Professional Documents
Culture Documents
Page No:
11-19
10
In the later 19th century, Finance was a part of the Economics. But due to the globalization and more expansion of international trade, Finance plays the major role for the economic development. The development of a modern economy would not have been possible without the use of money. Bank is an important and essential financial institution for the necessity of the use of money and the protection of the money. Bangladesh is now integral part of global market. As such there is an urgent requirement for Bangladesh to place the traditional banking pretties in harness with the global trades of a free market economy by following international banking customs, practices and standards. Today clients of a bank in Bangladesh are exposed as well as international markets. They have to stay update with their practice and standards to meet the demands of achieving harmony in the high standards of a free economy.
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Islami Banking:
From 1st of July of 2004 the bank became Shariah Based Islamic Bank and from then it is conventional banking services according to Islamic banking principles. For smooth operations, the Board of Directors established a Shariah Board, which decides on the banking principles according to which the bank will operate its business.
Mission:
Every financial institution want earn at least a reasonable profit for its long-term survival and also want to obtain a sustainable position in the Banking sector in the country. In keeping this in mind, the bank has checked out the following corporate objectives in order to ensure smooth achievement of its goals To be the most caring and customer friendly and service oriented bank. To create a technology base most efficient banking environment for its customers. To ensure ethics and transparency in ail levels. To ensure sustainable growth and establish full value of the honorable shareholders. Above all, to add effective contribution to the national economy. Eventually the bank also emphasize on: Provide high quality financial services in export and import trade. Providing efficient customer service. Maintaining corporate and business ethics. Being trusted repository of customers money and their financial adviser. Making its products superior and rewarding to the customers. Display team spirit and professionalism. Sound Capital Base. Enhancement of shareholders wealth. Fulfilling its social commitments by expanding its charitable and humanitarian activities. 12
Vision:
The gist of our vision is Together Towards Tomorrow. Export Import Bank of Bangladesh Limited believes in togetherness with its customers, in its march on the road to growth and progress with service. To achieve the desired goal, there will be pursuit of excellence at all stages with climate of continuous improvement, because, in Exim Bank, we believe, the line of excellence is never ending. Banks strategic plans and networking will strengthen is competitive edge over others in rapidly changing competitive environment. Its personalized quality services to the customers with trend of constant improvement will be the cornerstone to achieve our operational success.
The objectives and the goals of EXIM Bank Limited are the following: Their main objective isnt maximizing profit, maximize wealth. EXIM Bank Limited is always ready to maintain the highest quality of services by banking technology prudence in management and by applying high standard of business ethics through its established commitment and heritage. EXIM Bank Limited is committed to ensure its contribution to national economy by increasing its profitability through professional and disciplined growth strategy for its customer and by creating corporate culture in international banking area. To establish welfare oriented Banking systems.
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Branch Network :
Since the growth and profits of banking business largely depend upon the locations of branches where large concentration of other businesses and industries are involved, But EXIM Bank are not so much strength-full on location-based strategy. They have only 62 branches, which are divided, into seven different regions. They have only 11 ATM booths in overall Bangladesh, which are relatively a poor situation to comparison with other Conventional & Islamic bank. So for what their clients need to use their EXIM Bank card on other bank booths e.g. DBBL, BRAC bank; for what clients are charged by 10 to 30 tk. on each transaction. Regions Dhaka Chittagong Sylhet Rajshahi Khulna Barishal Rangpur No of Branches 30 16 8 2 3 1 2 ATM Location 10 1 -
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Overall Performance :
(Amount in Million Tk.) 2009 2010 10000.00 3373.96 2092.97 73835.46 68609.91 2189.54 10000.00 6832.27 3154.76 94949.40 93296.65 6012.86
SL 1 2 3 4 5 6
Particulars Authorized Capital Paid-up Capital Statutory Reserve Deposits Investment (General) Investment ( Shares on Bonds)
2008
96.75%
93.14%
92.92%
98.26%
92.42%
117900.14 156434.57
162604.61
227966.60
254407.47
256
278
333
354
336
10
930.84
1096.63
1694.1
3476.01
2009.37
11
2.00% 32 (7C,25B)
1.83% 26 (0C,26B) 42
2.19% 35 (0C,35B) 52
3.54% 35 (0C,35B) 59
1.65% 14 (0C,14B) 62
12
Dividend
13
Number of Branches
35
16
Deposit Scheme Al-Wadia Current Deposit Mudaraba Savings Deposit (MSD) Mudaraba Special Notice Deposit (MSND) Mudaraba Term Deposit Receipt Mudaraba Cash Wakf Deposit Mudaraba Monthly Savings Scheme Mudaraba Monthly Income Scheme Mudaraba Super Savings Scheme (06 Years) Mudaraba Multiplus Savings Scheme (10 Years) Mudaraba Hajj Scheme Mudaraba Education Savings Scheme Mudaraba Marriage Savings Scheme
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Foreign Exchange Import Letter of Credit Murabaha Import Bills (MIB) Murabaha Trust Receipt (MTR) Murabaha Post Import: (MPI) Izara Bill Baia Export Pre Shipment Finance Back to Back L/C Export Cash Credit Packing Credit Post Shipment Credit Negotiation of Documents under L/C Purchase of DP & DA Bills Advance against bills for Collection Foreign Currency Account Non-resident Foreign Currency Deposit Account Resident Foreign Currency Deposit Account
