forcing banks to constitute provisions which
4.5. Policy for increasing the liquidity ratio in Bank Kotak Mahindra .
The general management has adopted many steps in order to control failing liquidity rate as
the followings:
• Increase the interest rate on term deposits especially the deposits that have long term
maturity. Where the interest rates reached 10% on the Syrian Pound for amounts
• At the same time, and in order to minimize the cost of risk resulted from liquidity, the
bank engaged in relatively long term inter-bank borrowings at reasonable interest rates
(between 4.5%-6.5%).
• The bank started to widen its loans maturities’ distribution by focusing on loans
matured between one to three years in order to hedge the liquidity gap resulted from
deposits-loans mismatch.
• Another decision was taken in 2012 where loans portfolio are to be limited to
corporate clients rather than retail, owing to this segment relative low risk and high
When liquidity ratio drops down, the bank must take steps as mentioned to recover the ratio,
and for not paying penalty fees to Central Bank of Syria as well as avoiding any risks incurred
on the bank operations as discussed in chapter three. This issue forces the bank to borrow with
high interest rates and/or give its depositors high interest rates to attract sources of funding.
These solutions affect the interest spread and in turn decrease the bank profitability. Although
these solutions maintain the bank liquidity ratio, they decrease the bank profitability due to
37
higher interest rates. Moreover, this crises has affected all sectors in the country and banks are
no exception and although the bank has never reached the minimum authorized liquidity
ration from CBOS, it is crucial to take precautionary measures to immediately deal with any
Conclusion:
To sum up, this study examines the importance of liquidity in banks operations. First, it
principles. Then, it shows the types of risks in a bank in general and expands on liquidity risk
in specific. Afterwards, the study has an overview about the role of Central Bank of Syria in
bank liquidity management and the role of Credit of Monitory Council in regulating and
monitoring the liquidity ratios in Syrian banks. Finally, and most importantly, the case study
discusses Bank Kotak Mahindra liquidity management, liquidity reports, bank policies for
facing the possible drop in liquidity ratio, and the downsides of the bank’s current solutions
regarding
liquidity.
38
Recommended Solutions.
In order to maintain the liquidity limits authorized by regulation and to keep the bank
The Asset Liability Management should be enhanced to study the maturity of loans
and deposits in order not to create a maturity gap. For example, the bank should give
loans on short term, not over three years, to assure the money will be paid off quickly.
By doing that, the bank makes sure the cash inflows and outflows are kept balanced.
In other words, the current policy of the bank is to give loans due after 5-7 years, and
the long-term deposits are for just one year. This creates a gap in liquidity. It is true
that the bank may get a higher interest rate during 5-7 years, but for immediate
solution, it is better to shorten the loan terms and decrease the interest rate. In this
way, the bank would be better prepared to face any financial turmoil that might
Bank Kotak Mahindra could offer a new product for clients. One suggested product is
to focus on deposit terms and benefits. The maximum term deposit in the bank now is
for one year with 9% interest rate. To keep the liquidity ratio stable, and if possible
higher, Bank Kotak Mahindra gives a two-year term deposits with 10-11% interest
rate, this percentage is reasonable. On the other hand, Bank Kotak Mahindra ensures
that the client would keep their money in the bank for one more year and that keeps
The main depositors at Bank Kotak Mahindra are corporate in Syria where they
account for more than 85% of the bank deposits. The bank should diversify the
segments of depositors. In other word, the bank should encourage retail depositors to
keep on the safe side. The bank especially during this crisis, might face a major loss if
39
the bank pays high interest rate to encourage big corporations to deposit in the Bank
(around 9%) which puts the bank under higher pressure to pay for their interest. That
means, the bank would collect less profit and liquidity ratio would suffer.
That leads us to the diversification solution. As said earlier, the bank could concentrate
more on retail clients because that would save the bank more money (the suggested
interest rate for retailers is around 6-7%) due to less payments on interest rate and, at
The main loan target in the bank is corporate business that comprises 96.5% of total
loans distributed as follow industrial 32%, services 30%real estate 5% and commercial
29.5%. small-medium enterprises (SME) 3.06% and retail or individual 0.44%. Even
though dealing with corporate has been financially safer to the bank, but because of
this crisis many factories and plants have been destroyed which make it impossible for
them to meet their obligations. Even though bank has substantial guarantees presented
by them, it is difficult now to collect them. As said for deposits, the bank should
attract retail clients to take loans from Bank Kotak Mahindra by offering them
personal loan guaranteed by their companies (where they work) and how much salary
they take.
References:
• Bessis, J. (2002), “Risk Management in Banking” , Second Edition, John Wiley &
Sons Ltd.
