National Bank Limited

General Banking System & Fund Management; A Case study of National Bank Limited National Bank Limited A bank for performance with potential Chapter-1 1.1. Background of the Study: Internship program has been included to BBA curriculum for providing talent, up-to date and smart, efficient executives. Internship means gaining supervised experience. Internship program offers an opportunity to know the environment of a particular organization. By doing this program, I have developed and refined my theoretical knowledge gained in the classroom. This program provides exciting experience of planning, culture, behavior of employees and management style of that organization, which helps me to fill the gap between theoretical and very practical world.

Theoretical knowledge does not make a person perfect. To implement the academic knowledge, practical knowledge related to it, is important. A perfect consideration between theory and practice is important in the context of modern business world. In order to resolve the dichotomy between theory and practice, the Daffodil International University arranges internship program as a partial completion of BBA program. This program is necessary for every student to complete his or her academic degree. Internship program brings students closer to the business theory and practical and thereby help them to substantiate their knowledge so that they can prepare themselves to start a successful career.

Under the internship program, every student is assigned to an organization with a view to acquire practical knowledge. After taking practical knowledge, each student is required to prepare a report on the selected organization under the guideline of his/ her assigned teacher.

As a participant in this program, I was place at National Bank Limited, Kishoregonj branch which is well reputed for trade and commerce in Kishoregonj city, for a period of Three months.

1.2. Statement of the Problem: I was very much interested about the fund management system of bank that is practiced in our country. In order to know the activities related with fund management system and documents required to maintain this system, I chose the topic as “General Banking system & Fund Management� in a commercial bank of Bangladesh: A Case Study of National Bank Limited.

1.3. Rationale of the Study: The purpose of this report is to get a gist idea about the fund management system which is practice in our country. Banking is a vast term and through this report, I have tried to analyze some crucial topics regarding fund management system of bank. Without understanding the nerve position, it is very difficult to go deeply a system. To make the banking concept easier to the people, I tried my best to present the crucial topics in a smooth way. If the liquidity position of the bank is not in a suitable position, the bank may face crisis. Although excess of the fund may create problem because it does not bring anything for the bank however, it is a financial intermediary. That is why we should Know the different issues regarding the fund management system to get a comprehensive idea about bank. This report also deals with general banking practice of NBL.

1.4. Objectives of the Study: The main objective of the internship program is to formalize me with the real market situation and help me learn how bookish concepts are used in the real market. Therefore, from the very beginning of the study I have tried my level best to conduct my internship with a view to achieve some specific objectives and I have gone across the various departments of the bank to acquire some related information and functioning procedure regarding those departments.

The objectives of the study are mentioned below:                      

To acquire knowledge about the different operations of a bank.

To learn how the fund management system of a bank operates.

To know the issues those are required to manage to run the fund management system.

To identify the problems those are related with the fund management system.

To know the sources of fund and the areas in which the fund of a bank are utilized To analyze the reasons for which the growth rate of deposit of a bank increase or decrease day by day.

To know the ratios those a bank determines to measure its different risk to evaluate its performance.

To know the various liquid assets of a bank and their importance.

To know the different capital instruments of a bank.

To know the different types of reserves and their functions in a bank.

To know the steps those followed in providing loan.

To know the factors that a bank considers before sanctioning loan.

To know the documents those are maintained by a bank in providing loan.

To find out the area in which a bank is more interested to invest.

To know the problems those are related in loan management.

To know the positions those exist in organizational framework of a bank.

To know the services those a banks provides for its customers.

To go through all the departments of a bank and observe what actually happened in these departments.

To find out how the general banking system of a bank runs.

To know how the foreign exchange functions of a bank are done.

To know the ratios those a bank finds out to know its liquidity position.

To assess the technical supports those are available in a bank.

1.5. Scope of the Report: This report has been prepared through extensive discussion with bank employees, clients and officers and on the information gathered from the annual report and prospectus of National Bank Limited. I have got the great opportunity to have an in-depth knowledge of the fund management system of NBL. The scope of this report is not only limited to the fund management system but also the report focused on the general banking system.

1.6. Limitations of the Study: Although I have got the full co-operation from employees, clients and officers of NBL and they also gave me much time to prepare this report properly in the way of my study, I have faced some difficulties, which made my conduction of the program little hazardous.

Some of these are mentioned below: 

It should be certainly mentioned that the time three months is very short to get the total view of the banking functions.

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The officers were quite busy with their regular activities. For this reason it was also a little problem to collect detail information from them.

In some cases, they could not be able to supply me any information for the reason that they have no printed documents.

Office secrecy was one of the most important problems. Disclosing of some information was restricted.

In case of secondary data collection, there was very little secondary information. There were few support books, reports, journals, etc. moreover, the branch office had very little of this information. That’s why bulk of it had to be collected from the head office.

As the officers were very busy with their day to day work, they could provide very little time.

Chapter-2 Literature Review There are numerous research reports on the different activities and programs of National Bank Limited. Again, there are more studies on NBL’s service expansion program. The human resource department arranges different research program to identify its problems and inefficiencies and by this way it tries to resolve its problems to provide excellent services to its customers.

Beside that every year a number of students of different universities conduct their internship program in different branches of National Bank Limited. After the completion of their internship program they submit a report on their study to the Senior Vice President of Human Resource Department, Head Office, National Bank Limited. In their reports they flash out some recent problems and draw some recommendations about what the management of NBL should do to resolve these problems.

Like every year, a number of students conducted their internship program in NBL in the year of 2005.

Among them a student of World University of Bangladesh, mentioned in his report that the absence of online banking system in NBL is the main constraint of its success and the top management should start the online banking system as soon as possible if it wants to reach at the desired position. He also mentioned the name of some other banks those already have started online banking system and have success in achieving customer satisfaction. This point has brought the attention of the top management and the top management has already taken the necessary steps to start online banking system. It can be expected that the customers of NBL will get the online banking service from the next year.

A report of mentioned that the information technology of NBL is poor and the management should take necessary steps to improve its information technology. Because of this, inefficiency managers required to do a lot of duplication work. Now the top managers of NBL try to ensure all types of technological support in their all branches.

Chapter-3 Mythology of the Study 3.1. Introduction: The nature of this report is descriptive. So instead of doing any survey, observation method is used to complete this qualitative research. I have tried to collect all such information that will reflect the actual situation of the bank for any report. I have collected various types of primary and secondary data while I was performing my job. I have collected various data from various sources by face-toface interview with the employees working in different departments of National Bank Limited, Kishoregonj branch, personal investigation bankers of different branches of NBL, circulars sent by Head office and maintaining daily diary, which contains all the activities that has been observed in the bank.

3.2. Population of the Study: The report has prepared on the fund management system of National Bank Limited. Therefore, for the purpose of the study, all the branches of National Bank Limited have been considered as the population of the study.

3.3. Sampling Unit: Only one branch of National Bank Limited has been taken as the sampling unit for the study, i.e.

Kishoregonj branch.

3.4. Sampling Method: Random sampling method has been used for the purpose of the study.

3.5. Sources of Data: The report is based on both primary and secondary sources of information. Interviewing the managers and officers of the bank, talking to the customers, the primary data have been collected.

Further more different publications of the bank annual reports and the bank websites have been used for the purpose of collecting secondary data.

3.5.1. Primary sources of data: 1. Guidelines and suggestions from fund management in charge of NBL (Kishoregonj Branch).

2. Opinions and suggestions of bank officials.

3.5.2. Secondary sources of data: 1. Annual report of NBL. 2. Published booklet of NBL. 3. Various published document.

3.6. Method of Data Collection: For the purpose of the study, two methods of data collection have based: a) Observation method. b) Interview method.

Analytical Tools and Software: To make the report more understandable and give a nice look, different analytical tools and software, have been used to prepare the report. A number of flowchart, graph, table and different computer software are used.

Chapter-4 Organizational Profile 4.1. Historical Background of NBL: National Bank Limited is the first and major private sector commercial bank in Bangladesh fully owned by the Bangladeshi Entrepreneurs. The bank started its operation from 23 rd March 1983. As a result of the collective effects of the some eminent bankers, of failure in playing due to role in mobilizing small savings of the teeming millions and providing improved clients services to them in our country, the Government gave right decision to allow establishing banks in private sector.

National Bank Limited was born as the first hundred percent Bangladeshi owned Bank in the private sector. From the very inception, it is the firm determination of National Bank Limited to play a vital role in the national economy. It is determined to bring bank the long forgotten taste of banking services and flavors. It wants to serve each one promptly and with a sense of dedication and dignity.

NBL prudently and boldly faced the challenges of various adverse situations prevailing in the post independence Bangladesh and has now established it self as one of the most successful bank of the

country. People in all regions can easily avail of the services of NBL through its 100 branches spread all over the country. Besides, the bank has been smoothly conducting its overseas activities with utmost efficiency through its 358 correspondents in 67 countries of the world. NBL has drawing with 18 overseas exchange houses including the gulf overseas exchange. In order to provide modern banking services to satisfy the demand of the country and the people, all branches of the bank have been brought under computer network. It is able to reach with lighting speed the hard-earned foreign exchanges of non-resident Bangladeshis to their near and dear ones at home through the world renewed Western union. The bank maintains round the clock communication with the external world using the latest information technology services of SWIFT. In order to give improved and risk free banking services to the valuable clients, all arrangements for launching line banking are its final stage.

Since the very beginning the bank extended much emphasis on overseas operations and handled a sizeable quantum of homebound foreign remittance. The Bank established extensive drawing arrangement network with banks and exchange companies, located in important countries of the world. Expatriates Bangladeshi wage earners residing in those countries can now easily remit their hard earned money to the country with confidence safety and speed.

NBL has been able to create a special image at home and abroad by introducing different banking products in accordance with the expectations requirements of people of the country. NBL was the pioneer bank to allow back-to-back L/C facility without any margin to the entrepreneurs of garment industry during the Eighties, thereby helping the industry thrive to its present position. This has not only contributed to enrich of the country’s foreign exchange reserves, but also opened employment opportunities for a Large numbers of labor force of the country. As a pioneer in this sector, NBL’s name will remain in golden letters.

NBL has been the pioneer in promoting readymade garment industries and still is the single largest financier in this sector. In the early 80’s when garment industry in Bangladesh was experiencing a process of trial, the bank foresights the bright prospect of this sector and extend finance to the deserving and promising entrepreneurs. It provided them with financial support including market information and advice and today the garment sector constitutes about 66% of the total export of the country.

National Bank Limited is the first bank to Introduce International Master Card in Bangladesh which has facilitated the users To get benefits to different facilities in home and abroad. NBL is the first among private Sector banks which has set an uncommon Precedence of extending fully supervised Collateral agriculture credit in the brained Area of Rajshahi district to help small farmers to grow.

Finance for Rice plantation The wise directions and guidance of a prudent and versatile board of directors and concerted efforts of a team of well-qualified and professionally heightened executives and officials have brought an extraordinary distinctiveness for the bank. Above two thousand dedicated executives, offers and staffs’ working day and night to serve its customers satisfactorily. Through strong commitment base, the bank has introduced new products like Credit card E-cash. The popularity of the bank has gained

momentum with quick money transfer arrangement anywhere in world in association with Western Union’s U.S.A 4.2. Nature of Business: The Bank engaged in all types of commercial Banking services within the stipulations laid down by Bank Companies Act 1991 and directives as received from Bangladesh Bank from time to time. All types of commercial banking services are provided by the bank within the stipulations laid down by Bank Companies Act-1991 and directives as received from Bangladesh Bank from time to time.

Mainly National Bank Limited collects deposit from the people at lower rate and invests the same to the people again at higher rate. And difference between lower rate of deposit and higher rate of investment is the earnings of the bank. National Bank Limited mainly invests in industrial sector like short term, middle term as well as long term for import of capital machineries, establish new industry etc. Providing working capital assistances NBL play a significant role in Bangladesh economy.

Ship Wreckage Project Construction Project 4.3. Principles and Values: The National Bank Limited is committed to five core business principles: • • • • • •

Outstanding customer service.

Effective and efficient operations.

Strong capital and liquidity.

Prudent lending policy.

Strict expense discipline.

The business principles are supported by loyal and committed employees who make lasting customer relationships and international teamwork easier to achieve.

• National Bank Limited also operates according to certain key business values.

• The highest personal standards of integrity at all levels.

