Professional Documents
Culture Documents
Limited
Supervised by Prof. Dr.A.N.M. Abdul Muqtader Dean Faculty of Business Administration Southern University Bangladesh Prepared By
ACKNOWLEDGEMENT
Thanks to Al-mighty Allah for Blessing in completing the report with in the scheduled time. I am indebted to a number of persons for their kind recommendation, co-operative, submission, direction and their collaboration.
I have the unique opportunity to apply my theoretical & practical knowledge in this assignment. Its my obligation to disclose the name of all who have contributed in many ways to complete my assignment on the selected topic entitled Investment Management
First, I would like to remember the contribution of Internship supervisor & my teacher:. Mr. A.N.M Abdul Muqtader whose guidance & help was very much required prepare the report successfully.
I am grateful to the Management of FSIBL Bahadder Hat Branch for providing me all sorts of facilities requested from time to time. My practical working knowledge in this financial institution helped me a lot. I am lucky and feel proud to get this opportunity for preparing this assignment. I have learned many things from this reputed organization in a short time.
SUPERVISORS DECLARATION
CERTIFICATE OF APPROVAL
This is certify that this paper is prepared by Rahul Palit (ID No:111-30-14) Degree of BBA (Finance).This is an original work by him. I am sure it will contribute to enhance existing knowledge. For his excellent paper work recommend accepting this paper and approved this for the Degree of BBA in Finance.
Dr.A N M Abdul Muqtader Professor and Dean Faculty of Business Administration Southern University Bangladesh Chittagong, Bangladesh.
Executive Summary
As banks play the key roles in the economy, it is important to know the performance of banks in their operational areas. In addition to this, banks performances should be measured because of the several parties related to the banking industry. Depositors evaluate performance to make a decision regarding whether to trade with the bank, bank managers evaluate performance to formulate a strategy, and regulators evaluate to ensure whether the banks performances align with the legal and societal structure of the country. The objective of the study is to analyze the Investment Management A Case Study on First Security Islami Bank Limited Though primary objective of preparing this paper is to fulfil the requirement of BBA internship program but this study will serve as a reference for any kind of further research both for academic or business purposes. From the study we will get a clear picture of overall performance of FSIBL and also special scenario of customer satisfaction level of monthly savings scheme. Overall customer satisfaction depends on what type of service marketer providing to customer. Customers expect more return on their savings which is comparatively lower than other private commercial bank. The study has some shortcoming are lack of knowledge to such type of survey, time limitations, respondents unwillingness to cooperate and limited sample size. This report is prepared on the basis of information collected from both secondary and primary sources and every effort has been made ensure that the information compiled in the report is accurate.
Letter of Transmittal
15th JULY, 2012 Prof. Dr.A.N.M. Abdul Muqtader Dean Faculty of Business Administration Southern University Bangladesh Subject: Submission of Internship Report. Dear Sir, It is my great pleasure to submit the internship report on "Investment Management On First Security Islami Bank Limited I made sincere efforts to study related materials, documents, observe operations performed in First Security Islami Bank Limited. and examine relevant records for preparation of the report. I had to put in a lot of effort & hard work to the preparation of this report with the help of all the bank officials in the Bahadder Hat Branch. Within the time limit, I have to make this report as comprehensive as possible. But there may be some mistakes due to various limitations. For this reason, I ask for your kind consideration in this regard.
Serial no
Page No
Introduction Origin of the Report Objectives of the Study Scope of the Study Methodology of the Study Limitations of the Study
12 12 13 13 14 14
Chapter-TWO First security islami bank in Bangladesh: an overview Overview of the bank 16 2.1 Mission of the bank 16 2.2 Vision of the bank 16 2.3 Objectives of the bank 17 2.4 Deposit 17 2.5 Loans and Advance 17 2.6 Branch Network 18 2.7 Services 18 2.8 Chapter-THREE
Authorities involve in investment management of FSIBL 21 Investment management Committee of 3.1 the Board of Directors 22 Corporate Information 3.2 Investment management Committee 23 3.3 24 Approval process 3.4 25 Approval authority 3.5 26 Functions of the investment 3.6 management Department 28 Overall investment Policy of FSIBL 3.7 28 Impaired Asset Management. 3.8
Chapter-FOUR
Investment management policies and procedures FSIBL. followed by
Strategy statement Deposit Mobilization and Fund Utilization Comparative Position of the Islamic Banking Sector Mode wise Investment of FSIBL Remarks and Policy Options Assets Portfolio Paid-up Capital Showing Deposit Position
31 31 32 33 33 36 37 38
Chapter-FIVE
Source of finance investment management of FSIBL
Securitization of Assets Finance & Advisory Services Syndication of Fund Import Financing Export Financing
41 41 42 43 44
Chapter-SIX
Different types of products under Corporate and Consumer loan. Small Enterprise Financing 46 6.1 Rules for Application 46 6.2 Documentation of Loan 46 6.3 Loan Sanction 47 6.4 Categories of loan 47 6.5 Credit Mix 48 6.6 Cash Credit (Hypo) 49 6.7 8
FIRST SECURITY ISLAMI BANK LIMITED 6.8 6.9 6.10 6.11 7.1 7.2 7.3 7.4 7.5 7.6
8.1 8.2 8.3 Term Loan Secured Overdrafts [SOD (FO)] House Building Loan Small Enterprise Financing 49 50 50 50
Chapter-SEVEN
Sector-wise investment scheme by FSIBL. Term Loan Secured Overdraft Transport Loans Cash Credit House Building Loan Findings 52 53 54 55 55 57
Chapter-EIGHT
Recovery position of investment skim of FSIBL. Management Committee (M.C.) Operational Network Recovery Rate Sectoral and Credit Concentration Liquidity Management Audit & Risk Management Division Risk Management Unit Finance & Advisory Services Loan Recovery Unit 60 60 61 62 63 64 64 65 66
Chapter-NINE
Infact of investment management on the profitability of FSIBL. Financial Highlights of FSIBL 68 9.1 Ratio Analysis 71 9.2 Earnings Performance 73 9.3
Chapter-TEN
Problems of investment management and their probable solution.
