BBBM 4103

OUM BUSINESS SCHOOL

BBBM4103
BANK MANAGEMENT
JANUARY 2016

Name: Sashi Kumar Murugaya

Matric number: 850126065653001

NRIC: 850126065653

Telephone number: NIL

E-mail address: [email protected]

Learning Centre: SEKOLAH INTEGRITI KAJANG

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TABLE OF CONTENT

Num. Criteria Pages

1.0 Introduction on the background of the two selected 3

banks.

2.0 Ranking from most liquid assets to the least liquid 6

assets of the selected banks.

3.0 Discussion on the differences of liquidity management 15

of the two selected banks.

4.0 Discussion on the similarities of liquidity management 19

of the two selected banks.

5.0 Summary 21

References 23

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1.0 Introduction on the background of the two selected banks.

1st Commercial Bank: CIMB Bank Berhad

The name of the 1st bank chosen for the purpose of this assignment is CIMB Bank Berhad.
This bank is the full-fledged commercial banking brand of CIMB Group which represents its
universal banking franchise. CIMB Group Holdings Berhad has been listed on the main
market of Bursa Malaysia since 1987 and was one of the largest companies at the end of 2014
with a market capitalisation of RM46.3 billion.

CIMB Bank Berhad provides commercial banking and related financial services to
individual, small and medium-scale enterprise, and mid-sized corporation customers. The
principal activities of the Bank as of latest annual report are commercial banking and the
provision of related financial services, including Islamic banking. Activities of the bank’s
subsidiaries consist of Islamic banking, offshore banking, debt factoring, trustees and
nominee services, and property ownership and management.

Consumer banking franchise remains the largest revenue contributor to CIMB Group in 2014.
Malaysia is the largest market for CIMB Bank and there were 294 branches, 7.8 million
customers, 2,199 ATMs, and over 20,000 staff. For the year, the franchise charted
commendable growth, achieved amidst a tougher credit environment, thinning net interest
margins, intensifying competition, and stricter regulations. Lately, digital banking continued
to be an important agenda with the promulgation of many breakthrough services, making
CIMB Bank the digital bank of choice for savvy customers. The bank was also crowned Best
Domestic Bank in Malaysia by Euromoney and Bank of The Year by The Banker, amongst
other awards.

The Vision and Mission statement of CIMB Group is:-

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Mission
To provide universal
banking services as a high-
Vision performing,
institutionalised and
integrated company located
To Be the leading ASIAN
in ASEAN and key markets
company
beyond, and champion the
accelaration of ASEAN
integration and the region's
links to the rest of the
world.

Figure 1: Vision and Mission Statement of CIMB Group Holdings Berhad

2nd Commercial Bank: Malayan Banking Bhd (Maybank)

Maybank was incorporated on May 31, 1960 and begins operations in Kuala Lumpur on
September 12 the same year. During that year too its first overseas branch opens in Brunei
and in Singapore. Today, Malayan Banking Berhad is the holding company and listed entity
for the Maybank Group with branches in Malaysia, Singapore and other international
financial centres such as London, New York, Hong Kong and Bahrain.

Maybank is Malaysia’s largest bank by assets and is among Asia’s leading financial services
groups, and the fourth largest bank in Southeast Asia by assets. It is also the top financial
services group and the largest company by market capitalisation in Malaysia. It operates an
extensive global network of over 2,200 offices in 20 countries including in all 10 ASEAN
countries.

Principal activities of Maybank as of the latest annual report state that it engaged in all
aspects of commercial banking and related financial services. The subsidiaries are principally
engaged in the businesses of banking and finance, Islamic banking, investment banking
including stock broking, underwriting of general and life insurance, general and family
takaful, trustee and nominee services and asset management.

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With a strong focus on innovation and excellence, Maybank has been consistently recognised
for its leadership and ability to deliver value to all its stakeholders. It has received numerous
region and international awards, and acknowledged for its leadership among peers. Maybank
is ranked among the top 20 Strongest Banks in the World by Bloomberg Markets magazine,
and is the leading Malaysian bank and among the top 100 Global Banks listed by The Banker
magazine. It has also been ranked Malaysia’s Most Valuable Brand for a number of years.
The Group’s Islamic Banking arm, Maybank Islamic Berhad, is the top Islamic commercial
bank by assets in the Asia Pacific and 3rd in the world.