• Commitment to truth and fair dealing.

• Hands-on management at all levels.

• Commitment to quality and competence.

• A minimum of bureaucracy.

• Fast decisions and implementation.

• Putting the team’s interests ahead of the individual's.

• The appropriate delegation of authority with accountability.

• Fair and objective employer.

• A diverse team.

4.4. Vision: The main vision of the National Bank Limited is to develop the economy of Bangladesh by profitable investment of public money and build up their confidence to the private institution. To ensuring

highest standard of clientele services through best operation of latest information, technology, making due contribution to the national economy and establishing ourselves firmly at home and abroad as a front ranking bank of the country is our cherished vision.

4.5. Mission: The missions of the National Bank are as follows: The aim of NBL is to become one of the leading Banks in Bangladesh by its prudence, fair and quality of operation.  

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Its effort for expansion of its activities in home and abroad by adding new dimension to its banking services is contributed unabated.

It is also putting highest priority in ensuring transparency, accountability, and improved clientele services as well as to its commitment to serve the society through which it wants to get closer and closer to the people.

Its goal is to act as a caring companion in uplifting the national economic standard through continuous gradation and diversification of its clientele services in line with national and international requirement It intends to meet the needs of its clients and enhance its profitability by creating corporate culture.

It believes in strong capitalization.

Its aim is to ensure its competitive advantages by upgrading banking technology and information system.

It maintains high standard of corporate and business Seth's. It provides high quality financial services to strengthen the well being and success of individual, industries and business communities.

4.6. Objectives: The objectives of National Bank are mentioned below:          

Offering quick and improved clientele services through application of modern information technology.

Playing an important role in the national progress by including improved banker-customer relationship.

Ensuring highest possible dividend to the respected shareholders by making best use of their equity.

Pushing the policy of nurturing balanced growth of the bank in all sectors.

Consolidating our position in the competitive market by introducing innovating banking products.

Ensuring highest professional excellence for our workforce through enhancement of their work efficiency, discipline and technological knowledge Expanding the bank’s area of investment by taking part in syndicated large loan financing.

Increasing finances to small and medium enterprise sector including agriculture and agro based industries, thus making due contribution to the national economy.

Upholding the image of the bank at home and abroad by pushing dynamic and time befitting banking activities.

Ensuring maintenance of capital adequacy and highest profit through successful implementation of the Management Core Risk Program.

4.7. Business Ideology: Alongside providing the best services to the clienteles, patronizing and taking part in social development activities as well as making due contribution to growth of the national economy.

4.8. Organizational Strategy:

As the financial services industry is a very competitive industry, the main strategy of NBL is the organic growth – to build branches and strengthen their distribution network. They will continue to invest and expand in Bangladesh as fast as local regulations allow.

The principle strategies are – People - Attract, retain and reward top performers.

Profitable Growth - Growing sales and increase the revenues.

Execution - Performing with skill and speed.

Credit Quality - Maintaining credit quality and understand the role in managing losses.

Customer Centered - Always providing exceptional customer service.

Ownership – The performance and results should be owned.

Efficiency - Lowering the costs and wise use of resources.

4.9. Capital Structure: Table-1: The Capital Structure of NBL Particulars Core Capital: Paid up capital Statutory reserve General reserve Retained earning as per profit and loss account Supplementary Capital: 1% general provision Exchange Equalization account Other reserve Total

Amount (in Tk)

804,741,524 806,240,084 482,723,327 409,471,121

307,425,523 41,371,514 385,176,688 3,237,879,790 Statutory reserve General reserve Retained earning as per profit and loss account 1% general provision Exchange Equalization account Other reserve

Source of information-Annual Report 2006 4.10. Functions of National Bank Ltd: Some general function of National Bank are given below To maintain all types of deposit Accounts.  To make investment.  To conduct of reign exchange business.  To conduct other Banking services.  To conduct social welfare activities.  To work for continues business innovation and improvements.  To bui1d up strong-based capita1ization of the country.

To ensure the best uses of its creativity, well disciplined, well manages and perfect growth.

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4.11. National Bank Foundation: Keeping the view the great objective of contributing to expansion of education and welfare of the society, the National Bank Foundation was set up in 1989. With financial assistance of the Foundation, The National Bank Public School and College has been established in Moghbazar Dhaka.

There are a total of 820 students studying in the school section from class 1st to 10 th, while there are 120 students at the college section. In 2006, a total of 70 students appeared at the SSC Examination, of which 87% came out successful. In the college section, a total of 90 students appeared at the HSC Examination, of which 81% came out successful.

12. Training and Training Institute: Not number, but diversified work efficiency of human resource is the key to sustained progress of an institution. Thus, not merely recruitment of workforce but a regular CHAIRMAN Program for imparting time benefiting training to them is all the more important. With this realization, The National Bank Training Institution (NBTI) was established at Shamoli on 24 October BOARD OF Board Secretariat 1989, which is fully residential. Beside faculty members of the Institute, renowned professionals like DIRECTORS bankers, economists, teachers and researches are invited to deliver lectures in training programs.

NBTI has a rich library for use by the trainees. NBL has a program to open a Research and Publication Division soon. During theand years under review 225 employees attained in training programs Monitoring & arranged Research planning by the training institute of the bank. In every batch, 25 trainees can attain in training program with Implementation COMMITTEES residential facilities.

BudgetStructure & Exp. and Control 4.13. Organizational Departments: Special audit & Organizational setup of the National bank Limited is consisting of three organizational domains.

Inspection MANAGING Firstly the central top management, which contains Board of Directors, Managing Director, DIRECTOR Additional Managing Director and Deputy Managing director. The major responsibilities of this group Law & Recovery are to take central decision and transmit it to the second step. Secondly the executives level DMD management, which contains Executive Vice Presidents, Senior Vice Presidents, Vice Presidents and Operation Assistant Vice Presidents. The major responsibilities of this part are to supervise and control DMD the branches operate management, which contains branch manager divisions/ departments. Thirdly Admin & Establishment and other mid/ lower level management. The major responsibilities of this part are to the 100 branches of this bank and report to the Head Office from time to time.

Fig- 1: Organism of BNL EVP EVP EVP EVP EVP EVP CC D Public Relation

VP

AVP NBL Training Institution

VP Others

VP General Banking

SVP

VP Industrial Credit

VP Computer

SVP

AVP Audit

SVP

SVP

AVP Accounts & Finance

VP Develop

AVP Administration.

VP Establish ment

VP Gen. Credit

AVP Inspection

AVP OS. DEPWING

AVP F.MAN& OS.OP

AVP Garments

AVP Reconstruct.

AVP Foreign Trade & Corporate Banking

4.14. Management Structure of National Bank Ltd.: In 2006 National Bank Limited made commendable progress in all business, like deposit, credit, fund management, investment, foreign remittance, credit card & foreign exchange related business. Bank has expended business activities as holding previously & parallels by diversification its investment to a new product, as a major financier remarkable portion of total exports of the country.

The management processes are as follows: 4.12.1. Planning: The strategic planning approach in NBL is top-down. Top management formulates strategy at the corporate level, and then it is transmitted through the division to the individual objectives. Board of directors or executive committee usually takes the decision. In this process lower level managers are detached in making process, even brainstorming of lower level managers is absent in decisionmaking and planning process.

4.14.2. Organizing: Organizing of the National Bank Limited is based on departmentalization. The organization is divided into twelve departments headed by Executive Vice President or Senior Vice President. In the National Bank Limited the whole operation is centralized and authority is delegated by written guidelines. These guidelines are: • Operational manual approved by Head Office, where each aspect or banking operation is elaborately defined.

• Advance manual including advances limit for different management level.

• Bad and doubtful recovery manual.

• Code of conduct.

• Foreign banking guidelines.

• Central bank directives.

• Different management position holders in departments and branches practice their authorized power in different cases with administrative loophole.

4.14.3. Staffing: Entry-level recruitment process of the National Bank Limited is conducted in three ways. One way is recruitment of probationary officers. Each probationary officer has one-year probation period. After completion of probation period, the officer joins as officer grade III (b). The career path of probationary officer is headed toward different management positions. Second way of recruitment is to recruit non-probationary officer who joins as an assistant officer. The career path of an assistant officer is lengthier than probationary officer. The third way of recruitment is recruitment of staff and sub-staff such as typists, Messengers, drivers, guards, attendants, cleaners and other lower level positions. Promotion policy of NBL is based on seniority basis. Sometimes, employees are promoted to the higher position for their outstanding perfoffi1ance. However, it is found that the average length of a position held by an employee is around five years.

4.14.4. Controlling: The bank has strict control over its all-organizational activities. The Bangladesh Bank directives indicate some control measures. Audits and inspection are conducted by different parties to check whether the bank implement these control systems properly or not. The central bank conducts credit inspection by a team. The National Bank Limited has audit and inspection department to take controlling measures in internal operations. Audit and inspection team send to the branches now and then and is responsible for preparing report that will be submitted to the Chief Administration to take necessary actions.

4.15. Products and Services: In National Bank, the following products and services are available for its customers: Consumer Credit Scheme Special Deposit Scheme Monthly Savings Scheme Credit Card Saving Insurance Scheme Western Union Money Transfer 4.15.1. Consumer Credit Scheme “Buying home appliances? Get them through our Consumer Credit Scheme.”

National Bank’s CCS gives a great opportunity to its customers to buy house and office items on easy installments. This scheme gives an advantage of part payment to cope with high price tags of many necessary home and office appliances. A consumer is the ultimate user of a good. Thus, “Consumer credit” is the credit, which directly comes into the use of consumer.

Objectives of Consumer Credit Scheme: The Objectives of CCS of National Bank Ltd. is as follows: a. To bring the credit facility to wide range of customers. b. To provide financial assistance to the limited income group people toward buying utility products. c. To help the professionals to raise their living standard. d. To participate in the socio-economic development of the country.

Goods and services under the scheme: Under the “Consumer Credit Scheme” NBL grants pecuniary help for the following goods and services. a. Private car and station wagon new and reconditioned. b. Refrigerator and deep fridge. c. Air cooler, Air condition, Room-heater, Water Purifier. d. Sewing machine. e. Photocopier. f. Generator. g. Other goods that are not mentioned above but are considered essential 4.15.2. Special Deposit Scheme “Add to your monthly income, add to your solvency.”

For most of the people on fixed income, this opportunity to supplement their monthly earning is a golden one. And NBL’s Special Deposit Scheme gives a customer just that.

Under this scheme, customers can deposit money for a term of 5 years. The deposited money is fully refundable at the expiry of the term. At the same time, during the term period they can enjoy a monthly profit corresponding to their deposited amount. As for instance, under this scheme a deposit of Tk.55,000/- gives a monthly income of Tk.500/-.

Table-2: Deposited amounts and monthly benefits of SDS Deposited Amount Tk. 55,000/Tk. 1,10,000/-

Monthly Benefit Tk. 500/Tk. 1,000/-

Tk. 1,65,000/Tk. 2,20,000/-

Tk. 1,500/Tk. 2,000/-

4.15.3. Monthly Savings Scheme “See your small savings grow with NBL.” This scheme is specially designed for the people of the limited income. This scheme helps to accrue small monthly savings into a significant sum at the end of the term. So, after the expiry of the term period the depositor will have a sizeable amount to withdraw.

National Bank Ltd. has got quick response in this project. A depositor can deposit 500-10000 Taka monthly for 3-8 years.

Table-3: Monthly installments and returns of MSS Monthly Installment

Return after 3 years

Return after 5 years

Return after 8 years

500/1000/2000/3000/4000/5000/10000/-

9.00% 20,627/41,255/82,510/1,23,765/1,65,020/2,06,274/4,12,549/-

9.25% 37,896/75,791/1,51,583/2,27,374/3,03,166/3,78,957/7,57,914/-

9.50% 70,849/1,41,697/2,83,394/4,25,091/5,66,788/7,08,485/14,16,970/-

4.15.4. Credit Card

“Safe, Instant and Universal Money”.

Through its Credit Card, National Bank Limited has not only initiated a new scheme but also brought a new life style concept in Bangladesh. Now the dangers and the worries of carrying cash money are memories of the past.

Credit Card comes in both local and international forms, giving the clients the power of buying all over the World. Now customers enjoy the conveniences and advantages of Credit Card as they step into the new millennium.

