AN ASSESSEMENT OF CURRENT ASSET MANAGEMENTS OF
AWASH INTERNATIONAL BANK (IN THE CASE OF DUKEM
TOWN)
A SENIOR PROJECT PROPOSAL SUBMITTED TO THE DEPARTMENT OF
ACCOUNTING FOR THE PARTIAL FULFILLMENT OF THE REQUIREMENTS FOR
THE AWARD OF BACHELOR OF ART (BA) DEGREE IN ACCOUNTING.
PREPARED BY: ID NO
1 Behailu Fikadu --------------------0010/08
2 Damo Regasa ----------------------0015/08
3 Ketema Abebe--------------------0041/08
4 Milion Daba ----------------------0316/09
5 Taye Tashome---------------------0066/08
6 Obse Gutu -------------------
RIFT VALLEY UNIVERSITY BISHOFTU CAMPUS
DEPARTMENT OF ACCOUNTING
SUB TO: Advisor: - Birhanu F
February 2018,
Bishoftu, Ethiopia
Tabelof contents. page
Content
1. Abstracts.................................................................. 1
2. Background of the study.......................................2
3. Background of the organization............................3
4. Statements of the problem.....................................4
5. The objective of study.............................................4
6. Significance of the study.........................................4
7. Scope of the study...................................................4
8. Organization of the paper.......................................5
9. Literature Review....................................................6
9.1 what is current asset?..................................6
9.1.1 Cash and cash Equivalents..............................6
9.1.2 Marketable securities.......................................6
9.2 Current asset management.................................7
9.2.1 Cash management............................................7
9.2.2 Management of short term investment............8
9.2.3 Management of Accounting Receivables.........8
9.2.3.2 Element of a credit management policy............10
9.2.2.3.3 Gathering information on the credit applicants.........10
9.3 Asset liquidity management.......................................10
10 Methods of the stuy......................................................12
10.1 Interview.......................................................................12
10.2 Questionnaires ...........................................................12
10.3 Research design.......................................................12
10.4 Sources of data.........................................................12
10.5 Sample design and sample size..............................12
10.6 Mathod of data analysis techniques......................13
11. Budget breakdown.............................................13
12. Time schedule...................................................15
13. References.........................................................16
1. Abstract
Our study will be to examine the assessement of current asset management practices of AIB in
Dukem town. This Bank is engage in providing different kinds of financial service like
Domestics and International Banking services. The main objectives of our study will be to
assess the current asset management of AIB and to see the loan collection policies and
procedures.
The Research design is descriptive type: - Quantitative & Qualitative, Moreover both secondary
and primary is occured. Primary data will be collected from the bank of Awash by interview and
questionnaries form. The secondary data will be collected from other references. The scope of
study is recent three years (2014-2016) of audit financial report, cash procedure manual, credit
policy manual and for the primary data interview and questionnaires will be conducted. The
respondents will select with the credit department ,risk department and accounting and
financial department. The data of bank was collected by analysis and interpreted using some
simple sample techniques such as random analysis method will be support with select the
probability. Based on the analysis and interpretation, The Results of our study will be to
bringing in to light the strong and weakness point in current asset management of Awash
International bank of Dukem in Particular. At the end of our study we will becomes new
performance things. Finally our study will be draw that assume to be useful to solve the
existing problem of the current asset management practice of AIB in Dukem town.
2. Back Ground of the study
Current asset are cash other asset are expected to covert to cash within a year. Current
asset are presented on balance the in order of their liquidity the cash with which they cash
can be converted to cash and time it takes to convert them. (ROSES 2000:page-446)
The most important items found in the current section either are cash and cash equivalent.
in other away current short-term asset either cash will be come cash or will be use in
operation one year. cash and market securities are the most liquid of the asset cash in the
currently to which liquidity asset can be reduced. Some of the commonly used criteria are
the number of employee ,value of asset, value of customer and size of capital or turn over,
the capital invested and the total balance sheet (asset, liability and capital ) according to
Assessment of current asset management of Awash International Bank Development
strategy. (Gitman: 1997;page-788)
The Awash International Bank shares role in generating and sustain Business growth and
equitable development in all most all economic. The AIB is the Business sector is
recognized as an integral componetment of bank development and a crucial element of
the effort to lift countries out of poverty .