The Vision and Mission statement of Maybank is as shown in figure below:-

Vision Mission
To Be A Regional Financial Humanising Financial
Services Leader Services Across Asia

Figure 2: Vision and Mission Statement of Malayan Bank Berhad.

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2.0 Ranking from most liquid assets to the least liquid assets of the selected banks.

In this section, ranking from most liquid assets to the least liquid assets of both banks
provided. Prior to that liquidity reports of the banks from the year 2012-2014 highlighted as
well.

2.1 CIMB Liquid Management

The bank defined liquidity risk as the current and prospective risk to earnings, shareholders
fund or the reputation arising from the Bank’s inability to efficiently meet its present and
future (both anticipated and unanticipated) funding needs or regulatory obligations when they
come due, which may adversely affect its daily operations and incur unacceptable losses.
Liquidity risk arises from mismatches in the timing of cash flows.

Assets, liabilities and liquidity gap reports of CIMB Bank Berhad based on the years 2012-
2014’s contractual maturity in accordance with the requirements of Bank Negara Malaysia
(BNM) guidelines for each year summarised in following tables.

Up to 1 > 1 – 3 > 3 – 6 > 6 – 12 > 1 – 5 Over 5 No- Total

Maturity month months months months years years specific RM’000
Assets RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 maturity
RM’000

Total assets 40,366,387 14,921,386 7,072,231 5,719,879 45,391,640 77,243,279 16,080,522 206,795,324

Total Liabilities 125,213,709 21,511,161 9,968,964 11,119,789 14,183,374 6,544,819 5,848 188,547,664

Net liquidity gap (84,847,322) (6,589,775) (2,896,733) (5,399,910) 31,208,266 70,698,460 16,074,674

Table 1: CIMB Liquidity Report 2012

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Up to 1 > 1 – 3 > 3 – 6 > 6 – 12 > 1 – 5 Over 5 No- Total

Maturity month months months months years years specific RM’000
Assets RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 maturity
RM’000

Total assets 45,338,83 0 18,588,059 8,373,346 8,737 ,078 44,708,21 91,133,79 17,724,62 234,603,9
7 6 5 51

Total Liabilities 134,267,574 30,037,780 14,906,808 13,569,381 13,337,79 8,463,137 - 214,582,4

1 71

Net liquidity gap (88,928,74) (11,449,72) (6,533,46) (4,832,30) 31,370,42 82,670,65 17,724,62
6 9 5

Table 2: CIMB Liquidity Report 2013

Up to 1 > 1 – 3 > 3 – 6 > 6 – 12 > 1 – 5 Over 5 No- Total

Maturity month months months months years years specific RM’00
Assets RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 maturity 0
RM’000

Total assets 56,950,776 16,799, 675 8,449 ,386 8,787,074 45,840,427 107,916,679 20,204,929 264,948
,946
Total Liabilities 136,815,340 36,180,072 23,328,954 19,424,131 18,187,971 6,921,737 - 240,858
,205
Net liquidity gap (79,864,564) (19,380,397) (14,879,568) (10,637,057) 27,652,456 100,994,942 20,204,929

Table 3: CIMB Liquidity Report 2014

Breakdown on items under the CIMB Bank’s assets are as listed in Table 4:-

 Cash and short-term funds  Statutory deposits with central banks

 Reverse repurchase agreements  Investment in subsidiaries
(REPOS)  Investment in jointly controlled entity
 Deposits and placements with banks  Investment in associate
and other financial institutions  Amount due from subsidiaries
 Financial assets held for trading  Amount due from related companies
 Financial investments available-for-  Goodwill
sale  Intangible assets
 Financial investments held-to-

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maturity  Property, plant and equipment

 Derivative financial instruments  Non-current assets/disposal groups
 Loans, advances and financing held for sale
 Other assets
Table 4: List of CIMB Bank’s assets