4.15.5. Saving Insurance Scheme “Worried about the future? NBL has just the scheme for you” This is an uncertain World and the threatening silhouettes of future catastrophes are always looming around. This scheme of NBL gives its customer’s family the protection against the insecurities of the world. This scheme is the first of its kind in Bangladesh. It combines the benefits of regular savings and insurance scheme, so, customers get the usual rate of interest on the deposited amount while they enjoy the protection of a comprehensive insurance coverage. Under this scheme, the beneficiaries will get equal the deposit in case of natural death of the account holder whereas in the event of accidental death of the account holder the beneficiaries will receive twice of the deposit. As

for example, if a customer picks up Easy Class (Tk.50,000/-) he/she will get Tk.50,000/- for natural death and Tk.1,00,000/- for accidental death apart from his/her deposited amount and interest.

Table-4: Deposited amounts and its normal and accidental benefits of SIS Class Deposit Normal Death Benefit Accidental Death Benefit (Including Own Deposit) (Including Own Deposit) Easy 50,000/1,00,000/1,50,000/Convenient 1,00,000/- 2,00,000/3,00,000/Classic 2,00,000/- 4,00,000/6,00,000/Standard 5,00,000/- 10,00,000/15,00,000/4.15.6. Western Union Money Transfer ”Money transfer from anywhere in the World to Bangladesh in minutes.”

Joining with the world's largest money transfer service "Western Union", NBL has introduced Bangladesh to the faster track of money remittance. Now money transfer between Bangladesh and any other part of the globe is safer and faster than ever before.

This simple transfer system, being on line eliminates the complex process and makes it easy and convenient for both the sender and the receiver. Through NBL - Western Union Money Transfer Service, customers’ money will reach its destination within a few sminutes.

For any Further information, please contact: National Bank Limited International Division 18, Dilkusha Commercial Area Dhaka-1000 Bangladesh Tel: 880-2-955 7045 Fax: 880-2-956 3953 4.15.7. NBL ATM Service National Bank Limited has introduced ATM service to its Customers. The card will enable to save its valuable customers from any kind of predicament in emergency situation and time consuming formalities. NBL ATM Card will give its distinguished clients the opportunity to withdraw cash at any time, even in holidays, 24 hours a day, and 7 days a week.

4.16. Consumer Services Expansion Program of NBL: Present age is the age of competition. A good number of new private commercial banks came to banking sector in Bangladesh during the last decade. Foreign banks (Standard chartered, American Express, HSBC, Citibank N.A, etc) also conduct banking business in Bangladesh very successfully.

These new generation banks introduced many attractable products for customers. National Bank Ltd. is also introduced many products to attract customers.

The products introduced during the last five years are as follows: o E-Cash/ATM card. o SWIFT Services. o Power Card.

4.16.2. E- Cash/ ATM CARD: ATM service is the dynamic process of electronic technology in modern banking. National bank Ltd. has elevated services to the highest standard by bringing Electronic Banking (E-Banking) and ATM

services at the doorstep of clients. Today the entire banking system has been undergoing are evolution change in providing improved services to the clients. ATM has made the lifestyle of its clients much easier and comfortable. The note able characteristics of ATM are: o

Payment facility for 24 hours a day

o

Arrangement for payment of bills

o

Instant inquiry

o

Multiple location facility Dhaka, Chittagong, and Sylhet.

4.16.4. SWIFT Services: NBL is one of the first few Bangladesh Banks to obtain membership of SWIFT. SWIFT is a members’ owned cooperative which a first and accurate communication network for financial transaction such as Letter of credit, Fund Transfer etc. By being a member of SWIFT, the bank has opened up possibilities for uninterrupted connectivity with over 5700 user institutions in 150 countries all over the world.

4.16.5. Power Card: In Bangladesh, NBL has first introduced the power card. The use of power card is very easy and the cost of transactions is very low. So anybody can use it like cash to do their daily transaction.

17. Sports and Cultural Activities: Since its inception, NBL has been playing a pioneering role in sponsoring sports and games in the country. NBL was the sponsor of Metropolis Football League and Senior Division Football League last year. Besides, NBL extended substantial patronization to Bangladesh Olympic Association and Bangladesh volleyball Federation in 2003.The bank never hesitates to extend its helping hands to the people as in the days of crisis so also in the exuberant happy moments of cultural events.

18. Market and Target Customers: Due to the predecessor company’s involvement in financing sector of the country, the bank inherited its top corporate customers. Moreover, the bank is involved in import trade financing.

Bulk importers of consumer durable foods, gains, industrial raw materials are its customers. The bank has financed in textile and apparels sectors. The bank has a trade of choosing customers from diversified groups. The bank has first class customers in the construction sectors involved in high-rise building, heavy construction and roads and high way construction.

Chapter-5 General Banking General banking department is the heart of all banking activities .All other departments are linked with this department. It also plays a vital role in deposit mobilization of the branch. National Bank Limited provides different types of accounts, locker facilities, special types of saving scheme and flexibilities of remittance under general banking.

This department performs the general function of banking. In National Bank Ltd. for performing the operation of this department a good number of people are allotted. The general banking department of National Bank (Kishoregonj Branch) consists of the following section: 1.

2.

3.

4.

Dispatch section Accounts opening section Cash Management section Remittance section

5. Deposit section 6. Clearing section 7. Credit Card section 8. Loans & Advances Section 9. Western Union Money Transfer section 10. Accounts section 5.1. DISPATCH SECTION: Dispatch division operates the function of dispatching the intimation letter to the client, IBCA, IBDA, and OBC to the other banks for internal transaction with bank. The officer engaged in the dispatch division maintains two register books to entry all inward and outward documents of the bank by maintaining their serials.

These two types of register books are: 1. Inward mail registers.

2. Outward mail registers.

5.2. ACCOUNT OPENING SECTION: Account opening is the gateway for clients to enter into business with bank. It is the foundation of banker-customer relationship. This is one of the most important sections of a branch, because by opening accounts bank mobilizes funds for investment. Various rules and regulations are maintained and various documents are taken while opening an account. A customer can open different types of accounts through this department. Such as: Table-5: Account opening procedure: Step 1 The account should be properly introduced by any one of the following: • An existing current account holder of the bank.

• Officials of the bank not below the rank of an assistant officer.

• A respectable person of the locality well known to the manager/sub-Manager of the branch concerned.

Step 2 Receiving filled up application in bank's prescribed form mentioning what type of account is desired to be opened.

Step 3 • The form is filled up by the applicant himself / herself.

• Two copies of passport size photographs from individual are taken; in case of firms photographs of all partners are taken.

• Applicants must submit required documents • Application must sign specimen signature sheet and give mandate.

• Introducer's signature and accounts number - verified by legal officer.

Step 4 Authorized officer accepts the application.

Step 5 Minimum balance is deposited - only cash is accepted.

Step 6 Account is opened and a cheque book and deposit book are given to the account holder.

Documents required for opening account: • • • • • •

Individual /Joint Account: Introduction of the account.

Tow photographs of the signatories duly attested by the introducer.

Identity (copy of passport).

Joint Declaration Form (For joint A/C only).

Employee's Certificate (in case of service holder).

•

Partnership Account:

• • • • • • •

Introduction of the account.

Two photographs of the signatories duly attested by the introducer.

Valid copy of Trade License.

Rubber Stamp.

TIN number certificate.

Identity (Copy of passport).

Permission letter from DC/Magistrate (in case of newspaper).

• • • •

Limited company: Introduction of the account.

Two photographs of the signatories duly attested by the Introducer.

Valid copy of Trade License.

• • • •

Board resolution of opening A/C duly certified by the Chairman/Managing Director.

Certificate of Incorporation.

Certificate of Commencement (In case of Public limited company).

Certified (joint stock) true copy of the Memorandum and Article of Association of the Company duly attested by Chairman or Managing Director.

List of directors along with designation & specimen signature.

Latest certified copy of Form - xii (to be certified by register of joint stock companies) (In case of Directorship change).

Rubber Stamp (Seal with designation of each person) Certificate of registration (In case of Insurance Company – Obtained from department of Insurance form the Peoples Republic of BD.)

• • • • • • • • • • • •

Club / societies account: Introduction of the account.

Two photographs for Opening A/C duly certified by President/Secretary.

Board Resolution for Opening A/C duly certified by President/Secretary.

List of Existing Managing Committee.

Registration (if any).

Rubber Stamp.

Permission letter from Bureau of N.G.O. (In case of N.G.O. A/C).

5.3. Cash Management Section: Cash management section of any bank plays vital role in general banking department because it deals with the most liquid assets. The proper management of this section entails overall effectiveness of any bank. NBL has a very equipped cash section.

This section is responsible for the following function: 1. Receipt of deposit.

2. Making payment to the customers.

3. Management of vault of the branch.

5.3.1. Receipt of deposit This section receives deposit or funds from the customer and the collection procedure as follows: • At first, the amount is counted and if ok then verified the purity of the note paid if there is any confusion of the teller.

• •

If the cash notes are satisfactorily sound then the teller marked in color the amount in word over the deposit slip.

At last the receiving officer/ teller signed the deposit slip and by the sign of the authorized officer the deposit of fund finished in favor of a customer.

•

In case of received of clearing cheque, the cheque is scrutinized at first whether the cheque is authenticated as per the NI Act. If satisfied then a crossing is marked so that this cheque never been enchased over the cash counter • Then the amount is kept apparently deposited in the customers account and the cheque proceeds to the clearing house accordingly.

5.3.2. Making payment to the customer The payment is made to the customer only against a valued authentic cheque. the teller has to follow the following steps in making such payment: • Receiving the cheque from the customer.

• Examining the cheque .

In case of examining the cheque, the teller is predated then the date is to be sure about the following questions: i. Date of cheque today’s or not; if it is predated then the date is with in 6 months from today; ii. Amount is written in word and in figure and both is valued same; iii. Signature is installed and it is as it is the signature kept in the bank; iv. There is sufficient amount in the customer’s accounts for making payment.

• If the teller is satisfied regarding the above questions, then he/she debits the respective party a/c for making payment.

• If it is a bearer cheque ( a cheque where the bearer’s name is installed instead of “self”/“cash”) the signature is also taken for the record.

• Finally the “cash paid”seal is marked over the cheque leaf for the collection of the cheque after making the payment to the customers.

5.3.3. Management of the vault The cash section also manages the vault of the branch. The manager of cash section is the in charge of the necessary liquid money in the vault for the payment of the customer. In this regard, there is specific guideline from the central bank for the limit of the amount such as: •

The bank is required to maintain at least 9% of cash balance with Bangladesh on its total paid up capital.

• Limit of cash vault up to Tk.1.5 Crore.

• Limit of a cash counter up to Tk. 1.25 Crore.

• Limit of cash in transit up to Tk. 75 lacs.

So the cash department is to maintain a cash limit of Tk. 2 Crore 45 lac as whole. The excess amount of a branch limit is to be proceeded to the account maintained with Bangladesh Bank.

5.4. Remittance Section: Remittance means transferring of fund through different instruments other than cheque.

Remittance includes both inland and foreign remittance. In this section, only the local remittance is described.

There are two types of remittance: 1. Inward remittance.

2. Outward remittance.

5.4.1. Inward remittance It consists of the following:   

Pay Order payable.

Demand Draft payable.

Telegraphic Transfer payable.

5.4.2. Outward remittance The outward remittance includes the following:  Pay Order issue.  Demand Draft issue.  Telegraphic Transfer issue.

Procedures & Accounting treatment of outward remittance: Specific procedure and accounting journals are made for the transfer and the settlement of the outward remittance Procedures and journals for pay order (PO): Filling of PO application form

Charge commission, vat and postage

Receive Cash/ Ok Transfer Chaque from the client

Preparation of PO & signed by two officers Bearing power of attorney No(PA No)

Handover The PO to the client along with the copy of application form

Fig-2 Procedures and journals for TT/DD: Filling of TT/DD application form

Receive Cash/ Ok Transfer Chaque from the client

Preparation of DD & signed by two officers Bearing power of attorney No(PA No)

Charge commission, vat and postage

Preparation of IBCA by crediting the responding branch and signed by the officers

Handover The DD to the client along with the copy of application form

Test Number tagging &sending the copy to the responding branch

Fig-3

5.5. Deposit Section Deposit is the lifeblood of a bank. From the history and origin of the banking system, deposit collection is the main function of a bank.