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Investment Corporate Finance Industrial Finance Project Finance Syndicate Investment Mode of Investment Murabaha Bai Muazzal Izara Bill Baia Wazirat Bill Wakala Quard Local Documentary Bill Purchased Foreign Documentary Bill Purchased Other Services: SME Banking EXIM Uddyog EXIM Abalamban Agri Banking (EXIM Krishan) Visa Islamic Card SMS Banking Locker Services
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Chapter-02
Introduction of the Study
Page No:
21-23
20
21
22
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Chapter-03
Review of Related Literature
Page No:
25-27
24
Concept of Interest in Islam: Islamic banking refers to a system of banking or banking activity that is consistent with Islamic law Shariah principles and guided by Islamic economics. Islamic financing is based upon the principle that the use of Riba (interest) is prohibited. This prohibition is based upon Shariah ruling. Since Muslims cannot receive or pay interest, they are unable to conduct business with conventional banks. To service this niche market, Islamic financial institutions have developed a range of halal interest-free financing instruments that conform to Shariah ruling, and therefore are acceptable to their clients
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Investment from Islamic bank perspectives: According to conventional bank, a bank loan is an amount of money loaned at interest by a bank to a borrower, usually on collateral security, for a certain period of time. But in Islam, Islam forbids simply lending out money at interest, so for what Islamic rules on transactions have been created to avoid this problem which are known as Fiqh al-Muamalat. The main term is to avoid the prohibition by sharing of profit and loss, via terms such as profit sharing (Mudharabah), safekeeping (Wadiah), joint venture (Musharakah), cost plus (Murabahah), and leasing (Ijar). Islamic banks adopt several modes of acquiring assets or financing projects. In the main, they can all be broadly categorized into four: 1. Investment financing, a. Musharaka b. Mudarabha 2. Trade financing, a. Mark-up Trade Financing b. Leasing c. Hire Purchase d. Sell-and-buy-back e. Letters of Credit 3. Lending a. Loans with a Service Charge b. No-cost Loans c. Overdrafts 4. Other financial services: a. money transfers, bill collections, and trade in foreign currencies at spot rate In Islamic Investment financing, instead of loaning the buyer money to purchase the item, a bank might buy the item itself from the seller, and re-sell it to the buyer at a profit, while allowing the buyer to pay the bank in installments. However, the bank's 26
profit cannot be made explicit and therefore there are no additional penalties for late payment. In order to protect itself against default, the bank asks for strict collateral. The goods or land is registered to the name of the buyer from the start of the transaction. This arrangement is called Murabahah. In Islam, there is a clear difference between lending and investing ;lending can be done only on the basis of zero interest and capital guarantee, and investing only on the basis of mudaraba (profit-and-loss-sharing).Conventional banking does not and need not make this differentiation. But an Islamic bank has to take this into consideration in devising a system to cater to the Muslims. Therefore such a system has to provide for two sub-systems one to cater to those who would lend and another for those who wish to invest. Low Consumer Lending of Islamic Bank: Since Islamic banks do not charge interest rates, consumer loans are therefore unattractive since there is no profit to be derived in the form of interests on the loans. Hence, Islamic banks deliberately avoid consumer lending. Islamic researchers (e.g.Siddiqi, 1983) have tried to excuse the Islamic banks. While recognizing the need for such interest-free loans / benevolent loans qard hasan, especially for meeting basic needs, they seem to think it is the duty of the community and the State through its treasury baitul mal to cater for these basic needs. Downplaying the role of Islamic banks in providing consumer loans, they suggest that Islamic banks give limited overdraft facilities without interest instead. They also consider a portion of bank loanable funds being set aside for consumer loans, provided repayment will be guaranteed by the State. This, they reckon, will minimize the risks involved in consumer lending. Profit-sharing ratios and the modes of payment vary from place to place, from bank to bank and from time to time, depending on supply and demand conditions. Profits are provisionally declared on a monthly basis in Malaysia, on a quarterly basis in Egypt, on a half-yearly basis in Bangladesh and Pakistan, and on an annual basis in Sudan.
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Chapter-04
Overview of Investment Program of EXIM Bank of Bangladesh Ltd.
Page No:
29-36
28
29
Principal of Investment:
According to the Qureshi (1997) a prudent banker should more concern to the following general principal: Background, character and ability of the borrowers, Purpose of the facility, Term of facility, Safety, Security, Profitability, Source of repayment, Diversity.
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The other objectives and principles of investment operations of the Banks are: Maintain the investment fund strictly in accordance with the principles of Islamic Shariah. To diversifies its portfolio by size of investment, by sectors (public and private), by economic purpose, by securities and by geographical area including industrial, commercial and agricultural. To ensure mutual benefit both for the Bank and the investment client by professional appraisal of investment proposals, judicious sanction of investment, close and constant supervision and monitoring therefore. To make investment keeping the socio-economic requirement of the country in view. To increase the number of potential investors by making participatory and productive investment. To finance various developments schemes for poverty alleviation, income and employment generation with a view to accelerating sustainable socio-economic growth and up-liftmen of the society. To invest in the form of goods and commodities rather than give out cash money to the investment clients.
