Table of Contents

|Sl no |Topics |page |
|01 |Executive Summary |02 |
|02 |Background of ONE Bank Limited |03 |
|03 |Company Milestones |04 |
|04 |Common Ways of Risk Handling |05-06 |
|05 | |07-09 |
| |Risks associated in Banking Services | |
|06 |Bank Risk Management Systems |09-21 |
|07 |Insurance Coverage |22-25 |
|08 |Bibliography |26 |

Executive summary

The report has been prepared as a mandatory requirement of our course F-636 (Risk Management and Insurance). It is the summarized outcome of what we have learned till now in the sectors of managerial risk and insurance coverage.

Executive summary present the clear vision of the report with different titles. I have divided the whole assignment into two major parts. First part shows how organization deals different types of risks and the second part shows different types of insurance coverage that are being used in Banani Branch of One Bank.

First I have shown the basic of risk management procedure I have collected this from my textbook. Then I shown the normal risk that are faced by different organization. I have collected this mainly from BB guideline and Website. Then I shown what types are risk are faced by ONE Bank Ltd and what precaution measures are taken by ONE Bank Ltd. I collect this portion mainly from the Interview of two employees of ONE Bank Ltd and their guidelines.

Background of ONE Bank Limited:
ONE Bank Limited was incorporated in May 1999 as a public limited Company under the Companies Act. 1994,as a commercial bank in the private sector. The Bank is pledge-bound to serve the customers and the community with utmost dedication. The prime focus is on efficiency, transparency, precision and motivation with the spirit and conviction to excel as ONE Bank Limited in both value and image.
The name 'ONE Bank' is derived from the insight and long nourished feelings of the promoters to reach out to the people of all walks of life and progress together towards prosperity in a spirit of oneness
ONE Bank Limited is a private sector commercial bank dedicated in the business line of taking deposits from public through its various saving schemes and lending the fund in various sectors at a higher margin. However, due attention is given in respect of risk undertaking, risk hedging and if not appropriately hedged, reflection of the same in pricing. In the financing side, the bank's major concentration is in trade finance covering about 20.88% of total financing as on YE2006 which is mainly a short-term investment. The banks financing concentrate in both, working capital finance and long-term finance. OBL has major concentration of financing in medium and large industries. Since the short-term finance carries low risk compared to long-term finance; the financing strategy of OBL will assist the bank to keep the risk at minimal.
While financing the industrial sector, the major concentration of the bank appeared to be in the textile and RMG sector; both the above sectors cover 30.89% of the total portfolio. OBL also involved in cement construction and transport sector financing. In the investment portfolio, OBL have substantial investment in quoted and non-quoted shares of different organization including some very prospective financial institutions. The bank has shown its acumen in reducing its exposure from ship scrapping sector, steel re-rolling where the bank had investment earlier. With the increase in exposure to RMG, the bank has increased its non-funded business income substantially. With an age of only 8 years, the OBL has taken initiative to launch IT based banking products like ATM facilities, E-banking etc that are praiseworthy. At present OBL is operating 30 branches across Bangladesh, out of which 16 branches are in Dhaka and the remaining 14 branches are operating in different areas of the country.
Company Milestones:
|Hallmarks |Dates |
|Memorandum and Articles Of Association signed by the sponsors. |May 04, 1999 |
|Incorporation Of the Company |May 12,1999 |
|Certificate Of Commencement Of business |May 12,1999 |
|License issued by Bangladesh Bank |June 02,1999 |
|License issued for opening the first branch-Principal Branch, Dhaka |June 17,1999 |
|Formal launching of The Bank |July 14,1999 |
|Commencement of business from the Principal Branch, Dhaka. |July 14,1999 |
|Sponsored Industrial and Infrastructure Development Finance Company Limited (IIDFC) as Promoter |June 25,2001 |
|shareholder | |
|Floatation of initial offering (IPO) |
| Publication of prospectus |June 29,2003 |
| Subscription opened |August 11,2003 |
| Subscription closed |August 12,2003 |
| Lottery held for Allotment of over subscribed shares |August 31,2003 |
|Trading of shares at Dhaka Stock Exchange Limited |December 06,2003 |
|Trading of shares at Chittagong Stock Exchange Limited |December 06,2003 |
|Equity shares acquisitions of VANIK Bangladesh Limited ( now Lanka Bangla Finance Limited) |June 05,2004 |
|Dividend declared in the 5th AGM (First ever after the IPO) |June 07,2004 |
|Purchased 471,850 sponsor shares of The City Bank Limited |Between June & December 2004 |
|Commencement of trading of the Bank’s Shares in dematerialized from on Central Depository system |December 22,2004 |
|(CSD) of Central depository Bangladesh Limited (CDBL) | |
|Launched ONE Bank MasterCard (Credit Card) |July 14,2005 |
|Installed Automated Teller’s Machine (ATM) |July 14,2006 |

Common Ways of Risk Handling:

There are four basic methods available for handling risks such as risk avoidance, loss control, risk retention, and risk transfer.