5.5.1. Accepting deposits: The deposits that are accepted by NBL like other banks may be classified into two types. These are: a) Demand Deposits b) Time Deposits a) Demand Deposits: These deposits are withdrawn able without notice, e.g. current deposits. National Bank Limited accepts demand deposits through the opening of, o Current account o Savings account o Call deposits from the fellow bankers b) Time Deposits: A deposit which is payable at a fixed date or after a period of notice is a time deposit. National Bank Limited accepts time deposits through Fixed Deposit Receipt (FDR), Short Term Deposit (STD) and Bewared Certificate Deposit (BCD) etc. While accepting these deposits, a contract is done between the bank and the customer. When the banker opens an account in the name of a customer, a contract arises between them. This contract will be valid one only when both the parties are competent to enter into contract. As account opening initiates the fundamental relationship & since the banker has to deal with different kinds of persons with different legal status, National Bank Limited officials remain very much careful about the competency of the customers.

5.6. Clearing Section: Cheques, Pay Order (P.O), Demand Draft (D.D.), Collection of amount from other banks on behalf of its customers are the basic functions of a Clearing Department.

5.6.1. Clearing: Clearing is a system by which a bank can collect customers fund from one bank to another through clearing house.

5.6.2. Clearing House: Clearing House is a place where the representatives of different banks get together to receive and deliver cheque with another banks.

5.6.3. Member of Clearing House: National Bank Ltd. is a scheduled Bank. According to the Article 37(2) of Bangladesh Bank Order, 1972, the banks, which are the member of the clearinghouse, are called as Scheduled Banks. The scheduled banks clear the cheque drawn upon one another through the clearinghouse.

5.6.4. Types of Clearing: There are two types of clearingA. Outward clearing.

B. Inward clearing.

(A) Outward Clearing: When the branches of a bank receive cheque form its customers drawn on the other banks within the local clearing zone for collection through Clearing House, it is Outward Clearing.

(B) Inward Clearing: When the branches of a bank receive cheque drawn on them from other banks in the Clearing House, it is Inward Clearing.

5.6.5. Types of clearing house: There are two type of clearing house.

These are: A) Normal Clearing House.

B) Same day Clearing House.

(A) Normal Clearing House: 1) 1st house: 1st house normally stands at 10 am to 11 am 2) 2nd house: 2nd house normally stands after 3 p.m. and it is known as return house.

(B) Same day Clearing House: 1) 1st house: 1st house normally stands at 11 a.m. to 12 p.m 2) 2nd house: 2nd house normally after 2 p.m. and it is known as return house.

5.6.6. Who will deposit cheque for Clearing?

Only the regular customers i.e. who have Savings, Current, STD & Loan Account in the Bank can deposit cheque for collection of fund through clearing house.

Transfer: 1. Precaution at the time of cheque receiving for Clearing, Collection of LBC, and OBC & Name of the account holder same in the cheque & deposit slip.

2. Amount in The cheque & deposit slip must be same in words & in figure 3. Date in cheque may be on or before (but not more than six months back) clearing house date.

4. Bank & Branch name of the cheque, its number & date in the Deposit slip.

5. Cheque must be signed.

6. Signature for confirmation of date, amount in words / in figure Cutting & Mutilation of cheque.

7. Cheque should be crossed (not for bearer cheque).

8. Account number in the deposit slip must be clear.

9. Depositor's signature in the deposit slip.

5.6.7. Return House Return House means 2nd house where the representatives of the Bank meet after 3 p.m. to receive and deliver dishonored cheque, which place in the 1 st Clearing House. Cheque may be dishonored for any one of the following reasons: 1) Insufficient fund.

2) Amount in figure and word differs.

3) Cheque out of date/ post- dated.

4) Payment stopped by the drawer.

5) Payee's endorsement irregular/ illegible / required.

6) Drawer's signature differs / required.

7) Crossed cheque to be presented through a bank.

8) Other specific reasons not mentioned above.

The dishonor cheque entry in the Return Register & the party is informed about it. Party's signature required in the return register to deliver the dishonor cheque. After duration, the return cheque is sent to the party's mailing address with Return Memo. •

Responsibility of the concerned officer for the Clearing Cheque:

1) Crossing of the cheque.

2) (Computer) posting of the cheque.

3) Clearing seal & proper endorsement of the cheque.

4) Separation of cheque from deposit slip.

5) Sorting of cheque 1st bank wise and then on branch wise.

6) Computer print 1st Clearing House computer validation sheet.

7) Examine computer validation sheet with the deposit slip to justify the computer posting.

8) Copy of computer posting in the floppy disk.

5.6.8. Bills Collection In modern banking the mechanism has become complex as far as smooth transaction and safety is concerned. Customer does pay and receive bill from their counterpart as a result of transaction.

Commercial bank's duty is to collect bills on behalf of their customer.

5.6.9. Types of Bills for Collection a) Outward Bills for Collection (OBC) b) Inward Bills for Collection (IBC) (A) Outward Bills for Collection: OBC means Outward Bills for Collection. OBC exists with different branches of different banks outside the local clearinghouse. Normally two types of OBC: 1) OBC with different branches of other banks.

2) OBC with different branches of the same bank.

Procedure of OBC: 1) Entry in the OBC register.

2) Put OBC number in the cheque.

3) "Crossing seal" on the left corner of the cheque & "payees account will be credited on realization" seal on the back of the cheque with signature of the concerned officer.

4) Dispatch the OBC cheque with forwarding.

5) Reserve the photocopy of the cheque, carbon copy of the forwarding and deposit slip of the cheque in the OBC file.

(B) Inward Bills for Collection: When the banks collect bills as an agent of the collecting branch, the sys tem is known as IBC. In this case the bank will work as an agent of the collection bank. The branch receives a forwarding letter and the bill.

Procedure of IBC: 1. IBC against OBC: To receive the OBC cheque first we have to give entry in the IBC Register.

The IBC number should put on the forwarding of the OBC with date.

2. Deposit of OBC amount: OBC cheque amount is put into the "sundry deposit sundry Creditors account", prepare debit & credit vouch of it. If the OBC cheque is honored, send credit advice (IBCA) with signature & advice number of the concern branch for the OBC amount.

3. If the OBC cheque is dishonored, the concerned branch is informed about it.

4. Again place in the clearing house or send the OBC cheque with Return Memo to the issuing branch according to their information.

5.7. Credit Card Section: Carrying of cash is not so safe in today’s world. There is always a chance of losing or hijacking of cash. On the other hand, the desire to purchase any desired item of one may not be fulfilled for the want of cash at the time of that willingness. To remove these problems, credit card has been introduced which is very popular to face the mentioned problems.

5.7.1. Meaning of Credit Card It is a card (usually plastic) that assures a seller that the person using it has a satisfactory credit rating and that the issuer will see to it that the seller receives payment for the merchandise delivered.

NBL is the first local bank, which introduced credit card & MasterCard in Bangladesh in both local and international market in 1997. MasterCard captured 35% of credit card through the world.

However present market analysis reflects that a large number of people whose average income ranges in above Tk.l0000 are using the credit card. Credit card division is continuing their all-possible efforts for the participation in the globalize Master Card Program. The number of users of the credit cards is increasing day by day.

During the year 2006 the bank has got a profit of Tk.124.25 million from credit card business. NBL also has got the licenses from international brand Visa Card and very soon, it will be launched in the country.

5.7.2. NBL & Credit Card NBL is the first local bank, which introduced credit card & MasterCard in Bangladesh in both local and international market in 1997. MasterCard captured 35% of credit card through the world.

However present market analysis reflects that a large number of people whose average income ranges in above Tk.l0000 are using the credit card. Credit card division is continuing their all-possible efforts for the participation in the globalize Master Card program. The number of users of the credit cards is increasing day by day. During the year 2004 the bank has got a profit of Tk.104.25 million from credit card business. NBL also has got the licenses from international brand Visa Card and very soon, it will be launched in the country 5.7.3. Types of Credit Card National Bank Limited offers mainly two type of credit card according to the geographical area.

These are Local credit card and International credit card. According to the level of income the local

and international credit cards are divided into two categories viz. Gold card and Silver card. These types of credit cards are described below: (a) Local Credit Card: Local credit card is valid only in Bangladesh. Out side Bangladesh, the card is invalid. Local card are two types. They are Gold local card and Silver local card. The card limit of gold local card is Tk.50000 to Tk. 100000 and silver local card is below Tk.50000. (b) International Credit Card: International credit card is valid mainly outside Bangladesh. But for the payment of roaming facilities for Grameen phone, cardholders can use international credit card in Bangladesh. International credit cards are of two types. These are gold international credit card and silver international credit card.

The card limit of gold international credit card is $ 2000 to $4000 and silver international credit card below $2000.

5.7.4. Yearly Charges on Credit Card National Bank Limited receive card fee for new card and renew card from the cardholder. The rate of card fee for new card and renew card are the same. In case of new card the bank receives the card fee with the next month’s bill. The rate of card fee is given in below: Table-6: Yearly charges on credit card Type of card Card fee International Gold Card US$70.00 International Silver card US$ 35.00 Local Gold card Tk.2000.00 Local Silver Card Tk.1200.00 Source: National Bank brochure 2006 5.7.5 Documentation for a Credit Card Any person whose monthly income is over 10000 can be a credit card holder of NBL. The requirements of a card are: For local card: o

The fulfillment of the application form.

o

2 copies of photographs. (If supplementary card is taken then 2 copies of photographs of the nominee).

o

TIN certificate.

o

A security. (MSS, SDS or FDR as lien).

o

Charge documents.

For international card: o

The fulfillment of the application form.

o

2 copies of photographs. (If supplementary card is taken then 2 copies photographs of the nominee).

o

TIN certificate.

o

A security. (MSS, SDS or FDR as lien).

o

Charge documents.

o

The photocopy of passport.

5.7.6. Billing of a Credit Card National Bank Limited offers the cardholder 15 to 45 days credit facilities. For the proper billing the bank divided the cardholder into three cycles. These are 0 cycle, 3 cycle and 5cycle. In 0 cycle hill are prepare and send to the cardholder 1st day or every month and last date of payment is 15 th day of the month. In 3cycle bill are prepare and send to the cardholder 3rd day of every month and last date of payment is 18th day of the month. In 5cycle bill are prepare and send to the cardholder 5 th day of every month and last date of payment is 20 th day of the month. The cardholder can pay the bill any branch of the National Bank. If any cardholder fails to pay the bill within the last date then he/she must pay 2% monthly interest and his/her card stop automatically. But if the cardholder pay minimum bill (10% of the bill) then he/she must pay the interest on the balancing amount and can use the card as usual. On the other hand, if the card holder withdraws any cash amount from the ATM booth (maximum limit is 20% of card limit) a monthly charge of 2.5% is to be charged from the date of withdraw. In that case the cardholder will not get the 45 days credit payment facility.

5.8. Loans & Advances Section: This is the survival unit of the bank. The reason is that until and unless the success of this section, the survival is a big question. This is the main earning unit of the bank. Banks accept deposits from the depositors in condition of providing interest to the depositors in condition of providing interest to them. Now the question is how bank provides interest to their clients. The simple answer is – interest from advances. The bank provides interest to the borrowers because: 

To earn interest from borrowers and give depositors the interests get back. The rest are the profit of the bank.



To accelerate economic development.



To meet the interest groups.

Credit is a continuous process. Recovery of one credit gives rise to another credit. In this process of revolving funds, bank earns income in the form of interest. A bank can invest its fund in many ways.

Bank provides loans and advances to traders, businessmen and industrialists. Moreover, nature of credit may differ in terms of security requirement, disbursement provision, terms and conditions etc.

Bank often uses loans and advances as an alternative to one another. But, academically this concept is incorrect. Academically, Advances is the combination such items where loans is a part only. For this credit section of the banks is known as advance section.

5.8.1. Types of Advances It is not possible to discuss all these types of advances in details in this report but an attempt has been made to analyze the basic difference and characteristics of these advances all in the following manner: 5.8.1. (A) Overdraft: Overdrafts are those drawings, which are allowed by the banker in excess of the balance in account up to a specified amount for definite period. It is given to the businessmen to increase their business activities. There are two forms of overdrafts: •

SOD (Secured Overdraft).