Chapter-ELEVEN
11.1 11.2 Recommendation of FSIBL Conclusion Recommendation of FSIBL Conclusions 94 95
10
CHAPTER 1 Introduction
11
CHAPTER 1: INTRODUCTION
1.1 Introduction A banking institution is indispensable in a modern society. It plays a pivotal role in the economic development of a country and forms the core of the money market in an advanced country. In recent times the banking sector over the world has been undergoing a lot of changes due to deregulation, technological innovation, globalization etc. Bangladesh banking sector is lagging for behind in adopting these changes. Bank plays an important role in the business sectors and in the industrialization of a country. Basically the banks take deposits from the customers against interest and lend it to the borrowers against interest cessation period. Under these circumstances of bank offers different interest rates and other options to the customers to remit and deposit their money. These options are vary common among all the banks, but only the customer services and other facilities very from bank to bank.
1.2 Origin of the Report This report is prepared as per internship requirement of my Business Administration (BBA) program of Southern University Bangladesh. I worked 3 Months in First Security Islami Bank Limited (FSIBL) Bahadder Hat Branch. In three months I have through various banking activities. This report is a brief overview of those daily activities, I have done during the internship period.
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1.3. Objectives of the Study The main objective of the study is to analyze the performance of corporate and consumer loan disbursement of FSIBL. To achieve this main objective the following sub objectives have been undertaken: 1. To highlight the authorities involve in investment management of FSIBL 2. To examine the investment management policies and procedures followed by FSIBL. 3. To examine the source of finance investment management of FSIBL. 4. To know the different types of products under Corporate and Consumer loan. 5. To analysis sector-wise investment scheme by FSIBL. 6.To examine the recovery position of investment skim of FSIBL. 7.To evaluate the infact of investment management on the profitability of FSIBL. 8.To find out problems of investment management and their probable solution.
1.4. Scope of the Study This report will be dealing with the overview of First Security Ialami Bank Ltd. & mainly deals with Loan Disbursement of this Bank. The topic is fixed. But the report has tried to cover overview of FSIBL objectives, functions, management, business policy and other things. This report has also mentioned some problems of FSIBLs Operating systems and its solutions. The empirical part includes only the published information and current practices of the First Security Islamic Bank Limited included.
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1.5. Methodology of the Study: The research design is presented belowArea of the study The proposed study has been focused on the Loan Disbursement of the FSIBL. In relation with the primary & secondary objectives, the Bahadderhat branch of the FSIBL has been selected to perform my internship program. Sources of information Primary Data: Data has been collected primarily through correspondence with the personnel working in different desks. Secondary data: Secondary sources consist of several reading materials such as circulars, journals, brochures, and annual reports. The required data and information to prepare the assignment have been collected from the followings sources: 1. Procedures published by the FSIBL, Head office. 2. Files and documents of the branch. 3. Personal interview with branch officials and Executives. Methods of data collection: The data presented in this report has been collected from the annual reports of the bank from 2006 to 2010, by taking interview of the credit officer, from the training instruments of the bank, from published books and through structured questionnaire. Data Processing & Analysis: Data has been computerized & processed by using MS Word, MS Excel. For the purpose of analyzing the data we have presented in tabular form, percentage form with necessary chart and graphs 1.6. Limitations of the study Lack of adequate Information of banking institution for preparing this report, so this report is based on only publicly available information. Although bankers have tried their best to help me, their nature of job is such that gives them little time to discuss. It was very difficult to get the actual information. 14
CHAPTER 2
First security Islamic bank in Bangladesh: an overview
15
2.1. Overview of the bank First Security Islami Bank Limited (FSIB) was incorporated in Bangladesh on 29 August 1999 as a banking company under Companies Act 1994 to carry on banking business. It obtained permission from Bangladesh Bank on 22 September 1999 to commence its business. The Bank carries banking activities through its 67 branches in the country. The commercial banking activities of the bank encompass a wide range of services including accepting deposits, making loans, discounting bills, conducting money transfer and foreign exchange transactions, and performing other related services such as safe keeping, collections and issuing guarantees, acceptances and letter of credit. From January 01, 2009 bank has converted into islami shariah based banking system instead of conventional banking system. The bank has constituted a sariah council consisting prominent ulama, bankers, lawyer and Economists to advice and guide on the implementation of islami sariah in business activates. 2.2 Mission of the bank FSBL mission is to provide banking services to our valued clientele with utmost proficiency & sincerity reinforced by an efficient workforce and the latest state of the art technology. 2.3 Vision of the bank The vision of FSBL is to always strive to achieve superior financial performance, be considered a leading Islamic Bank by reputation and performance. Try to encourage savings in the form of direct investment.
16
2.6. Loans and Advance First Security Islami Bank Ltd. has able to increase its investment despite adverse condition in the domestic as well as in the global economy. Total amounts of loans and Advance of the bank stood at tk. 52123.9 million as on December 31,2010as against tk.38725.87 million as on December 31, 2009 showing an increasing of tk.13398.03 million With a growth rate of 34.6% Investments are the core asset of a bank. The bank gives emphasis to acquire quality asset and does appropriate lending risk analysis and follow all the terms and condition all sorts of investments to client.