Awash International Bank in Dukem will be control with several factors, it may be
include:- financial problem ,lack of management experience, lack of serious law and
regulation poorly of quality employees, lack of proper financial records, the politely of catch
a customer is law and lack of work promises etc. Although may be Environment factors,
affect the business with includes:- cultural, corruption, political ,low demand for products,
customers and services hand cap in obtaing finance .in adequate competent personal in
ability to control cost and problem dumping of cheap foreign product and others legal and
technological factors in additional there are also personal altitude or internal factor that
affect the development of AIB.
Generally there are external (contextual) and internal factor will be still affecting the
performance of AIB in Dukem town.
3. Back ground of the organization
Awash bank is privately owned share company which stated operation on November, 1994
with subscribe capital of 80 million and paid up capital and a paid up capital birr 24.2
million ' (vision): to be the landing best bank service provider' (mission): to provide wide
range of quality baking service through the dynamics work force and up to date it solution to
satisfy the desire of all stock holder. Main objective maximizing profitability through
increased efficiency enhance growing market share. Expanding the bank capital base
ensuring excellence in customer service provide differentiated varied and value added
baking service .Awash bank is appointer bank to introduce a Core banking system in July
2000. There by managed to natural the lead of office organ city branches and 10 some of the
outing branches at present migration of the existing core banking system in to more very
and also standard 10 union is completed. The Bank has also supply fully card payment
system enabling its customer to get 2417 banking service, on our ATM network ,and on
poster minal as well as Awash Bank is governed by they board of director committing of a
chairman vice chairman seven directors.(http://www.awash bank com/)
The overall management entrusted to the management team which comprises president chief
executive officer who is appointed by the board of director two wills president and twelve
deponent managers.
4. Statement of the Problems
Financial intermediate particularly banks plays special role in economic development of the
nation. The acquire surplus fund from economic unit like business firm, govermental agencies
and individuals for the purpose of making avaliable fund to the other economic unit. The bank of
Dukem is decrease by capital unlike other bank.However we are going to prove some several
factors regarding to financial problem, lending policy of asset, The relationship of manager and
employees and legally reserves of time and how manage the liquidity.The measurement of our
study is to performance the bank by legally and research is important to solve some problem to
this bank in deeply.unlike other financial institution bank are more likely to fall due to liquidity
problem to unable honor their promise to deposits on demand, lack of adequate liquidity is
often one of the first signs that bank is serious financial trouble. assess of the current asset
management help the management to know the liquidity of the bank and composition of current
asset of the bank. Although when the management is not understanding or miss of controll all
departements the becomes out of information, such information is missing the management
how fall or unable to honor to promise reduce deposit on demand and the first signs that bank is
a serious financial trouble after we study the able to be the researcher will try to assess and
analysis data finding about problem area of current asset financing and management practices of
Awash international bank (in the case of Dukem town) by raising the following inquiries :-
How does the bank been implement the lending policies ?
How the bank manages its liquidity ?
What techniques does the bank use to manage it cash and short -term receivables
How the bank established system to cross checking duty to current asset management?
How the legal reserves enough for management purpose and for secure the policy?
5. The Objective of Study
5.1. The general objective: - the generally objective of our study will be to assess the current
asset management of Awash International bank in the case of Dukem town. Based on the
General objective of our study will be the following
5.2. Specific objectives.
To identify how does the bank been implement the lending policies.
To assess how the bank managements liquidity.
To determine what technique, does the bank use to manage its cash and short-term
receivables.
To examine how the bank established system to cross checking duty to current asset
management.
To assess how the legal reserves enough for management purpose and for secure the
policy.
6. Significance of the study
Our study will be focus on useful in bringing in to light the strong and weakness point in current
asset management of international bank of Dukem in particular. In addition the research proposal
believes that the study must be help full to the reader to have practical understanding to current
asset management in the Ethiopia context and make further studies to answer why this process is
adopted in Ethiopia and why the corresponding out comes followed. Our study will be also to
initiate other research proposal for further study.
7. Scope of the study.
Our study is restricted to current asset management of Awash international bank in the case of
Dukem branch . our study will be focus on the current asset analysis of past three years (2014-
2016) and Dukem is a town surrounding finfine city and special oromia zone founds in oromia
regional state, it is located 42km south east of the capital city of Ethiopia finfine . As usually in
town central area have higher density of population.our study will be have cover only one bank
of Awash international bank in Dukem.
8. Organization of the paper
The paper have all what every about necessarily for Research proposal. The paper have consider
three chapter.chapter one includes:- like abstract, the back ground of the study, statement of the
problem ,objective of the study, significance of the study, and organization of the paper. Chapter
two , Reverent literature of the review on the definition of current asset and deeply details about
cash and liquidity. Chapter three is about research proposal methodology, design, source of data,
method of techniques,budget breakdown and time schedule.
