Al Rayan Bank: Reasons for Liquidity Reduction and Ways to Overcome

This report analyzes the reasons for the reduction of liquidity in Al Rayan Bank and suggests ways to overcome them. It discusses the impact of Shariah laws, the organizational structure of the bank, and the findings from the research. The report also provides recommendations for improving liquidity.

Running head: AL RAYAN BANK
AL RAYAN BANK
Name of the Student
Name of the University
Author Note

1AL RAYAN BANK
Table of Contents
Introduction......................................................................................................................................3
About the bank.............................................................................................................................4
The organizational structure of the Bank.....................................................................................5
Research Question.......................................................................................................................6
Key Issues....................................................................................................................................6
Objective......................................................................................................................................6
Background of the scenario and rationale of the study....................................................................6
Research methodologies..................................................................................................................7
Research Philosophy....................................................................................................................7
Research approach.......................................................................................................................8
Research design...........................................................................................................................8
Data collection and Analysis.......................................................................................................9
Findings (Presentation of the Research)..........................................................................................9
Principle activities.......................................................................................................................9
Business review.........................................................................................................................12
The Strategic Plan of the firm....................................................................................................14
Market and related competition.................................................................................................16
Liquidity and funding................................................................................................................17
Principle risks of the firm..........................................................................................................18

2AL RAYAN BANK
Liquidity risks............................................................................................................................19
Analysis of the Findings................................................................................................................19
Reasons why the bank is facing the problem.............................................................................27
Conclusions and recommendations...............................................................................................32
Recommendations......................................................................................................................33
References......................................................................................................................................35

3AL RAYAN BANK
Topic: Al Rayan bank UK: What are the main reasons for the reduction of its liquidity, and what
are the ways to overcome them?
Introduction
The business environment is quite dynamic in nature and with respect to this, it can be
considered to be very crucial for the organizations as present in this volatile and dynamic
environment, to take considerable steps in order to ensure that they are successfully able to
maintain a competitive edge in the market. In addition to this, they will also be required to
consider the different forces which may have an impact on the business directly (Zeldes 1989).
In this manner, the business will be able to ensure that, they form adequate strategies to
overcome these issues and that they are successfully able to avoid the issues and maintain their
brand positioning in the market. The different banks across the globe have been faced by the
problem of the liquidity crisis with respect to which, the liquidity risk is becoming a critical part
of the workplace. All banks should constantly review the different liquidity position in the
market so as to ensure that they are not being faced by any issues and to see to it that, the bank
functions in a proper manner. The reason why various banks fail to take into account the basic
principles of liquidity risk management is because they often tend to ignore the different
framework requirements which accounts for the liquidity risks as posed by the different business
lines and individual projects (Vodova 2011). Additionally, the banks tend to offer more
incentives at the business level and fail to align them with the maintenance of the liquidity of the
organization which is the reason why various banks are faced by the problem of low liquidity.
The given report is based on the working of the Islamic bank based in the United Kingdom
named the Al Rayan Bank.

4AL RAYAN BANK
The Al Rayan Bank can be stated to be one of the oldest but the largest Islamic bank
present in the country. The bank is an ethical and Shariah compliant bank as present in the
United Kingdom and hence, the particular bank is being chosen for the analysis (Yahoo.com
2019). The particular bank is exposed to a large number of external forces which tends to have a
strong impact on the overall operations of the firm. In the other related fields, the bank has been
performing well and it can be stated to be only in this field that the bank has been facing
problems and hence, with respect to this, the analysis of the liquidity issues will go a long way in
assisting the bank to gain a competitive advantage (Tobin 1958).
About the bank
The Al Rayan Bank which is also known as the Islamic Bank of Britain is a commercial
bank which is present in the United Kingdom and was established in the year 2004 to offer
Sharia compliant financial services and products to any customers belonging to any faith. The
bank has been performing well since then and has various branches in cities like London,
Birmingham, Manchester and Leicester. Moreover, the bank has additional agencies in
Blackburn, Luton Tooting, Bradford and Glasgow (Alrayanbank.co.uk 2019). The Al Rayan
Bank can be stated to be the only bank which is operating entirely on Islamic principles.
Moreover, although it tends to operate on Islamic principles, the bank welcomes people from all
faiths and tends to ensure that, it becomes increasingly popular among the non-Muslims as well
who can then adhere to the ethically alternative ways with respect to conventional banks. The
values on which the bank operates can be stated to be as follows:
 Shariah compliant
 Community oriented
 Secure