•

Loan General. (LG)

Any deposit in the SOD account is treated as repayment of overdraft. The features of SOD are:

•

The interest rate is 14%.

•

The interest starts from the date of first withdrawal.

•

Only businessmen can open this and he has to be a current account holder of the respective branch of NBL.

The security that is kept against the SOD loan are generally FDR, SDS, MSS etc.

5.8.1. (B) Cash Credit (CC): It is one type of current account. The difference between them is that current account is intended to be an account with credit balance and the CC is an account for drawing in advance. Operation of cash credit is same as that of overdraft. The purpose of cash credit is to meet working capital needs of traders and industrialists. It is given through the Cash Credit (CC) account.

5.8.1. (C): Inland Bills Purchased (IBP): Bank purchases two types of Inland Bills. Such as: •

Clean Bill and

•

Documentary Bill.

Clean Bills: Clean bills are those which require no documents for payments.

Cheques, Demand Draft,

Telegraphic Transfer, and Mail transfer- these are known as clean bills.

Documentary Bills: Documentary bills are those that require related documents for payments like Bills of Exchange, Railway/ Shipment Receipt and Invoice etc. These bills are often created in businesses and bank purchases these before their maturity. Thus, purchases of these bills are one kind of credit to these before their maturity. As bank purchases these bills on behalf of the business so it is one kind of credit to those businesses. After maturity, bank presents it to the drawee for encashment.

5.8.1. (D) Employee Loan: For the betterment of its own employees NBL provides loans. The branch managers and executives get this facility. Repayment is adjusted from their monthly salary on an equal monthly installment.

10% of basic salary is contributed by employee in every month. The staffs can also take loan, which is known as Staff Loan against Provident Fund (SPF).

The repayment is adjusted from their monthly salary. 10% of basic is also contributed to the PF by the bank.

5.8.1. (E) Consumer Credit Scheme: National Bank’s Consumer Credit Scheme gives a great opportunity to buy household and office items on easy installments. This scheme gives the advantage of part payment to cope with the high price tags of many necessary home and office appliances.

To lead a better life NBL provides this credit to consumers to purchase household items as Television, Refrigerator, Personal Computer, Furniture, Car etc. The people with fixed income get this credit. It is a 24 to 48 installments system of 14% interest. The amount allowed to the borrower is 10000/- to 300000/-.

5.8.2. Creation of Charges for Securing Loans:

For the safety of the loan, bank requires security from the borrower so that it can recover the loan by selling security if borrower fails to repay. Creation of charge means making it available as a cover for an advance. The method of charging should be legal, perfect and complete. Securities are charges in order to: •

Protection of interest.

•

Ensuring the recovery of the money lent.

•

Provision against unexpected change.

•

Commitment of the borrower.

A brief description about the securities that is kept against the loans is described below: 5.8.2. (A) Primary Security Security deposited the borrower himself to the loan such as – FDR, Cash, MSS. 5.8.2. (B) Collateral Security Narrow sense – security deposited by a third party to secure the advances for the borrower.

Wider sense – any types of security on which the creditor has a personal right of action on the debtor in respect of advance common method of charging security and their nature of security.

5.8.2. (C) Lien It is the right of the banker to hold the debtor’s property until the debt is discharged – generally retained by the bank in its own custody or to the hands of the third party with lien marked. The third party cannot discharge it without the permission of the bank. In case of need bank needs permission of the court to sell the property.

5.8.2 (D) Assignment Borrower transfers the right of property or debt to the bank. Life Insurance Policy, supply bills, book debt of the borrower can be assigned.

3.8.2. (E) Pledge It is one kind of lien but the bank enjoys more rights on it. In this case, physical transfer of the goods is must to the bank. Bank can sell the property without the intervention of the court in case of default on loan.

5.8.2. (F) Mortgage Mortgage is the transfer of special movable property – like land, building, plant etc. Most common type of mortgage is legal mortgage in which ownership is transferred to the bank by registration of the mortgage deed.

Another method called equitable mortgage is also used in bank for creation of charges. Registration is not required. In both the cases, the mortgaged property is retained in hand of the property.

5.8.3 Principles of Sound Lending: In order to secure a balance between liquidity Profitability, and security, NBL following principles of sound lending: 5.8.3. (A) Liquidity While lending, adequate care is taken to ensure the liquidity of the lien item. In this case, NBL choose such securities, which possess such liquidity.

5.8.3. (B) Safety National Bank exercises the lending function only it is safe and the risk factor is adequately mitigated and covered. Safety depends upon the security offered by the borrower.

5.8.3. (C) Diversity

In order to minimize the risk, National Bank invests its fund in different industries of different industries situated in different regions of the country.

5.8.3. (D) Yield From the commercial point of view, National Bank considers sufficient yield of return while financing a project.

5.8.3 (E) Productive Purpose National Bank exercises its lending function only on productive purpose.

5.8.3 (F) National or Social Interest National Bank also considers national aspect of any project while financing. They take utmost care so that the project cannot be determined to the society as well as to the nation.

5.8.4. Selection of Borrower: In lending, the most important step is the selection of the borrower. Due, to the asymmetric information and moral hazard, banks have to suffer a lot due to the classified loans and advances, which weakens the financial soundness of the bank. If the selection of the borrower is correct, that is the borrower is a good character, capital and capacity or of reliability, resourceful and responsible the bank can easily get the return from them. This point of view, NBL follows the following procedures: 5.8.4. (A) Studying past track record After getting an application for a loan the past record of the applicant is carefully studied. Generally such studies includes i.

Account balances and past transactions.

ii.

Credit report from other banks.

iii.

Information of the industry by studying market feasibility.

iv.

Financial statements (balance sheet, cash flow statement, and income statement). If the borrower is a sole proprietor then the single entry accounting treatment is converted into double entry system.

v.

If the amount is more then TK. 10 lac then report from credit information bureau of Bangladesh Bank is collected.

5.8.4.(B) Borrower analysis Borrower analysis is based on 5-c’s (character, capital, capacity, collateral, creditworthiness) and 3-r (responsibility, reliability and resourcefulness). It follows that the bank forms a rational judgment about the integrity of the borrower which should be undoubted.

5.8.4 (C) Credit approval procedure After receiving the application from the client, National Bank Limited prepares a Credit Line Proposal (CLP) and forwards the same to the Head Office to place before Head Office Credit Committee (HOCC) for approval. It includeso Request for credit limit of customer. o

Project profile/ profile of business.

o

Copy of trade license duty attested.

o

Copy of T I N certificate.

Certificate copy of Memorandum & Articles of Association, certificate of incorporation,

o

certificate of commencement of business, Resolution of the Board, Partnership Deed (where applicable). o

3 years balance sheet and profit & loss account.

o

Personal net worth statement of the owner/ directors/partners etc

o

Valuation certificate of the collateral security in bank’s form with photograph of the security.

o

CIB enquiry form duly filled in (for proposal of above 10 lac).

o

Credit report from other banks.

o

Stock report duly verified.

o

Indent/ Performa invoice/Quotation.

o

Statement of accounts.

5.8.5. Documentation: Documentation can be described as the process of technique of obtaining the relevant documents.

In spite of the fact, that banker leads credit to a borrower after inquiring the character, capital, capacity, collateral, creditworthiness of the borrower NBL obtains proper documents executed from the borrower, and he must obtain proper documents executed from the borrower to protect him against willful defaults. Documentation contains the precise terms of granting loans and thereby serve as important evidence in the law courts if the circumstances so desire. Charge documents as required by the different types of advances are mentioned below: 5.8.5(A) Loan: o

Letter of arrangement.

o

Letter of disbursement.

o

Letter of partnership (firm) or Board of resolution (Limited companies).

o

Letter of pledge.

o

Letter of hypothecation.

o

Letter of lien and ownership.

o

Letter of credit for packing credit.

o

Letter of lien. (in case advance against FDR).

o

Letter of lien and transfer authority.

o

Legal documents for mortgage of property.

o

Copy of sanction letter mentioning detail of terms and condition duly acknowledge by the borrower.

o

Trust receipt.

o

D P Note.

5.8.5 (B) Overdraft o Letter of partnership. o Letter of arrangement. o Letter of continuity. o Letter of lien.

o Letter of lien and ownership/share transfer form (in case of advance against share). o Letter of lien and transfer authority. o Legal documents for mortgage of property. o D P Note.

5.8.5 (C) Cash Credit: o Letter of partnership (partnership firm) or Board of resolution (in case of limited company). o Letter of arrangement. o Letter of continuity. o Letter of hypothecation. (In case of CC). o Legal documents for mortgage of property. o Letter of pledge or arrangement of pledge. o D P note.

5.8.5(D) Bills Purchased: o Letter of partnership (partnership firm) or Board of resolution (in case of limited company). o Letter of arrangement. o Letter of acceptance, where it calls for acceptance by the drawee. o Letter of hypothecation of bill.

5.9. Western Union Money Transfer Section: National bank Ltd. signed an agreement with the Western Union Financial services, USA in 1993.

Millions of people from different parts of the world are sending money with confidence to their near and dear through the western union has the most modern technology for remitting money within quiets possible time from any part of the world through their more than 170000 representatives in 190 countries and regions has established a unique money transfer system with western union of.

Through an online computer system units can be instantly of the world. 56.17 million dollar was remitted to this bank through this organization during the year 2003.NBL brought a substantial amount of foreign exchanges in to the country through the western union in 2003, which is 44% higher than that of 2002 The western union is a globally reputed name in money transfer services and data exchange forever 150 years. Western union has continued its tradition of possessing the latest technology and handling wide scale remittances.

Payment of remittance by expatriate Bangladeshis through the western union are being made at 100 branches of NBL. These branches are connected with the on-line computer system of the western union.

5.10. Accounts section: Accounts Department is called as the nerve Center of the bank. In banking business, transactions are done every day and these transactions are to be recorded properly and systematically as the banks deal with the depositors' money. Improper recording of transactions will lead to the mismatch in the debit side and in the credit side. To avoid these mishaps, the bank provides a separate department; whose function is to check the mistakes in passing vouchers or wrong entries or fraud of forgery.

This department is called as Accounts Department. If any discrepancy arises regarding any transaction this department repot to the concerned department.

Besides these, the branch has to prepare some internal statements as well as some statutory statements, which are to be submitted to the Central Bank and the Head Office. This department prepares all these statements.

Workings of this department: •

Recording the transactions in the cash book.

•

Recording the transactions in general and subsidiary ledger.

•

Preparing the daily position of the branch comprising of deposit and cash.

•

Preparing the daily Statement of Affairs showing all the assets and liability of the branch as per General Ledger and Subsidiary Ledger separately.

•

Making payment of all the expenses of the branch.

•

Recording inters branch fund transfer and providing accounting treatment in this regard.

•

Preparing the monthly salary statements for the employees.

•

Preparing the weekly position for the branch which is sent to the Head Office to maintain Cash Reserve Requirement (C.R.R)

•

Preparing the monthly position for the branch which is sent to the Head Office to maintain Statutory Liquidity Requirement (S.L.R)

•

Make charges for different types of duties.

•

Preparing the budget for the branch by fixing the target regarding profit and deposit so as to take necessary steps to generate and mobilize deposit.

•

Checking of Transaction List.

•

Recording of the vouchers in the Voucher Register

•

Packing of the correct vouchers according to the debit voucher and the credit voucher.

The pictures of Small Loan project of National Bank Ltd. with “ Borandro Bohomukhi Union Kotripokh”:

Finance for goods breeding firm

Finance for Silo Pump Project

Finance for Poultry project

Finance for Nokshi Katha

Chapter-6 Fund Management System 1. Fund Management 6.1.1. Sources of funds and its utilization: The main sources of fund of National Bank are shareholders’ equity and savings of the public which the bank mobilizes as deposits and deploys as short and long term loans and advances as well as invest in different financial institutions including the Bangladesh Bank to earn profit. Total funds of the bank is controlled by and utilized through the Treasury Division, Loan division and merchant of the bank’s total demand and time liabilities are required to be maintained as: Table-7: Sources of funds of NBL Sources of funds Paid up capital Reserve capital Borrowings Deposit of other accounts Other liabilities Total

Sources of Funds

Percentage 1.72% 5.28% 1.45% 86.23% 5.32% 100.00%

Loans and advances Investment Cash and bank balance Call loan Fixed assets Other assets

Source of information- Annual Report 2006 CRR in current account with Bangladesh Bank (on which no interest is received) and the rest 13% are maintained in different approved securities, treasury bills, bonds, debentures and foreign currencies.