17
2.7 Branch Network At present, the bank has 67 branches of which 26 branches are in Dhaka Division, 26 branches are in Chittagong Division, 06 branches are in Sylhet Division, 03 branches are in Rajshahi Division, 04 branches are in Khulna Division and 02 branch is in Barisal Division. All the 67 branches are computerized under distributed server environment. Another few branches are planning to open within December 2011. FSIBL has already started their on-line, SMS and ATM banking facilities for their clients. 2.8. Services (i) Deposits In addition to the normal deposit scheme, the bank has introduced attractive deposit scheme to encourage people and mobilize the deposit. Deposit scheme are: Current account
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(iii) SMS Banking First Security Islami Bank Ltd. has officially launched SMS banking service from December 17,2007.
(iv) Locker Service For safekeeping of customer's valuables like important documents and goods like jewelleries and gold ornaments, FSIB Locker Service is available in most of the Branches in urban areas.
19
CHAPTER 3
Authorities involve in investment management of FSIBL.
20
21
3.2.Corporate Information:
22
3.3.Investment management Committee i) Particulars of Investment management Committee The Investment management Committee of the Board was duly constituted by the Board of Directors of the Bank in accordance with the BRPD Circular No. 12 dated 23 December 2002 issued by Bangladesh Bank. The Committee was formed comprising 3 (three) members of the board.
ii) Meeting held with Investment management Committee During the year 2009, the audit committee conducted seven (07) meetings in which, among others, the following issues were reviewed and discussed:
status of compliance thereof; inspection reports of branches/Head Office conducted by Bank's internal inspection team; -yearly accounts of 2009 of the Bank; and
23
iii) Steps taken for implementation on effective internal control procedure of the Bank The Committee placed its report regularly to the Board of Directors of the Bank mentioning its review results and recommendations on internal control system, compliance of rules and regulations and establishment of good governance within the organization.
3.4.Approval process Loan Applications in the prescribed format shall be received at Credit Approval unit recommended by sales team along with annexure that covers comprehensive LPF information detailed in the Prudential Guideline advised by Bangladesh Bank. The sales team is responsible for loan sales and should be the owner of the customer relationship, and must be held responsible to ensure the accuracy of the loan application submitted for approval. They should be familiar with the banks Credit Policy and PPG and should conduct due diligence on new borrowers, purpose of the loans and guarantors. During recommending for a client it is expected that the respective Officer has adhered to Know Your Customer (KYC) and Money Laundering guidelines.
Credit Approval Sheet should have, as a minimum, the following details: Amount and type of loan(s) proposed. Purpose of loan(s) Loan Structure (Tenor, Covenants, Repayment Schedule, Interest) Security (if any)
24
Loan Approval Process Approvals must be evidenced in writing, or by electronic signature. Approval records must be kept on file with the Credit Applications. Loans and advances on becoming inoperative / stuck up should not be renewed and / or re-scheduled without getting prior approval from the Credit Committee. In case of loan take over from any bank/financial institution, then any correspondence should be made with the bank/financial institution directly, such as security takeover. 3.5.Approval authority Lending Authority is delegated to officers related with approval individually by the Managing Director in writing. Records of such authority are retained with Head of Credit. Copies of all Delegation of Lending Authorities are also retained by Loan Administrations Department. Any breaches from Lending Authority should be reported to the Managing Director, Head of Credit and Head of Risk Management. The executives charged with approving loans shall 25
3.6.Functions of the investment management Department Lending money is one of the main functions of a commercial bank. In the lending process, selection of borrower is the most crucial and vital job for a banker. Before a customer enjoys credit facilities it is important that the applicant should qualify for five Cs. The five Cs are: Character Intention to pay back the loan Capacity Borrowers competence in terms of utilizing the fund profitably and generate income Capital Financial strength to cover the risk Conditions General business condition between two parties Collateral Implies additional securities In addition, objectives of the credit department are managing credit exposure of the bank, maintaining credit risk, compliance of Central Bank Ltd, recovering or collecting dues of retail loans or advances. At present credit division performs following activities: 26
The activities of this department include managing the financial books of the bank, checking all entries of the book are according to standards, preparing daily reports for Bangladesh Bank, revenue appropriation and calculations, setting the internal pricing rates etc. Loan is an asset to any financial institution. That is why it is very much necessary to ensure that a loan does not become bad. The first step in ensuring that is to ask for proper documentation of the loan applicant. A default loan might be very hard to recover due to lack of proper charge documents. This is where the asset operation department of the bank comes into action. Asset operation department of the bank acts as a last frontier to mitigate all loan related risks before disbursement of a loan. The functions of asset operation department can be broadly categorized under two heads. The first one is the disbursement and monitoring of loans. In this case the department disburses loans after obtaining clean CIB reports of the clients, checking all documents and collecting securities after proper lien and charges creation after terms of approval. This department also periodically review conditions of past due loans, limit, expiry and document deficiency. The next operation of the department is to act as custodian and compliance of the charge documents and prepare various MIS reports for the central bank and other audit authorities. The documents that are required by asset operation department (AOD) can be classified into three parts. First one is the business verification and related documents of the applicant. Second one is the basic charge documents like demand promissory note, letter of continuity, letter of pledge letter of hypothecation and some other 27
3.7.Overall investment Policy of FSIBL Lending being the most important function of commercial bank, every bank should have own credit policy. Investment policy generally aims at (a) creating healthy loan assets to ensure goods interest earning for the bank (b) ensuring ultimate safety through judicious selection of based on its saleability. The investment policy of FSIBL has been formulated of the plan of ALL NEW LOANS TO BE GOODS LOANS, The plan was formed on the basis of the following objectives: To maximize the profit of the bank by making sound lending To deliver credit to viable borrowing at a reasonable cost To provide satisfactory return on investment To assist the social and economic development of the country To deliver general banking services to the public and credit to viable borrowers at a reasonable cost 3.8.Impaired Asset Management Department This department of the bank looks after the default loans and tries to recover them. It is said that the less job load this department has, the better it is for the bank itself. The head of IAM directly reports to the Managing Director of the Bank and this division is an administrative division of the bank. This department of the bank has two wings. One wing looks after the impaired assets of SME wing and another wing looks after the impaired assets of retail business. Normally if a loan instalment is six months over due, then the credit department hands 28
over the file to IAM for recovery. IAM first issues a letter in soft language. Then if it does not work, IAM issues further three letters to the defaulter. If it does not work either, then IAM files a case against the defaulter. Usually this case filing is done in the 11 month of the default. Loan Admin - The posting is done in the system in the Asset Operations Department. Then Loan Admin sends requisition to Fin Admin. Fin Admin: Fin Admin take care of the other expenses. Recovery: Recovery Dept. prepares an overdue report and informs the TM. Recovery dept. keeps track of the money. Legal notices are given to the defaulters. MIS: MIS dept. keeps the total record of loan from its sanction to repayment.
