Evaluation of First Security Bank Limited

Evaluation of First Security Bank Limited

Executive Summary The Internship report on “Performance Evaluation of First Security Bank Limited� is expected to give a clear idea about the overall banking as well as the performance of First Security Bank Limited (FSBL). I have started my analysis from discussing the basic issues regarding for any depository financial institution. First I had discussed the generation part of First Security Bank Limited. Then I have focused on the feature those are the core variables for the Bank to success and failure. I have also discussed the mission, objective and goal of FSBL. During the short span of its operation the bank has successfully positioned itself as a acclaimed by business community, from small businessmen or entrepreneurs to large traders and industrial conglomerates, including the top rated corporate borrowers for forward looking business outlook and innovative financing solutions. Although FSBL was established just 10 years ago, it has made a strong position in banking sector of Bangladesh.

In the next part of the report I have discussed different topics regarding its general banking- deposit policy specifically pointing on its different types of deposit. In this part I have focused on different day-to-day operation of First Security Bank Limited. I have mentioned the banks policy as well as procedure of the First Security Bank Limited. The deposit inflow and outflow for the last 5 years has been shown to find the trend. The types of loan and advances provided by First Security Bank Limited have been also discussed. Considering the sources of earnings and expenditure as well as assets and liabilities I have tried to find out the financial performance of the bank over the years.

Ratio analysis has been introduced to get absolute idea. The over all financial performance of the bank is not too bad as, it is a new bank in the financial market. Still it needs to focus on developing the existing services provided by First Security Bank Limited and increasing new services as demanded by the customer.

Finally, I have mentioned some of the problems of First Security Bank Limited as I have found. I have also made comments on performance of First Security Bank Limited and recommendations on the basis of findings for better performance in future.

Chapter 1 Introduction Objective of the study Scope Methodology Data collection procedure Limitation

Introduction Bank is a financial intermediary whose prime function is to move scarce resources in the form of credit from surplus unit to those who borrow for consumption and investment. In a modern society, banks are very much important to the economy because of their ability to create money. Commercial banks are profit seeking enterprises. Balancing risk and return in their portfolio management with the goal of maximizing shareholder wealth. A bank is an organization that engages in the business of banking. Lending comprises a very large portion of a bank's total assets and forms the backbone of the bank. Interest on lending constitutes the highest proportion of income of a bank.

Hence ,the banking sector would play a vital role in the development of the country and efficient and sound banking management would led the country to reach at the highest peak of success.

Objective of the study The Main objective of the study is to “Performance Evaluation of First Security Bank Ltd” through the analysis of some particular aspects. The main objectives are: •

To appraise the performance of employees skilled of FSBL

•

To identify policy recommendations for further improvement.

Scope The task of banking is not that much easy and it has a very wider aspect. So it is quite difficult to get a clear picture about the operations of banking business without being an expert banker. So the study is simply able to give an idea not the whole picture. I have conducted the Banker-Customer and Employee Relationship of First Security Bank Limited (FSBL).

The whole report is divided, mainly into three parts. In the very first part we will focus on the company’s background, management style, Present status etc. In the second part the

entire bank industry will be considered and will be analyzed thoroughly. In the last part some shortfalls, problems of Bank will be taken into account. Recommendations are in the very last portion of the report.

Methodology 1. Primary Sources •

Discussion with officers, senior executives and the valued customers.

2. Secondary Sources Mainly secondary sources are used to prepare the report. Information have collected through informal meeting with the senior officers of the bank. Also we have used the sources like: •

Self perception

•

Annual report of FSBL

•

Newspapers, magazines etc

•

Several Balance Sheet Statement

•

Different types of books related to the banking and finance.

•

Internet

Data collection procedure Types of data: In this report primary and secondary data are used.

Collection Procedure: For primary data direct conversation through a questionnaire with senior executives, other officials and the valued customers.