Term Investment:
On term investment, payment will be happened in several terms, it may be short term, medium term or long term.
Continuing loans:
These are investment having no fixed repayment schedule, but have an expiry date at which it is renewable on satisfactory performance. 1. Izara Bill Baia: These are the investment made by the Bank with fixed repayment schedules. The terms of investment are: Short term Medium term Long term Short term, : Up to 12 months : More than 12 and up to 36 months : More than 36 months Medium term &long term investment allowed to
individual/firm/industries for a specific purpose but for a definite period and generally repayable by installments fall under this head. This type of investment is mainly allowed to accommodate financing under the categories: (i) Large & Medium Scale Industry This category of investment accommodates the medium and long term financing for capital structure formation of new industries or for expansion of the existing units who are engaged in manufacturing goods and services. Investment Facility available under this category is:
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a. Izara (Lease Finance): It is one of the most convenient sources of acquiring capital machinery and equipment whereby a client is given the opportunity to have an exclusive right to use an asset usually for an agreed period of time against payment of rent. It is a term financing repayable by installment. (ii) Small & Cottage industry: These are the medium and long term investment allowed to small & cottage manufacturing industries. 2. Bai-Muazzal: Continuous Investment have no fixed repayment schedule, but have an expiry date at which it is renewable on satisfactory performance. It allowed to individual/firm for trading as well as wholesale purpose or to industries to meet up the working capital requirements against hypothecation of goods as primary security fall under this type of lending. It is allowed under the categories (i) "Commercial Lending" when the customer is other than an industry and (ii) "Working Capital" when the customer is an industry Investment allowed to the manufacturing units to meet their working capital requirements, irrespective of their size-big, medium or small, fall under the category. 3. Murabaha: Financial accommodations to individual/firm for trading as well as for wholesale or to industries as working capital against pledge of goods as primary security fall under this head of investment. It is also a continuous investment.
4. Agriculture: The Bank has committed itself to the governments initiative to provide agricultural investment directly to the farmers for agricultural development of the country. Investment facilities to the agricultural sector fall under this category. It is subdivided into two major heads:
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a) Investment to primary producers: Financing under these categories refers to the investment facilities allowed to production units engaged in farming, fishing, forestry or livestock. b) Investment to dealers/distributors: It refers to the financing allowed to input dealers and (or) distributors in the agricultural sectors. 5. Investment on Export: Investment facilities allowed to facilitate export of all items against Letter of Credit and/or confirmed export orders fall under this category. Investment Facilities available under this category are: a) Musharaka Pre-shipment (Export Cash Credit): Financial accommodation allowed to a customer for exports of goods fall under this head and is categorized as "Investment on Export". The loans are liquidated out of export proceeds with 180 days. b) Musharaka Pre-shipment (Packing Credit): Investment allowed to a customer against specific L/C contract for processing/packing of goods to be exported falls under this head and is categorized as "Musharaka Pre-shipment". The investments are adjusted from proceeds of the relevant exports within 180 days. c) Foreign Documentary Bill Purchase (F.D.B.P): Payment made to a customer through purchase/negotiation of a foreign documentary bills falls under this head. This temporary investment is adjustable from the proceeds of the shipping/export documents. d) Local Documentary Bill Purchase (LDBP): Payment made against documents representing sell of goods to Local export oriented industries that are deemed as exports and which are denominated in Local Currency/Foreign Currency falls under this head. This temporary liability is adjustable from proceeds of the Bill. e) Foreign Bill Purchase (FBP): Payment made to a customer through purchase of foreign currency cheque/drafts fall under this head. This temporary loan is adjustable from the proceeds of the cheque/draft. 34
f) Bai-Muazzal (Export): Investments allowed for purchasing foreign currency for payment against L/Cs (Back to Back) where the exports do not materialize before the date of import Payment fall under this head. This is also a investment for temporary period, which is known as export finance. 6. Investment on Import a) Murabaha Import Bills (MIB): Payment made by the Bank against lodgment of shipping documents of goods imported through L/C falls under this head. It is an interim investment connected with import and is generally liquidated against payment usually made by the party for retirement of the documents for release of imported goods from the customs authority. b) Murabaha Post Import (MPI): Loans allowed for retirement of shipping documents and release of goods imported through L/C taking effective control over the goods by pledge in go down under bank's lock & key fall under this type of investment. This is a temporary investment connected with import that is known as post-import finance. c) Trust Receipt (TR): Loan allowed for retirement of shipping documents and release of goods imported through L/C falls under this head. The goods are handed over to the importer under trust with the arrangement that sale proceeds should be deposited to liquidate the investment within a given period. This is also a temporary loan connected with import and known as post-import finance. 7. Others: Any investment that does not fall in any of the above categories is considered under the category "Others". It includes loans to i) Transport equipments, ii) Construction works including house (commercial/residential), iii) work order finance, iv) personal loan etc. Investment Facilities available under this category are:
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a) Izara Bill Baia (House Building): Investment allowed to individual/enterprises for construction of building for commercial purpose fall under this type of investment. The amount is repayable by monthly installment with a specified period. b) Izara Bill Baia (Staff House Building): Investment allowed to Bank's employees for purchase/construction of house falls under this Loan. c) Other Loan to Staff: Investment allowed to employees other than for House Building is grouped under head Staff Izara Bill Baia (General). d) Quard (General/Financial Obligation): Investment allowed to individual/firms against financial obligation (i.e. lien on MTDR/PSP/BSP/Insurance Policy/Share etc.).