29
CHAPTER 4
Investment management policies and procedures followed by FSIBL.
30
4.1. Strategy statement To manage and operate the Bank in the most efficient manner to enhance financial performance and to control cost of fund. To strive for customer satisfaction through quality control and delivery of timely services. To identify customers' credit and other banking needs and monitor their perception towards our performance in meeting those requirements.
4.2.Deposit Mobilization and Fund Utilization The major part of the operational financial resources of Islamic banks is derived from different types of deposits mobilized on the principles of Al-Wadia (safe custodianship) and Al-Mudaraba (trust financing). Utilization of fund under the framework of Islamic banking has opened a multifarious way for making loan (the term loan in conventional banking is called "Investment" in the Islamic banking system) conforming to Islamic Shariah. Since Islamic banks can not lend on interest, they have devised different types of interest-free financing devices. A short description of the modes of financing used by the Islamic banks in mobilization and utilization of funds
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Group of Banks
Deposit
Man power
Man power
3
184547.2 587575.2 31.4
4
7742.4 8220
5
308 1573 19.6 6336 4.9
Notes: 1/ Figures in the parentheses indicate share of percentage of the Islamic banking sector to the all private banks. 2/ Figures in the parentheses indicate share of percentage of the Islamic banking sector to all banks. The distribution of investment by mode as presented in Table 2, shows that Islamic banks' investment is mainly concentrated in the mark-up and rental-based modes of financing, which occupied 74.6% of total investments (Bai-Murabaha, Bai-Muajjal and Ijarah). Investments under the PLS modes accounted for only 1.38% (both in Mudaraba and Musharaka). This demonstrates a complete bias towards mark-up based financing followed by the Islamic banks in Bangladesh.
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Total
100.00
An analysis of the deposits and investments distributed by the size of accounts of the Islamic banks also depicts a bias towards the big projects or clients. The distributive efficiency of the Islamic banks has been impaired due to the concentration of assets in the hands of a few investment clients.
4.5. Remarks and Policy Options Islamic banking system of Bangladesh, as a new paradigm of banking, has been able to establish its own presence with a continued expansion geared by increasing acceptance by the people. To continue this dynamic expansion, the first action that deserves immediate attention is the promotion of the image of Islamic banks as PLS banks. Strategies have to be carefully devised so that the image of 33
Islamic character and solvency as a bank is simultaneously promoted. The following policy actions are suggested for immediate application: a) Pilot schemes in some selected areas should be started to test innovative ideas with profit-loss-sharing modes of financing as major component. This type of scheme may be experimented both in urban and rural areas. This endeavor will serve as a ready reference that Islamic banks are in the process of transforming themselves as PLS banks. Side by side, they will gain experience from real situation as to the problems that might come up while implementing profitloss-sharing modes on trial and error basis. (b) Islamic banks should clearly demonstrate by their actions that their banking practices are not guided merely by profitability criterion. They must also establish that their practices ensure efficient allocation of resources and provide true market signals through PLS modes. (c) Islamic banks should continuously monitor and disseminate through various means the impact of their operations on the distribution of income primarily between the bank and the other two parties: the depositors and the entrepreneurs, and then on different income groups of the society. These presuppose the establishment of a fully equipped research academy in each Islamic bank. (d) As the Islamic banks have to promote their distributional efficiency from all dimensions together with profitability, Islamic banks, step by step, have to be converted into profit-loss-sharing banks by increasing their percentage share of investment financing though PLS modes. The Islamic banks, to do that, can be selective in choosing clients for financing under PLS modes. Islamic banks should immediately take measures to revert the trends of resource transfer from both low-income groups to high-income groups and from rural to urban areas. This is extremely important from the viewpoint of their banking philosophy as well as for their tacit commitment for distributional equity. The Islamic banks should also actively consider utilization of rural potentials from both efficiency
34
and equity grounds in the context of the present day socio-economic conditions of Bangladesh. (e) The Islamic banks can improve their allocate efficiency by satisfying social welfare conditions in the following manner. First, they should allocate a reasonable portion of their investible funds to social priority sectors such as agriculture (including poultry and fishery), MSME (micro, small and medium enterprises) sector, and export-led industries like garments, shrimp cultivation etc. Secondly, when the percentage shares of allocation of investible funds are determined among the sectors of investment financing, profitability of projects should be the criterion for allocating investment funds. The criterion would be best satisfied if more and more projects were financed under PLS modes. (f) It is assumed that in the face of competition with interest-based institutions, a critical initial mass of the hybrid type is necessary not only for the survival but also ensuring efficiency of the PLS in a heterogeneous environment. The recent financial innovations may be tried to suit the need of the integrated global Islamic financial markets. (g) Islamic ethics supports a poverty-alleviation strategy that is based on the principle of promoting economic growth with productive equity. Islamic banks should act as 'Banks for Enriching the Poor' (or as Rural Poor Bank and Urban Poor Bank), because the current collateral-based system for efficiently financing business/projects kicks the poor out of participation in economic activities. Banning interest should have the illuminating effect of allowing greater access by population to finance, and hence lead to a better income distribution, the ultimate objective of the glorious Shariah. (h) Determination of profit and loss in profit-loss sharing arrangements and treatment of costs and reserves in such accounting is a pertinent issue to be addressed with utmost importance and priority. It may be mentioned that if the Islamic financial system is to 35
development of a secondary financial market for Islamic financial products is crucial if the industry is to achieve true comparison with the conventional system. It must also work hard to develop more transparency in financial reporting and accounting. Development in the wholesale and especially inter-bank money markets will be the key to Islamic finance growing outside its current little sphere of influence, and becoming a truly robust and dynamic banking system alongside the traditional system.