Secondary data are taken from different annual reports and journals of different banks and Prime bank. The data of Bangladesh Bank were used extensively for industry situation analysis, which is discussed on the second section of the report.

Limitation As the report prepared with a short span of time, the report could not be made comprehensive and conclusive. Some usual constraints I faced during the course of my investigation. Due to the banks policy of maintain secrecy I did not get the opportunity to collect information regarding all departments.

Observing and analyzing the broad performances of a Bank and one of its Branch, is not a easy job by this short duration of time (only three months). I am a not an employee of First Security Bank Limited. Some data could not be collected due to security reason.

Since there is no strong marketing department in this bank, marketing procedures and promotional strategies are not enriched by information. However, omitting this, the report will help us understand the whole management position of this bank, the entire banking industry.

Chapter 2 Overview of First Security Bank Limited (FSBL) Background of FSBL Mission of FSBL Objective and Goals of FSBL Features of FSBL

Principle Products and Services Financial Highlights Balance Sheet of 2007 Board of Directors Management Branch network General Information of FSBL

Overview of First Security Bank Limited (FSBL) Background of FSBL First Security Bank Limited emerged as a new commercial bank to provide efficient banking services and to contribute socio-economic development of the country. The bank commenced its operation August 12, 1999, under the company Act 1994. The bank provides a broad range of financial services to its customers and corporate clients. The Broad of Directors consists of eminent personalities from the realm of commerce and industries in the country.

The company philosophy “A step ahead in time� has been precisely the essence of the legend of Asian success; the bank has been operating with talented and brilliant personnel, equipment with modern technology so as to make it most efficient to meet the challenges of 21st century.

During this short span of time the Bank successful in positioning itself as p progressive and dynamic financial institution in the country. The bank had been widely acclaimed by the business commodity from small businesspersons or entrepreneurs to large traders and

industrial conglomerates included the top rated corporate borrowers for providing innovative financing solutions.

The sponsor and director of the bank are a successful group of prominent local and nonresident Bangladesh investor who has earned high credential and excellent reputation in their respective fields of business at home and abroad.

Mission of FSBL First Security Bank Limited aims to become one of the leading banks in Bangladesh by quality of operations in their banking sector. The bank has some mission to achieve the organizational goals.

These are listed bellow: •

The bank believes in strong capitalization.

•

It maintains high standard corporate and business ethics.

•

First Security Bank Limited extends highest quality of services, which attracts the customers to choose them first.

•

First Security Bank Limited provides products and services that encourage savings.

•

First Security Bank Limited’s main business mission is to obtain fine position in the banking sector of Bangladesh as well as internationally.

•

It also emphasizes on a reasonable return from its investment to satisfy the shareholders.

Objective and Goals of FSBL The objectives and the goals of First Security Bank Limited are the following: •

Their main objective is to maximize profit, which in turn will maximize wealth.

•

First Security Bank Limited is always ready to maintain the highest quality of services by banking technology prudence in management and by applying high standard of business ethics through its established commitment and heritage.

•

First Security Bank Limited is committed to ensure its contribution to national economy by increasing its profitability through professional and disciplined growth strategy for its customer and by creating corporate culture in international banking area.

Feature of FSBL There are many reasons behind the better performance of First Security Bank Limited than any other newly established banks: •

The inner environment of all branches is well decorated.

•

First Security Bank Limited provides attractive interest rate in deposit scheme, which are the highest among other commercial banks.

•

The bank provide loan to the customers at lower interest rate with easy and flexible condition than the other do.

•

L/C commissions and other charges are relatively low than other banks. The bank has established correspondent relationship with many foreign banks.