5AL RAYAN BANK
 Good value
 Pioneering (Alrayanbank.co.uk 2019)
The bank also operates on Faith which will assist the bank on ensuring that’s its
employees are satisfied with the performance of the bank and its operations and for this reason,
the bank remains closed on Friday afternoons so as to allow the bank to attend the Friday prayers
which are popularly named as Jummah (Alrayanbank.co.uk 2019). In addition to this, the bank
has a separate department with respect to Sharia and has built a separate committee for itself as
well in order to ensure that, the bank can easily comply by the Islamic teaching.
The organizational structure of the Bank
Figure 1: The Organizational Structure of the Bank
(Source: Alrayanbank.co.uk 2019).

6AL RAYAN BANK
The organizational structure as given in the above figure reflects that, the framework
comprises of the operational roles as well as responsibilities both on the individual as well as the
collective level.
Research Question
Al Rayan bank UK: What are the main reasons for the reduction of it's liquidity, and what are the
ways to overcome them?
Key Issues
1. What is the impact of the Shariah laws on the performance of the Al Rayan Bank?
2. What is the main reason for the overall reduction in the liquidity of the Bank?
3. What are the ways to improve the liquidity problems as faced by the bank?
Objective
The paper aims to present a comprehensive analysis of the different liquidity problems
which are being faced by the organization and to understand the overall reasons why the Bank
has been facing the low liquidity and other such problems (Peek and Rosengren 2010). The
rationale of the paper will be discussed and the related issues will be discussed which will help in
analyzing the issue in a better manner.
Background of the scenario and rationale of the study
The liquidity crisis can be rightfully defined as the shortage of the liquidity which tends
to exist in the financial institutions and banks. This liquidity may be stated to be the market
liquidity which refers to the manner in which the assets of the firm can be sold easily in the
market to convert it to the liquid form which can be stated to be the cash
(Theglobaltreasurer.com 2019). In addition to this, the liquidity of the banks can also be in the

7AL RAYAN BANK
form of funding liquidity which can be defined as the ease with which a borrower can obtain
external funding. Moreover, there also exists another kind of liquidity in the market which is the
accounting liquidity and can be described as the health of the institutions balance sheet which
can be measured in terms of the cash like assets of the organization. When a liquidity crisis
takes place then, these above classes of liquidity tend to crash with one another and this may then
result in the potential loss of the firm as a whole (Pástor and Stambaugh 2003). Hence, with
respect to this, it is important for the Al Rayan Bank to note that, they must employ measures to
ensure that they are successfully being able to meet these crisis and gradually assess towards
measures to maintain the overall liquidity of the firm. If the issue is not taken seriously it may
lead to considerable breakdown of the economy. Hence, the main aim of the management report
is to lay down the reasons why the Al Rayan Banking has been facing the problem of liquidity
and what measures can be deployed to improve the same.
Research methodologies
The particular research methodology is based on finding out the different ways in which
the research with respect to the particular management report will be carried out. Similarly, the
method of research philosophy, approach, data collection and analysis will also be discussed at
large in order to understand the manner in which the Liquidity problem being faced by the Al
Rayan Banking shall be discussed (Macey and O'hara 2003).
Research Philosophy
The research philosophy can be stated to be the reason for which the research procedure
is carried out and complies of the beliefs and the assumptions based on which the research is
carried out. The given management report, will follow the positivism research philosophy which
will be down with the help of secondary data analysis. In this, the particular technique of the

8AL RAYAN BANK
research philosophy will make use of the area of evidence in order to come up with a conclusion
with respect to the area of the research. The positivism approach aims to collect factual data and
then basis it entirely on the data and the numbers obtain. This assists in ensuring that, the
research which will be carried out can be comprehensive in nature. This philosophy will help to
find out the reasons why the liquidity at the Al Rayan bank is comparatively low and what
measures can be adopted in order to improve the same.
Research approach
The research approach which will be made use of in the management report can be stated
to be the descriptive research approach whereby the general emphasis will be on the reasons for
the low liquidity of the Al Rayan bank which will then be followed by finding the different
reasons why the bank has been lagging in the performance and the manner in which the bank
will be able to improvise on its overall operations at large. The annual reports of the Al Rayan
bank will be used for the analysis and based on this, critical assumptions regarding the overall
performance of the bank will be made. Using this approach, the overall reasons for the
decreasing liquidity of the bank will be understood and the measures to improve the same of the
Al Rayan Bank will also be predicted.
Research design
The research design which will be adopted for the purpose of the study can also be stated
to be descriptive in nature. In this manner, the overall background of the Al Rayan bank will be
understood which will then be used to analyze the performance of the bank. As the design will
be explanatory in nature, this will go a long way in assisting the author of the management paper
to identify the factors and the degree of their impact on the performance of the firm.

