Corporate Asset Diversification of Brac Bank Limited

Corporate Asset Diversification of BRAC Bank Limited.
CORPORATE ASSET DIVERSIFICATION OF BRAC BANK LIMITED
BY
Afsana Promee
ID: 1110548
An Internship Report Presented in Partial Fulfillment

Of the Requirements for the Degree
Bachelor of Business Administration
INDEPENDENT UNIVERSITY, BANGLADESH

May 2015
CORPORATE ASSET DIVERSIFICATION OF BRAC BANK LIMITED
BY
Afsana Promee
ID: 1110548
has been approved

May 2015
Dr. SamiulParvez Ahmed

Assistant Professor
School Of Business
Independent University, Bangladesh
Letter of Transmittal
12h May, 2015
Dr. SamiulParvez Ahmed

Assistant Professor
Subject: Submission of Internship Report
Dear Sir,
I have the pleasure to submit my Internship report on Corporate Asset Diversification of
BRAC Bank Limitedas requirement for mygraduation. You are aware that I completed my
internship program in BRAC Bank Ltd(BBL) from 8th February 2015 to 8th May 2015, in Head
office ofBBL. I feel most privileged to be associated with an experienced, efficient
andprofessional team in one of the most reputed Banks of Bangladesh. I strongly
believethat this report will satisfy your requirements and expectations.
I have tried my best to make this report as informative, practical, reliable andrelevant as
possible. In preparation of this report, I have reviewed few books, journals, articles from
internet, taking few interviews and on the basis of this availableinformation
I appreciate your kind advice, cooperation, patience and suggestions regarding thisreport,
which will definitely help me to follow as a guideline in future endeavors.
Sincerely,
Afsana Promee
ID: 1110548
Dept.: BBA
Acknowledgement
Firstly, I would like to thank my honorable faculty, Dr. SamiulParvezAhmed for his
kindpatience, guidance and support for the preparation of this report. I will always beindebted
to him for the valuable suggestion and the time that he had spent for guidingme through the
report.
I would also like to acknowledge my great appreciation toward Md. Sekander-E-Azam Unit
Head, Cash Management and Custodial Service (Wholesale banking Division) and
FahimIshtiaqueHossain Senior Relationship Manager, Cash Management and Custodial
Services for beingpatient and supporting me throughout my 3 month long internship
program. Theyhave provided their time and effort to direct me throughout my time at BRAC
Bank Limited.
My peers and colleagues at the bank had also been very kind and helpful and theymade my
internship a more comfortable one. I would like to specially thank MarzukHussain
Relationship Officer (Wholesale Banking), for beingthere whenever I needed his support. I
would also like to thank AuditeSaha for helping me throughout my internship.
Last but not the least; I also want to thank all the employees for being patient in takingpart in
the survey that has been so crucial for my report.
Table of Content
Executive Summary
1.1 Introduction.....
1.2 Organizational Background.
1.3 Corporate Vision....
1.4 Corporate Mission....
1.5 Core Values......
1.6 Tag Line of BRAC Bank Limited.........
1.7 The position of BRAC Bank Limited in todays market........
1.8 What set BRAC Bank Limited Apart?.........
1.9 Industry Initiatives................................
1.10 Size of the firm......................................
1.11 Subsidiaries of BRAC Bank Limited.........................
1.12 Achievements of BRAC Bank Limited............................................
1.13 Hierarchical Structure of BRAC Bank Limited..................
1.14 Business Operations of BRAC Bank Limited...............
1.15 Products & Services of BRAC Bank Limited.......................... 8-13

2.00 Job as an Intern at BRAC Bank Limited.........................
14-15
3.1 Research introduction.....................................................
16
3.2 Problem Statement......................................
17
3.3 Purpose of the Study...........................
17
3.4Objectives..........
18
3.5 Literature Review........... 19-24
3.6 Conceptual Framework.....
25
3.7 Questions & Hypothesis....
26
3.8. The Design---Methods and Procedure.................... 27-28

3.9 Research Analysis................ 29-31
3.10 Limitations................
32
4.00 Summary & Conclusion..................
32
Reference............................................................................................ .
33-34
Appendices ........................................................................................
35-37
List of Tables
Table 1: Shareholder of BRAC Bank Limited.......
Table 2: Likert Scale..................
28
Table 3: Hypothesis Testing...................
29
Table 4: Model Summary.................
30
Table 5: Coefficients...........................
31
Executive Summary:
This is the internship report based on the three months long internship program that I had
experienced in the Head Office of BRAC Bank Ltd. From 8th February, 20115 to 8th May, 2015
as a requirement of my BBA program under Department of School of Business, Independent
University.
This report is divided into two broad parts: one is the organization part and another is the
research part. In the organization part, I introduced the Latest and one of the largest banks
of our country the BRAC Bank Ltd. On the other hand, in the research part, I focused on
the findings and analysis of the research.
As a part of my internship program I got a chance to work at this bank for a period of three
months. During this period I have learned about this organization and its work environment,
which inspire me to work on my topic.
The topic of my report is Corporate asset diversification of BRAC Bank Limited. My main
focus on was the functions of Corporate Banking division. The specific objective of this study
was to explore the relationship between diversification of corporate assets are depended on
financial risk, management risk, business risk and security risk. We surveyed 15 employees
of corporate division to find how diversification is depended on risks while lending out
corporate loans. The result of the research shows that security risk has relationship with
diversification and it is statistically significant.
1.1 Introduction: BRAC Bank was founded on 4 July 2001 as a private commercial bank
focused on Small and Medium Enterprises. BRAC Bank was founded to reach the large
number of unbanked people, which were not covered by traditional bank. The main concept
of the bank was to facilitate Small and Medium Enterprises (SME). Since then the Bank has
become a leading bank in Bangladesh. The business model of the bank was to mobilize
funds from the urban market towards lending at semi-urban and rural. The bank had to
break away from traditional banking system and thus they had to develop new ways to
assess credit proposals and to reach those people who rarely accesses a bank outside metro
cities. The strategies that were taken had made the bank successful and today it is one of
the best private commercial bank.
1.2 Organizational Background: BRAC Bank Limited is a scheduled commercial bank in