4.6.Assets Portfolio The Banks total assets as on December 31, 2010 amounted to Tk. 63619.79 million as compared to Tk. 47978.55 million in 2009.
36
4.7. Paid-up Capital The paid- up- capital of the First security islami bank ltd. was TK. 2300.00 million at end of the year 2009, and TK.3036.00 million capital at end of the year 2010.
37
Analysis: From the survey, I found that out of 100 percent 36 percent of the total sample size said that the overall quality of FSIBL is excellent, 34 percent good and 30 percent moderate.
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CHAPTER 5
Source of finance investment management of FSIBL.
40
CHAPTER 5:
Source of finance investment management of FSIBL
5.1. Securitization of Assets A powerful and effective means of generating funds for a certain category of institutions, Securitization of Assets is still in its infancy in The need however for such a service is great and there is a lot of support from multilateral financial institutions, such as the World Bank and the Asian Development Bank, for such activities to be developed further in this country. FSIB intends to take up this challenge and play a significant role in ensuring that Securitization of Assets becomes a normal part of the range of financial instruments available for organizations who can count on a steady, but piecemeal, flow of revenue and want to translate this stream into cash resources with which to carry out further lending activities to new customers. Some practical issues still need to be settled such as those concerning pricing, or the legal framework, but it is expected that, as FSIB and other institutions pursue more such securitization activities these will be resolved.
5.2.Finance & Advisory Services Given the needs of its large and varied base of corporate clients FSIB will be positioning itself to provide investment banking advisory services. These could cover a whole spectrum of activities such as Guidance on means of raising finance from the local Stock markets, Mergers and Acquisitions, Valuations, Reconstructions of Distressed companies and other expert knowledge based advice. By this means
41
possible implementation of solutions to complex financing problems that may arise from time to time.
5.3.Syndication of Fund There has been a surge in the number of syndication deals closed in the last few years. 2004 was an exceptionally good year for syndicated deals for the local commercial banks also for the foreign banks. The total number of syndications in 2004 exceeded 10 totalling over Tk. 10 billion. This rise in the number of syndications can be primarily attributed to the prudential lending guidelines of the Bangladesh Bank. A commercial bank may provide funded facilities up to a maximum of 25% of its equity. Due to this reason, projects with sizeable costs need to approach more than one bank for their debt requirements and therefore the demand for syndications exist. Credit risk diversification has led many international companies to introduce credit derivatives that are actively being traded. Securitization of assets is one such credit risk derivative that allows financial institutions to diversify their portfolios. At FSIBL, the Syndications and Structured Finance unit was setup on October 30, 2004. This unit successfully closed two syndicated deals in the first and second quarters of 2004. The Syndications and Structured Finance team as a business unit soon followed up by closing another deal totalling Tk 2.10 billion for a large local corporate. The year (2004) being the first full year of operation for the team ended on a high note as we were able to close three syndicated deals as the Lead Bank, two deals as the Co-Arranger and several other deals as a participant.
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5.5.Export Financing Export finance can be allowed in two types or stages, namelyPre-shipment; Packing credit Back to Back L/C. Post- shipment. Through negotiation of documents; Through purchase of foreign bill
PACKING CREDIT:
Packing credit is a short-term credit granted by a bank to exporter to help him to purchase, process, pack and ship the goods. Generally, for the movement of goods from hinterland areas to the port of shipment, the bank provided interim facilities by way of packing credit.
44
CHAPTER 6
Different types of products under Corporate and Consumer loan.
45
6.1. Definition of Loan Credit is defined as confidence in a borrowers ability and intention to repay. People use the credit they have with financial institution, business, and individuals to obtain loans. And they use the loans to buy goods and services. The credit a person has typically determines how much they will be permitted to borrow, for what purpose, for how long, and at what interest rates. Credit is general sense means an act of allowing person or persons immediate use of money with payment deferred until an agreed future date.
6.2.Rules for Application Interested clients shall apply to any branch of the bank as per following procedures: 1. Application In Banks prescribed form duly filled in all accounts. 2. Two passport size photographs duly attested. 3. A certificate of net monthly income from the employer (in case of Service holders). 4. Suppliers should be authorized by the Bank.