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Chapter-05
Investment Procedure, Rules & Restriction
Page No:
38-46
37
38
Military Equipment/Weapon Finance. Highly Leveraged Transactions. Finance of Speculative Loans. Logging, Mineral extraction/mining, or other activity that is ethically of environmental sensitive. Lending to companies listed on CIB black list or known defaulters. Share lending. Taking an equity stake in Borrowers. Lending to Holding Companies. Bridge Loans relying on equity/debt issuance as a source of repayment. Tannery Finance. Who has no business with the Bank.
Branch Activities:
Branch plays key roles in investment operation. Usually branch investment department targets the potential borrowers, generates the credit relationship and completes the credit analysis and prepares a well-written credit proposal. Branch collects information through pre-designed forms which filled properly by the customer. And this form includes additional information about the client.
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Investment/Lending Procedure:
Lending is the main profit generating activity of EXIM bank ltd. The assessment of investment appraisal process is shown as a set of sequential by the following diagram:
Borrower's Application for Loan Obtaining CIB Report from Bangladesh Bank Collection Documents Scrutinizing the Document at Branch Analysis the Collected Information
Legal Opinion
Sending Investment to Head Office Analysis the Information by Investment Department of Head office Preparing Memo for EC Meeting Sanction Advice Collection of Charge Documents Disbursement of Loan Review & Monitoring
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Borrower Selection:
Lending is one of the most important functions of a bank. Therefore, it is of paramount importance that the bank chooses a reliable borrower. For this the bank places the kind of mechanisms that helps it identify the borrower who can be creditworthy. This section deals with some of the mechanisms that the bank can able to find the reliable client for investment on his/her business. Investment Application form: A investment application form usually contains information pertaining to the name of the concern, constitution, nature and place of business, year of establishment, borrower's experience in the line, particulars of assets and liabilities, purpose of advance, amount required, period of advance required for, nature of security offered, sources of repayment, names of present bankers with detailed borrowing and other facilities. This is the core step of knowing about the borrower. Personal Interview: The bank arranges interview with the borrower to know more about his specific requirements, the prospects of his employing the funds prudently, his capacity to repay and the suitability of the security offered. The main points that are covered in the interview are: his business, all legal documents required for operation of his business (Memorandum and Article of Association, trade and import license), his capital with reference to working capital, his experience in the business, results of financial statements, amount of investment and period, purpose of advance, source of repayment, terms of payment, security documents that are offered etc The bank officials who conduct the interview try to analyze and judge for themselves the correctness or otherwise of the various statements and documents of the prospective borrower and to arrive at a balanced opinion regarding the acceptability or otherwise of the proposal. After the initial interview, if the officer found that the information meets with the basic investment criteria of the bank, then the next step will be to conduct a more indepth investigation, relying upon the documents obtained from the client and from bank's own and outside sources. 41
42
The credit risk grading matrix allows application of uniform standard to credit
to ensure a common standard approaches to assess the quality of individual obligor.
As evident, the CRC output would be relevant for individual credit selection,
wherein either a borrower or a particular exposure/facility is rated. The other decision would be rated to pricing and specific feature of the credit facility. These would largely constitution obligor level analysis
MIS and assessing the aggregate risk profile of a institution. It is also relevant for portfolio level analysis.
Components & Weighting of each Key Parameters: Credit risk for counterparty arises from an aggregation of the following: Principal Risk Components Financial Risk Business/Industry Risk Management Risk Security Risk Relationship Risk Key Parameters Leverage, Liquidity, Profitability & Coverage ratio Size of Business, Age of Business, Business Outlook, Industry Growth, Competition & Barriers to Business Experience, Succession & Team Work. Security Coverage, Collateral Coverage and Support. Account Conduct, Utilization of Limit, Compliance of covenants/conditions & Personal Deposit. Weight 50% 18%
Credit Risk Grading Score: After risk identification &weight age assignment process, the next steps will be to input actual parameter in the score sheet to arrive at the scores corresponding to the actual parameters. The CRG scale consists of 8 categories with short names and numbers are provided as follow:43
No 1 2 3 4 5 6 7 8
Risk Grading Superior Good Acceptable Marginal/Watch list Special Mention Sub-standard Doubtful Bad & Loss
Score 100% cash covered Government guarantee International Bank guarantees 85+ 75-84 65-74 55-64 45-54 35-44 <35
Security Evaluation:
Security is a cover against loans and advances. It ensures recovery of loans and advances. Securities play an extremely important role in a loan granting decision.
