Impact of Bangladesh's transition toward a market-driven interest rate regime on bank ALM practices: a study on BRAC Bank PLC.

Abstract

This report examines my experience at BRAC bank PLC during my internship, and practices applied by the organization, but majorly analyzes the effects of the change in the interest rate regime to a market-driven system on the Asset-Liability Management (ALM). It was done as part of the BBA program under BRAC Business School; I worked under the Treasury and financial institutions division, Head office BRAC Bank, for 3 months from 5 October 2025 to 5 January 2026. The report is composed of three parts; chapter 1 provides the internship duties and learning outcomes, chapter 2 gives an overview of the organization and financial summary of BRAC Bank PLC., the third chapter, the main analytical one, focuses on the way in which the interest rate liberalization has changed the ALM risk profile, profitability and balance sheet management of the bank. Throughout the internship, I assisted with the ALM Solutions automation project whereby I assisted in report reconciliation, coordination across different functions, and ALCO presentation support. Those activities included strategic needs of ALM, such as data inconsistency, delays in reporting, and information asymmetry, which enhanced internal governance risk. This underscored the critical role of technology and precision of data in dealing with interest rate and liquidity risk in the challenging macroeconomic environment. The financial and organizational analysis reveals that BRAC Bank works within an effective governance model with a participative but strict hierarchical culture. The bank has a liquidity and capital adequacy ratio that is higher than the regulatory needs and this shows good balance sheet management. Although both profitability metrics, ROA and ROE have been improving thanks to the efficiency gains and control over costs, Net Interest Margin (NIM) has been on the downward trend, which points to the instability in the structure of SME-oriented banking in the environment of rising interest rates. These performance trends are connected to ALM theory and changes in regulation in Chapter 3. When interest rate caps were eliminated, the repricing risk escalated, especially when banks had assets of SME at a fixed rate with mid-term tenor but short-term deposits. The repricing gap and duration gap analysis show that there is increased exposure to the risk of earnings volatility and economic value. Moreover, the crawling peg exchange rate system has tightened liquidity on a regular basis, increasing the cost of funding and strengthening the importance of good liquidity buffers. The factual evidence shows that the introduction of interest rate liberalization at first exacerbated NIM compression, which is in line with financial liberalization theory. The report suggests the improvement of dynamic duration gap monitoring, Funds Transfer Pricing (FTP) optimization, low-cost CASA mobilization, and stress testing and cross-functional coordination within the ALM structure based on these results. To sum it up, the internship has been a great opportunity in terms of exposure to the strategic value of ALM in ensuring financial sustainability in the environment of macroeconomic uncertainty. Although BRAC Bank PLC will continue to be a solid bank, the long-term survival in a liberalized interest rate scenario will rely on the unremitting innovation of ALM practices, pricing algorithm, and information-based decision-making.