All the financial asset items above can be ranked from most liquid assets to the least liquid
assets in regard to Elements of Asset Liquidity as provided in table below.
Rank Category of Asset Items
Most Liquid Cash & Short Term Funds  Cash and balances with banks and other
financial institutions.
 Money at call and deposit placements
maturing within one month
 Deposits and placements with banks and
other financial institutions (< 1 month)
 (REPOS)
2nd Most Government Securities  Malaysian Government Securities
Liquid  Malaysian Government treasury bills
 Government Investment Issue
 Malaysian Government Sukuk
 Government Investment Issue
 Other Government securities
 Other Government treasury bills
 Other Government bonds
3rd Most Marketable Securities  Cagamas bonds
Liquid  BNM Monetary Notes
 Bankers’ acceptances and Islamic
accepted bills
 Negotiable instruments of deposit
 Credit-linked notes
 Commercial papers
 Khazanah bonds

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 Private debt securities

4th Most Other Investments  Shares
Liquid  Private and Islamic debt securities (with
no fixed rates)
 Private equity funds
 Unit trusts
 Loan stocks
 Investment in subsidiaries
 Investment in joint venture
 Investment in associates
 Investment properties
2nd Least Fixed Assets  Property, plant and equipment
Liquid  Free/Leasehold land & buildings
 Renovations, office and plant
equipment, furniture and fittings
 Computer equipment and hardware
 Motor vehicles
Least Loan, Advances and  Overdrafts
Liquid Financing  Term loans
 Housing loan
 Syndicated term loan
 Factoring, lease, hire purchase
 Staff loans
 Credit card
 Revolving credit
 Share margin financing
Table 5: Ranking from most liquid assets to the least liquid assets of CIMB Bank Berhad.

2.2 Maybank’s Liquid Management

Maybank defined liquidity risk as the adverse impact to the Group’s financial condition or
overall safety and soundness that could arise from its inability or perceived inability to meet
its obligations.

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The tables below analyse assets, liabilities and liquidity gap of the Bank in the relevant
maturity tenures based on remaining contractual maturities as of 2012-2014 respectively. It is
summarised from disclosures the bank made in accordance with the requirement of policy
document on Financial Reporting issued by BNM.

Up to 1 > 1 – 3 > 3 – 6 > 6 – 1 > 1 – 3 >3 - 5 Over 5 No- Total

Matu month months months year years years years specific RM’000
rity RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 maturit
Assets y
RM’000
Total assets 74,436,115 26,487,68 14,813,0 8,927,186 42,385,7 36,050,2 109,145,8 30,310,8 342,556,6
2 04 85 36 13 52 73

Total 182,160,70 37,473,18 21,736,5 26,013,50 13,538,0 3,869,93 20,094,00 775,402 305,661,3
Liabilities 9 6 50 4 70 7 8 66

Net liquidity (107,724,5 (10,985,5 (6,923,54 (17,086,3 28,847,7 32,180,2 89,051,80 29,535,4 36,895,30
gap 94) 04) 6) 18) 15 99 5 50 7

Table 6: Maybank Liquidity Report 2012

Up to 1 > 1 – 3 > 3 – 6 > 6 – 1 > 1 – 3 >3 - 5 Over 5 No- Total

Matu month months months year years years years specific RM’000
rity RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 maturit
Assets y
RM’000
Total assets 75,949,385 29,877,7 26,191,75 17,608,64 45,162,5 46,680,4 121,503,0 34,805,3 397,779,0
68 3 4 74 45 80 83 32
Total 199,530,06 37,319,3 45,790,42 30,015,70 27,734,7 12,273,5 4,191,936 423,515 357,279,2
Liabilities 0 13 5 9 64 38 60

Net liquidity (123,580,6 (7,441,54 (19,598,6 (12,407,0 17,427,8 34,406,9 117,311,1 34,381,8 40,499,77
gap 75) 5) 72) 65) 10 07 44 68 2
Table 7: Maybank Liquidity Report 2013