9AL RAYAN BANK
Data collection and Analysis
The collection of the data can be stated to secondary in nature. This means for the
purpose of the analysis and in order to achieve the overall objectives of the paper, the medium of
journals, annual reports, business reviews and other similar sources will be made use of. The data
which will be collected shall then be analyzed analytically and critically in order to understand
the overall impact of the forces and related characteristics on the performance of the bank in
question which is the Al Rayan Bank. The data which will be collected from the different
secondary sources will provide a useful insight into the factors operating behind the operations of
the Al Rayan Bank and the manner in which the liquidity of the firm is largely affected. The
annual reports of the firm will be analyzed comprehensively and the different expenses and
principles based on which the firm operates will be understood at large.
Findings (Presentation of the Research)
Principle activities
The Al Rayan bank offers a broad range of Sharia complaint banking solutions for
business as well as the individual customers which comprises of current accounts, savings
accounts, Home Purchase planning, commercial property financing and other such activities. The
given activities are carried out by the bank with the help of their network of branches, their
agencies, and with the medium of internet, telephone and other related aspects (Lewis and
Algaoud 2001). This goes a long way in assisting the different departments of the bank to carry
out the operations of the bank easily. However, it needs to be noted that the bank is a strict
follower of the Shariah system of banking. The Al Rayan Bank is authorized by the Prudential
Regulatory Authority (‘PRA’) and regulated by the PRA and the Financial Conduct Authority
(‘FCA’). The bank possesses a full bank license and other Shariah compliant business banking

10AL RAYAN BANK
mediums. In order to maintain a competitive positioning in the market, the organization comes
up with various new products and services under the `Al Rayan` brand positioning which goes a
long way in helping the business to improve the overall image and the product line offering of
the organization. This helps the organization to earn its considerable amount of profits and
assists the bank in ensuring that it is able to achieve its overall objectives (Khan 2010). The Bank
is under the control of an independent Board of Directors which help them to ensure that they are
able to meet with the responsibility of the business soundly and that they are able to perform
well. Over the last few years, the Al Rayan Bank has been performing well and the financial
highlights of the bank in the last five years have been given as follows:

11AL RAYAN BANK
Figure 2: The Financial Statement of Al Rayan Bank of 2017
(Source: Alrayanbank.co.uk 2019).

12AL RAYAN BANK
Business review
The Al Rayan Bank prepares its financial reports as per the International Financial
Reporting Standards which is generally adopted by all the firms as present in the European
Union. Over the last few years, the bank has been extremely successful in carrying out the
Shariah compliant banking system and has come up with various products which can be stated to
be highly beneficial for the market (Holmström and Tirole 1993). The products which have been
introduced by the firm have been well received by the Muslim as well as the non-Muslim
consumers. The financial statements for the year ended as on December 2017 have reflected on a
profit before tax of £9.45m (2016: £8.18m) which can be stated to have increased in number.
This constitutes to an increase of 15% with respect to the same and is reflecting the continuous
growth which is being achieved by the firm. The Profit of the bank has changed after a tax
charge. The financial review of the company can be stated to be as follows:

13AL RAYAN BANK

14AL RAYAN BANK
Figures 3, 4 and 5: The Financial performance of Al Rayan Bank as of 2018.
(Source: Alrayanbank.co.uk 2019).
The Strategic Plan of the firm
The Bank is running with a strategic intent to ensure that it is able to undertake a
sustained profitability through the medium of excellence and achieves a considerably high rate of
customer experience so as to ensure that it is successfully able to achieve a lower cost to income
ratio (Gulf-times.com 2019). The Al Rayan Bank`s strategic intent is underlined by five key
imperatives, which have been fully integrated into the overall plans and other alternatives of the

