Al Rayan Bank UK Liquidity Reduction: In-depth Analysis & Solutions

This report investigates the reduction in liquidity at Al Rayan Bank UK, an Islamic bank operating in the United Kingdom. It explores the bank's background, organizational structure, and the impact of Sharia laws on its performance. The research identifies key issues contributing to the liquidity crisis, including potential misalignment of incentives, failure to adequately account for liquidity risks, and external economic forces. Employing a positivism research philosophy and a descriptive research approach, the study analyzes secondary data from annual reports and business reviews to understand the factors affecting the bank's liquidity. The report further examines the bank's principle activities, business review, strategic plan, market competition, liquidity funding, and principle risks. Ultimately, the analysis aims to provide recommendations for Al Rayan Bank to overcome its liquidity problems and improve its overall financial stability, contributing to a more resilient and competitive position in the market.

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

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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

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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

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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.

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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

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 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).

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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

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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

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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.

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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

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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:

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