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Up to 1 > 1 – 3 > 3 – 6 > 6 – 1 > 1 – 3 >3 - 5 Over 5 No- Total

Matu month months months year years years years specific RM’000
rity RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 maturit
Assets y
RM’000
Total assets 93,742,631 34,033,76 17,478,13 17,830,28 57,471,9 48,672,1 147,542,0 35,788,5 452,559,4
1 3 4 33 11 09 96 58
Total 220,301,42 57,719,64 33,787,39 37,829,97 31,996,8 7,890,63 16,803,22 57,529 406,386,6
Liabilities 0 2 2 1 38 6 5 53
Net liquidity (126,558,7 (23,685,8 (16,309,2 (19,999,6 25,475,0 40,781,4 130,738,7 35,731,0 46,172,80
gap 89) 81) 59) 87) 95 75 84 67 5
Table 8: Maybank Liquidity Report 2014

Breakdown on items under the Maybank’s assets are listed in Table 9:-

 Cash and short-term funds  Other assets

 Deposits and placements with  Statutory deposits with central banks
financial institutions  Investment in subsidiaries
 Financial assets purchased under  Interest in associates and joint
resale agreements ventures
 Financial assets at fair value through  Property, plant and equipment
profit or loss  Intangible assets
 Financial investments available-for-  Derivative assets
sale  Deferred tax assets
 Financial investments held-to-  Loans, advances and financing
maturity
Table 9: List of Maybank’s assets

Ranks from most liquid assets to the least liquid assets of Maybank in regard to Elements of
Asset Liquidity provided in table below.

Rank Category of Asset Items

Most Liquid Cash & Short Term Funds  Cash and balances with banks and other
financial institutions.
 Money at call and deposit placements

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maturing within one month

 Deposits and placements with banks and
other financial institutions (< 1 month)
 (REPOS)
2nd Most Government Securities  Malaysian Government Securities
Liquid  Malaysian Government treasury bills
 Malaysian Government Investment
 Malaysian Government Bonds
 Foreign Government Securities
 Foreign Government Treasury Bills
 Foreign Government Bonds
3rd Most Marketable Securities  Bank Negara Malaysia Bills and Notes
Liquid  Bank Negara Malaysia Monetary Notes
 Bank Negara Malaysia Sukuk Ijarah
 Khazanah Bonds
 Cagamas Bonds
 Foreign private and Islamic debt
securities
 Private and Islamic debt securities in
Malaysia
 Negotiable instruments of deposits
 Credit linked notes
 Bankers' acceptances and Islamic
accepted bills
 Foreign Certificates of Deposits
4th Most Other Investments  Shares, warrants, trust units and loan
Liquid stocks in and outside Malaysia
 Investment in subsidiaries
 Interest in associates and joint ventures
2nd Least Fixed Assets  Property, plant and equipment
Liquid  Freehold Land, Buildings on Freehold
Land

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 Leasehold Land & Buildings on

Leasehold Land
 Office Furniture, Fittings, Equipment
and Renovations
 Electrical and Security Equipment
 Computers and Peripherals
 Motor vehicles
 Buildings- in-Progress
Least Loan, Advances and  Overdrafts/cashline
Liquid Financing  Term loans
 Housing loans
 Syndicated loans
 Hire purchase
 Lease
 Credit card
 Bills receivables
 Trust receipts
 Claims on customers under acceptance
credits
 Revolving credits
 Staff loans
Table 10: Ranking from most liquid assets to the least liquid assets of Maybank Berhad.

2.3 Explanation on the items in terms of most liquid assets to the least liquid assets of
both banks

Most Liquid: Cash & Short Term Funds

Liquid assets are those that can be converted to cash quickly if needed to meet financial
obligations and the most liquid asset is none other than cash. Cash can be used quickly and
easily meet bank’s obligations, so a gauge of any bank’s liquidity position would include how
much money is deposited with other financial institutions. Deposits of no more than one-
month maturity identified as Short Term Funds in this category. Repurchase agreement is a

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form of secured borrowing. The amount borrowed against the securities generally is the full
market value less a reasonable discount.