6.3.Documentation of Loan The customer will execute the following documents: D.P. Note Letter of Undertaking Letter of Instalments 46
Continuous Loan: The loan Accounts in which transaction may be made within certain limit and have an expiry date for full adjustment 47
6.6. Credit Mix FSIBL offers following types of Credit (loans and advances) as a whole as well as 48
6.7. Cash Credit (Hypo) Cash Credit or continuing credits are those that form continuous debits and credits up to a limit and have and expiration date. A service charge that is effect an interest charge is normally made as a percentage of the value of purchases. These credits may be of the nature of pledged and /or hypothecated and banks should report these in separate heads incorporated under the main head cash credit. A detailed explanation of hypothecation is given below. Under this arrangement a credit is sanctioned against hypothecation of the raw materials or finished goods. The letter of hypothecation creates a charge against the goods in favour of the Bank but neither the ownership nor its possession is passed on to it; only a right or interest in the goods is created in favour of the Bank and the borrower binds himself to give possession of the goods to the bank when called upon to do so. When the possession is handed over, the charge is converted into pledge. This type of facility is generally given to the reputed borrowers of undoubted integrity.
6.8. Term Loan A term loan is a contract under which a borrower agrees to make a series of interest and principal payments on specific dates to the 49
50
CHAPTER 7
Sector-wise investment scheme by FSIBL.
51
7.1.Term Loan The following are FSIBL, Bohadderhat Branch provides Term Loan in the last five years:
52
The above graph shows that, the performance of Term Loan is better from other investment in 2010. There is a highest value is 223.07 million TK, and lower value is 215.05 million TK, in 2009. 7.2.Secured Overdraft The following are FSIBL, Bahadderhat Branch provides Secured Overdraft in the last five years:
The above graph shows that, the performance of Secured Overdraft is better from other investment in 2010. There is a highest value is 98.27 million TK, and lower value is 75.37 million TK, in 2009. 53
7.3.Transport Loans The following are FSIBL, Bahadderhat Branch provides Transport Loans in the last five years:
The above graph shows that, the performance of Transport Loans is better from other investment in 2010. There is a highest value is 87.36 million TK, and lower value is 65.21 million TK, in 2009.
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The above graph shows that, the performance of Cash Credit is better from other investment in 2006. There is a highest value is 115.36 million TK, and lower value is 46.22 million TK, in 2009. 7.5.House Building Loan The following are FSIBL, Bhadderhat Branch provides House Building Loan in the last fit.
55
The above graph shows that, the performance of House Building Loan is better from other investment in 2010. There is a highest value is 123.57 million TK, and lower value is 19.02 million TK in 2006. Total Loan Disbursement of FSIBL, Bahadderhat Branch
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The above graph shows that, the performance of Bahadderhat Branch loans is better from other investment in 2009. There is a highest value is 823.25 million TK, and lower value is 576.40 million TK, in 2007. 7.6. Findings 1. As we observed the chart of total loan disbursement of FISBL it is found that the disbursement of the bank continuously increasing. It signifies that the Bank tries to extend credit facilities to the various sector of the economy. 2. From the study of Term loan by chart it is found that the payment of term load of the branch are not stable at all as it goes upward and downward time to time. In 2006 it goes upward by 4.64% in comparison to 2005 where in 2007 and 2008 it goes downward by 12.15% and .77% in comparison of previous year. But in 2009 it goes 18.83and in 2010its downward. 3. The graph of Secured Overdraft from 2005 to 2009 shows the performance was lowest in 2007 which was 23.22 million and in 2010 the performance was in highest level which was 98.27 million.
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4. As the Transport loan is observed from the chart from 2005 to 2009 it is found that the performance was highest in 2010 which was 87.36 million and the performance was lowest in 2007 which was 47.12 million. 5. From the study of cash credit form the chat from 2005 to 2009 it is found that the performance of FISBL is instable in this case. The performance of cash credit was highest in 2006 which was 115.36 million which is upward by 5.48% in comparison of previous year. But in 2009 the performance of cash credit was lowest which was 46.22 million which was downward by 56.11% in comparison of previous year. 6. The graph of House Building of 2005 to 2010 shows that the performance of FISBL is gradually increasing. It shows that the performance of house building loan is batter from other investment in 2009. 7. The graph of Loan disbursement from 2005 to 2010 shows that the performance is batter from other investment in 2010 which was 823.25 million and lower value is 576.40 million in 2007.
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CHAPTER 8
Recovery position of investment skim of FSIBL.
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CHAPTER 8
8.1.Management Committee (M.C.) There is no major change in Management Committee during the period under surveillance. The Management Committee of FSIBL is headed by Janab Mohammad Abdul Mannan, Managing Director of the bank. Janab Mannan has been serving in the banking sector for around two and half decades. In Management Committee, Janab Mannan is aided by six Deputy Managing Directors along with five Executive Vice Presidents who lead different wings/divisions/departments. The day-to-day banking functions are handled by these professionals having modern banking knowledge and experience. The above management team provides wide succession plan and has the acumen to carry out the objectives of the bank smoothly. During the 2011 the M.C. held 66 meetings against 58 meetings in the previous year.