DOCUMENTATION
The bank does not disburse any loan facility until the required documentation is properly completed. After completion of credit investigation, the bank official begins to prepare investment proposal. The investment proposal defines clearly amount and type of investment, the purpose of the facility, summary of the results of risk assessment, the sources of repayment, tenor, covenants, the agreed repayment schedule, profit and value of security. Where security is to be accepted as collateral for the facility all documentation relating to the security are to be in the approved form. All approval procedures and required documentation are completed and all securities are in place, prior to the disbursement of the facilities. There may be requirement of specific banking or legal documents to secure a investment according to sanction terms and conditions. All required documents are required before any investment is disbursed. 45
APPROVAL AUTHORITY
After preparing the investment proposal by the branch officers, it is sent to the head office for approval to the approval authority. To ensure proper and orderly conduct of the business of the Bank, the Board of Director empowers the Managing Director and other Executives of the Bank to finance up to certain amount under certain terms and conditions at their discretion.
Investment Recovery:
The Law and Recovery unit of Head office directly manage the continued declining accounts. The recovery unit functions as following way:
Determine account action plan/recovery strategy. Pursue all options to maximize recovery. Ensure sufficient and timely investment loss provisions
actual and expected losses.
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Chapter-06
Analysis of Investment Program
Page No:
48-71
Financial Analysis:
47
Investment Scenario:
Financial soundness of all banks depends on the performance of its disbursed loan on various sectors. Loan performance means how the loans were scheduled to act and how they are actually acting. It is closely associated with timely and steady repayment of interest and principal of a loan. A loan is said to be well performed when its repayment is duly made. If a loan fails to be repaid duly for some consecutive period or installments, it falls under the classification criteria.
Investment
100,000,000,000 90,000,000,000 80,000,000,000 70,000,000,000 60,000,000,000 50,000,000,000 40,000,000,000 30,000,000,000 20,000,000,000 10,000,000,000 0 2008 2009 2010 2011 Investment
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The total amount of investment of the bank stood at TK 99,699.62 million as on December 31, 2011 as against TK 93,296.64 million as on December 31, 2010 showing an increases investment with the growth rate of 6.86%. But investment increases hugely on 2010 rather than from 2009, in terms of percentage which are 35.98%. Investments are the core asset of the bank. The bank should give emphasis to acquire quality assets and does appropriate investment risk analysis while approving commercial and trade investment to clients.
Investment
Deposit
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11,658,442,540 13,600,295,711 17,779,428,934 16,282,060,214 20,137,348,000 26,266,506,000 39,764,280,702 44,077,249,872 9,703,051,000 10,259,648,635 13,204,761,002 12,700,271,000 11,778,150,103 16,777,396,835 20,094,980,024 25,465,069,784 53,637,677,103 68,609,907,470 93,296,648,855 99,699,627,656
Under this classification it seems that Over 3 months but not more than 1 year represents greater volume than any other in last four year. Bank normally gave less concentration on Repayable on demand because it generated less investment income. And other sides EXIM bank also prefer to invest on more than five years sectors because of more profitable amount.
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45,000,000,000 40,000,000,000 35,000,000,000 30,000,000,000 25,000,000,000 20,000,000,000 15,000,000,000 10,000,000,000 5,000,000,000 0 On Demand Less than 3 Month over 3 to Over 1 year More than 5 Less than 1 Less than 5 year year Year 2008 2009 2010 2011
50.00% 45.00% 42.62% 40.00% 37.54% 35.00% 30.00% 25.00% 20.00% 15.00% 10.00% 5.00% 0.00% On Demand 0.65% 2008 <3 month 2.49% 2009 3 month< 1 Year 2.63% 2010 1 < 5 Year 1.18% 2011 more than 5 year 21.96% 21.74% 18.09% 24.45% 19.82% 14.95% 21.54% 19.06% 16.33% 14.15% 12.74% 25.54% 38.28% 44.21%
Particulars
2010
2011
Bai-Muajjal 34,689,419,345 36,991,343,058 Bai-Murabaha 16,387,615,174 17,746,405,168 Bai-Salam 2,638,112,443 3,033,228,095 Izara bill baia (commercial) 32,422,859,431 36,825,680,283 Izara bill baia (Staff) 577,200,724 894,471,784 Quard 383,563,586 209,492,097 Local Documentary Bill Purchased 3,074,062,953 2,374,501,763 (LDBP) Foreign Documentary Bill 670,617,006 449,528,622 Purchased (FDBP) Murabaha Import Bill (MIB) 2,453,198,193 1,174,976,786
Change in Percentage from preceding year 6.64% 8.29% 14.98% 13.58% 54.97% -45.38% -22.76% -32.97% -52.10%
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EXIM bank of Bangladesh provide several suitable and luxurious mode/program to their customer based on their needs. Most popular modes of EXIM bank are BaiMuajjal, Bai-Murabaha, Bai-Salam &Izara bill baia and those modes were increasing every year with a handsome percentage, which credit goes to the investment management mostly.
Mode-Wise Investment
40,000,000,000 35,000,000,000 30,000,000,000 25,000,000,000 20,000,000,000 15,000,000,000 10,000,000,000 5,000,000,000 0 2010 2011
155,628,337 3,553,162,305
125,187,050 2,553,073,630
-19.56% -28.15%
54
57%
55
74.42%
74.19%
56
65,915,439,880 70,828,625,309 2008 2009 16.28% 6.39% 4.12% 13.19% 60.02% 2010 11.09% 4.85% 3.54% 9.86% 70.65% 2011 11.25% 6.97% 3.27% 7.48% 71.04%
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58
There has a complements that 80% profit will comes from 20% clients from that thinking EXIM bank makes leagues with some renewed organization with whom bank doing business for longer time and for what at a certain time they became a part of EXIM bank, some of their investment amount are given above.