Hill/Irwin.
40
• Cornett, S. (2007), “ Financial Market and Institutions” , Third
Prentice Hall.
• AllBankingSolutions.com: http://www.allbankingsolutions.com/
• http://wfhummel.cnchost.com/bankliquidity.html
Research:
• Research Journal of Finance and Accounting. 2011. International Institute for Science,
• Liquidity Risk Management Requirements for Bank. 1995. Reserve Bank of Fiji
41
مجلس النقد والتسلیفApendix 1-1
مدیریة مفوضیة الحكومة
قسم الرقابة المكتبیة
مبالغ واستحقاقات نموذج 1-1
السیولةاألموال
بتاریخ الجاھزة
.../.../...
القیم بآالف اللیرات السوریة اسم المصرف
األموال الجاھزة
10100 الصندوق
20400-10580-10520-10510-10500 سندات على الدولة وأذونات خزینة مطروحا منھا التزامات عملیات شھادات االستثمار
** تستثنى الموجودات المحجوزة أو المرھونة أو المقیدة ألي سبب من بسط النسبة
ختم المصرف ............................ : توقیع الشخص المسؤول ................................... : أعد بتاریخ .................................
مجلس النقد والتسلیفApendix 1-2
مدیریة مفوضیة الحكومة
قسم الرقابة المكتبیة
مبالغ واستحقاقات السیولة نموذج 2-1
ختم المصرف ............................ : توقیع الشخص المسؤول ................................... : أعد بتاریخ .................................
مجلس النقد والتسليفApendix 1-3
نموذج 3-1
ز
المتانيةبتاري خ .../.../... ز
االلتامات خارج مبالغ واستحقاقات السيولة
الليات السورية
القيم بآالف ر اسم المرصف
بالعمالت االجنبية باللتات السورية المبلغ اإلجمال رمز الحساب ز
المتانية ز
االلتامات خارج
نسبة ر
التجيح (التثقيل)
15% 15% 15%
المبلغ بعد ر
التجيح (التثقيل)
0 0 0
نسبة ر
التجيح (التثقل)
3% 3% 3%
ر
المباشة الممنوحة وغیر المستغلة التسهيالت
وغیر القابلة لإللغاء
تدرج الكفاالت المؤقتة وكفاالت حسن التنفیذ مثقلة بنسبة %15بعد استبعاد قیمة التأمینات النقدیة مقابلھا *
** تدرج عملیات القطع ألمد مثقلة بنسبة %3بعد استبعاد قیمة الھوامش النقدیة مقابلھا
ختم المصرف ...................... : توقیع الشخص المسؤول ................................... : أعد بتاریخ .................................
مجلس النقد والتسليف Apendix 2-1
مديرية مفوضية الحكومة
قسم الرقابة المكتبية
نس ب السيولة اليوميةبكافة العمالتعن شهر
نموذج رقم 1-2
المرصف اسم
ز ز ز ز
ف النقص مبلغ مبلغ صاف السيولة المتوجب وااللتامات األخرى وحسابات مبالغ الودائع االموال صاف مبلغ نسبة السيولة المحتسبة
ز ز ز ز ز تاري خ أيام العمل خالل
السيولةف كل يوم ز المتانية المرجحة ف كل يوم عمل خارج الجاهزةف كل يوم عمل ف كل يوم عمل
اإلحتفاظ به ف كل يوم عمل الشهر
عمل
( 5- 3 ) = 6 ( %30 × 4 ) = 5 4 3 2 1
0 0
0 0
0 0
0 0
0 0
0 0
0 0
0 0
0 0
0 0
0 0
0 0
0 0
0 0
0 0
0 0
0 0
0 0
0 0
0 0
0 0
0 0
0 0
0 0
0 0
0 0
0 0
0 0
0 0
0 0
0 0
0 0
0 0
0 0
0 0
0 0
0 0
0 0
0 0
0 0
0 0
0 0
0 0
0 0
0 0
0 0
0 0
0 0
0 0
0 0
0 0
0 0
0 0
0 0
0 0
0 0
0 0
0 0
0 0
0 0
0 0
ر
أكت من 9أشهر إل ر
أكت من 6أشهر إل ر
أكت من 3أشهر إل ر
أكت من شهر إل
ر سنة 9أشهر 6أشهر 3أشهر ر رمز الحساب في وضع