15AL RAYAN BANK
firm at large. These Five Imperative plans have taken considerable measures to ensure that the
bank is successfully able take strategically stronger decisions. The Five critical Key Imperatives
which the Al Rayan Bank has planned for itself can be stated to be as follows:
 The Capital efficient asset growth
 The Increased fee income
 The Lower cost diversified funding
 Robust risk management capability (Gulf-times.com 2019).
 Drive service quality and efficiently.
Through these five basic imperatives, the organization has planned to undertake the
following strategic focus:
Figure 6: The Strategic Focus of the Bank

16AL RAYAN BANK
(Source: Alrayanbank.co.uk 2019).
Market and related competition
The Bank has been in a powerful position to assist the financial market in shaping up the
image of the market of the United Kingdom and enjoys a large number of competitive
advantages. The parent company of the Bank is an established sponsor of the firm and assists the
bank in meeting the overall goals and objectives of the bank and also assists in ensuring that the
ambitions of the bank can be achieved at large (Grossman and Miller 1988). This strategic
alliance with the parent company has assisted the company to attract various customers from the
gulf country regions (GCC) and to build a compelling proposition for the HNW customers. The
distinguishing features of the bank can be stated to be as follows:
 The Al Rayan Bank is a leader provider of the Shariah complying retail products as
present in the United Kingdom and can be stated to be the primary provider of the Islamic
home finance as present in the country. In this manner, the firm will be successfully able
to increase its market share of the Shariah compliant financing for the markets which are
operating in CGG and the CPF markets (Goyenko, Holden and Trzcinka 2009).
 The Al Rayan Bank has been highly successful in providing a credible alternative to the
traditional banking and using its Islamic financial model, the bank will be successfully
able to ensure that, it is able to deliver competitive as well as leading rates of return
 The Bank has been successful in establishing a loyal customer base amongst the Muslims
as well as the Non-Muslims (Diamond 2007). This has lifted the overall popularity of the
ethical banking across all the faiths.
 The Al Rayan Banking is located at various critical locations which assists the firm to
maximize its overall operating. Additionally the organization takes considerable roles and

17AL RAYAN BANK
initiatives so as to ensure that, the employees remain dedicated towards the overall
objective of the firm.
 In addition to this, the Al Rayan Bank is an agile banking organization which embraces
the change steadily and undertakes continuous competitive analysis in order to ensure
that it will be able to take the advantage of the growing market (Diamond and Verrecchia
1991).
Liquidity and funding
The Al Rayan Banking can be stated to have a low liquidity risk appetite. One of the key
objectives of the firm can be stated to be that it is successfully able to retain all its sufficient
liquid resources which remain in line with the regulatory liquidity requirements (Diamond and
Rajan 2005). Hence, the bank has developed various plans and related formalities to ensure that
the bank is able to balance its liquidity effectively.
The funding technique which has been adopted by the firm can be stated to be a strategy
which is underpinned by the acquisition of stable funding through the different sources like retail
deposits. These are managed closely by catering for the different resources of the fund and
presenting a well-priced product servicing (Diamond and Dybvig 1983). The rates of the bank
are generally managed with the medium of ensuring that they attract a longer behavioral
weighted average deposit life so as to match the value of the asset which is underwritten. This
helps to minimize the risk of the maturity transformation.

18AL RAYAN BANK
Principle risks of the firm
Figure 7: The Risk Perspective of the Bank
(Source: Alrayanbank.co.uk 2019).

19AL RAYAN BANK
Liquidity risks
The Al Rayan Banking can be stated to be facing a threat of the Liquidity and in this
context it can be stated that, the Al Rayan Bank does not have adequate financial resources in
order to be able to meet its overall commitments in case they are due and the cost is excessively
high. The main approach which the bank undertakes to manage the overall liquidity of the bank
is that, it aims to keep a regular check into its resources to check that whether it is in a low
condition or a stressed condition, the Bank`s reputation is not altered at any cost (Deaton 1989).
The primary department which can be deemed to be primarily responsible for managing the
overall liquidity of the firm can be stated to be the Treasury department. The department looks
out for the liquidity profile of the different financial assets and ensures that it prepares the cash
flow of the firm in adequate details. The Treasury department also ensures that it is able to
maintain a portfolio of Sukuk and short term liquid assets so as to make up for the cash demand
or short term Treasury placements (Chordia, Roll and Subrahmanyam 2001). The bank makes
use of the method of comparison of maturity of assets and customer deposits to ensure that it
does not make mistakes. However, the analysis of the findings have reflected a drop in its
Liquidity coverage ratio.
Analysis of the Findings
The Liquidity Risk being faced by the firm can be stated to be the risk related to the lack
of sufficient financial resources to meet its overall commitments (Chordia, Roll and
Subrahmanyam 2000). This risk may arise when the firm is not able to meet the commitments or
can secure them at a comparatively higher costs. Although the Al Rayan Bank has been
undertaking considerable initiatives and efforts to ensure that it is successfully able to manage
the liquidity, the problem of liquidity has been reducing can be stated to be a dangerous aspect