Bangladesh. It established in Bangladesh under the Banking Companies Act, 1991 and
incorporated as private limited company on 20 May 1999 under the Companies Act, 1994.
BRAC Bank will be a unique organization in Bangladesh. The primary objective of the Bank is
to provide all kinds of banking business. At the very beginning the Bank faced some legal
obligation because the High Court of Bangladesh suspended activity of the Bank and it could
fail to start its operations till 03 June 2001. Eventually, the judgment of the High Court was
set aside and dismissed by the Appellate Division of the Supreme Court on 04 June 2001 and
the Bank has started its operations from July 04, 2001. BRAC Bank Limited, with institutional
shareholdings by BRAC, International Finance Corporation (IFC) and Shore cap International,
has been the fastest growing Bank in 2004 and 2005. The Bank operates under a "double
bottom line" agenda where profit and social responsibility go hand in hand as it strives
towards a poverty-free, enlightened Bangladesh. The management of the Bank believes that
this sector of the economy can contribute the most to the rapid generation of employment
8
in Bangladesh. In the years ahead BRAC Bank expects to introduce many more services and
products as well as add a wider network of SME unit offices, Retail Branches and ATMs
across the country. BRAC bank will be knowledge-based organization where the BRAC Bank
professionals will learn continuously from their customers and colleagues worldwide to add
value. It will work as a team, stretch, they will innovate and break barriers to serve
customers and create customers loyalty through a value chain of responsive and
professional delivery. The bank promotes broad-based participation in the Bangladesh
economy through the provision of high quality banking services. BRAC Bank will do this by
increasing access to economic opportunities for all individuals and business in Bangladesh
with a special focus on currently under-served enterprises and households across the rural
urban spectrum. BRAC Bank believes that the pursuit of profit and developmental goals is
mutually reinforcing.
1.3 Corporate Vision:Building profitable and socially responsible financial institution focused
on Market and Business with Growth potential, thereby assisting BRAC and stakeholders to
build a just, enlightened, healthy democratic and poverty free Bangladesh.
1.4 Corporate Mission:
Sustained growth in Small & Medium Enterprise sector
Continuous low-cost deposit Growth with controlled growth in retail assets.
Corporate Assets to be funded through self-liability mobilization. Growth in Assets through
syndications and investment in faster growing sectors.
Continuous endeavor to increase non-funded income
Keep our debt charges at 2% to maintain a steady profitable growth
Achieve efficient synergies between the banks branches, SME unit offices and BRAC field
offices for delivery of remittance and Banks other products and services
Manage various lines of business in a full controlled environment with no compromise on
service quality
Keep a divers, far flung team fully controlled environment with no compromise on service
quality
1.5 Core Values:Our Strength emanates from our owner - BRAC. This means, we will hold
the following values and will be guided by BRAC as we do our work.
Value the fact that one is a member of the BRAC family.
Creating an honest, open and enabling environment.
Have a strong customer focus and build relationships based on integrity, superior
service and mutual benefits.
Strive for profit and sound growth.
Work as team to serve the best interest of our owners.
Relentless in pursuit of business innovation and improvement.
Value and respect people and make decisions based on merit.
Base recognition and reward on performance.
Responsible, trustworthy and law abiding in all that we do.
1.6 Tag line of BRAC Bank Limited:Dedicated to the people of Bangladesh because we
believe in the faith and dreams of the 158 million. It is not just a place for transactions
BRAC Bank is a place where potentials are realized.
10
1.7 The position of BRAC Bank Limited in todays market:
BRAC Bank is the youngest Bank in the country
It is countrys largest SME bank
A full scale financial hypermarket offering financial solutions to every segment: SME,
Retail, Corporate, Probashi, Capital Market
2nd largest ATM network, largest to have integrated with rest of the industry
Largest Plastic Card base (over 5 Lac customers carry Debit or Credit card)
Largest real time, online Network
BRAC Bank has 151 Branches/ KrishiBranches
They have 421 SME Unit Offices
The bank has over 300 ATMs
They have more than 1800 Remittance Delivery Points
They have 12 AponShomoy (Kiosks)
1.8 What set BRAC Bank Limited apart?
BRAC Bank has SME Banking Model where 50% of the total loan is always for SMEs.
They have Value Based Banking system where the mission of Financial Inclusion and
3P philosophy is in action.
Largest real-time, online network.
1.9 Industry Initiatives:

The SME Financing Model
Omnibus-a common platform for shared ATM network
Eldorado- a common platform for remittance distribution
First PPP in Banking
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1.10 Size of the firm:

Number of Employees:
Currently 8000 people are working in BRAC Bank Limited in
different branches all over Bangladesh.
Table 1: Shareholders of BRAC Bank Ltd
Shareholders
Percent
BRAC
31.74%
IFC
9.50%
ShoreCapInternational
8.76%
General PublicthroughIPO
40%
Non-Residents Bangladeshi's
5%
Mutual Funds throughIPO
5%
Total
100%
Source: BRAC Bank
12
1.11 Subsidiaries of BRAC Bank Limited:
BRAC EPL Stock Brokerage Limited is one of the leading stockbrokers in the country. BRAC
EPL Stock Brokerage Limited has membership at both of the country's stock exchanges; the
Dhaka Stock Exchange (DSE) and the Chittagong Stock Exchange (CSE).
BRAC EPL Investment Limited delivers a whole range of Investment Banking services including
traditional merchant banking activities such as Issue Management, Corporate Advisory,
Corporate Finance, Underwriting and Portfolio Management.
BRAC Saajan Exchange Limited mainly provides remittance services to the large Bangladeshi
Communities living in UK. Apart from its remittance services the Company also caters to the
investment needs of the NRBs through its parent organization BRAC Bank.
bKash Limited (a subsidiary of BRAC Bank) operates with an objective to ensure access to a
broader range of financial services (mobile fund transfer facility) for the people of Bangladesh.
It has a special focus to serve the low-income masses of the country to achieve broader
financial inclusion by providing services that are convenient, affordable and reliable.
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BRAC IT Services Ltd. (biTS) is an IT Solution and Services company and is a subsidiary jointly
owned by BRAC Bank and BRAC. biTS has been formed in 2013 through the merger of a
subsidiary IT company. It strives to become the trust worthiest company in Bangladesh
providing technology solutions and managed IT Services. biTS provides end-to-end solutions
for industries like Banks, Non-Banking Financial Institutes, Educational Institutes, MicroFinance, NGOs, FMCG etc. It has a team of highly capable and professional individuals
committed to deliver high productivity, efficiency as well as creativity. We are committed to
help our customers to achieve operational efficiency through transforming their existing
operations using our best value solutions and services
1.12 Achievements:
BRAC Bank wins prestigious Sustainable Marketing Excellence Award from CMO Asia
BRAC Bank wins prestigious Best Bank in Bangladesh Award from Finance Asia
BRAC Bank wins The Best Managed Bank Award from The Asian Banker
BRAC Bank Wins the Award for Best Retail Bank in Bangladesh by The Asian Banker
BRAC Bank Limited has received ICAB National Award
BRAC Bank awarded prestigious FT Sustainable Bank of the Year 2010
DHLDaily Star Bangladesh Business Awards 2008
BRAC Bank received National Award as the Highest VAT payer for the financial year
2007-2008
BRAC Bank received ICAB National Award
14
1.13 Hierarchical Structure of BRAC Limited Bank:
1.14 Business Operation of BRAC Bank Limited (Corporate Division):Corporate-banking

division operates in a centralized structure through online banking system. At every stage of
its involvement, corporate banking division adheres to strict internal control guidelines and
prevalent legal and statutory compliance.
1.1 5Product and Services: BRAC Bank Limited provides different types of banking services
to their potential customers. They have five different types of banking services, SME
banking, retail banking, wholesale banking, probashi banking and E-banking.
15
SME Banking:BRAC Bank, being the youngest bank, took a step to break away from usual
tradition and tapped into the true community entrepreneurial initiatives. Today with over
220,139 million of loans disbursement till date, BRAC Bank is countrys largest SME financier
that has made more than 410,817 dreams come true. SME banking provides both the loan
products and deposit products
Loan products:
Anonno: It is a business loan to meet any kind of business needs, which starts
from BDT 2 Lac to 15 Lac. We obtain this loan no security is needed, it has easy
installment and easy loan processing. Any kind of business having valid trade
license, partnership or sole proprietorship and small sized businesses are
eligible for this type of service.
ApurboRin:Apurbo is a loan facility for Small Entrepreneurs. Apurbo offers BDT

1 million to BDT 30 million loans against registered mortgages. It has term loan,
short term loan, revolving loan,bank guarantees and overdraft loan facilities
depending on the requirement of the customers. To avail this kind of loan
limited documents are needed and it gives easy installment and overdraft
services.
Prothoma:Prothoma is a term loan for small-scale businesses operated by

women entrepreneurs. Maximum BDT 1 million is given out to meet any kinds
of business needs. No security is needed. The interest rate is very low and loan
processing is very easy.
Shomriddi:To meet import-export related expenses, post import expenses,

tax/duty payment, local bill purchase, working capital and fixed asset finance.
Shomriddi loan is offering BDT 1 Lac to BDT 50 million. It has LC and LATR
16
facility, revolving loan, overdraft, local bill discounting facility and term loan
facility. It provides convenient interest rate and loan payment facility up to 180
days.
ShompodRin:Shompod is a business loan facility starting from BDT 1 million to

BDT 35 million against home or business premise mortgage. It consists of term
loan with monthly installment repayment facility for maximum up to 10 years
and overdraft facility to meet working capital.
ShoktiRin:Business loan under which customer can avail BDT 1 million to BDT 10
million to meet any kind of business loan.
Deposit products:
Prapti Current Account:Prapti current account allows customers to deposit and

withdraw money trough any branches, SME sales and service centers during
banking hours and through ATM and CDM 24 hours. The interest is paid on daily
balance.
Prachurjo Fixed Deposit:Prachurjo is a lucrative fixed deposit for small and

medium businesses. With a minimum 10,000 Tk any small enterprise having
valid trade license can open this account.
Shonchoy Deposit: Monthly deposit scheme for all SME clients. Ii would allow
the organization to save a monthly basis as per the organization requirement.
Along with this business concern can get up to 95% secured over draft facility.
Corporate Banking:BRAC Bank Limited offers a full array of Financial Services to Corporations
and Institutions. Having access to the deepest end of the country, BRAC Bank is there to assist
businesses in Bangladesh.
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Corporate Loan Products:
Overdraft
Short Term Loan
Lease Finance
Loan Against Trust Receipt (LATR)
Work Order Finance
Emerging Business
Syndication
Term Loan
Project Finance
Bill Purchase
Bank Guarantees
Corporate Cash Management:

Cash & Trade Unit provide a wide range of Corporate Fund Management Solutions for the
large, medium and small business enterprise. The banks strategy is to provide tailored
comprehensive solution to the clients of this segment. BRAC bank have designed and
redefined our services, which are flexible and customizable in terms of individual corporate
requirement.
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Custodial Service:
BRAC Bank Limited offers ProbashiBiniyog a product that exclusively provides NonResident Bangladeshis (NRBs) the opportunity to invest in the Bangladeshi Capital Market
through a Beneficiary Owners (BO) account which will be funded by a Non Resident
Investors Taka Account (NITA). Both BO account and NITA will be held with BRAC Bank
Limited
Retail Banking:With 157 outlets, over 300 ATMS and over 500,000 plastics in the in the
market BRAC Bank offers a wide range of financial solutions to meet customers daily needs.
BRAC Banks Retail Division is being operated centrally. Under the Retail Banking Division all
the branches, which acts as sales & service center, are reportable to Head of Retail Banking.
Premium Banking
Supreme Banking
Excel Banking
Retail Deposits Products
Retail Loan Products
Credit Cards
Non-stop Banking
ATM/ Branch Locator
Locker Services
Foreign Exchange & Related Services
Probashi Banking: Probashi Banking division of the bank caters the NRBS (Non- Resident
Bangladeshi) not only by disbursing remittance but also offering One Stop banking Solution
19
by creating a favorable environment and opportunities for the NRBs to make long term
financial contributions in the socio- economic progress of the nation. To facilitate the NRBs a
bunch of probashi banking products and services are designed to secure expatriate
Bangladeshi(s) future saving(s) and investment(s) need as well as providing a structured
financial planning for future.
E-Banking: For the first time in Bangladesh BRAC Bank Limited has introduced e-commerce
program for all VISA & MasterCard cardholders. Electronic Commerce is a convenient and
affordable way to buy and sell products and services online.
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2.0Job As An Intern:As an intern I got the opportunity to work at BRAC Bank Limited. I
worked under cash management and custodial service of corporate banking division. I had
to work 5 days a week from 10 to 6, at times till 8. The cash management team deal with
corporate clients and manages their accounts. The corporate baking consists of four wings:
cash management and custodial services, local corporate, large corporate and structured
finance. During my internship I was assigned to work with the cash management and
custodial team. The cash management team provides a wide range of Corporate Fund
solution for the large, medium and small business enterprise. The strategy is to provide
tailored comprehensive solution to the clients of this segment. Usually they design their
services according to the needs of the individual corporate requirement. The services are
quite flexible and they are customizable in terms of customer needs.
The duty I was assigned was to calculate custodial fee for different IPO funds. Due to
political instability Bangladesh Bank assigned a project to all public and private banks. The
project name was PEP (Politically Exposed Persons in Bangladesh). I was assigned to do this
project for BRAC Bank Limited. Basically I had to check all corporate accounts and I had to
find whether the signatory or beneficiaries of the accounts are politically exposed or not. I
had to almost 37000 accounts, and most of the accounts had 5 beneficiaries. I had to search
individual name on Google and I had find out if they are anyhow related to politicians.
Throughout my internship I had to do this, as there was 37000 accounts. Moreover I was
assigned to read custodian agreements. I was even trained how to open new corporate
accounts and how to assets were diversified in corporate banking.
Skills and competencies that I acquired during my internship, was I got to know about many
politicians of Bangladesh, as I had zero knowledge about it. I actually learnt how things are
21
done in corporate work and how the corporate culture works. I also learned how accounts
are opened and pay orders are made.
Account opening form update
Procedure:
Individual information
Information about nominee
Computing coding
Transaction profile
KYC profile form
Check list
Thanks letter
Pay order preparation

Procedure:
Form fill up
Cash payment
Write down the pay order checks
Collect sign form Sub manager and a senior officer
Provide the pay order check to the customer and collect a sign.
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3.1 Introduction: In finance diversification means to reduce non-systematic risk by

investing in various types of assets. If the asset values do not move up and down in perfect
manner then a diversified portfolio will have less risk than the weighted average risk of the
constituent assets and often less risk than the least risky of its constituent. Increased
attention is focused on methods for valuating corporate bank loans and for determining the
appropriate interest rate and fees to charge various categories of customers. BRAC Bank
Limited offers a wide range of corporate loan products to their corporate customers. Loan
products like over draft, short term loan, lease finance, loan against trust receipt, work
order finance, syndication, term loan, project finance, bill purchase and bank guarantees are
offered to corporate clients. As giving out loans to customers involves great amount of risk,
as a result bank has to always eliminate the risk associated with each and individual
products they offers to their customers. However banks also has to get the highest return
from their assets.
Corporate loans are quite different from traditional loans. Corporate loans are given on the
basis of the company needs and the risk and return varies from companies to companies.
There is no fixed interest rate set for the corporate loan products and the return varies.
Corporate loans are associated with five types of risk: financial risk, management risk,
business risk, relationship risk and security risk. Any company that requires corporate loan
needs to fulfill the Customer Grading Policy. The bank checks all the risk associated with the
company and if the company passes the grading policy then they are eligible for taking
corporate loans.The corporate assets are diversified on the basis of risk associated with the
loan products.
23
3.2 Problem Statement:
As the corporate loans have no fixed rate for their loan
products, it is very difficult to measure the actual risk associated with each loan product
they offer. So if we have to find the actual risk and return for the individual loan product we
have choose individual companies to find the risk and return and based in that we can see
how the bank can diversify their corporate assets. As we know corporate loans are given on
the preference of the corporate clients and for different companies different rates are set
and as a result returns differs from company to company. Therefore corporate assets are
diversified on the basis of risk associated with companies. The bank focuses on 5 different
types of risk out of which 4 types helps the bank to diversity their corporate assets. Risk
such as financial risk, business risk, management risk and security risk are taken into
consideration for asset diversification. The bank needs to assess each and individual
corporate clients and even after assessing the company and clients it is difficult to mitigate
risks. Another problem the bank has in diversifying their corporate asset is that as the
corporate banking division caters to a board range of customized solutions and services
targeted towards corporate and institutional clients, therefore it is hard to calculate total
and risk and return associated with different loan products and thus their portfolio
diversification constantly keeps on changing.
3.3 Purpose of the study:The purpose of the study is to identify, on what basis the
corporate loans are given to corporate clients, as they have no fixed rate for their corporate
loan products. In doing so we can see how diversification of corporate assets is dependent
on different types of risk associated with companies while lending out corporate loans. The
corporate assets are then diversified into different companies depending on the risk and
company performance. The type of loan products requirement is dependent on companys
24
need and thus on the basis of the companys requirement the corporate asset is diversified.
The bank diversifies their corporate assets into different industries like RMG, Steel,
Pharmaceuticals, Textile, and Telecommunications etc. Companies from different industries
having feasible business plan and having less risk are the ones who gets the facilities to use
corporate loan products. The assets are then diversified into different loan products
depending on the companies need.
3.4 Objectives:
Broad Objective:On what basis the corporate clients are graded and how the corporate
assets are diversified on the basis of risks associated with corporate loans.
The Specific Objective:
To identify the risk associated with corporate loans
To find out on what basis the bank diversifies their asset into different companies
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3.5 Literature Review:

Definition of risk:
When doing business, constantly decisions, where the outcomes cannot be foreseen with
certainty due to incomplete information, have to be made (Stroeder, 2008,). This
uncertainty connected with every kind of business activity is risks. Although this term is of
central importance, there does not exist an overall definition of the meaning of risk.
Furthermore, risk can be split into two categories. On the one hand there are pure risks or
systematic risks, which cannot be influenced by the manager and are independent of
business decisions. On the other hand there are unsystematic risks, which are the result of
managerial decision-making and can either have a negative or a positive outcome (Stroeder,
2008; Retzlaff, 2007).
However there are differences in the definitions of risk. First of all some include alsopossible
positive outcomes of a risk, also referred to as upside risks or chances. Otheronly define the
possible occurrence of negative outcomes, or downside risks, as risksbecause they are more
in the focus of the management (Dhanini et al., 2007). Theinclusion or exclusion of chances
is not the only difference in the common definitions.They range from (negative) deviations
of planned outcomes, over danger of makingwrong decisions to danger of losses due to
information lacks (e.g. Nassauer&Pausenberger, 2000; Hermann, 1996). When focusing on
the commonfeatures of the definitions, risk is the possibility of deviation from a planned
outcome orgoal. This implies that all business is connected with risks resulting from the fact
thatfuture states of the world and outcomes of decisions can only be predicted. As
businessactivities are uncertain regarding their outcome and this uncertainty implies risks to
theprofit of the firm, a company needs to manage its risk exposure (Retzlaff, 2007).
26
Financial Risk:
Financial risk is an umbrella term for multiple types of risk associated with financing,
including financial transactions that include company loans in risk of default. Risk is a term
often used to imply downside risk, meaning the uncertainty of a return and the potential for
financial loss.A science has evolved around managing market and financial risk under the
general title of modern portfolio theory initiated (Dr. Harry Markowitz, 1952). In modern
portfolio theory, the variance (or standard deviation) of a portfolio is used as the definition
of risk.Financial risk management has received increased attention over the past years
(Glaum, 2000). The reason for this is that financial risks, though they are not a core
competency of non-financial firms, also influence their business operations to a large extend
(Triantis, 2000). Financial risks can be of different forms. On the one hand there are external
financial risks depending on changes on financial markets. On the other hand there are
internal financial risks, where the company itself is the source of the risks (Eichhorn, 2004).
The internal risk consists of credit risk, operational risk and liquidity risk.
Internal Financial Risk:
Reduced volatility in cash flows or earnings and prevention of losses allow better planning of
liquidity needs. This can avoid shortcuts of available funds and consumption of equity
(Eichhorn, 2004). However, in order to maintain financially liquid and avoid end of period
losses, it needs to be analysed which the maximum tolerated loss is. The focus of the risk
management should therefore be in correspondence with the actual financial situation of
the company. Then, by managing, among others, internal and external financial risks, also
the liquidity risk and solvency risk are taken care of. Financing risk, which needs to be
managed directly, mainly depends on a mismatch between the duration of assets and their
27
financing. The company should therefore try to match the two durations in order to avoid
problems with and high costs of follow-up loans. Furthermore this reduces the risk of having
more debt than needed after the assets lifetime and by that it saves interest costs (Vickery,
2006).
Credit Risk:Credit risk, also called default risk, is the risk associated with a borrower going
into default (not making payments as promised). Investor losses include lost principal and
interest, decreased cash flow, and increased collection costs. An investor can also assume
credit risk through direct or indirect use of leverage. For example, an investor may purchase
an investment-usingmargin. Or an investment may directly or indirectly use or rely on repo,
forward commitment, or derivative instruments.
Operational Risk:Operational risks, financial risks and organizational and management risks
are internal risks as they have their source within the firm (Henschel, 2008, p.8).Operational
risks, comprising business operations(e.g., human resources, product development,
capacity, efficiency, product/service failure, channel management, supply chain
management, and business cyclicality), empowerment (e.g., leadership and change
readiness), information technology (e.g., relevance and availability), information/business
reporting (e.g., budgeting and planning, accounting information, pension fund, investment
evaluation, and taxation.
Liquidity Risk:As well as consumption of equity, liquidity risk is mainly the result of other
risks, which cause a deviation of the planned outcome and might lead to lower cash inflows
or higher cash outflows. Liquidity measures the ability of the firm to cover its expenses and
therefore it also shows whether the company is able to cope with some losses due to risk
occurrence (Smithson, Smith &Wilford, 1995). A lack of financial funds can cause problems
28
in the ability of the firm to pay its bills on time and by that lead to additional costs (Brner,
2006). On the one hand costs occur for arrears fees. On the other hand the rating of the
company can be lower and therefore future financing leads to higher interest payments
(Eichhorn, 2004). Due to that the financing risk becomes more urgent and can lead to higher
liquidity and solvency risks.As external and internal financial risks can have a huge impact on
the company and its business continuity, a management of these risks is essential also for
non-financial companies.
Management Risk:
Management risk refers to the chance that company managers will put their own interests
ahead of the interest of the company and shareholders. An example of this is the recent
scandals with Enron, WorldCom and other large companies, whose managers acted in a
manner that eventually bankrupted the companies and destroyed shareholder wealth.
Management risk also applies to investment managers, whose decisions and actions may
divert from the investors' wishes or reduce the value of an investment portfolio.Operational
risks, financial risks and organizational and management risks are internalrisks as they have
their source within the firm (Henschel, 2008).Different researchers tried to find sets of ratios
according to these requirements. Their aim was to find a reliable method for predicting the
default risk of a company based on a set of key ratios. By comparing a companys ratios to a
group of other companies a classification of the company as at default risk or not should be
possible. Different methods have been developed to evaluate the usability of different
ratios in assessing a companys insolvency risk (Baetge&Bruggemann, 2006, Baetge, 2002).
In the beginning the research concentrated on analyzing different ratios separately and
combining the single outcomes to an overall picture of default risk (Balcaena&Ooghe, 2006).
29
Business Risk:
The term business risk refers to the possibility of inadequate profits or even losses due to
uncertainties e.g., changes in tastes, preferences of consumers, strikes, increased
competition, change in government policy, obsolescence etc. Every business organization
contains various risk elements while doing the business. Business risks implies uncertainty in
profits or danger of loss and the events that could pose a risk due to some unforeseen
events in future, which causes business to fail. Business risks can be classified by the
influence by two major risks: internal risks (risks arising from the events taking place within
the organization) and external risks (risks arising from the events taking place outside the
organization).
Business risk is defined to be the risk inherent in the firm, independent of the way it is
financed (Van Horne, pp. 207-8). Business risk generally is reflected in the variability of net
operating income or net cash flows. A high (low) coefficient of variation of net cash flows,
for example, would indicate high (low) business risk. Business risk may be evaluated at a
point in time based on the probability distribution of net cash flows.
Security risk:
Security risk analysis, otherwise known as risk assessment, is fundamental to the security of
any organization. It is essential in ensuring that controls and expenditure are fully
commensurate with the risks to which the organization is exposed.However, many
conventional methods for performing security risk analysis are becoming more and more
untenable in terms of usability, flexibility, and critically... in terms of what they produce for
the user.
30
Diversification:
Diversification strives to smooth out unsystematic risk events in a portfolio so that the
positive performance of some investments will neutralize the negative performance of
others. With respect to industry concentration, (Berry 1974) found that diversificationinto
new industries raised concentration in concentrated industries,but decreased it in
concentrated industries. Similarly, (Caves 1981) alsofailed to find a positive relationship
between diversification and concentrationin highly concentrated industries, finding instead
an increase only in concentratedindustries. He concluded (p. 292): "The appearance of a
positiverelation between changes in concentration and diversification only in the
leastconcentrated industries does not support a market-power interpretation. It canhardly
pay to dip into the deep pocket in order to lift four-firm concentrationfrom 18% to 25%."
31
3.6 Conceptual Framework:
FINANCIAL RISK
MANAGEMENT RISK
DIVERSIFICATION
BUSINESS RISK
SECURITY RISK
32
3.7 Questions and Hypothesis:

1.Is there any relationship between financial risk anddiversification?
2.Is there any relationship between management risk and diversification?
3.Is there any relationship between the business risk and diversification?
4.Is there any relationship between security risk and diversification?
Hypothesis:
Ho1: There is no relationship between financial risk and diversification.
Ha1: There is a relationship between financial risk and diversification.
Ho2: There is no relationship between management risk and diversification.
Ha2: There is a relationship between management risk and diversification.
Ho3: There is no relationship between business risk and diversification.
Ha3: There is a relationship between business risk and diversification.
Ho4: There is no relationship between security risk and diversification.
Ha4: There is relationship between security risk and diversification.
33
3.8 The Design Methods and Procedures

Research design:
The conceptual framework work shows that there is a direct relationship between the
independent variables and the dependent one. But it will be important to explore the type
& intensity of this relationship so that the earlier mentioned purpose of the study can be
met. The study how corporate loans are diversified, I went to Head Office BRAC Bank
Limited in the corporate department for my internship.. The basic data both primary and
secondary used in the preparation of this report are obtained from:
Personal observation of different tasks.
Face to face conversation with the bank officers studying of different files and
books.
Annual report of BRAC Bank Ltd.
Periodicals published by Bangladesh Bank.
Sources of Data:
Both the primary as well as the secondary form of data is used to prepare the report. The
details of these sources are highlighted below.
Primary Data:Primary data were collected through interviewing, conversation and
discussion with the corporate employees of BRAC Bank Limited. The employees were given
questionnaires and based on that we have done our data analysis.The executives & officers
of BRAC Bank were quite friendly & cooperative to provide lots of information to prepare
this report
Secondary Data:Secondary information was collected from:
Annual report of BRAC Bank Ltd.
Books on general banking.
34
Sampling Method:
Convenient sampling method was adopted whereby the entire respondents are employees
of corporate division of BRAC Bank Limited.
Sample size: 15
Survey Instrument:
Questionnaires will permit us to gather information that cannot be found elsewhere from
any secondary information such as books, newspapers and Internet resources. So the
questionnaire survey is the most successful method for this study to collect the data. I have
used a structured questionnaire. In a structured questionnaire, quantitative data is required
and for this reason the researcher will use questionnaire. There are Five (5) response
choices:
StrongDisagree
Disagree
Neither Agreenor
Disagree
Agree
StronglyAgree
Table 2: Likert scale