In utilizing its resources, the bank keeps in view the need for maintaining required liquidity and earning maximum profit through lending and investing.

Table-8: Application of funds Application of funds Percentage Loans and advances Investment Cash and bank balance Call loan

69.90% 12.25% 9.71% 2.59%

Fixed assets Other assets Total

3.48% 2.07% 100.00% Application of funds

Loans and advances Investment Cash and bank balance Call loan Fixed assets Other assets

Source of information- Annual Report 2006 6.1.2. Function of NBL as collector of bank funds: Generally National Bank collects funds from three sources.

These are: a) Capital b) Deposit c) Borrowed fund A) Capital Capital is the first source of each bank’s fund. NBL was incorporated under the Registrar of Joint Stock Companies on 15th March, 1983 as the first private sector bank of the country with an authorized capital of Tk. 10 corer and a paid up capital of Tk. 4.4 corer. With an initial public offering of Tk.3.60 corer, the bank was enlisted with the Dhaka Stock Exchange in 1985.

The authorized capital of National Bank increased by Tk. 145 corers to 245 corers in 2006. Through right share issues on 4(four) occasions and bonus share on 8 (eight) occasions, paid up capital of the bank now stands at Tk.80.55 corer, which we believe to have been playing a significant role in easing the liquidity problem in the capital market.

B) Deposit Deposit is the main source of a bank’s fund. Despite the adverse impact of high prices of oil and other essential commodities in the international market, phasing out of the MFA, soaring inflation in the domestic economy and labor and political interest in the country, National Bank Limited has been able to maintain its trend of growth in 2006. Total deposits mobilized by NBL in 2006 stood at Tk. 4035.08 core, which is higher by Tk. 736.68 corer or 22.33% than in 2005. This has been possible as a result of proper directions and guidance of a prudent and farsighted Board of Directors, timely adaptation of appropriate measures under changing condition in the economy, strict observance of risk management principles, close review and analyzing of money and capital market conditions, intensive supervision, strengthening of internal control and, above all, relentless efforts of a team efficient workplace under the leadership of a worthy Managing Director. In order to keep the growth continues, priority is given to the mobilization of costless and low cost deposits. Deposit resources are raised by undertaking special saving mobilization programmers at different intervals through the year.

Types of deposits All the deposits of National Bank Limited may be classified as follow: • Current Account • Saving Account • Fixed Deposit Account C) Borrowed funds:

Sometimes bank faces liquidity crisis. To handle this type of problem NB borrows funds from other banks or resources. This type borrowed fund may be short or long term. Long term borrowed fund may use as capital.

6.1.3. Function of NBL as the user of funds: National Bank limited collects funds through deposit, capital rising and borrowing. These funds are able to earn income. Banks invest these funds after confirming the short term and long term liquidity position. If bank holds its fund idle, it may occur losses. On the other hand, if bank invests all the funds it may cause liquidity crisis. As a good bank, NBL tries to mat6ch its liquidity position and the fund invested. The funds that the bank keeps for maintaining liquidity position may not generate profit. But bankers have to interest on deposit.

Therefore National Bank Limited like other banks do the following functions: • • •

Investment function.

Lending function.

Cash assets function: • Cash in vault.

• Items in the process of collection.

• Balance with the central bank.

• Balance with the other bank.

• Other function.

6.1.4. Performance evolution of NBL: National Bank Limited also runs profit and loss basis like other business enterprise. It means that NBL is able to provide more dividends to the shareholders as a good bank. Like other enterprises, banks NBL face some risk. As long as it can minimize its risks, it can maximize its profits.

For the purpose of evaluating performance, managers of NBL determine some ratios related to a particular risk .The list of these ratios and the present condition of NBL in these ratios are given below : Table-9: Credit Risks Particulars Ratio of net loan losses and total loan Ratio of provision for loan losses total loan Ratio of classified loan and total loan Ratio of provision for loan losses and total loan

Ratio 2.23% 2.61% 6.01% 21.06%

Table-10: Liquidity Risks Particulars Ratio of total paid up capital and total assets Ratio of total deposits and total assets Ratio of purchases bill and total assets Ratio of book value and market value of share Ratio of bill above six month and total assets

Ratio 1.72% 86.23% 6.6% 53.5% 0.9%

Table-11: Interest rate Risks Particulars Ratio of interest earning assets and total assets

Ratio 95.6%

Ratio of not interest earning assets and total assets

4.4%

Ratio of net interest income and total operating income Trend of increase in interest income Table-12: Capital risks Particulars Ratio of share capital and total assets Ratio of fixed assets and total assets Ratio of total liabilities and total assets Ratio of dividend and total income

37.34% 46.26%

Ratio 7% 2.5% 93% 5.6%

Table-13: Operating risk Particulars Ratio Earning per share 63.01 (Tk) Ratio of total operating expenses and total assets 4.6% Source of information-Annual Report 2006 6.1.5. Indicators of a successful bank: It is important to identify a successful bank for banking. Successful bank means those banks that have a low loan risk, good profitability and sound liquidity position. For understanding whether a bank is successful or not, bank’s one year performance is compared with previous year performance.

This process is generally known as ratio analysis. Some of these ratios and present condition of NBL in these cases are given below: Table-14: Indicators of a successful bank: Higher ratio indicating successful bank

Ratio in NBL

Ratio of net interest income and total assets Ratio of total investment and total assets Ratio of earning assets and total assets Ratio of current deposit and total liability Employees average salaries Lower ratio indicating successful bank

2.61% 12.24% 95.60% 7.90% 360585(Tk)

Comments about NBL’s performance Income is very low Invest. should increase Highly satisfactory Not satisfactory Not bad

Ratio of interest expenses and total assets Ratio of expenses other than interest and total assets Ratio of loan losses provision and total assets Ratio of loan losses and total loan

5.23% 4.6%

Satisfactory Satisfactory

4.7% 2.2%

good Satisfactory

Source of information-Annual Report 2006 2. Liquidity Management 6.2.1. Meaning of liquidity “The liquidity means the banks either has the right amount of immediately spend able funds on (in its each amount) or can raise the necessary fund by borrowing or selling assets” ----------------------------Peter S. Rose “The ability to convert assets into cash with little risk of loss of principle value” --------------------Grade and Spencer

“An individual bank liquidity is the ability to pay depositors on demand, disburse loan installments as committed and make other payments when due.”

-------------------------------A.R. Khan 6.2.2. Liquid assets of NBL: Every bank must maintain the liquidity ratio prescribed by the Bangladesh Bank. The liquid assets of NBL to meet the customer demand are given below: Table-15: Liquid assets of NBL Particulars Amount (in Tk) Cash in vault 71,78,20,399 Money at call and short notice 1,21,00,00,000 Balance with Bangladesh Bank 2,40,88,57,773 Balance with the sister and other banks 1,41,81,12,923 Source of data- Annual report 2006 6.2.3. Nature of National Bank Liquidity:  Liquid assets = Liquid liability  Holding of easily convertible cash to meet shortage of cash assets.  Mitigation of cash shortage by creation of creditors and borrowings.

6.2.4. Types of Liquidity: Each bank maintains different types of liquidity according to their business nature. National Bank maintains 6 (six) types of liquidity.

These are mentioned below. a. Immediate Liquidity. b. Short Term Liquidity. c. Long Term Liquidity. d. Contingent Liquidity. e. Seasonal Liquidity. f. Economic Social Liquidity.

6.2.5. Demand and Supply for Bank Liquidity: Demand for liquidity means demand of clients, interest person, and group of bank on account of liquidity.

Supply of liquidity means the source of fund from which bank get the supply of fund on demand.

The nature of demand for the liquidity of NBL’s funds and supply of liquidity is given below: Table-16: Demand of and Supply for Bank Liquidity Supply of liquidity assets: Demand for liquidity assets Increase of deposit Drawing from deposit Income from services other than deposits Disbursement of loan installments.

Payments on loans, loan installment, interest Expenses on bank services and disbursement on loan Receipt of sale proceed of bank assets Payment of borrowing Borrowing from money market Payment of other short term liability Borrowing from Central Bank Cash dividends paid to shareholders

6.2.6. Handling bank liquidity crisis: Sensitive problems of NBL relating to liquidity are mentioned below: a. b. c. d.

Short term funds are used in long term investment.

Large proportion of liabilities is paid in that time period.

Over sensitiveness of interest rate.

Indifferences and lack of close observation of the deposit and loan behavior of the prime customers and industrial customers. e. Inefficient customer services. f. Maintain linkage with the bank rating agencies. g. Increase influence in the money market. h. Enhancing the skill of loan recovery and loan sanction.

6.2.7. Liquidity Management Strategy for bank: Assets conversion strategieso Treasury bills. o Collection of government fund through other organization. o REPO. o Deposit with other bank. o Bond and notes issued by local government. o Debenture of government organization. o Resale of banker acceptances in local secondary market. o Short term commercial debenture.

Liquidity management strategieso Fund of Central Bank, payable on demand to institution. o Easily salable less risk debentures repurchase under agreement. o Large certificates of deposits belong to the government and NGOs. o Borrowing from reserves on government debenture discounted Central Bank fund.

Balance liquidity management strategiesBalance liquidity management strategies means adjustment of assets conversion strategy and liquidity strategy.

6.2.8. Management of day to day cash in bank: Like other banks, NBL is a business concern which deals with cash. Owners of the bank are not the owners of the cash because the most of the amount of cash fund comes from the depositors.

Generally the capital of the bank owners is not higher than 4% of the total fund. Deposit of the other depositors is the principle instrument of the bank business. So the bank fund must be properly utilized for running the bank business well.

Functions of day to day management of cash of NBL are as follows: a. Inflow of cash in a planning way. b. Outflow of cash payment in due time without giving advances. c. Cash balance maintains in an equilibrium position. d. Filling up the lacking of the cash balance for the primary and secondary reserve. e. Excess reserve must invest in profitable sector for better return.

Basic assets accounts for cash management:

a. b. c. d.

Currency and coin in the bank vault.

Due from the Central Bank.

Due from other commercial bank.

Cash items in the process of collection.

Management chart of day to day cash in bank

1. Minimum cash level

5. Reserve

2. Cash inflow

Other bank Account

4. Additional Cash Fig-4 --------------------------------------------------3. Deposit Management

Investment

3. Cash outflow

6.3.1. Meaning of Deposit Management: Deposits are the main part of a bank fund. It is almost impossible to think a bank without deposit. So every bank try to maximize its profit, try to secure it and try to maintain an easy flow deposit. Money market and capital market transactions make deposit collection process for bank. Notice that few years ago current deposit was higher than term deposit. But at present depositors like to keep their fund as term deposit.

These deposits have an impact on the banks investment and lending policy. So, banks try to increase their deposits by offering attractive package to the depositors. Depositors have their own choice that is changing with time. With this change the banks introduce new deposit collection policy.

These activities of bank related with deposit are known as deposit management.

6.3.2. Objectives of bank deposit: National Bank Limited mainly collects deposits for increasing its fund. Other than increasing it deposits, NBL has some other objectives.

These are: a. Collect bank fund. b. Ensure productive investment of the savings of the clients, c. Extend the scope of the loan.

d. Fulfill the excess need of money. e. Participation in maintaining social responsibility.

6.3.3. Factors on which the level of NBL’s deposit depends: a. b. c. d. e. f. g. h. i.

Rate of interest.

Physical feature of the branch.

Use of modern and electronic technology.

Skill of bank executive.

Innovation of new services.

Attractive loan and investment scheme policy.

Suitable location of the branches.

Advantage of early stage in a specific location.

Economic condition.

6.3.4. Deposit Processing: Deposit processing start from account opening section and with the transaction in account section.

Notice that every activities of the accountholder have an impact on the books of account of the bank.

The steps of deposit processing are given below: 1. Account opening section gives suggestions to the customer about the suitable accounts that the bank have for their clients.