Un-classified: The repayment of investment and advances are regular. Sub-standard: The repayment of investment and advances are irregular
but has reasonable prospect of improvement.
Bad/loss:
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60
9% 20%
60%
2011
2010
2009
2008
61
Basically bank invests the depositors money into several sector but its quite tough to recover 100% of the investment, thats mean some the investment will be classified. Basically banks performance depends on lower rate of classified investment and higher rate of recovery. Last four years EXIM bank has averagely 2% classified investment of total investment, which seems satisfactory. In 2011 classified investment percentage to comparison with total investment are decreased which shows the good recovery rather than from preceding year i.e. 2010..
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660,928,535 917,924,554 977,510,798 43,876,414 24,797,908 87,110,350 62,356,591 21,591,079 9,905,000 29,065,300 84,630,459 120,456,383 431,010,492 432,983,882 269,076,214 ---8,411,325 11,411,000 1,227,237,332 1,490,339,207 1,475,469,745
--------------
-------------
---8,411,325 8,411,325
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Basically provision is one kind of fund which will be deposited in to Bangladesh bank from the concern of depositors. Banks collects money from the depositors and invests those among to the borrowers so for that as a central bank Bangladesh bank are totally responsible to follow up on depositors money. That means if bank fails to recover invested amount on that time bank need to deposit certain portion of those unrecoverable amount into the Bangladesh bank according to Bangladesh bank rules. Way of calculating provision required for investment of EXIM bank is shown in above.
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2,179,676,907 2,861,995,019 3,744,874,954 5,638,938,092 1,500,422,215 1,750,004,728 1,974,651,846 2,597,650,678 322,694,784 321,772,801 332,712,865 456,772,392
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As EXIM Bank increases its investments from year to year, so it is logical that it income from sanctioning investments are more. The bank has achieved the highest profit in 2011 from any other previous year though it had highest amount of bad loan also in that year. So performance of providing investments of the bank is satisfactory.
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Year
Particulars Bai-Muajjal Bai-Murabaha Bai-Salam Izara bill baia Bai-Muajjal Bai-Murabaha Bai-Salam Izara bill baia Bai-Muajjal Bai-Murabaha Bai-Salam Izara bill baia Bai-Muajjal Bai-Murabaha Bai-Salam Izara bill baia
Investment Amount 15,674,399,356 10,885,066,418 2,597,501,097 21,413,945,025 34,689,419,345 16,387,615,174 2,638,112,443 33,000,060,155 22,651,461,352 14,082,917,549 2,392,768,456 27,013,057,035 36,991,343,058 17,746,405,168 3,033,228,095 37,720,152,067
Income from Investment 2,179,676,907 1,500,422,215 322,694,784 2,553,595,649 3,744,874,954 1,974,651,846 332,712,865 3,543,824,333 2,861,995,019 1,750,004,728 321,772,801 3,161,674,966 5,638,938,092 2,597,650,678 456,772,392 4,285,302,438
2008
2010
2009
2011
Percentage of Income compare with Investment 13.91% 13.78% 12.42% 11.92% 10.80% 12.05% 12.61% 10.74% 12.63% 12.43% 13.45% 11.70% 15.24% 14.64% 15.06% 11.36%
30,000,000,000 27,000,000,000 24,000,000,000 21,000,000,000 18,000,000,000 15,000,000,000 12,000,000,000 9,000,000,000 6,000,000,000 3,000,000,000 0 Bai-Muajjal Bai-Muajjal Bai-Muajjal Bai-Muajjal Bai-Salam Bai-Salam Bai-Salam Bai-Murabaha Investment Income
Bai-Murabaha
Bai-Murabaha
Bai-Murabaha
Bai-Salam
2011
2010
2009
2008
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Particulars Investment Income from investment in Shares/Securities Commission, Exchange & Brokerage Gain on sales of investment in shares Other operating Income Total Income Percentage of Investment Income of Total Income
2010 2011 9,606,185,898 13,122,774,352 143,927,878 1,809,572,534 1,292,104,250 99,232,341 1,831,245,268 -----
368,603,392 618,702,207 872,161,614 748,628,692 8,356,821,794 10,383,616,481 13,723,952,174 15,801,880,653 78.68% 78.46% 70.00% 83.05%
2011
Investment Commission, Exchange & Brokerage Other operating Income 11.59% 0.00% 0.63% 83.05% 4.74% Income from investment in Shares/Securities Gain on sales of investment in shares
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2010
Investment Commission, Exchange & Brokerage Other operating Income 9.41% 13.19% 70.00% 1.05% 6.36% Income from investment in Shares/Securities Gain on sales of investment in shares
SWOT ANALYSIS:
SWOT is an acronym for the internal Strength and Weakness of the firm and the environmental Opportunity and Threat facing that firm. So, if we consider Investment sector of EXIM bank as a business firm and analyze its Strength, Weakness, Opportunity and Threats the scenario will be as follows:
STRENGTH
Get good concern from the people because of Shariah based Islamic bank By this time it has established an integral, customer friendly relationship with its clients. EXIM bank has adequate finance & deposit which are sufficient for their investment. For adequate financial ability, they can provide more investment facility to their rather than other Banks.