Risk Avoidance: Risk Avoidance is a conscious decision not to expose oneself or one’s firm to a particular risk of loss in this way, risk avoidance can be said to decrease one’s chance of loss to zero. For example, the eccentric chief executive of a multibillion dollar firm may decide not to fly to avoid the risk of dying in an airplane crash, Dr. Gary Liebenburg may decide to leave the practice of medicine rather than contend with the risk of malpractice liability losses. Risk avoidance is common, particularly among those with a strong aversion to risk. However avoidance is not always feasible and may not be desirable even when it is possible.

Loss control: when particular risks cannot be avoided, actions may often be taken to reduce the losses associated with them. This method of dealing with risk is known as loss control. It is different than risk avoidance, because the firm or individual is still engaging in operations that give rise to particular risks. Rather than abandoning specific activities, loss control involves making conscious decisions regarding the manner in which those activities will be conducted. Common goals are either to reduce the probability of losses or to decrease the cost of losses that do occur.

Risk retention: risk retention involves the assumption of risk. That is, if a loss occurs, an individual or firm will pay for it out of whatever funds are available at the time. Retention can be planned or unplanned, and losses that occur can either be funded or unfunded in advance. Planned retention involves a conscious and deliberate assumption of recognized risk. Sometimes planned retention occurs because it is the most convenient risk treatment technique because there are simply no alternatives available short of ceasing operations. At other times, a risk manager has thoroughly analyzed all of the alternative methods of treating an existing risk and has decided that retention is the most appropriate technique. When a firm or individual does not recognize that a risk exists and unwittingly believes that no loss could occur, risk retention also is under way albeit unplanned retention. Sometimes unplanned retention occurs even when the existence of a risk is acknowledged.

Risk transfer: Risk transfer involves payment by one party to another. The transferee agrees to assume a risk that the transferor desires to escape. Sometimes the degree of risk is reduced through the transfer process; because the transferee may be in a better position to use the law of large numbers to predict loses. In other cases the degree of risk remains the same and is merely shifted from the transferor to the transferee for a price. Five forms of risk, transfer are hold-harmless agreements, incorporation, diversification, hedging, and insurance. In the first of these cases, the practice of risk avoidance involves actions to reduce the chances of idiosyncratic losses from standard banking activity by eliminating risks that are superfluous to the institution's business purpose. Common risk avoidance practices here include at least three types of actions. The standardization of process, contracts and procedures to prevent inefficient or incorrect financial decisions is the first of these. The construction of portfolios that benefit from diversification across borrowers and that reduce the effects of any one-loss experience is another. Finally, the implementation of incentive-compatible contracts with the institution's management to require that employees be held accountable is the third. In each case the goal is to rid the firm of risks that are not essential to the financial service provided, or to absorb only an optimal quantity of a particular kind of risk.
There are also some risks that can be eliminated, or at least substantially reduced through the technique of risk transfer. Markets exist for many of the risks borne by the banking firm. Interest rate risk can be transferred by interest rate products such as swaps or other derivatives. Borrowing terms can be altered to effect a change in their duration. Finally, the bank can buy or sell financial claims to diversify or concentrate the risks that result in from servicing its client base. To the extent that the financial risks of the assets created by the firm are understood by the market, these assets can be sold at their fair value. Unless the institution has a comparative advantage in managing the attendant risk and/or a desire for the embedded risk they contain, there is no reason for the bank to absorb such risks, rather than transfer them. However, there are two classes of assets or activities where the risk inherent in the activity must and should be absorbed at the bank level. In these cases, good reasons exist for using firm resources to manage bank level risk. The first of these includes financial assets or activities where the nature of the embedded risk may be complex and difficult to communicate to third parties. This is the case when the bank holds complex and proprietary assets that have thin, if not non-existent, secondary markets. Communication in such cases may be more difficult or expensive than hedging the underlying risk.4 Moreover, revealing information about the customer may give competitors an undue advantage. The second case included proprietary positions that are accepted because of their risks, and their expected return. Here, risk positions that are central to the bank's business purpose are absorbed because they are the raison dieters of the firm.