8.2.Operational Network FSIBL is currently operating with the highest operating network among the private commercial banks (PCBs). The bank has been operating with 86 branches (including 30 SME/Agriculture branches) with the inclusion of 15 new branches during 2011. In order to facilitate and control the administrative function of the branches, FSIBL has set up 12 zones including one new zone (Mymensingh) throughout the country. Among 86 branches, 9 branches are in Dhaka Central Zone, 24 branches (excluding 2 SME/Agriculture branches) in Dhaka South Zone, 22 branches (excluding 2 SME/Agriculture branches) in Dhaka North Zone, 15 branches (excluding 2 SME/Agriculture branches) in Chittagong North Zone, 16 branches (excluding 2 SME/Agriculture branches) in Chittagong South Zone, 24 branches (excluding 4 SME/Agriculture branches) in Bogra Zone, 60
23 branches (excluding 3 SME/Agriculture branches) in Khulna Zone, 29 branches (excluding 4 SME/Agriculture branches) in Comilla Zone, 20 branches (excluding 3 SME/Agriculture branches) in Sylhet Zone, 17 branches (excluding 3 SME/Agriculture branches) in Barishal Zone, 18 branches (excluding 3 SME/Agriculture branches) in Rajshahi Zone and 19 branches (excluding 2 SME/Agriculture branches) in Mymensingh Zone. This large branch network of FSIBL is supported by 100 own ATM and 1035 shared ATM along with 30 SME/Agriculture branches and Internet Banking. 8.3.Recovery Rate The recovery perspective in Bangladesh has always been poor and ineffective that sometimes made the Banking sector insolvent. However, the recovery rate of NCBs, PCBs and ICBs are given below:
Table 1: Recovery Rate of NCBs, PCBs and ICBs
the comparison of NCBs and PCBs show that in order to strengthen the economic conditions of the economy, the NCBs must be improved in terms of its NPL, ROA, ROE, NII and other monitoring, assessment and performance evaluation metrics. The Islamic Banks have been found to be investing generally in the projects with quick returns resulting higher recovery rate of commercial loans provided by the banks. This leads the banks not to take up the projects with long gestation period, i.e., insignificant investment under Mudaraba and Musharaka mode of financing. The short term financing under Murabaha and Bai Muajjal assures the required rate of return, as the 61
8.4.Sectoral and Credit Concentration (Stand alone basis) The bank is continuing its operation with concentration to trade finance and textile sector. The sectoral portfolio reveals that 32.52% investment was in trade finance, followed by 20.82% in textile, 5.24% in iron & steel engineering, 5.04% in housing, 3.50% in RMG, 2.00% in agricultural sector and rest are segregated to other general investment. While reviewing sectoral NPI in 2011, it was revealed 62
8.7.Risk Management Unit During the 3 quarter of the year 2009 the Management of the Bank has set up a Separate Risk Management Unit (RMU) in line with Bangladeshi Bank directives. The RMU functions under direct supervision of the Managing Director, who is assigned by the Deputy Managing Director ( Risk Management). The Risk Management Unit supervises and monitors independently and consistently the management of following Main Risks: 1. Credit Risk 2. Asset- Liability Risk 3. Foreign Exchange Risk 4. Internal Control & Compliance 5. Anti Money Laundering 6. Information and Communication Technology 7. Balance Sheet Risk 64
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advisory services. These could cover a whole spectrum of activities such as Guidance on means of raising finance from the local Stock markets, Mergers and Acquisitions, Valuations, Reconstructions of Distressed companies and other expert knowledge based advice. By this means FSIBL hopes to play the role of strategic counsellor to blue-chip Bangladesh companies and then move from the level of advice to possible implementation of solutions to complex financing problems that may arise from time to time.
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8.9.Loan Recovery Unit The RU should directly mange accounts with sustained deterioration. All time bank monitoring the loan client with a very special care. If any client fails to adjust his loan amount, bank has to take some step against client to recover the loan. The RUs Functions are: At first, Bank can send 3 times reminder to the client. (1st reminder, 2nd reminder,3rd reminder). Make call to the customer or verbally say the entire problem about loan adjustment and request to clean up all the deals. If client fail to pay the money the guarantor is responsible to pay in terms of complain. After than if client fail to adjust his loan amount then bank sent . Notice to the client. At last bank can sue the client in court and bank has to submit entire loan document.
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CHAPTER 9
Infact of investment management on the profitability of FSIBL.
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Although there are a number of other competitors, this serves as a basic competitors for FSIBL. For Bahadderhat Branch, it seemed the competitors are the surrounding banks. I have done a questionnaire method and face-to face interview lush secondary information to collect the following data.
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Analysis: From the survey, I found that out of 100 percent 36 percent of the total sample size said that the overall quality of DBL is excellent, 34 percent good and 30 percent moderate.
Analysis: Here I find that among 50 (100%) clients 20 (40%) are very much satisfied with the loan department of FSIBL where as only 1 (2%) is very dissatisfied with the performances. But average percent is good. Here we can see that 2 clients are dissatisfied and 1 is very dissatisfied. The reason that he was dissatisfied was because he wanted more time to pay his instalments. But FSIBL did not allow this.
How would you rate the quality of The Credit Department service of Bank Limited?
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Analysis: From the survey, I found that out of 100 percent 38 percent of the total sample size said that the overall quality of lending service of FSIBL is excellent, 22 percent 94 satisfactory and 24 percent moderate and only 16 percent is not dissatisfactory. It means the overall opinion of clients is positive about the quality of customer care service of FSIBL.