Types of data and sources:
I have select questionnaire method to collect data from the primary sources. I will confirm
our respondents that all the data collected from them will be kept confidential and
exclusively used for academic purposes and their individual identity would be kept
undisclosed individuals, each taken 18 questionnaires to be filled out by respondents from
the devised sample. While filling out the questionnaires the researchers assisted the
respondents to get a better idea of their actual behaviors to minimize the margin of error.
Data entry is done in SPSS 17 data editor and analyzed under some specific hypothesis.
Statistical tools like correlate and regression were used to assess and interpret data. To interpret
35
the data, frequency and correlate were used in the first phase. To test the hypotheses, multiple
regressions were used as a statistical tool at 0.05 and significance level.
3.9 Research Analysis:

Table 3: Hypothesis testing
FinRisk
FinRisk
Pearson Correlation
MgtRisk
1
-.003
.143
.811
.277
.992
.610
15
15
15
15
15
Pearson Correlation
-.068
.439
.160
-.017
Sig. (2-tailed)
.811
.101
.568
.952
15
15
15
15
15
Pearson Correlation
-.300
.439
-.337
.334
Sig. (2-tailed)
.277
.101
.220
.224
15
15
15
15
15
Pearson Correlation
-.003
.160
-.337
-.607*
Sig. (2-tailed)
.992
.568
.220
15
15
15
15
15
N
SecuRisk
N
Diversification
Diversification
-.300
BusiRisk
SecuRisk
-.068
Sig. (2-tailed)
MgtRisk
BusiRisk
.016
Pearson Correlation
.143
-.017
.334
Sig. (2-tailed)
.610
.952
.224
.016
15
15
15
15
-.607
15
*. Correlation is significant at the 0.05 level (2-tailed).
The hypothesis testing shows that there is no relationship between financial risk,
management risk and business risk with diversification. Only security risk has relationship
with diversification. As the p value is less than 0.025 that means the relationship of
dependent variable with the independent variable is statistically significant.
36
The Pearson correlation table represents:

Ho1: There is no relationship between financial risk and diversification
Ho2: There is no relationship between management risk and diversification.
Ho3: There is no relationship between business risk and diversification.
Ha4: There is relationship between security risk and diversification.
Regression Analysis:
Table 4: Model Summary
Model
1
R Square
.653
.426
a. Predictors: (Constant), SecuRisk, FinRisk, MgtRisk, BusiRisk
In statistics, regression analysis is a statistical process for estimating the relationships

among variables. It includes many techniques for modeling and analyzing several variables,
when the focus is on the relationship between a dependent variable and one or more
independent variables. R is the correlation and it measures how variables move in relation
to each other. As we can see the value of the R is 0.653 or 65.3% and as we know the higher
the value of the R the model is good fit for the research. R2or the covariance is the
proportion of the variability in the Y that is explained by the independent variables, the x
variable in the model. In our model we have four independent variables and one dependent
variable. The independent variables are financial risk, management risk, business risk and
security risk and the dependent variable is diversification. We can say 42.6% of
diversification is due to financial risk, management risk, business risk and security risk.
37
Table: 5 Coefficientsa
Standardized
Unstandardized Coefficients
Model
(Constant)
Coefficients
Std. Error
Beta
3.196
1.870
FinRisk
.209
.255
MgtRisk
-.015
BusiRisk
SecuRisk
Sig.
1.709
.118
.209
.820
.431
.242
-.018
-.063
.951
.228
.319
.228
.714
.492
-.341
.179
-.527
-1.904
.086
a. Dependent Variable: Diversification
We can explain the coefficients by:
y= + B1X1+ B2X2+B3X3+B4X4
y= 3.196 + 2.09X1 0.015X2 + 0.228X3 0.341X4
Therefore we can conclude that if financial risk increases by 1unit, then diversification
increases by 2.09 units. If the management risk increases by 1unit, then diversification is
decreases by 0.015 units. If business risk increases by 1 unit, then diversification increases
by 0.228 units. If security risk increases by 1 unit, then diversification decreases by 0.341
units.
38
3.10 Limitations:
BRAC Bank authority did not want to disclose all the information needed.
Load at the work place was also a barrier to prepare this report.
Although the officers of the BRAC Bank Ltd. have been very helpful, they didnt have
enough time to provide, as they are very busy with their assigned works. So, in some
cases, observation was needed.
The sample size was small.
Finally, the length of this internship program is not sufficient conduct a detailed
study on the subject of research.
4.0 Summary and Conclusion:

This report is an effort to show what could be the reason behind diversification of corporate
assets of BRAC Bank, though there are other reasons as well but corporate loans are lend
out on the basis of this four risks and depending on the risk the assets are diversified.
After doing the research and running the data on SPSS I am really surprised to see that the
data showed there were no relationship between some of the independent variables with
diversification. This may be due to the number of people I took as a sample.
I was assigned to BRAC Banks Corporate Division, located in Tejgoan where I worked for 3
months and I have gained many new things from working here and I tried to integrate what I
have learned at office on my research which was really helpful, it help me to get my work
done faster.
39
References:
Alexander J. Triantis REAL OPTIONS AND CORPORATE RISK MANAGEMENT

Volume 13, Issue 2, Summer 2000, Pages: 6473.
Andreas Brner 12, (2006,) Preservation of plant genetic resources Volume 1,