9. Literature Review
9.1 What is current asset?
According to chasten (1998) current asset are cash and other assets that can be reasonable
expected to be converted to cash or consumed during one year or the normal operations cycle of
the business whichever is longer. The operating cycle is the time between the acquisition of
investment and the conversation of that inventory back in to cash.
9.1.1 Cash and Cash Equivalent
Cash is often called "non earning asset". it is needed to pay for labor and raw materials, to pay
dividends and so on. however cash itself(commercial checking account) earn to interest.Thus, the
goal of the cash manager is to minimize the amount of cash the firm must hold for use in
conducting its normal business activities, yet at the same time , to have sufficient cash
to take trade discount,
to maintain its credit rating and
to meet unexpected cash need
Cash is the most common current asset. It is listed first under current assets because it is the most
liquid. All cash balances on hand and on deposit that are readily available for current operating
purpose should be included in the cash categories under current asset.
Cash Equivalent: - are short term marketable securities, generally with original maturities of 90
days or less that is readily convertible to know amount of cash. These securities are combined
with cash for reporting purpose.
9.1.2 Marketable Securities
Are more liquid group of asset and thus next category presented under current asset? At the time
acquisition, debt and equity securities classified as trading, available for sale and held to maturity
Trading securities: - are securities that have been bough and held principally for the of re sale
in the near time
Available for sale securities:- that are expected to be sold in the next or operating cycle is
longer.
.Held to maturity: - securities that are being held to maturity and will mature within the or
operations cycle which ever longer.
9.1.3 Short-term Receivable
Short-term receivable are claims to cash that are expected within one year or the operating cycle
whichever longer. There are two types of short-term receivable. These are: - Trade receivable
and non trade receivables
9.2 Current Asset Management
9.2.1 Cash Management
According to Cooley (1994) cash management is the planning and controlling of cash flows to
increase company profitability and to maintain its liquidity. Carefully managing cash flows help
a company to pay operating expense and to make capital investment and dividend payment.
Cash balance requirements
There are three major requirements to meet the goal of the corporation to attain the cash
need.These are:-
Transaction Requirements: - Are the amount of cash needs to meet the forecast out flow
contained in the firm cash budget.
Compensating balance requirements: - are the amount of cash needs to meet certain lending
term of commercial loan. A company maintains a compensating balance with a commercial
banks to increase its cash requirements.
Precautionary requirements:- is the amount of cash needed to meet anticipated cash payment.
Cash balance held for precautionary requirements reflect the uncertainty future cash flow.
Types of asset owned by banks
Cash and due from banks consists of vault cash, deposit held at Federal Reserve Bank, deposit
held at other financial institutions, and cash item in the process of collection. Vault cash is coin
and currently that the bank holds to meet customer withdrawal. Deposit held at Federal Reserve
or other banks are demand balance used to meet legal reserve requirements, assist in in check
clearing and wire transfers or affect the purchase and sale of treasury securities (Koch 1995)
Objectives of cash management
According to Koch 1995 bank hold cash asset to satisfy the following objectives:-
Regulatory agencies mandate legal reserve requirements that can be met by holding
qualify cash asset.
Bank service as clearing house for Nation check payment system.
Bank supply coin and currently to meet customer’s regular transactions needs.
Bank use cash balance to purchase service from correspondence bank.
Cash management techniques
Cash management is a function usually carried out the company treasure.
Most cash management activities are performed jointly by the firm and its bank, but the financial
manager is responsible for the effectiveness of the management program. Cash management
techniques fall general in to four categories:-
synchronizing cash flows
using float
Accelerating collection
Controlling disbursements
9.2.2 Management of short term investment
Are any securities that bought and sold in the primary and secondary security markets?
These securities are considered appropriate investment in the current asset management of non
financial corporation.
Treasury bill: - commonly referred to as t- bill are the direct obligations of the state
government. Bill is particularly attractive to bank because of their high degree of safely.Bill are
supported by the taxing power of the federal government's.
9.2.3 Management of Accounting Receivable
Accounts receivables are granted when corporation sell its products and services on credit.