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All of the employees of EXIM Bank are honest and reliable. They are always devoted themselves to the clients for better customer. Most of the people of Bangladesh are Muslim and they are trusted in superior performance of EXIM bank as a Shariah based-Islamic Banking. They have experienced investment management team. All of the investment is sanctioned from the head office so there has no chance of nepotism into the branch. High attention on recovery of overdue amount and or pre-overdue situation. Close monitoring on investment clients. High attention on making quality investment and disposal of proposals. It has prominent saving scheme named MDPS for a fixed or lower income group of people of this society from where they can able to take loan at any time.
WEAKNESS
EXIM Bank Bangladesh Ltd. has very limited human resources compared to its financial activities. EXIM bank has lack of modern technologies and equipments like adequate online facilities as well as cash card and credit card system. EXIM bank has only 11 ATM booths and among them almost all of them are in Dhaka city so what their credit card & visa card cant able to perform well. EXIM bank has lack of aggressive advertising like other banks. They dont telecast any attractive advertise in the media by which peoples will be informed about their investment program. The investment decision making of the bank is too many centralized. No decision is made without the authorization of the head office. So its takes too time to sanction a investment after all procurement.
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OPPORTUNITY
Scope of market penetration through diversified investment products. Scope of develop new committed entrepreneurs. Service charges in other banks are comparatively higher than EXIM Bank Ltd. EXIM bank has the ability to introduce more Innovative and modern customer services to its customers to survive better in the competition market. EXIM bank has a vast opportunity to hold most of the customers by extending its banking operation all over the country as most of the people of Bangladesh are religious minded. Increasing awareness of Islamic banking among the clients.
THREATS
Because of the intense competition, most of the competitor banks of EXIM Bank Ltd are coming up with new service line ATM but in this sector EXIM bank performance are relatively poor to compare with other conventional & Islamic bank. The competitor banks of EXIM Bank Ltd have more geographical coverage than EXIM Bank Ltd. Rules and regulation of Bangladesh Bank defers with Islami banking system. So they have to face various problems to operate their activities according to the Islamic Shariah. Few other conventional banks have opened their Islamic Banking Branch or program.
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Chapter-07
Major Observation & Recommendation
Page No:
72-79
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Major observation:
From the analysis of the investment program it can be accomplished that performance & financial situation of investment program of EXIM bank are more or less in good position from different aspects & attributes. From the analysis &observation following findings are found: Lengthier investment procedure: Investment procedure of EXIM bank takes too time for completion the overall task. Its starting from gathering client information and preparing the proposal by branch, and subsequently they sending the proposal to the head office and thereafter wait for Executor Meeting and afterwards submit proposal to the meeting, if they find every things are ok then loan will be approved otherwise proposal will be resend to the branch for additional changing. After all of this procurement if Board of Investment thing that everything are fine then they will inform the clients that we have this terms & condition if clients are agree with those then finance will be sanctioned. Illegal Pressure from higher authority: In case of investment, some big parties are applied for investment in reference with the high officials of the bank. They do not submit all papers that required for an investment account & in future they do not feel any urge to submit their papers and in this case, its tough to calculate the issuing amount against on his/her collateral due to lack of information.
Obstacle by the higher authority at time of marking someone as a Classified Investment: When any individual or institution missed persistently, more than 2 or 3 installment on that time his/her account will be marked as classified investment according to Bangladesh bank law but several time bank cant do that because of client or higher authoritys request on that time it makes problem for the bank to maintain Bangladesh bank rules & regulation.
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Insufficient ATM booth: EXIM bank has only 11 ATM booths in overall Bangladesh, which are not so sufficient to encourage the clients about credit card of EXIM bank. Without one the entire ATM booth into the Dhaka region and several times some of them cant able to perform because of money crisis, network or machine problems. Chance of raising cash liquidation problem: Last four years, EXIM bank financed above 90% of their deposit for Investment purposes, which are quite risky for a bank from aspects of cash liquidation. Less focus on short term Investment: By analyzing of last four years financial scenario of Investment, it asserted that they gave less focus on demand loan & less than 3 months investment, if its goes for longer time then it may be a big deal from perspectives of cash liquidation. More focus on Urban Area: Production activities are performed mainly in rural areas and financial activities are performed in urban areas. So from this perspectives EXIM bank invest/finance more onto the urban area but other thing is that countries economies not only depend on urban area also on rural area so it can be said that only 4% to 5% investment only into the rural area are not satisfied able. More focus on Dhaka region: EXIM bank has almost 45% of branches into the Dhaka region who take place 80% of investment of total and rest of the 20% are performed by outside the Dhakas branches. Strong Investment recovery division: Investment performance of a bank usually depends on classified investment of total outstanding and from this perspectives investment department performance are satisfy able just for 1% to 2% of total outstanding. Strong collateral has deposited against investment: Pledged collateral refers to assets that are used to secure a loan. If mortgage amount are higher than the investment amount on that time bank are in secured situation, from this perspectives investment of EXIM bank are in good situation because of providing 83.84% investment against the 100% pledged collateral.