2nd Most Liquid: Government Securities

Government securities are eligible as collateral in central banks’ routine open market
operations. These assets may be used to either obtain liquidity from the central bank or may
be sold or reposed, or otherwise used as collateral in the market.

3rd Most Liquid: Marketable Securities

Marketable securities, for example Khazanah/Cagamas bonds saleable but may lose liquidity
under adverse conditions. Certificates of deposit are slightly less liquid, because there is
usually a penalty for converting them to cash before their maturity date. Private debt
securities are also reasonably liquid, since they can be sold fairly easily.

4th Most Liquid: Other Investments

Shares of stock, bonds, options and commodities are considered fairly liquid, because they
can usually be sold readily and cash received within a few days. Each of the above can be
considered as cash or cash equivalents because they can be converted to cash with little
effort, although sometimes with a slight penalty. Moving down the scale, some investments
take a bit more effort or time before they can be realised as cash. One example would be
investment in subsidiaries, which usually have covenants dictating how and when they might
be sold.

2nd Least Liquid: Fixed Assets

nd
The 2 least liquid asset is usually considered to be fixed assets because that can take weeks
or months to sell.

Least Liquid: Loan, Advances and Financing

The least liquid category includes essentially unmarketable assets such as Loan, Advances
and Financing. It is because these assets not capable of being readily sold, as well as,
possibly, severely troubled credits. Concentration limits on these assets that may be difficult
to convert into cash because it is impossible to recall the loans instantly while repayments are
often by instalments.

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3.0 Discussion on the differences of liquidity management of the two banks.

Upon thorough analysis of liquidity management of CIMB Bank Berhad and Maybank
Berhad for the years 2012, 2013 and 2014 some major differences identified. This section
discusses very clearly the differences of liquidity management of both banks.

3.1 Cash and short-term funds

CIMB held the total amount of cash and short-term funds for all the 3 years with maturity
less than 1 month only. In contrast Maybank held the same category assets with maturity
ranging from less than a month to 6 months in 2012 and 2013. In 2014 maturity periods
ranges from less than a month to 3 years. On the other hand, CIMB held large portion of this
category of assets in form of ‘Money at call and deposit placements maturing within one
month’ and the rest as ‘Cash and balances with banks and other financial institutions’.
Whereas Maybank held this assets fully as Cash balances and deposits with financial
institutions. This scenario depicted in figures as in table below:

CIMB Maybank
2012 2013 2014 2012 2013 2014
RM’000 RM’000 RM’000 RM’000 RM’000 RM’000
Cash and 3,224,348 3,369,348 5,280,573 23,153,242 29,320,984 34,778,324
balances with
banks and other
financial
institutions
Money at call and 13,715,557 15,097,804 16,154,526 - - -
deposit
placements
maturing within
one month

Total 16,939,905 18,467,152 21,435,099 23,153,242 29,320,984 34,778,324

Table 9: Cash and short-term funds differences among the two banks

3.2 Reverse repurchase agreements (REPOS)

Holding sufficient amount of REPOS is a statutory requirement by BNM for commercial
banks in Malaysia. Both CIMB and Maybank held substantial amount of REPOS in the 3
years accounted for. But, there seems to be differences among both banks that will be
explained here. CIMB had highest REPOS asset in 2012 amounting RM 5,179,726,000
leveraged from maturity period of less than a month up to 1 year. In 2013 the amount slightly

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increased to RM 5,321,399,000 with maturity decreased to 3 months. In the following year

the bank decreased the amount of these assets subsequently to RM 4,406, 653,000 with
maturity up to 1 year. In Maybank’s case, REPOS with maturity less than a month amounting
RM 650,314,000 and RM 20,558,000 held as of 2012 and 2013 respectively. The values of
these assets were significantly lower than what CIMB had in the same period even though
Maybank’s total assets were much higher. The reason could be Maybank only concerned
about fulfilling statutory requirements in having sufficient amount of REPOS in its liquidity
risk management. However, it must be noted that Maybank increased value of REPOS assets
to RM 3,625,291,000 in 2014 in order to increase its liquidity capability.