Retail credit: - it is the credit sale made by retailers to customer
Commercial credit: - it is credit sale between corporations are done on a commercial grey bases
and called account. (Never 1985 p,-184)
9.2.3.1 Credit policy and Analysis
Credit policy
The goal of credit management is to be established polices and strategies that are consistent with
the overall risk return characteristics of the corporation. Credit policy consists of these four
variables; like the credit period, the credit standard, the firm collection policy, Any discounts and
credit analysis.
Is the borrower creditworthy?
The questions that must be deal before any or not the customer can services the loan. That is ,
payout credit when due with a comfortable margin for error. This involves a details study of the
loan application character, capacity, cash, collateral, condition and control.
Can the loan agreement be properly structured and documents?
The loan officer is responsible to both the customer the bank depositor and stockholders and
must seek to satisfy the demand of all. This requirs the drafting of a loan agreement that meet the
borrower needs for funds with comfortable repayment schedule. The borrower must be able to
handle any required loan payment, because the bank success depends fundamentally on the
success of its customers.
Can bank perfect its claim against the borrower's earning and asset that may be pledged as
collateral?
Most borrowers at one time or another will be asked to pledge of their asset or to personally
guarantee the repayment of their loan. Getting a pledge of certain borrower asset as collateral
behind a loan really serves two purposes for the lender.ROSES, (1999)
In making its own independent assessment a firm traditionally consider the five Cs or credit
analysis; character; capacity, collateral, and condition.
Character;- has to do with the probability that a customers will try to honor his/her obligation.
This factor is of considerable importance because every credit transaction implies a promise to
pay. Experienced credit managers frequently insist that character is the most important issue in
credit evaluation.
Capacity: - describe a subjective judgment of customer ability to pay. It is gauge by the
customer past businesses performance record, supplemented by physical observation of the plant
or store and business methods.
Capital: - is measured by the general financial position of the firm as indicate by financial ratio
analysis, special emphasis is placed on tangible net worth of the enterprise.
Collateral: - is representing by asset the customer officer as a pledge for security of the credit
extended.
Condition: - relates to the impact of general economic trends on the firm or special development
in certain areas of the economy that may affect the customer ability to meet obligations.
9.2.3.2 Elements of a credit management policy
Criteria for extending credit:- two types of decision are involved in extending credit. When
customer seeks for the first time then the customer required to submit financial and related data
which credit references. The services of a credit agency or credit bureau used to obtain additional
information about customer financial condition and recent credit history. Other types of decision
order. When an established credit customer submit a purchase order. Relate order from an
established credit customer
Techniques to protect receivables:- most account receivables represent sale made on open
account. This means the saller is unsecured creditors of the customer. The best way for a saller to
protect its account receivable is to refuse credit to those potential customers that are seen as
marginal credit risk.(Neveu p,185).
9.2.2.3.3 Gathering information on the credit applicants
Information for evaluating the creditworthiness of a customer is available from a variety of
sources including financial statements submitted by the customer credit reporting organization,
banks and the company own prior experience with the customer.
9.2.4 Short term Loan Management:- it is one the major functions which financial institutions
undertake for proper mobilization of funds.
9.3 Asset liquidity Management
The oldest approach to meeting bank liquidity need is asset liquidity in the form of holding of
liquid asset predominantly in cash and Marketable securities. When liquidity is need selected
asset are sold for cash until all the bank demand for cash are meet.
Characteristics of liquid assets
A liquid asset must be have a ready market so that it can be converted into cash with out
delay
it must be reversible so that the seller can recover his or her original investment with little
risk of less
it must have a reasonable stable price so that no matter how quickly the asset must be
sold or how large the sale.(Rose, 1999,p. 387)
Major categories of deposit offered by bank
1 Transaction (payment) deposits
Transaction deposit are transaction accounts which are payments can be made by using checks,
drafts, payment orders of withdrawal, or telephone transfers drawn against funds on deposit
According to Rose (1999) it is one of the oldest deposit services offered by banks centered on
making payment on behalf on the bank customers.
Transaction deposit include:-
A Demand deposit:-are transaction accounts that are held by individual, partnership,
corporation, and government, which do not earn an explicit interest payment but provide the
customer which payment services, safe keeping of fund and record keeping for any transaction
carried out by check, and to withdraw cash on demand.
B Interest- bearing demand deposit:-is transaction account that provides all of the foregoing
services and pay interest to the depositor as well. The deposit includes negotiable order of
withdraw (NOW) accounts and automatic transfer ATS and money market deposit account
(MMDAS).