2. Acceptance of necessary application, photograph and documents.

3. Checking department scrutiny that customers submitted with application.

4. After scrutiny bank manager gives permission to open a new account.

5. Then customer has to deposit required money as initial deposit.

6. In computerized banking system new account is initiated and account holders profile entered into the databases.

7. Delivered checkbook, passbook and deposit receipt to the account holder.

8. In manual banking system, a ledger folio is specified for book keeping of the new account.

9. After a specific period account statement sent to the account holder.

10. Banks review the accounts and verified the correction of the balance of the account.

11. Banks also try to influence the potential depositors to open account with them.

6.3.5. Trends of NBL in deposit: The growth rate of NBL in deposit is highly satisfactory. NBL has been continuously increasing its deposit amount day by day. In the last year the bank was more successful to increase its deposit than any other previous year. The total deposit mobilized by NBL in 2006 stood at Tk. 4035.08 core, which is higher by Tk. 736.68 corer or 22.33% than in 2005. Five years trend of NBL in deposit with loan and investment is given below

Table-17: Five years trend in deposit, loan and investment Particulars/Year 2002 2003

2004

2005

2006

Deposit

26276.26

27762.12

28973.39

32984.05

40350.87

Loan

21677.96

22257.15

23129.65

27020.21

32709.68

3839.60

4044.20

4374.17

3564.82

5730.38

Investment 50000 40000 30000

Deposit Loan

20000

Investment

10000 0

s .

1

2

3

4

5

Source of information-Annual Report 2006

--------------------------------------------------------------------- 4. Capital Management 6.4.1. Meaning of Capital: The term bank capital refers principally to funds contributed by the bank’s owner, consisting of stock reserves and those earning that are retained in the bank.

6.4.2. Types of Capital: Like all other banks, National Bank has two types of capital.

These are: (A) Primary Capital (B) Secondary Capital (A) Primary capital and instruments of primary capital: a. Ordinary share. b. Perpetual preferred share. c. Share premium. d. Undistributed profit. e. Mandatory convertible instrument f. Loan reserve.

(B) Secondary capital and instruments of secondary capital: a. Limited life stock share. b. Subordinated notes and debentures. c. Mandatory convertible instruments not eligible for primary capital.

6.4.3. Instrument of raising bank capital: At national bank, there are two types of documents.

These are: a. Equity based instruments. b. Debenture based instruments.

Table-18: List of capital instruments Equity based instruments 1. Common stock.

2. Preferred stock convertible.

3. Adjustable rate preferred stock.

4. Employee stock option plan.

5. Employee stock opinion trust 6. Preferred stock.

Debenture based instruments 1. Rest of distribution but undermanned claim.

2. Dividend at a specific rate.

3. Convertible into ordinary share.

4. Rate adjusted dividend.

5. Annual general dividend.

6. Annual general dividend for the welfare of the employee.

6.4.4. Importance of bank capital: Like any other bank, National Bank requires capital for the following reason: a. b. c. d.

For building public confidence.

To provide the normal hazard and unforeseen contingencies.

To act as a cushion in times of restricted monetary policy.

To raise awareness that bank owners have state along with the depositors in the supply loan able fund. e. To obtain permission for opening new branches. f. To avoid punitive measures for reason of capital adequacy.

6.4.5. Function of bank capital: The functions of capital in the National Bank are given below:

a. b. c. d. e.

Acquire the physical plant and basic necessities needed to render banking services.

Act as one of the source s of funds for loan and investment.

Protect the uninsured depositors in the events of insolvency and liquidation.

Act as an unanticipated loss restraint.

Serve as a regulatory restraint.

6.4.6. Planning of bank capital:

Objectives Maximization of the shareholders, assets Technical planning Long term growth & maximization of profit Profit planning Annual growth & profit target Planned capital structure Planned dividend Financing plan Target capital structure Target dividend technique Cost of fund minimization

Fig-5 6.4.7. Capital planning process of NBL: Capital planning is the part of bank assets and liabilities management. Bank fix up the further targeted profit by considering the interest and other income and expenses of last year. National Bank follows the following three steps in capital planning: 1. Generate preformed balance sheets and income statements for the bank.

2. Assume / select a dividend layout.

3. Analyze the cost and benefit of alternative source of external capital.

6.4.8. Measures of capital adequacy of National bank: Adequacy is a relative term. Adequacy of capital is not same for all banks. It differs from bank to bank. Capital adequacy of a National Bank depended on the following subjects:          

The quality of bank management.

The liquidity of bank assets.

The history of earning and retention there of.

The liquidity and character of ownership.

The burden of meeting occupancy expenses.

The potential volatility of deposit structure.

The quality of operating procedures.

The capacity to meet the present and future financial needs of their trade areas. Considering the competition it faces.

Variation in the use of technology.

Need for placement of assets.

6.4.9. Capital adequacy ratio: For the purpose of determining the capital adequacy, National Bank Limited measures the following ratio for the total capital of NBL and also for the capital of its each branch’s capital Table-19: Capital adequacy ratio Particulars

Ratio

Equity capital to total assets Equity capital to total deposit Equity capital to loan and discount Total capital to total assets Loans to total capital Classified assets to total assets Fixed assets to total capital

0.07:1 0.08:1 0.10:1 0.69:1 10:1 0.03:1 0.50:1

-----------------------------------------------------------------------5. Reserve Management 6.5.1. Meaning of reserve: “A portion of the bank fund which has been set aside for the purpose of assuring its ability to meet its liabilities to depositors in cash. Minimum reserves to be maintained against demand and time deposits are usually specialized banking law.”

--------------------------Dictionary of Banking and Finance 6.5.2. Types of Reserves: Every bank maintains some required reserve funds to meet some specific requirements of Central Bank and to fulfill the condition of Banking Law. National Bank Limited has maintaining the following reserve funds: 6.5.2.1. Primary Reserve: Like any other bank, NBL has deposited a portion of its total deposit at Central Bank and also a portion in its own vault with the knowledge of Central Bank.

(A)Constituents of Primary Reserve: Primary reserves are not only the reserve that maintain with the central bank. It has some other components. Like any other bank the primary reserve of NBL is consisted of the following components: o o o

Cash in hand.

Balance with central bank.

Demand deposit with other banks

(B) Function of Primary Reserve: • It protects the bank from possible liquidity crisis.

• It plays the role of first line of defense.

• It enables the bank to satisfy depositors claim instantaneous.

• It enables the bank to perform the expected on the community.

• It enables the bank to meet the establishment expenses.

(C) Types of Primary Reserve: There are two types of reserve. Such asI. Statutory reserve

II. Working reserve Statutory Reserve: It is one kind of stature cash reserves which are maintained by the order of Central Bank on the basis of deposits. At present the normal rate is 9% in Bangladesh. It varies from country to country.

Working Reserve: It is the excess reserve out of the statutory reserve kept in Central Bank on current account as cash or cash equivalent. At present the normal rate of working reserve is 18%.

(D) Factors determining the working reserve: All the factors, on which the amount of working reserve depends, can be divided into two groups.

These are: • Internal factors • External factors We can show these factors by using a chart:

Factors determining working reserve

Internal factors

External factors

National factors

1. Label of bank operation 2. Structure of deposit 3. Size of deposit account 4. Ownership of deposit account 5. Size of secondary reserve 6. Willingness and experience of judgment of working reserve 7. Variation in the size of current account of the other bank

1. Availability and cost of borrowing 2. Condition of national economy and commerce 3. Efficiency of the clearing house Fig-6 Fig-6

6.5.2.2. Secondary Reserve:

Local factors

1. Location of the bank.

2. Variation of banking habits of the clients 3. Condition of the business locality.

4. Seasonal influence 5. Location of other bank 6. Volume of working reserve

NBL maintain secondary reserve to protect liquidity for forecast able cash need as well as more remote contingencies. NBL maintains the following secondary reserve • Treasury bills • Short term securities

(A) Condition of Secondary Reserve: Secondary reserve is not keep in cash. But this type of reserve can easily convert into liquid assets at any time. This reserve is considered as assets on the basis of some condition. These conditions are as follows: • Convertibility.

• Low risk.

• Yield.

Secondary reserve must be convertible into cash in a short time. Before making investment in secondary reserve, the management of NBL gives the highest attention in the fact that it will make no loss at the time of return. The turn value must be greater or at least equal.

(B) Function of Recondary reserve: • It helps the bank to avoid liquidity crisis.

• It earns a moderate income.

• It helps the bank to maintain the two opposite principles- profitability and liquidity.

(C) Secondary Reserve Assets: The secondary reserve assets of NBL are mentioned below: • Call loans to stockholders and commercial bank.

• Short term loans to commercial bank.

• Short term loans secured against self-liquidating assets.

• Investment in treasury bills.

• Promissory notes on short period maturity.

• Discounting of nuisance bill eligible for rediscounting from central bank.

• Short period debenture of companies of unimpeachable credit standing.

• Certificates of deposit.

• Govt. notes and bonds.

• Bonds and securities of Govt. Agencies.

• Bonds and securities of Govt. units.

(D) Factors determining Secondary Reserves:

The management of NBL considers the following factors in determining the secondary reserve

Factors determining secondary reserve

Internal factors

External factors

National factors 1. Structure of deposit 2. Ownership of deposit 3. Size of deposit 4. Nature of bank loan 5. Maturity & diversification 6. Access to money market.

1. National economic condition 2. Political condition 3. Monetary policy 4. Taxation policy

Local factors

1. Movement of the local population 2. Character of the local population 3. Fathers of local economy

Fig-7

------------------------------------------------------------6. Loan Management 6.6.1. Definition of Loan Policy: “A loan policy indicates the use of the fund collected from the bank shareholders and the depositors.�

Loan policy is essential for the bank in order to attain its objectives and to serve the people.

Awareness before lending: Responsibility of preparing loan policy The board of directors set up the policy of loan. This policy may be changed according to the demand of customers or may be made suitable for the changing environment.

Written/ Unwritten Policy: Maximum policies are written which help both the parties to avoid any kind of misunderstanding.

6.6.2. Weakness of Loan Administration: Loan management is one of the important functions of the bank. Loan recovery largely depends on good loan administration .The following weaknesses of NBL is responsible for creating problem in loan administration:

o o o o o

Sometimes the officers disburse loan beyond its policy.

The unclear and flexible terms and conditions of loan sanctioned.

Loans are centralized to the extreme limited area.

Inability of the officer to identify the fund flow and Cash follow of the borrower.

The chart of loan administration is given the next page

Board of directors

Active management Loan committee of the board High loan officials Loan managers

Officers of loan committee Other loan sanction

Customer loan sanction Over draft and cash loan

Applica tion receive section

Loan informa tion section

Loan inquire section

Loan supervising section

Fig-8

Record section

Loan proposal & Valuation section

6.6.3. Steps in Loan Operations: The NBL follows the following steps in order to sanction a loan to customer and recover it.

Step-1: Collect loan application.

Step-2: Collect necessary information.

Step-3: Analyze the loan.

Step-4: Take final decision to sanction the loan.

Step-5: Prepare necessary documents.

Step-6: Complete the loan agreement.

Step-7: Maintenance of accounting system of loan Step-8: Observe the implementation of loan agreement.

Step-9: Recovery of loan.

6.6.4. Steps in Loan Analysis: NBL follows the following steps in the case of loan analysis

5. Examination of sensitive information regarding risk

4. Collection of full information

3. Identification and detail analysis of primary risk 6. Micro analysis of risk 2. Information and data collection about loan

7. Taking final decision on the basis of analysis

1. Fundamental information collection about loan application

8. Set up loan structure according to the positive decision Fig-9

6.6.5 View Points of Credit Analysis:

CAMPARI C=Character A=Amount M=Means P=Purpose A=Accountability R= Risk I=Insurance

5 R’s 1. Responsibilities 2. Reliability 3. Respectability 4. Resources 5. Return possibility

5 C’s Credit analysis

PARSAR P=Purpose A=Amount R=Reason A= Ability of payment S= Source of payment R= Risk Fig-10

6.6.4. Considering factor: Officers consider the following factors before sectioning loan to any party:

1. Character 2. Capacity 3. Capital 4. Collateral 5. Condition

• • • •

Background of the applicant regarding loan and financial performance.

Ability of using the loan and also the character of the applicant.

Ability of the applicant to return the loan.

If the applicant faces any problem during the planning, evaluate the performance of his existing capital.

•

National and international factors that have influence on the applicant on his ability to return at present and planning situation.

• Elements of special risk- that may influence to recover the loan 6.6.5. Documents of loan: NBL maintains the following documents in sectioning a loan to a party 1. Principal loan agreement.