20AL RAYAN BANK
foe the overall performance of the firm at large. Although many banks around the globe, tend to
undertake considerable measures so as to ensure that the bank is able to maintain its liquidity.
However, according to Chong and Liu (2009), this measure cannot be stated to be adequate
measure for the bank as this has not been successful in ensuring that the bank will be able to
meet its overall requirements. Additionally, as the Treasury departments of the Al Rayan bank
are responsible for maintaining the liquidity profile of the bank and checking whether it will be
able to maintain its overall resources or not. The monitoring of the liquidity of the financial
assets cannot be stated to be an adequate measure as this could be a suitable measure for firms
which are small in nature and operate in a considerably less risky market (Brunnermeier 2009).
In terms of the financial performance of the bank, it can be rightfully mentioned that, the
Al Rayan Bank has been performing considerably, with respect to its overall Net assets and the
Annual turnover.

21AL RAYAN BANK
0
10,000,000
20,000,000
30,000,000
40,000,000
50,000,000
60,000,000
GBP
2011 2012 2013 2014 2015 2016 2017
Figure 8: The Net asset performance of the Bank
(Source: As created by the author).
As witnessed, from the given figure, it can be rghtfully stated that the Al Rayan Bank`s
annual turnover has been increasing considerably and has reached newer heights in the year
5200000 GPB which can be considered to be a considerably good figure considering the overall
drop in the profits of the company and the increase in the liquidity ratio of the firm. In terms of
the Proftiability of the firm it can be stated that, back in the year 2011 to 2014 the firm`s
performance in terms of the Net profit have been considerably poor but it was in the year 2015
that the company begun to perform well and has grown exponentially in the last few years. From
6000000GBP to close to 9000000GBP, the growth of 33.33% can be considered to be

22AL RAYAN BANK
exceptional in nature (Alrayanbank.co.uk 2019). The given figure elucidates the growth in the
Profit trend since the last few years.
-10,000,000
-8,000,000
-6,000,000
-4,000,000
-2,000,000
0
2,000,000
4,000,000
6,000,000
8,000,000
10,000,000
GBP
2011 2012 2013 2014 2015 2016 2017
Figure 9: The Profit trends of the Bank
(Source: As created by the author).
However, for banks like Al Rayan Banking which operate in the highly dynamic business
environment, the simple manner of monitoring the assets of the banking and aligning them with
the customer deposits cannot be stated to be useful measure. According to Brunnermeier and
Pedersen (2008), the ALCO tends review and sanction the different liquidity policies which are
arrived at by the Treasury department. The department reviews this daily and sends it to ALCO

23AL RAYAN BANK
for a review. Any mismatches which exist are then submitted to the PRA. Given below are the
undiscounted cash flow which the bank has incurred on the financial statements of the bank, and
the data is based on the earliest possible contractual maturity (Alrayanbank.co.uk 2019).
Liquidity Ratios Calculation
2017 2016 2015 2014 2013
Current Ratio (current assets/ current
liabilities)
1.07 1.30 0.16 0.16 1.03
Quick Ratio (cash equivalents’ + marketable
securities + accounts receivables)/ current
liabilities
0.07 0.30 -0.08 -0.83 0.82
Cash Ratio (cash + marketable securities)/
current liabilities
0.07 0.30 -0.08 -0.84 0.81
Cash Conversion Cycle (days inventory
outstanding + days sales outstanding) - days
payable outstanding
24 26 28 30 32

24AL RAYAN BANK
From analyzing the liquidity ratios of Al Rayan Bank it has been observed that the
current ratio of the bank has decreased over the years from the year 2013 to the year 2017 that is
from 1.03 in 2013, 0.16 in 2014 and 2015, 1.30 in the year 2016 and 1.07 in the year 2017. Such
decrease has been observed for the reason that the bank is not that capable to pay off its liabilities
an addressing all its short term obligations. This can be stated as current ratio more than 1 and
higher is consider suitable for a company and is deemed to be in a better position to pay off short
term debt. Al Rayan Bank is ovserved to face liquidity risks related with its increasing liabilities
because it is not able to move its financial inventories to sales and attain cash from consumers.

