Proposal for the Internship Report on Stress Testing of Social Islami Bank Limited

Submitted to Dr. M. Farid Ahmed

Professor Department of Finance University of Dhaka

Submitted by Md. Zaman SajeebBin-

Roll: 11-182 MBA 11th Batch Department of Finance University of Dhaka

1.1 Origin of the Study As a part of the MBA program of Finance Department, University of Dhaka, I am doing my Internship in the Foreign Exchange Branch of Social Islami Bank Limited. This report has been prepared as a requirement for the Internship for relating my knowledge with the real life situation. Under the supervision of Professor Dr. M. Farid Ahmed, I have to submit my report. From the practical point of view an analytic topic could be Stress Testing of Social Islami Bank Limited. 1.2 Rationale of the Study The report undertakes a study on an Interest-Free Financial Institution in Bangladesh known as Social Islami Bank Limited (SIBL). Extreme market movements or crises in the past reveal the inadequacy of managing risks based only on normal business conditions and historical trends. In particular, crises in the 1990s (e.g. Asian Crisis) and current financial turmoil have augmented the importance of better understanding of potential vulnerabilities in the financial system and the measures to assess these vulnerabilities for both the regulators and the bankers. The regulators and managers of the financial system around the globe have developed a number of quantitative techniques to assess the potential risks to the individual institutions as well as financial system. A range of quantitative techniques that could serve the purpose is widely known as stress testing. IMF and Basel Committee on banking supervision have also suggested for conducting stress tests on the financial sector. At the system level, stress tests are primarily designed to quantify the impact of possible changes in economic environment on the financial system. The system level stress tests also complement the institutional level stress testing by providing information about the sensitivity of the overall financial system to a number of risk factors. These tests help the regulators to identify structural vulnerabilities and the overall risk exposure that could cause disruption of financial markets. Its prominence is on potential externalities and market failures. 1.3 Objectives of the Study Broad Objective: To gain practical knowledge about the overall risk exposure and structural vulnerabilities of the Social Islami Bank Limited to a number of risk factors that could cause disruption of financial markets.

Specific Objective:

To give a brief historical background on the origin and growth of SIBL To explain the services, products and the functions of SIBL. To expose strengths and weakness of SIBL in comparison with competitors. To measure the change in the value of portfolio for shocks of various degrees to different independent risk factors while the underlying relationships among the risk factors are not considered.

1.4 Methodology The paper will be written on the basis of information collected from primary and secondary sources.

Primary Data: Discussion with the respective organization's officials Secondary data: Annual Report of SIBL Website of SIBL Different Books, Journals, Periodicals, News Papers etc.

Stress testing is a simulation technique, which are used to determine the reactions of different financial institutions under a set of exceptional, but plausible assumptions through a series of battery of tests. At institutional level, stress testing techniques provide a way to quantify the impact of changes in a number of risk factors on the assets and liabilities portfolio of the institution. The stresstesting framework involves the scope of the risks covered and the process/procedure to carry out the stress test. This framework should be flexible enough to adopt advanced models for stress testing.

CONTENT
Acknowledgement Executive Summary Chapter One: Introduction 1.1 1.2 1.3 1.4 1.4 Origin of the Study Rationale of the Study Objectives of the Study Limitations of the Study Methodology

Chapter Two: Social Islami Bank Limited Organization in Focus 2.1 2.2 2.3 2.4 2.5 2.6 2.7 Background of SIBL Mission, Vision & Objective of SIBL Organizational Structure Capital Structure Functions of SIBL Products and Services SWOT Analysis

Chapter Three: Stress Testing of SIBL 3.1 3.2 3.3 Stress Testing for the Year 2010 Stress Testing for the Year 2009 Stress Testing for the Year 2008

Chapter Four: Calibration of Shock Analysis 4.1 4.2 4.3 4.4 4.5 Interest Rate Risk Exchange Rate Risk Credit Risk Equity Price Risk Liquidity Risk

Chapter Five: Conclusion