Risks associated in Banking Services:

According to the type of service rendered, the risks associated with the provision of banking services differ. For the sector as a whole, however the risks can be broken into six generic types: systematic or market risk, credit risk, counterparty risk, liquidity risk, operational risk, and legal risks. Here, I shall discuss each of the risks facing the banking institution, and in Section IV I will indicate how they are managed. Systematic risk is the risk of asset value change associated with systematic factors. It is sometimes referred to as market risk, which is in fact a somewhat imprecise term. By its nature, this risk can be hedged, but cannot be diversified completely away. In fact, systematic risk can be thought of as undiversifiable risk. All investors assume this type of risk, whenever assets owned or claims issued can change in value as a result of broad economic factors. As such, systematic risk comes in many different forms. For the banking sector, however, two are of greatest concern, namely variations in the general level of interest rates and the relative value of currencies. Because of the bank's dependence on these systematic factors, most try to estimate the impact of these particular systematic risks on performance, attempt to hedge against them and thus limit the sensitivity to variations in undiversifiable factors. Accordingly, most will track interest rate risk closely. They measure and manage the firm's vulnerability to interest rate variation, even though they can not do so perfectly. At the same time, international banks with large currency positions closely monitor their foreign exchange risk and try to manage, as well as limit, their exposure to it. In a similar fashion, some institutions with significant investments in one commodity such as oil, through their lending activity or geographical franchise, concern themselves with commodity price risk. Others with high single-industry concentrations may monitor specific industry concentration risk as well as the forces that affect the fortunes of the industry involved.

Credit risk arises from non-performance by a borrower. It may arise from either an inability or an unwillingness to perform in the pre-committed contracted manner. This can affect the lender holding the loan contract, as well as other lenders to the creditor. Therefore, the financial condition of the borrower as well as the current value of any underlying collateral is of considerable interest to its bank. The real risk from credit is the deviation of portfolio performance from its expected value. Accordingly, credit risk is diversifiable, but difficult to eliminate completely. This is because a portion of the default risk may, in fact, result from the systematic risk outlined above. In addition, the idiosyncratic nature of some portion of these losses remains a problem for creditors in spite of the beneficial effect of diversification on total uncertainty. This is particularly true for banks that lend in local markets and ones that take on highly illiquid assets. In such cases, the credit risk is not easily transferred, and accurate estimates of loss are difficult to obtain.

Counterparty risk comes from non-performance of a trading partner. The non-performance may arise from a counterparty's refusal to perform due to an adverse price movement caused by systematic factors, or from some other political or legal constraint that was not anticipated by the principals. Diversification is the major tool for controlling nonsystematic counterparty risk.
Counterparty risk is like credit risk, but it is generally viewed as a more transient financial risk associated with trading than standard creditor default risk. In addition, a counterparty's failure to settle a trade can arise from other factors beyond a credit problem.

Liquidity risk can best be described as the risk of a funding crisis. While some would include the need to plan for growth and unexpected expansion of credit, the risk here is seen more correctly as the potential for a funding crisis. Such a situation would inevitably be associated with an unexpected event, such as a large charge off, loss of confidence, or a crisis of national proportion such as a currency crisis. In any case, risk management here centers on liquidity facilities and portfolio structure. Recognizing liquidity risk leads the bank to recognize liquidity itself as an asset, and portfolio design in the face of illiquidity concerns as a challenge.

Operational risk is associated with the problems of accurately processing, settling, and taking or making delivery on trades in exchange for cash. It also arises in record keeping, processing system failures and compliance with various regulations. As such, individual operating problems are small probability events for well-run organizations but they expose a firm to outcomes that may be quite costly.

Legal risks are endemic in financial contracting and are separate from the legal ramifications of credit, counterparty, and operational risks. New statutes, tax legislation, court opinions and regulations can put formerly well-established transactions into contention even when all parties have previously performed adequately and are fully able to perform in the future. For example, environmental regulations have radically affected real estate values for older properties and imposed serious risks to lending institutions in this area. A second type of legal risk arises from the activities of an institution's management or employees. Fraud, violations of regulations or laws, and other actions can lead to catastrophic loss, as recent examples in the thrift industry have demonstrated.