25AL RAYAN BANK
The quick ratio of Al Rayan Bank is observed to decrease over the years from 2013 to
2017 that is signified to be 0.82 in 2013, (0.83) in 2014, (0.08) in 2015, 0.30 in 2016 and 0.07 in
the year 2017. A quick ratio more than 1:1 is considered suitable for a company. Such decrease
in quick ratio is observed for the bank for the reason that it is not being able to address its
financial obligations with the available quick funds in possession. Moreover, Al Rayan Bank is
relying too much on inventory to address its liabilities that is imposing threat on its liquidity
position.

26AL RAYAN BANK
The cash ratio of Al Rayan Bank is observed to be decrease over the years from 2013 to
2017 where it is signified that this ratio was 0.81 in the year 2013, -0.84 in the year 2014, -0.08
in 2015, 0.30 in 2016 and 0.07 in the year 2017. Cash ratio more than 1 is deemed to be desirable
for maintaining healthy liquidity position. Such decrease in this ratio is observed because of the
reason that Al Rayan Bank is not able to pay off its liabilities with its existing cash and cash
equivalants along with having left over funds imposing threat to its financial liqyidity position.

27AL RAYAN BANK
The cash conversion cycle ratio of Al Rayan Bank was observed to decrease over the
years from 2013 to 2017. This ratio was gradually decreased from 32 days in the year 2013, 30
days in 2014, 28 days in 2015, 26 days in 2016 and 24 days in 2017. Such decrease in this ratio
for the bank is observed which signifies that Al Rayan Bank is able to attain cash fom its
consumers from its initial cash outlay for inventory. The less amount of days in attaining its
receivables from consumers is considered favourale for a company. Considering same, it can be
stated that Al Rayan Bank has been efficient in maintaining its sales effectiveness and is able to
sell and collect on its inventory.
Reasons why the bank is facing the problem
According to Alrayanbank.co.uk (2019), the primary reason why the Al Rayan bank has
been facing the problems of the lower liquidity can be stated to be contributed to various reasons.
These reasons may relate to reasons like the effects of the Credit crisis. This means that, when
there took place the credit crisis of 2008, the banks were lending only two the best clients and
hence, with respect to this, the small businesses faced considerable losses and they experienced
considerable difficulty in borrowing in order to finance their overall payroll and inventory
(Alrayanbank.co.uk 2019). For this reason, the various rates around the globe were lowered in
number and with respect to this, the banks were not being able to provide adequate justification
when they were lending the money to the different businesses and the inability of the business to
pay back the particular loan became very difficult. Hence, this might be contributed to be the
reason why the bank has been facing liquidity problems with respect to the performance of the
firm. Adrian and Shin (2010) state that another reason why the Al Rayan Bank has been facing
liquidity issues can be related to the Cash Management Tactics of the Bank. As the Bank
operates on the Shariah compliance, very often the bank ends up in spending money in a manner

28AL RAYAN BANK
such that it ends up spending a large amount of money on the different expenditures of the firm.
Allen, Carletti and Gu (2008) state that when the sales and overall revenue of the firm can be
stated to be adequately high then, it can be understood that, the expenditures of the firm tend to
take a toll on the financial of the Al Rayan bank. In order to increase the overall popularity of the
Al Rayan Bank in the market, the bank has given huge sums of money as a loan with
comparatively lower interests which has although assisted in increasing the profits of the
company, however, it has not assisted in increasing the liquidity of the bank. This strategic
decision has ended up reducing the liquidity of the firm in the past two years, the figures pf
which have been provided. Moreover, very often the different mangers are offered an incentive
structure which may not be viable in nature and may drain of the cash of the organization.
Additionally, it can also be understood that the Net Liabilities of the firm have been
suffering a huge blow since the last few years, with the figures increasing considerably. In
addition to this, the trade creditors of the firm has also been increasing to a great extent. It had
reached an equilibrium in the year 2013, but since that year the Net Liabilities have been
increasing considerably and will be reaching a high of 1600000000 GPB in the year 2017. The
trend of the same can be observed in the given figure (Alrayanbank.co.uk 2019).
Hence, in line of this, it can be stated that only when the firm will be able to improve
upon the same, then it will be successful in improving its liquidity ratio and thereby bring about a
positive impact on the overall operations of the firm.