3.3 Money Market Instruments

There found to be differences in types of assets held for liquidity management under money
market instruments between Maybank and CIMB. One of the items is BNM Sukuk Ijarah, an
Islamic money market instrument. Maybank had this type of securities for its financial
investments available-for-sale in 2012 but CIMB never acquired it in any of the 3 years. But
in 2014, CIMB held Malaysian Government Sukuk as part of its financial investments
available-for-sale. Besides that CIMB leveraged its liquidity assets into commercial papers in
2012-2014 under both financial assets held for trading and financial investments available-
for-sale. Maybank never had commercial papers as part of their money market instrument
under any category.

3.4 Liquidity Risk Management Frameworks

Both banks adopted regulatory guidelines and frameworks to monitor and manage liquidity
risks. Furthermore, each bank has its own framework and policies guided by respective
parent Group. Hence, some differences noticed here. CIMB Group employs Enterprise Wide
Risk Management Framework (EWRM) to manage its risk and opportunity effectively. The
EWRM framework provides CIMB Bank with a tool to anticipate and manage both the
existing and potential liquidity risks, taking into consideration changing risk profiles as
dictated by changes in business strategies, operating and regulatory environment and
functional activities. The Asset Liability Management Centre of Excellence spearheads risk
management functions and implementation of the EWRM in liquidity management. It is
primarily responsible for the independent monitoring and assessment of the Group’s asset and

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liability management process governing liquidity risk as well as recommending policies and
methodologies to manage it.

The key components of the EWRM framework shown in the following diagram:

Figure 3: CIMB Enterprise Wide Risk Management Framework

Maybank employs BNM’s Liquidity Framework and leading practices as a foundation to

manage and measure its liquidity risk exposure. The liquidity positions of the bank monitored
regularly against the established policies, procedures and limits. Maybank Group Liquidity
Risk Management Policies and Frameworks are reviewed annually and when required, taking
into account changes in operations, objectives and regulatory requirements to ensure
alignment with leading practices. In order to identify and quantify the major sources of
liquidity risk, the liquidity measurement tools are employed based on two perspectives
namely regulatory and internal perspective. The Bank uses limits to control its liquidity risk
exposures and vulnerabilities, which are set according to its business activities for purpose of
effective monitoring mechanisms. This aims to facilitate effective implementation of liquidity
policies and ensure compliance with statutory requirements. The bank has a 3-tiered risk limit
based on severity as depicted in the following table:

Limit Level Severity Limit Description

Tier 1 Maximum risk Internal Threshold The maximum permissible
& Corrective action Regulatory Compliance level of risk tolerance for
stage Limit regulatory requirements and

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Group indicators. Limit

breaches require immediate
action to mitigate or
regularise liquidity risk
exposure.
Tier 2 Intervention stage Internal indicator/ Limits are established to
Benchmark (Soft capture exceptions in
Limits) internal benchmarks.
Exceptions require
investigative action and
escalation to address
concerns via action plans.

Tier 3 Intervention stage Early warning signal Soft limits which are early
warning signals established
to monitor unusual
movements of a few key
indicators that may cause
liquidity distress. Exceptions
require prompt investigation
action and escalation to
Management.
Table 10: 3-tiered liquidity risk limit management of Maybank

3.5 Reporting

The different in how both banks reported respective liquidity management from 2012-2014
identified from the breakdown of maturity periods. Assets and liabilities maturity periods
until up to 1 year was identical but differences spotted for the periods after that. CIMB
classified its contractual maturity period from 1 to 5 year followed by Over 5 year’s category.
But Maybank reported it differently by categorising maturity period from 1 to 3 years, 3 to 5
years followed by over 5 years.

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4.0 Discussion on the similarities of liquidity management of the two selected banks.

Amidst the differences above, this section discusses the similarities of liquidity management
of CIMB Bank Berhad and Maybank Berhad for the years 2012, 2013 and 2014.