Analysis: Here in the graph we can see BRAC Bank have maximum ATM booths around 120, next we have DBBL who have total of 65 ATM booths. EBL and SCB have almost equal number of ATM booths. Mercantile Bank, AB Bank and FSIBL have least ATM booth in different division in Bangladesh. Surprisingly MTB and UCBL dont have any ATM booth, in order to meet up with customer requirements they have co branding with FSIBL for providing ATM service. 70
Earning Assets to Total Assets Ratio: This consists of earning assets (interest-bearing investments, loans and advances) divided by total assets. It will reveal the extent to which bank's assets are put into productive use. Investment in equipment and buildings may not directly generate income but they are important for the bank's operations. For the FSIBL, the ratio is computed as:
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Loans to Deposit Ratio This ratio is a measure of bank liquidity; the higher the ratio, the lower the liquidity. For the FSIBL, the ratio is calculated as:
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There is no standard way to measure a bank's liquidity. Those without access to internal data will have to use a number of ratios. Larger banks will have greater flexibility in liquidity planning because they can practise liability management nation-wide. Because of this ability, their liquidity planning horizon is much shorter than it is for smaller banks. 9.3.EARNINGS PERFORMANCE Return on Assets Return on assets, often described as the primary ratio, relates the income earned by the bank to the resources employed by it. Normally return' is taken as profit before extraordinary items, since these items fall outside the scope of the bank's normal operations. This does not mean that extraordinary items should be ignored by the analyst, but that their significance should be assessed as a separate exercise from the analysis of the bank's performance.
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The ratio of profit before tax to average total assets essentially is an indication of management ability to generate income and its ability to control expenses. The variations in this ratio could be due to a number of factors including a portfolio shift to higher or lower yielding assets, an increase or decrease in the level of interest rates, or an increase or decrease in fees and other income not related to the employment of assets. Return on Equity This ratio relates profit earned after tax by the bank to resources contributed by its owners, i.e. ordinary share capital plus reserves.
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CHAPTER 10
Problems of investment management and their probable solution.
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10.1.Documents deficiency and problem resolving: If there is any error found then it informed to the respective CRO. If the application form is not filled properly then the file is sent to the CRO to fill the application properly. If any document error is found then the loan administration division asks the CRO to send the required documents and the file stored to the loan administration division. 10.2.Problems and Challenges of FSIBL Problems Related to Macro Operation of the Islamic Banks 1 Liquidity and Capital 2 Valuation of bank Assets 3 Financial Stability 4 The Ownership of Banks 5 Increased Cost of Information 6 Control over Cost of Funds. 7 Mark-up Financing and Corrupted Mark-up 8 Excess Resort to the Murabaha Mode of Financing 9 Utilization of Interest Rate of fixing the Profit Margin in Bay Modes. 10 Financing Social Concerns. 11 Lack of Positive Response to the Requirement of government Financing. 12 Failure of Islamic Banks to Finance High Return Projects. 13 Sacrifice of allocate Efficiency 14 Loss of Distributive Efficiency. 15 Depression of Profit. 16 Lack of Full-fledged Shariah Audit. 17 Fraud-Forgery or corruption in Islamic Banks. 18 Minimum Budget for Research and Development. 19 Working Environment. 84
Strong employee bonding and belongings FSIBL employees are one of the major assets of the company. The employees of FSIBL have a strong sense of commitment towards organization and also feel proud and a sense of belonging towards FSIBL. The strong organizational culture of FSIBL is the main reason behind its strength. Efficient Performance It has been seen from customers opinion that FSIBL provides hasslefree customer services to its client comparing to other financial institutions of Bangladesh. Personalized approach to the needs of customers is its motto.
Young enthusiastic workforce The selection & recruitment of FSIBL emphasizes on having the skilled graduates & postgraduates who have little or no previous work experience. The logic behind is that FSIBL wants to avoid the 86
Hospitable Working Environment All office walls in FSIBL are only shoulder high partitions & there is no executive dining room. Any of the executives is likely to plop down at a table in its cafeteria & join in a lunch, chat with whoever is there.
Strong Financial Position It has been seen that the net profit has been gradually rising over the years. Furthermore, FSIBL is not just sitting on its previous years success, but also taking initiatives to improve. Weaknesses: High charges of L/C Presently FSIBL charges same rates for all types of import L/C. But for import L/C of exports-oriented industry, FSIBL should reduce the charge of L/C. As a result, exporter will be benefited and the country will earn more foreign exchange. The commission often even rises up to 30%.
Absence of strong marketing activities FSIBL currently don't have any strong marketing activities through mass media e.g. Television. TV ads play vital role in awareness 87
building. FSIBL has no such TV ad campaign. Although they do a lot of CSR activities compared to other banks. Not enough innovative products In order to be more competitive in the market, DBL should come up with more new attractive and innovative products. This is one of the weaknesses that DBL is currently passing through but plans to get rid of by 2010. Diversification FSIBL can pursue a diversification strategy in expanding its current line of business. The management can consider options of starting merchant banking or diversify it to leasing and insurance. As FSIBL is one of the leading providers of all financial services, in Bangladesh it can also offer these services. Lack of Proper Motivation The salary at FSIBL is very decent, but it lacks other sorts of motivation. Incentives such as bonuses are given for acquiring a particular figure, but all in all these are the only motivational factors. High Cost for maintaining account The account maintenance cost for FSIBL is comparatively high. Other banks very often highlight this. In the long run, this might turn out to be a negative issue for FSIBL.
Opportunities: Distinct operating procedures Repayment capacity as assessed by FSIBL of individual client helps to decide how much one can borrow. As the whole lending process is based on a client's repayment capacity, the recovery rate of FSIBL is 88
El Dorado Program It is software which enables customers to deposit and withdraw money from any bank with the cheque or deposit of any other bank. Although a select few has implemented this program, this poses as an opportunity for FSIBL as the number of transactions would drastically increase. Bigger Market Although the GDP per head decreased a bit in 2009 from 2008, there is a huge untapped market that requires loans and intends to deposit also.
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CHAPTER 11
Recommendation of FSIBL Conclusion
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Reports: First Security Islami Bank Limited, Annual Report 2008-2009. First Security Islami Bank Limited, Annual Report 2010-2011.
Internet: http://www.fsiblbd.com
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