29AL RAYAN BANK
-1,800,000,000
-1,600,000,000
-1,400,000,000
-1,200,000,000
-1,000,000,000
-800,000,000
-600,000,000
-400,000,000
-200,000,000
0
GBP
2011 2012 2013 2014 2015 2016 2017
Figure 15: The Net Liabilities performance of the Bank
(Source: As created by the author).
In addition to this, the different company cash managers often end up making use of
market instruments to maximize their overall returns which may not be viable in nature. This
technique may not assist in bringing about additional money to meet the different commitments
of the firm (Alrayanbank.co.uk 2019). This not only results in lowered cash flow but also
lowered liquidity of the firm. Allen, Carletti and Gu (2008) state that, not all seasons might be
considered to be good for the purpose of the financial banking as well. Hence, the banking may
face a dip in the sales of the firm in various seasons which may then have an impact on the
overall liquidity of the firm. Although when the Al Rayan bank is again faced by good seasons,

30AL RAYAN BANK
then it tends to cover up and earn considerate cash flows but often this cash flow is never enough
to cover the low liquidity of the firm.
Therefore, as found in the annual reports of the organization, the liquidity ratio of the
firm has observed the following changes in the past few years.
2017-1.08
2016-1.30
2015-0.16
2014-0.16
2013-0.31.
From this it can be understood that, liquidity ratio is the ratio which indicates whether a
company`s assets will be sufficient enough to meet the different obligations of the firm or not.
Hence, as per the data it can be stated that, in the year 2013, 2014 and 2015 the liquidity ratio of
the firm was considerably low and in the year 2016 and 2017 the ratio of the firm has increased
considerably. The rise in the ratio from 0.16 to 1.30 can be stated to be a huge leap which can be
supported by the decrease in its deposits.
The given image can be stated to be the structure of the firm as in the year 2017. As seen
the liquidity of the firm can be stated to be very close to the Peer group of 107 similar companies
and alternately the Gearing ratio of the firm is considerably very low at 7.77 percent as comapred
to the 19.54 % of the given industry.

31AL RAYAN BANK
Al Rayan Bank PLC
PEER GROUP (157 companies)
0
10
20
30
40
50
60
70
80
90
100
%
GEARING
7.77
19.54
0
1
2
3
LIQUIDITY
RATIO
1.08 1.10
Fixed Assets 0.7 % Shareholders Funds 7.1 %
Current Assets 99.3 % Non Current Liabilities 0.6 %
Net Current Assets (Working
Capital)
7.0 % Current Liabilities 92.3 %
% All percentages are relative to Total Assets (100% = 1,806,308,000
GBP)
99.3 %
0.7 %
92.3 %
7.1 % 0.6 %7.0 %
Figure 16: The balance sheet snapshot of the Bank`s performance
(Source: As created by the author).
Moreover, as believed by Acharya and Pedersen (2005), although the Al Rayan Bank
intends to undertake considerate initiatives to ensure that it is successfully able to come up with
various product lines and related services, however, the sales of the firm cannot be stated to be
enough in order to ensure success for the bank and hence, affects the banks liquidity
(Alrayanbank.co.uk 2019).