2. Non transaction (saving of thrift) deposit
Saving or thrift deposits are designed to attract funds from customers who wish to set aside
money in anticipation of future expenditures or financial emergencies. These deposit pay higher
interest rates than transaction deposit do. While their interest cost is higher thrift deposit are less
costly for a bank to process and to manage (Rose, 1999, p.389).
10. Methods of the study
10.1. Interview:-
An interview is a method of data collection information or opinions gathering that specifically
involve Asking series questions. Interview will help we are to follow up problem response,
motive and feeling observe our respondents non-verbal interaction.
10.2 Questionnaires:-
Under this study we will distribute the Questionnaires in both open and close end types of their
local language Amharic and Afan Oromo. The questions that will be use in questionnaires are
multi-choice questions and point link scale type questions.
Methodology of the study
10.3 Research Design
This research will be focus on the current asset management practices of Awash International
Bank of Dukem.
The research objective type and the research proposal is use both quantitative and qualitative
research will approach. Explanatory proposal methods will apply to assess current asset
management of AIB.
10.4 Source of data
In our study we will use both primary and secondary data technique the primary data,s will
obtain from our self-help group in Dukem town. The secondary data will be get from document
analysis
Regarding to self- help group, public and un public source relevant documents and books.
10.5 Sample Design and Sample Size
Our study will be stratify random sampling use to get information from different size. From total
worker of Awash International Bank of Dukem branches to the students researcher will be
conducted the respondents by selected amoung the population of the bank. The sample technique
of the respondents will select with probability sampling Design: i.e Judgmental Sampling
would use and considering to gather primary data. In our research study we will use simple
random sampling techniques with provides equal chance for all population to select the
respondent by using this formula:-
n =N/1+N (e) 2
When n=sample size
N= population size
e= level of precision or error. By using this formula sample size will be apply on the research.
The study will be using this simple sampling because management and employees of the bank
that may be provide sufficient and equal chance to get information for the study. For gather
relevant data those will consider being knowledge about the topic will be select. Those
respondents are credit and risk department manager, accounting and finance department manager
of the bank.
10.6 Methods of Data Analysis Techniques
In order to achieve the objective of the research the data will be collected from primary and
secondary source will analysis in relation to research questions and process quantitatively and
qualitatively by using simple sample techniques such as random and select by probability. For
the purpose of obtaining relevant information about the subject matter, the answer of the
interview will be analyze applying the case of study principles he loan authorization on
procedure are present and the reserve and liquidity requirement work will be evaluate.
11. Budget and Time Break Down
Cost/ Budget Break Down
No Item Unit Quantity Unit cost birr Total cost
Stationary
1 materials
Pen Pcs 2 6 12 birr
Paper Pcs 1 65 65 birr
Ruler pcs 1 20 20 birr
2 Expense for
printing and
photo copy
Writing for page 21 7 147birr
purpose printing
Photo copy Page 21 0.5 10.50 birr
Transportation
3 cost
Trip to 12 8 96 birr
respondent to
dispatch data
instruments
Trip
trip to 12 8 96 birr
respondent to
collect the the
respondents
response on
questionnaires Trip
and interview
4 Internet services Second 2:30 0.50 75 birr
5 Sub total 521.5 birr
6 Contingency 40% of sub 208.6
total
7 Total cost 730.1 birr
12. Time schedule
No Activity Research proposal Research final
Months Months
Oct Nov De Janu Feb Ma April may
c r
1 Title preparation and approval
2 Proposal preparation and
appvoval
3 Review of literature
preparation and approval
4 Dispatch the questionnaires
and conduct observation and
interlent questions to target
respondants
5 Data collection of the and
analysis
6 Submission of the paper to
group once
7 Presentation
13. References
Bingham E.F (1995) Fundamentals of financial management 7th Ed: the Dryden press: V.S.A
Champers D.R and lacy N.J (1994): Modern corporate finance Harper Collins
College New York.
http://www.awash bank com/
chasten Flaherty and o Connor (1998): intermediate accounting (6 th Ed): Mc Grew
Hill company U.S.A
Never R.P (1985): Fundamentals of managerial finance.
nd
(2 Ed): south western publishing
AIB international Bank (2014-2016):Annual report bulletins:
Addis Ababa, andante printing
AIB international Bank: cash operation manual
ABI international Bank: credit policy and procedure manual
Rose p.s (1999): commercial bank management (4th Ed): me Grew Hill companies.
Rose S.A(1998) fundamental and corporate finance(4th Ed) me Grew
Sin key J.F92002): commercial bank finance management (6th Ed): prentice- Hall:
New Jersey.