4.1 Loans, Advances and Financing

Looking at the commercial purpose of both banks, asset allocations for loans, advances and
financing were higher than all other asset categories. Even though this is the least liquid asset,
both banks allocated higher portion of funds in order to forgo liquidity against profitability.
CIMB allocated 52%, 57% and 62% of its total assets in providing loans, advances and
financing in 2012, 2013 and 2014 respectively. Maybank allocated 63%, 60% and 58% of
total assets for the same asset category for the 3 years respectively. This scenario highlights
the similarity in the strategy and objective in channelling more than half of each bank’s total
assets for the purpose of profitability.

4.2 Tools of Liquidity Management

Both banks used a range of tools to monitor and control liquidity risk exposure such as
liquidity gaps, early warning signals, liquidity indicators and stress testing. The liquidity
positions of the banks monitored regularly against the established policies, procedures and
limits. Maybank uses the Key Risk Indicators (KRI) which provides early warning signals of
liquidity risk condition. In this regards, the Bank has established three classification codes for
KRI to gauge risk level as follows:

GREEN Signifies a favourable trend, i.e. less risk, where the KRIs is within risk
limits.
AMBER Signifies an adverse trend but within acceptable levels, where the KRIs are
within tolerable range but approaching the risk limits.
RED Signifies potentially hazardous levels of risk, where the KRIs had
exceeded the tolerable risk limit.

CIMB’s early warning system is designed to alert the management whenever the bank’s
liquidity position may be at risk. It provides an analytical framework to detect a likely
liquidity problem and to evaluate the bank’s funding needs and strategies in advance of a
liquidity crisis. The early warning system is made up of a set of indicators (monitored against

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pre-determined thresholds) that can reliably signal the financial strength and stability of the
bank. Similar to Maybank, CIMB’s KRI provides early warning signals to the senior
management on changes to the risk environment and the effectiveness of controls. Hence,
they are able to take appropriate actions to mitigate the risk before it happens.

Maybank used stress testing and scenario analysis to evaluate the impact of sudden stress
events on liquidity position during all the 3 years. Scenarios are based on hypothetical events
that include bank specific crisis and general market crisis scenarios. The stress test result
provided an insight of the bank’s funding requirements during different levels of stress
environments and is closely linked to the Maybank Group’s Contingency Funding Plan
(CFP), which provides a systemic approach in handling any unexpected liquidity disruptions.
Similar to this, CIMB’s liquidity stress test performed on a semi-annual basis in 2012-2014 to
identify vulnerable areas in its portfolio, gauge the financial impact and enable management
to take pre-emptive actions. Two scenarios, namely bank specific crisis and systemic crisis,
are modelled. The assumptions used, including run-off rates on deposits, draw down rates on
undrawn commitments, and haircuts for marketable securities. CIMB Group’s CFP was in
place to alert and to enable the management to act effectively and efficiently during a
liquidity crisis and under adverse market conditions. The test results have indicated that the
Bank possesses sufficient liquidity capacity to meet the liquidity requirements under various
stress test conditions.

4.3 Net Liquidity gap

Recalling the liquidity report tables in section 2, a similar trend observed between the figures
of both banks. Net Liquidity gap for both CIMB and Maybank identified to be in negative
amounts for contractual maturity of total assets and liabilities from periods up to 1 month
until the periods more than 6 months to 1 year. This shows that both banks experienced
deficit in liquidity management for contractual maturity of less than 1 year for the years 2012,
2013 and 2014. But both banks achieved surplus in Net Liquidity gap for maturity period 1
year onwards. It is significant that both bank’s surplus was the highest for contractual
maturities for the period of more than 5 years.

4.4 Diversified portfolios of sources of funds

Both banks have a diversified liability structure to meet their funding requirements. CIMB’s
liquidity risk management policy is to maintain high quality and well diversified portfolios of

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liquid assets and sources of funds under both normal business and stress conditions. Due to
its large delivery network and marketing focus, the bank maintained a diversified core deposit
base comprising savings, demand, and fixed deposits. This provided the bank a stable large
funding base to maintain large buffers of liquidity throughout 2012-2014 to ensure safe and
sound operations from a strategic, structural and tactical perspective. Similarly, the
diversified source of funding of Maybank includes customer deposits, interbank deposits,
debt securities, swap market, bank loan syndication and medium term funds. The bank also
initiated and implemented strategic fund raising programmes as well as institutes standby
lines with external parties on a need basis during the 3 years period. Sources of liquidity were
regularly reviewed to maintain a wide diversification by currency, provider, product and
term.