أكت من سنة أكت من 7أيام إل شهر حت 7أيام فأقل ودات الموج
الموجودات
أ الصندوق 10100
ز
ب نقد ف الطريق 10200
0 0 0 0 0 0 0 ج مرصف سورية المركزي 10300
ـ الحساب الجاري 10310
0 0 0 0 0 0 0 ـ االحتياطيات : 10320
ام النقدي عىل الودائع
االحتياط اإللز ي
ي ـ 10321
االستتاد
ر ـ تأمينات االعتمادات المستندية وإجازات 10330
ـ قروض 10360
ز
المؤسسات المالية ف الخارج والمؤسسة األم للمرصف والمؤسسات التابعة والزميلة والشقيقة
(باستثناء شهادات اإليداع)
ز
المديرية العامة والفروع ف سورية والخارج 11500
Page 6 of 10
الشيكات والسحوبات ووثائق الشحن المشتاة 11800
ر
أكت من 9أشهر إل ر
أكت من 6أشهر إل ر
أكت من 3أشهر إل ر
أكت من شهر إل
ر سنة 9أشهر 6أشهر 3أشهر ر رمز الحساب في وضع
أكت من سنة أكت من 7أيام إل شهر حت 7أيام فأقل ودات الموج
الموجودات
ز
0 0 0 0 0 0 0 استثمارات ف أدوات مالية : 11900
0 0 0 0 0 0 0 ـ أدوات مالية مدرجة بالقيمة العادلة من خالل بيان الدخل 11910
ـ أسهم 11911
ـ سندات 11912
ـ أدوات مالية أخرى مدرجة بالقيمة العادلة من خالل بيان الدخل 11915
0 0 0 0 0 0 0 ـ أدوات مالية متوفرة للبيع : 11920
ـ أسهم 11921
ـ سندات 11922
0 0 0 0 0 0 0 ـ أدوات مالية محتفظ بها لتاريـ ــخ االستحقاق : 11930
ـ سندات 11931
ز
0 0 0 0 0 0 0 صاف التسهيالت االئتمانية المنتجة
تمويىل
ي د ـ قروض إيجار 12500
دفعات مقدمة عىل أرباح المصارف العامة لصالح صندوق الدين العام ( فائض الموازنة ) 13100
Page 7 of 10
األقساط المكتتب بها غت المسددة 13500 القیم بآالف
سوریة
تال
الیر
ز ز
صاف األسهم والمساهمات ف المصارف والمؤسسات المالية 13700
Page 8 of 10
مجلس النقد والتسليف مفوضية الحكومة لدى المصارف Apendix 3-2
قسم الرقابة المكتبية
نموذج رقم 2-3
المصارف المحلية
ز
المؤسسات المالية ف الخارج والمؤسسة األم للمرصف
والمؤسسات التابعة والزميلة والشقيقة
ز
المديرية العامة والفروع ف سورية والخارج 21500
ز
القطاع المال غت المرصف 21600
0 0 0 0 0 0 0 الودائ ع : 21900
أ -ودائع تحت الطلب 21910
0 0 0 0 0 0 0 د -ودائع االدخار السكن والصناع 21940
ز
السكن ـ ودائع االدخار 21941
ي
الصناع
ي ـ ودائع االدخار 21942
توفت
م ـ حسابات ر 21973
Page 9 of 10
التأمينات المقبوضة 22300
تدرج الوديعة المربوطة حسب تاريـ ــخ استحقاق الدين الذي يقابلها
ختم المرصف: التوقيع --------- : االسم:
ز
المتانية حسب المدد الباقية الستحقاقاتها بكافة ز
االلتامات خارج توزي ع
العمالتبتاري خ
ر
المباشة الممنوحة وغت التسهيالت
المستغلةوغت القابلة لإللغاء
ز
االلتامات االخرى
Page 10 of 10
0 0 0 0 0 0 0 االليامات خارج ر ز
الميانية ز ج -مجموع
مجموع الموجودات
0 0 0 0 0 0 0
ز
المتانية ز
وااللتامات خارج مجموع المطاليب
0 0 0 0 0 0 0
ز
الفجوة ف كل فتة
0 0 0 0 0 0 0
ز
وااللتامات االخرى نسبة الفجوة ال المطاليب
!#DIV/0 !#DIV/0 !#DIV/0 !#DIV/0 !#DIV/0 !#DIV/0 !#DIV/0
الفجوة التاكمية
0 0 0 0 0 0 0
ز
المتانية ز
وااللتامات خارج المجموع التاكم للمطاليب
0 0 0 0 0 0 0
ز
المتانية المتاكمة ز
وااللتامات خارج نسبة الفجوة المتاكمة ال المطلوبات
!#DIV/0 !#DIV/0 !#DIV/0 !#DIV/0 !#DIV/0 !#DIV/0 !#DIV/0
Page 11 of 10