2. Application of loan.

3. Financial statement of the loan applicants.

4. Statement of loan analysis.

5. Certificates of the securities.

6. Power of attorney and his signature on behalf of the borrower.

7. Decision of the board of directors on behalf of the borrowing firm.

8. Assurance certificate of the competent authority.

9. Financial agreement of the guarantor.

10. Copy of mortgage and contract agreement.

11. Certificates of the mortgage property.

6.6.6. Problems in Loan Management: Like all other banks, NBL provides loans to different parties for different purpose. The recovery of all these loans is not certain. The loan which recovery is questionable is the main problem in loan management. But it is possible for the bankers to prevent their loan program from bad ones by detecting the risk elements with them and taking measures in time. For this purpose, first of all, the authorized officer in loan section checks the loan application properly in order to choose the right person for providing the loan. He considers two factors to determine whether the loan is good or bad loan. The factors are willingness and ability to repay the loan. The classification of loans on the basis of these two factors is given below by using a graph:

Willingness to repay + ability to repay

Good loan

Unwillingness to repay + ability to repay Bad/Problem loan

Willingness to repay + disability to repay Unwilling to repay + disability to repay Fig-11 6.6.7. Handing Loan Management Problems: NBL takes the following steps to recovery the problem loan

0

Measures for the recovery of problem loans

Banks own steps in relation to problem loans

Legal action through court

General recovery suit

Recovery suit by liquidation

Preventive steps

Curative steps

Discussion & advice Arrangement of new loans Additional collateral Advice for inventory control Accountability of loan officials Limit based loan Discoursing loan of director Maintenance of property Loan supervision & review

Adjusting financing structure Additional loan facility Change of repayment schedule Correction of loan diversion Advice to merge Reduction of client overhead expenses Advice to change client’s credit policy

Fig-12

Chapter-7

Results and Findings

Results and Findings After analyzing the annual report and other papers, the evolution of performance analysis and on the basis of my study I have got some findings about the National Bank Limited. These are mentioned below:  

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NBL is the pioneer of private sector banking business in Bangladesh. . As a result it has a huge branch operation with 100 branches.

The strength of the Bank lies on the top management of the company and the financial soundness of the sponsors, as they are all well reputed personalities in the Bangladesh. This impressive lay of National Bank Ltd. helps to have a good image.

In general banking department, they follow the traditional banking system. The entire general banking procedure is not fully computerized.

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Computerization is speeding up the performance of the organization. The top management recently has to decide to start online banking system. This decision will motivate the employees who are very effective in computer skills.

They are not using Data Base Networking in Information Technology (I) Department. So they have to transfer data from branch to branch and branch to head office by using floppy disk and sure it is not a good system.

According to some clients opinion introducer is one of the problems to open an account. If a person who is new of the city wants to open account, it is a problem for him/her to arrange an introducer of SB or CD accounts holder.

Special schemes like consumer credit scheme, monthly saving scheme, insurance scheme etc. are very popular.

The fund management system is very effective. For keeping this system effective, necessary changes in credit policy, loan and advance policy, provision for provision are made continuously.

The top management gives its highest attention in the operation of fund management.

The Officers engaged in loan management is very much aware in choosing right person to provide loan to ensure its recovery.

The top management is more conscious about the liquidity of bank. .

Top management guidance to its subordinates is very much friendly.

Special schemes like consumer credit scheme, monthly saving scheme, insurance scheme etc. are very popular.

The overall working environment of the office is very nice.

Lack of professional data entry operators.

Not a proper skilled human resource in every department.

Inadequate workforce in new branches. One is required to do two or three departments work.

Lack of proper coordination among different departments.

In adequate facilities in maintaining the operation of ATM card, Master card, Visa card etc.

Chapter-8

SWOT and PEST Analysis Of the organization

8.1. SWOT Analysis of the organization: Every organization has some strength that helps it to survive, some weakness that push it backward, some opportunities that helps it to compete and also some threats that keeps it aware. NBL also has some SWOTs. These are mentioned below.

8.1.1. Strengths of the organization: NBL is a very competitive organization. It is operated by a very efficient management group. There is a good employee-employer relationship in its head office and also its all branches. It has a healthy dislike of is competitors. NBL has sponsored to the top programs, seminars, writing competition and gained valuable coverage. In Bangladesh, it has 100 branches to provide services to the people. All these branches are located in such a place in where customers feel comfortable and safe to make their transaction. There are 2529 staffs who work for NBL either in back office or in front office. It has a better financial position than others in the banking business. It is strong at research and development, as is evidenced by its evolving and innovative product & service range. NBL has more social awareness than other banks in Bangladesh right now.

8.1.2. Weaknesses of the organization: The organization does not have a diversified range of products & services. Still the bank is not fully computerized. Manual registers are used in some cases. However, the income of the business is still heavily dependent upon its share on the retail market. It caters less the corporate market than the SCB. This may leave it vulnerable if for any reason its market share erodes. The retail sector is very price sensitive. But it pay very less interest than other banks. So, if they found higher interest rate offering by other private banks of Bangladesh then they will loose customers. It has less promotion campaign than the other bank, because they believe brand value is the top promoting entity for the company.

8.1.3Opportunities of the organization: NBL has a goodwill that it provides different banking services to the people with a minimum cost and cut a very little charge on its transactions. Although it already has 100 branches to provide services

to its customers, it also has the opportunity to build up more branches to make more convenient for the customers. The banking business of NBL and its other social activities have increased day by day.

Sophisticate customer service scheme of the NBL more preferable to customers than other banks.

Products & services development offers NBL many opportunities. There is the opportunity to develop products and services such as insurance business & huge investment in capital market etc.

Such high value items will tend to have associated with them, high profits. There are also global marketing events that can be utilized to support the brand such as the sports & other cultural activities.

8.1.4. Threats of the organization: NBL is exposed to the international nature of trade. It has to deals in different currencies and so costs and margins are not stable over long periods of time. Such an exposure could mean that NBL may be doing banking business at a loss. The new technology emerges to protecting the currency value & use options for better credit rate earnings. The market for banking sector is very competitive. The model developed by NBL to be world’s local bank is now commonly used and to an extent is no longer a basis for sustainable competitive advantage. Competitors are developing alternative brands to take away the market share of NBL. The roles and regulation of the government and conventional laws of Bangladesh are also act as threats for the growth of banking business development in Bangladesh.

As discussed above in weaknesses, the retail banking sector is becoming price competitive. This ultimately means that retail consumers are transacting in bank around for a better deal. So if NBL charges a comparative high price for a bank account service, or loan rate service, then the customers could go to the other bank to compare fees & charges for the exactly the same services, and will take decision the cheaper of the two. Such customer’s price sensitivity is a potential external threat to HSBC. Converting Threats into Opportunities NBL has to expose its international nature of trade more efficiently. It has to recover costs and maintains margins over long periods of time. The new technology has to use to protecting the currency value & use options for better credit rate earnings. NBL has to come to with other sort of criterion that’s why the competitor have to fight very long to copy that exposure. NBL has to give a better deal in the banking fees & charges for the customers for the retail banking sector.

Converting Weaknesses into Strengths: NBL has to focus equally to both ranges of customers either retail or corporate. It has to build up a proper strategy that’s why the corporate customers can be interested to open more of corporate account in NBL. NBL also has to give higher interest rate for various products & services to gain more market share in banking business. They have to advertise their brand name more .They can sponsor their name for various social activities which will bring up NBL value more to the local customers.

They can also make social awareness to the local customers.

8.2. PEST Analysis: We know that a scan of the external macro-environment in which the firm operates can be expressed in terms of the following factors: o Political. o Economic. o Social. o Technological.

NBL considers the PEST analysis very important to understand better the local environment before beginning the marketing process. NBL’s environmental analysis is a continuous process.

NBL’s environment is made up from: The internal environment - internal customers like, office technology, wages and finance etc.

The micro-environment - external customers like agents and distributors, suppliers, competitors The macro-environment - Political and Legal forces, Economic forces, Socio-Cultural forces and Technological forces. These are known as PEST factors.

8.2.1. Political Factors: The political arena has a huge influence upon the regulation of NBL’s businesses. We can consider the following aspects• • •

The political environment is not stable, so as the banking sector. Though the business activity is wholly regulated by Bangladesh Bank, in a country like Bangladesh, NBL’s banking activity is depending on the political culture of Bangladesh.

Government policy influence laws that regulate NBL’s business.

The government's position on marketing ethics, culture & religion is totally based on custom & culture of Bangladesh. So, NBL is following that custom.

8.2.2. Economic Factors: NBL considers the state of a trading economy in the short and long-terms. The interest rates for various accounts are quite attractive. The bank also invested a huge portion of money to the T-bill market. The level of inflation also affects the business values in Bangladesh. Though as being a fore bank it can adjust that inflation very easily.

8.2.3. Socio-Cultural Factors: NBL considers the social and cultural factors considerably. Like• It thinks about the principle religion of the country and gives its employees the best possible benefit for that. Two bonuses in a year are based on two Eid festivals.

• The attitudes towards other products and services of other competitive banks are marked specifically. They try to update their system & procedure in a standard manner.

• Our mother tongue is Bengali. I saw the top level mangers are converse with one another in Bengali.

NBL knows that, the people of Bangladesh are very emotional in nature. So, it tries to adopt that emotion in their business for better understanding the local customer.

8.2.4. Technological Factors: Technology is vital for competitive advantage, and is a major driver of globalization.

NBL allows a better technology for its products and services to be made more cheaply and to a better standard of quality to the customer. These technologies offer consumers and businesses more innovative products and services such as ATM machine.

NBL offers its customers to a new way to communicate with consumers e.g. Customer Relationship Management (CRM) etc.

Chapter-9

Recommendations And Conclusion

Recommendations: I have some points to focus which will help the bank to improve the efficiency as well as the quality of work. The points are as follows: 

Management should set proper planning for its operations of each and every work for the whole bank as well as all branches of NBL.

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Management must design the jobs on priority basis.

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As the top management has decided to start online banking system, necessary steps should be taken to make this decision implement as soon as possible.

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As NBL is a service providing organization, it should introduce new and dynamic services to serve the people and capture the target market.

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It is necessary to assign required qualified manpower for every job.

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Top management could arrange proper training programs for its staffs to improve their qualities in proving services to its customers.

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The proper managerial observation and cooperation are required.

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Different types of product expansion programs should be arranged to attract customers.

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Officers engaged in loan section must be careful in choosing parties for providing loan and collecting required documents. At first, they must be sure about the recovery of the loan and then arrange necessary steps to provide loan.

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Loan policy must be made carefully and top management ensure it that all officers of branches strictly follow them.

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The top management must ensure the liquidity of bank fund to satisfy its customers demand when they make.

All branches should properly maintain all documents on daily basis.

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It must avoid the duplication of work through better communication.

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It also tries to avoid duplication in any case through accuracy and efficiency.

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It is required to develop some effective motivational programs.

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Top management must ensure the proper implication of IT in all branches.

 And most of all ensure proper communication with head office and other branches.

Conclusion: I acknowledged different banking functions and day to bay banking operation on my way to complete this internship.

From my starting day to up to date my practical implementation of customer dealing procedure during the whole period practical orientation in NBL at Kishoregonj branch, I have to try my best to reach a firm and concrete a conclusion very confident way. In this report I have explained my best in respect of my real life experience gathered from different departments. I believe that my realization will be in harmony with most of the banking thinkers Now a day banking sector is more competitive. To achieve a proper reward about performance, it is essential to satisfy its customer by providing them different valuable and dynamic services. Because a satisfied customer will talk to others about the services those he/she is very justifiable enjoying and a satisfied customers statement is more effective than a thousand of commercial advertisement.

People depend on the people – is the mode of human civilization. Therefore, the importance to satisfy customer is increasing day by day in the private commercial sector especially in the private banks.

NBL is so much careful about its fund management system, as all the activities those are required to provide valuable services to its customers to make them satisfy, are related with the fund management system,. NBL always gives its highest attention in monitoring and managing the bank fund, which is consists of fund, capital, reserve, deposit, loan and advance. At present NBL is successful in effective and efficient management. In spite of that, in order to keep its success continue and reach at the pinnacle of success it, its managers, board of directors and employee must have the comprehensive and clear idea about the reserve, fund, loan, capital, deposit and liquidity regarding the smooth control of bank and continue its vital operation toward country’s economic development.