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Upright income scenario: By analyzing their income scenario it seems that income from investment picture are in satisfied situation. Credit risk grading: At the time of risk assessment, the risk managers are used to obtain an integrated CRG & CIB for all corporate and individual customers. Insufficient time for risk assessment: The managers often have insufficient time for credit risk management. Huge workload and time constraints for loan approval prevent them from through assessment. So, its very troublesome to manage the risk in a prudent manner for the risk managers. Lack of information into the credit proposal: Risk managers often could not find all necessary documents and information for credit risk assessment. Thats why risk managers use their assumption and experiences on risk management. Problems of Financial analysis: Most of the borrowers do not have audited financials. They provided a financial statement which does not follow the rules of accounting. On that time risk managers need to use assumption to calculate for the necessary ratio so there have the question of accuracy.
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Recommendation:
Banking is a service oriented marketing organization. Its business profit depends on its service quality. Thats why the authority should be aware about their service quality. Though EXIM Bank provides quality service to its customer but it has some weakness in overall performance. To wipe out this weakness I have made the following suggested solution. Improve investment procedure: An integrated planning should be made to reduce time taken by the investment appraisal procedures of EXIM Bank Ltd. The officers of the branch level should make a plan for the sequence of activities. No Interpersonal relationship: One proper standard procedure should be developed for all types of clients and no interpersonal relationship should be involved in approve a investment. Decentralized some power about investment sanction: EXIM Bank practice centralized disbursement system. Branch cannot sanction any investment except MTDR. If head office give branch a certain level of power to sanction investment then the invest process will be faster and efficient. Special procedure for valuable clients: There is a lack of coordination between Branch and Head office. For this, sometimes Branch investment offices can't able to finance to their valuable clients. Head office has to give certain level of power to the branch authority, so that they can keep the client for long time. Early Alert Account system for installment timeline: An Early Alert Account system (EWS) should be introduced to have adequate monitoring, supervision or close attention by management.( An early Alert Account is one that has risk and potential weaknesses of a material nature) Introduce attractive investment scheme: EXIM bank should make its investment schemes more attractive for availing high-return projects. More focus on demand investment: EXIM bank should more focus on demand investment by which they can able to face the uncertainty of cash liquidation.
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Utilize the potentiality of rural areas: EXIM bank should consider utilization of rural potentials from both efficiency and equity grounds in the context of the present-day socio-economic conditions of Bangladesh. Strong commitments and stepping up through experiment and implementation of innovative ideas are the appropriate ways to do that. Increase Promotional Activities: EXIM Bank should pursue an aggressive advertising campaign in order to build up a strong image & reputation among the potential customers. It must give the idea of maintaining a low profit in the market. Rather it should come in to the limelight through an aggressive marketing campaign such as advertisement in newspaper & magazine, more billboard & neon signs, publicity message & promotional campaigns. EXIM Bank can also pursue promotional campaigns with its customers particularly the corporate clients in order to build up a stronger rapport with them. Advertisement to be made in Newspaper, Journal, Magazine, TV etc. TV advertisement is also a major method for attracting the potential customers. The bank can sponsor sports event of the country. EXIM bank should deserve immediate attention in the promotion of the image of Shariah based banks as PLS (profit-loss-sharing) banks. EXIM bank can diffuse its scope of investment through focusing Shariah concept regarding investment among the bank officers; employer and the clients by strong training, workshops.
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Conclusion
Banking sectors no more depends on only on a traditional method of banking. In this competitive world now a day's banking sector is wide enough to cover any kind of financial services, not only from the local banks but also from the foreign banks. The major task of bank is to survive the services in this competitive environment by managing its assets and liabilities in an efficient way. To make the assets specially investment and advances banks must have too more careful and otherwise this asset will became a burden for the bank. EXIM bank within a short period of just few years has made good progress in terms of profitability and growth rate of deposits and Investment& advances despite tremendous competition in the industry and world economic crisis. The bank has to keep updating its investment operation. Although for the time being the figures are good but the trend in the figure indicate that unless the bank becomes more prudent in its investment granting process else it can become laden with heavy bad debts. Success in the banking business largely depends on effective lending. Less the amount of loan losses, the more the income will be from investment operation the more will be the profit and here lies the success of EXIM Bank Limited.
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References
EXIM bank Annual report; 2008, 2009, 2010,2011 General Banking Booklet of EXIM Bank Ltd. Investment policy manual-2010 of EXIM bank ltd. www.eximbankbd.com http://www.bizresearchpapers.com/attachments_2009_01_13/26.Toni.pdf
Acronyms
EXIM Bank- : Export Import Bank of Bangladesh Ltd. CIB ATM SB CRM MIB BB IBC RM EWS MPI MTDR F.D.B.P LDBP L/C BRPD CRG EIIL EC Meeting : Credit Information Bureau : Automated Teller Machine : Saving Bank Deposit : Credit risk management : Murabaha Import Bills : Bangladesh Bank : Inward Bills for Collection : Relationship management : Early Warning Signals : Murabaha Post Import : Murabaha Trust Deposit Receipt : Foreign Documentary Bill Purchase : Local Documentary Bill Purchase : Letter of Credit : Banking Regulation and Policy Department : Credit Risk Grading : EXIM Islamic Investment Ltd : Executive Committee Meeting.
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