4.5 Reporting

The financial statements of both CIMB Bank Berhad and Maybank Berhad for the years
2012-2014 have been prepared in accordance with Malaysian Financial Reporting Standards
(MFRS), International Financial Reporting Standards (IFRS) and the requirements of the
Companies Act, 1965 in Malaysia. Hence, most of the components such as Balance-sheet,
Notes to the Financial Statements and Liquidity Risk Management reports were similar in
formats. The tables in section 2 that analysed assets and liabilities of Maybank and CIMB in
for the years 2012-2014 based on the remaining period to the contractual maturity date was
reported in respective bank’s annual financial statements with the requirements of BNM
guidelines.

5.0 Summary

The purpose of this assignment is to evaluate the liquidity management of bank. Liquidity
reports of two commercial banks in Malaysia namely CIMB Bank Berhad and Malayan
Banking Bhd obtained for the years 2012, 2013 and 2014. The reports were compared and
contrasted for the three years including how they are reported. The Banks’ names,
backgrounds, vision and mission statements clearly provided in introduction section.

In the following section, ranking from most liquid assets to the least liquid assets of the banks
provided. Assets, liabilities and liquidity gap of CIMB and Maybank based on the 3 years of
contractual maturity stated from Table 1 to Table 8. Breakdown on the banks’ total assets
such as Cash and short-term funds, Loans, advances and financing, financial assets and etc.

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also highlighted in Table 4 & 9. These items ranked in 6 categories from most liquid assets to
the least liquid assets in regard to Elements of Asset Liquidity. The categories in order are
Cash & Short Term Funds, Government Securities, Marketable Securities, Other Investments,
Fixed Assets and Loan, Advances and Financing. Table 5 provides ranks of CIMB’s assets
while Table 10 provides ranks of Maybank’s assets. Explanations on the items were also
clearly provided.

Clear discussion on the differences of liquidity management of the two banks analysed in
section 3. Differences in terms of maturity period of cash and short-term funds and
distribution of these assets in other financial institutions as well as money at call identified
and explained. The propositions of the value of REPOS held by both banks were also found
to be different. Besides that, some type of money market instruments that was used by one
bank was different than the other bank. Examples of BNM Sukuk Ijarah in Maybank’s asset
and commercial papers in CIMB’s asset spotted. Differences in Liquidity Risk Management
Frameworks adopted by each banks explained as well. Reporting differences found to be in
terms of contractual maturity period in the liquidity reports of both banks.

The last section discussed on the similarities of liquidity management of both banks in 2012-
2014. Loans, advances and financing found to be consumed higher portion of total assets of
the banks. Similar Liquidity Risk Management tools such as liquidity gaps, early warning
signals, liquidity indicators and stress testing were adopted by CIMB and Maybank. Similar
deficit and surplus pattern of Net Liquidity Gap in the liquidity reports explained as well.
Both banks similarly diversified portfolios of sources of funds to cater effective and efficient
liquidity management. Finally the reporting patterns of both banks’ financial statement were
identical due to preparation in accordance with regulatory requirements such as MFRS, IFRS
and Malaysian Companies Act, 1965. Similarly, Maybank and CIMB’s liquidity report also
reported with the format required by BNM guidelines.

(3872 Words excluding tables and figures)

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References

Annual Report. (2012). CIMB Bank Berhad. Retrieved January 20, 2016 from

Annual Report. (2012). Maybank Berhad. Retrieved January 20, 2016 from

Annual Report. (2013). CIMB Bank Berhad. Retrieved January 20, 2016 from

Annual Report. (2013). Maybank Berhad. Retrieved January 20, 2016 from

Annual Report. (2014). CIMB Bank Berhad. Retrieved January 20, 2016 from

Annual Report. (2014). Maybank Berhad. Retrieved January 20, 2016 from

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