Pages: 13931404,
Baetge/ Kirch/ Thiele(2005), Bruggemann/Luhn/Siegel(2004a) Mezzanine-Kapital in

der HGB- und IFRS-Rechnungslegung: Ausprgungsformen
Balcaen, S. &Ooghe, H. (2006). 35 Years of studies on business failure: an overview of

the classic statistical methodologies and their related problems. The British
Accounting Review, 38, 63-93
Berry, Charles H., "Corporate Diversification and Market Structure," Bell Journal of
Economics and Management Science, Spring 1974, 5 196-204
Caves, Richard E., "Diversification and Seller Concentration: Evidence from Changes,
1963-72," Review of Economics and Statistics, May 1981, 63, 289-93.
Dhanani, A.; S. Fifield; C. Helliar; and L. Stevenson. Why UK Companies Hedge

Interest Rate Risk. Studies in Economics and Finance, 24 (2007), 72-90.
Eichhorn and O. Chapelle. Object categorization with SVM: kernels for local features.
Technical Report TR137, Max Planck Institute for Biological Cybernetics, Tubingen,
Germany, July 2004. 112, 134, 135
HENSCHEL, T. (2009). Implementing a Holistic Risk Management in Small and

Medium Sized Enterprises (SMEs). Edinburgh Napier University School of Accounting,
Economics & Statistics, UK.
Markowitz, H.M. (March 1952). "Portfolio Selection". The Journal of Finance7 (1):
7791
Martin Glaum (2000), A Comprehensive approach to the measurement of

Macroeconomic exposure.
Pausenberger and Nassauer 2000, Governing the Corporate Risk Management

Function.
RetzlaffHenkin (2007).A New Model to Identify Bankruptcy Risk of Corporations,

Journal of Banking and Finance, 1 (1), 29-51.
Ronald A. Fisher. Metron, 1: 3-32 (1921) On the "Probable Error" of a Coefficient of

Correlation Deduced from a Small Sample
40
Shaw nee Vickery, Roger Calantone and Cornelia DrgeJOURNAL OF SUPPLY CHAIN
MANAGEMENTVolume 35, Issue 2, June 1999, Pages: 1624, Shaw nee Vickery,
Roger Calantone and Cornelia Drge
Smithson, Smith &Wilford, (1995), Derivatives Securities, Risk Management &

Speculation.
Stroeder, T., and Pagnucco, M. 2009. Realizing deterministic behavior from multiple
non-deterministic behaviors. In Proc. of the International Joint Conference on
Artificial Intelligence (IJCAI), 936941.
Van Horne, J. C. Fundamentals of Financial Management. Englewood Cliffs, N.J.:

Prentice-Hall, 1974
Website:http://www.bracbank.com/about.php
41
Appendices:
Hypothesis testing:
FinRisk
FinRisk
Pearson Correlation
MgtRisk
1
-.003
.143
.811
.277
.992
.610
15
15
15
15
15
Pearson Correlation
-.068
.439
.160
-.017
Sig. (2-tailed)
.811
.101
.568
.952
15
15
15
15
15
Pearson Correlation
-.300
.439
-.337
.334
Sig. (2-tailed)
.277
.101
.220
.224
15
15
15
15
15
Pearson Correlation
-.003
.160
-.337
-.607*
Sig. (2-tailed)
.992
.568
.220
15
15
15
15
15
N
SecuRisk
N
Diversification
Diversification
-.300
BusiRisk
SecuRisk
-.068
Sig. (2-tailed)
MgtRisk
BusiRisk
.016
Pearson Correlation
.143
-.017
.334
Sig. (2-tailed)
.610
.952
.224
.016
15
15
15
15
-.607
15
*. Correlation is significant at the 0.05 level (2-tailed).
42
Regression Analysis:
Model Summary
Model
R Square
.653
Adjusted R Square
.426
Std. Error of the Estimate

.196
.32663
a. Predictors: (Constant), SecuRisk, FinRisk, MgtRisk, BusiRisk
Coefficientsa
Unstandardized Coefficients
Model
1
Std. Error
(Constant)
3.196
1.870
FinRisk
.209
.255
MgtRisk
-.015
BusiRisk
SecuRisk
Standardized
Coefficients
Beta
Sig.
1.709
.118
.209
.820
.431
.242
-.018
-.063
.951
.228
.319
.228
.714
.492
-.341
.179
-.527
-1.904
.086
a. Dependent Variable: Diversification
43
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
Financial Risk
While lending out corporate loans financial risk is the important factor the bank looks
into
50% of the total risk is focused on the financial risk while giving loans to companies
Corporate credit risk policy helps ensure the quality of the companies
Liquidity risk and market risk aslo plays a vital role for compaines to get corporate
loans
Management Risk
Coporate loans are only given to well managed companies
Management risk is checked by visisting the companies (client visist)
18% 0f the total risk is focused on management risk while lending out corporate loans
Well managed companies usually gives better return to the bank
Business Risk
Coporate loans are given to companies only on the basis of company's busisness plan
Credit history and financial data helps the bank to identify the risk associated with
individual company
22% of the total risk is focused on business risk while lending out corporate loans
Companies with achievable business plan gets more loan facilities
Security Risk
The bank emphasizes less on security risk
10% of the total risk is focused on security risk while giving out corporate loans
Diversifications
Companies having less financial risk gets getter amout of loan facilities
The companies which are less exposed to market risk gets maximum amount of loan
Most of the corporate loans are given to big industries with feasible business plan
The bank diversifies their corporate assets by seeing the business structure of
individual company
1 2 3 4 5
1 2 3 4 5
1 2 3 4 5
1 2 3 4 5
1
1
1
1
2
2
2
2
3
3
3
3
4
4
4
4
5
5
5
5
1 2 3 4 5
1 2 3 4 5
1 2 3 4 5
1 2 3 4 5
1 2 3 4 5
1 2 3 4 5
1 2 3 4 5
1 2 3 4 5
1 2 3 4 5
1 2 3 4 5
44

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