32AL RAYAN BANK
Conclusions and recommendations
Hence, from the given analysis, it can be rightfully stated that in order to ensure long
term success of the firm, it needs to be understood that, the firm would be required to undertake
considerable initiatives in a timely manner which tends to have a positive impact on the overall
operations of the firm at large. The given management report is based on the overall analysis of
the Al Rayan bank which is the largest and the oldest Islamic bank as present in the United
Kingdom. The bank can be stated to be an ethical bank which complies by the Shariah method of
operations and is open to the service of both the Muslim as well as the non-Muslim customers.
The given report has followed a structured format with a positivism approach whereby the
Introduction to the overall problem has been provided and this is then followed by the rational of
the research and the explanation of the problem and the scenario which takes place with respect
to the topic of the study which is the `Al Rayan bank UK: What are the main reasons for the
reduction of its liquidity, and what are the ways to overcome them? `.
It can be stated that the liquidity problem of the bank can be stated to be a result of the
increase in the trading debtors of the bank. The bank increased its trade debtors in the year 2017
to a figure of £373.6 million or 26.4% so as to ensure that it is successfully able to bring about an
increase in the overall profits of the company, but instead this estimate has brought about an
increase in the liquidity of the firm (Alrayanbank.co.uk 2019). Another reason, why the liquidity
of the bank can be stated to have increased can be largely contributed to the fact that, the Bank
and Deposits for the £280.0 or 11.6% which has also impacted the liquidity of the firm. Even the
current assets of the bank have increased to £371.7 million which means that it is due to this
reason why the liquidity of the bank has been affected (Alrayanbank.co.uk 2019). However, as
per the annual reports of the bank, it can be stated that the firm undertook considerable measures

33AL RAYAN BANK
to bring about an improvement in the liquidity of the bank. In line of this, it can be mentioned
that the Trade Creditors of the firm increased in the year 2017 to £571.6 million which assisted
the Liquidity ratio. Moreover, the increase in the Accruals and Def. also bought about a positive
performance of the liquidity.
This is then followed by the Research Methodology which discusses the overall approach
towards the paper. The second half of the paper provides a brief analysis into the overall findings
which have been gathered from various year’s annual reports, business journals and reviews. The
findings have been critically analyzed and present under the various subheads. It was understood
that in the past few years, the liquidity of the firm has experiencing a great downturn. In the year
2013 the liquidity ratio of the firm was at a low of 0.31, whereas in the year 2017 the liquidity
ratio of the firm has come up to 1.08 which can be stated to be a considerably poor ratio as it
reflects that the firm is not being able to manage its debts effectively and is experiencing poor
performance.
The following section of the paper will provide a brief recommendation to the particular
set of problems related to the Al Rayan Banking in order to face the problem of liquidity being
faced by the firm.
Recommendations
In order to improve the liquidity problem which is being faced by the Al Rayan Bank in the
United Kingdom, the following initiatives are required to be adopted:
 Al Rayan bank would be required to ensure that it is successfully able to improve the confidence
in the banking sector by reengagement with the different international community members and
pursue the staff to monitor using critical indicators in order to ensure that they are successfully
able to ensure that, the benefits of liquidity will be highly beneficial for them. Although its

34AL RAYAN BANK
engagement with the Islamic group is commendable, expanding its client base will help the firm
to engage in considerable returns and savings with the firm.
 In addition to this, Al Rayan the bank will be required to ensure that instead of engaging in the
Short-term debt, the firm will be able to long term its finances. In the particular manner, the Al
Rayan Bank will be successfully able to lower its interest rates. Additionally, by employing these
techniques, the liquidity ratio of the banks also improves. As observed that the returns with the
firm have come up to 62219000 GBP, the firm will be required to maintain this positioning
throughout.
 In addition to this, as analyzed in the previous section of the report, the liquidity of the firm has
been greatly affected due to the increase in the trade debtors of the firm and hence, for this reason
the firm must seek to bring about a balance in the trading debtors figure which will assist in
improving the liquidity ratio (Alrayanbank.co.uk 2019).
 Additionally, the decrease in the Long term debt of the firm has also brought about a decrease in
the overall liquidity of the bank. In line of this, if the Bank has the ability to improve upon and
increase its Long term debt then it will be able to ensure that, the overall performance of the
business improves and the liquidity also improves to a great extent.
 Moreover, the Al Rayan Bank will also be required to ensure that, it is able to reduce its overhead
expenses. This is because, the overhead expenses which a bank is usually incurring in tends to
increase its cash outflow and have an impact on the liquidity (Acharya and Pedersen 2005). The
operating expenses is very high as observed as follows and hence, initiatives to reduce the same
needs to be adopted:
Total operating expenses -24,208 -19,073 -15,058 -11,297 -9,961
 Additionally, before lending out the firm can also check the credibility of the customers and take
better measures to monitor the same. It needs to undergo a thorough research program which will
help the firm in ensuring that, the credibility of the customers can be verified.

35AL RAYAN BANK
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