All financial institutions face all these risks to some extent. Non-principal, or agency activity involves operational risk primarily. Since institutions in this case do not own the underlying assets in which they trade, systematic, credit and counterparty risk accrues directly to the asset holder. If the latter experiences a financial loss, however, legal recourse against an agent is often attempted. Therefore, institutions engaged in only agency transactions bear some legal risk, if only indirectly. Our main interest, however, centers around the businesses in which the bank participates as a principal, i.e., as an intermediary. In these activities, principals must decide how much business to originate, how much to finance, how much to sell, and how much to contract to agents. In so doing, they must weigh both the return and the risk embedded in the portfolio. Principals must measure the expected profit and evaluate the prudence of the various risks enumerated to be sure that the result achieves the stated goal of maximizing shareholder value.

Bank Risk Management Systems:

The banking industry has long viewed the problem of risk management as the need to control four of the above risks which make up most, if not all, of their risk exposure, viz., credit, interest rate, foreign exchange and liquidity risk. While they recognize counterparty and legal risks, they view them as less central to their concerns. Where counterparty risk is significant, it is evaluated using standard credit risk procedures, and often within the credit department itself. Likewise, most bankers would view legal risks as arising from their credit decisions or, more likely, proper process not employed in financial contracting. Accordingly, the study of bank risk management processes is essentially an investigation of how they manage these four risks. In each case, the procedure outlined above is adapted to the risk considered so as to standardize, measure, constrain and manage each of these risks. To illustrate how this is achieved, this review of firm-level risk management begins with a discussion of risk management controls in each area. The more difficult issue of summing over these risks and adding still other, more amorphous, ones such as legal, regulatory or reputation risk, will be left to the end.

A. Credit Risk Management Procedures

Each bank must apply a consistent evaluation and rating scheme to all its investment opportunities in order for credit decisions to be made in a consistent manner and for the resultant aggregate reporting of credit risk exposure to be meaningful. To facilitate this, a substantial degree of standardization of process and documentation is required. This has lead to standardized ratings across borrowers and a credit portfolio report that presents meaningful information on the overall quality of the credit portfolio. In the following Table , a credit-rating procedure is presented that is typical of those employed within the commercial banking industry.

|CREDIT RISK GRADING SCORE SHEET |
| | | | | |
|Reference No.: |OBL/BB/OPFL/09 | |Date: |12.10.09 |
|Borrower |OMEGA POULTRY FARMS LTD |
|Group Name (if any) | | Aggregate Score: |67 |
|Branch: |Banani | | | |
|Industry/Sector |Agricultur | Risk Grading:|Marginal/Watch List |
|Date of Financials |31.12.2011 | | |
|Completed by |Mohammad Tofazzal Hossain | | | |
|Approved by |Noor Mohammed | | | |
|Number |Grading |Short |Score |
|1 |Superior |SUP |Fully cash secured, secured by government |
| | | |guarantee/international bank guarantee |
|2 |Good |GD |85+ |
|3 |Acceptable |ACCPT |75-84 |
|4 |Marginal/Watchlist |MG/WL |65-74 |
|5 |Special Mention |SM |55-64 |
|6 |Substandard |SS |45-54 |
|7 |Doubtful |DF |35-44 |
|8 |Bad/Loss |BL | 60.00 |5 |22.00 |3 |
| |30.00 – 59.99 |4 | | |
|The size of the borrower's business |10.00 – 29.99 |3 | | |
|measured by the most recent year's |5.00 - 9.99 |2 | | |
|total sales. Preferably audited |2.50 - 4.99 |1 | | |
|numbers. | | | | |
| |< 2.50 |0 | | |
|2. Age of Business |> 10 Years |3 |3 |1 |
| |> 5 - 10 Years |2 | | |
|The number of years the borrower |2 - 5 Years |1 | | |
|engaged in the primary line of |< 2 Years |0 | | |
|business | | | | |
|3. Business Outlook |Favorable |3 |Stable |2 |
|Critical assesment of medium term |Stable |2 | | |
|prospects of industry, market share |Slightly Uncertain |1 | | |
|and economic factors. |Cause for Concern |0 | | |
|4. Industry Growth |Strong (10%+) |3 |Good (>5% - 10%) |2 |
| |Good (>5% - 10%) |2 | | |
| |Moderate (1%-5%) |1 | | |
| |No Growth (