Principle Products and Services The Bank serves all types of modern, progressive and dynamic business as well as banking services to the customers of all strata of society. During the short span of time, the Bank has been highly recognized and praised by the business community, from small entrepreneurs to large traders and industrial conglomerates, and emerged as the fastest growing among the third generation banks in respect of business and profitability. It has already opened 20 branches in different commercially important places throughout the country to make its services available to the people. First Security Bank Limited successfully marketed its products designed to fulfill the needs of various socio-economic strata. Attractive features of the products have given a distinctive image among the private banks. The Bank has been making continuous endeavor to offer new products and services. However, the principal products and services of the bank include the following: A. Deposit Schemes i. Current Account

ii. Short Term Deposit iii. Sundry Deposit iv. Savings Bank Account v. Fixed Deposit vi. Non-Resident Foreign Currency Account vii. Resident Foreign Currency Account viii. Monthly Savings Scheme ix. Monthly Profit Based Savings Scheme x. Double Benefit Deposit Scheme B. Loans and Advances Schemes i. Term Loan ii. Loan (General) iii. Secured Overdraft iv. Transport Loan v. Cash Credit vi. House Building Loan vii. Payment against Document (PAD) viii. Loan against Trust Receipt (LTR) ix. Consumer Finance Scheme x. Hire-purchase Scheme xi. Small Enterprise Financing C. Services i. Ready Cash Card Services ii. Education Remittance Service � The Bank is a member of SWIFT (Society for Worldwide Inter Bank Financial Telecommunication) � The Bank has already launched Online Banking Service. � The Bank is planning to introduce ATM/DEBIT Card very soon. � The Bank is also planning to introduce Merchant Banking Services.

Figure: 1 Deposit Services of FSBL

Deposit Services

Local Currency Account

Current Account

Savings Account

Fixed Deposit

Short Term deposit

Foreign Currency Account

Non-residential

Residential

Financial Highlights

Particulars

31 Dec 2007

31 Dec 2006

Paid-up Capital

1,000,000,000

900,000,000

Total Capital Fund

1,347,916,019

1,147,285,290

Capital Surplus/(deficit)

(125,708,856)

92,854,020

Total Assets

26,941,780,871 20,448,667,971

Total Deposits

23,504,045,031 17,591,996,452

Total Loans and Advances

18,616,225,315 13,646,387,225

Total Contingent Liabilities and Commitments

5,114,783,363

3,058,703,340

Credit Deposit Ratio (in %)

79.20%

77.57%

Percentage of Classified Loans against total Loans 6.50% and Advances(in

9.75%

Profit before tax & provision

128,530,728

202,623,523

Amount of Classified Loans

1,210,643,000

1,330,787,000

Provision kept against Classified Loans

707,694,000

707,694,000

Provision Surplus/(deficit)

136,733,917

16,630,400

Cost of Fund

9.06%

8.52%

Interest Earning Assets

23,803,097,996 18,326,209,803

Non-interest Earning Assets

3,138,682,875

2,121,458,168

Return on Investment (ROI)(in %)

7.11%

5.97%

Return on Assets (ROA)(in %)

0.47%

0.99%

Income from Investment

177,752,561

123,256,585

Earning Per Share (Tk.)

3.20

(16.28)

Net Income Per Share (Tk)

3.20

(16.28)

Price Earning Ratio (Times)

NA

NA

Management FSBL is functioning with a group of professional management team headed by its Managing Director. Mr. A.A.M Zakaria, with 30 years of banking experience is serving as the managing director. Mr. Zakaria obtained his post graduate degree in economics from Dhaka University. Prior to joining this position he was the deputy managing director of Dutch Bagla Bank Limited. Top management of the Bank is supported by human resource strength of 409 executives and officers. For smooth functioning of the Bank, following committees have been formed: 1. Management committee (MANCOM) comprises of senior members of the management headed by Managing Director of the Bank. All divisional heads are the member of the committee. MANCOM meets on regular basis to discuss relevant agenda.

2. Asset Liability Management Committee (ALCO); headed by the Managing Director, is responsible for balance sheet risk management.

Credit Management FSBL has already adopted the Credit risk management Guidelines issued by the Bangladesh Bank for improving the risk management culture, establishing minimum standards for segregation of duties and responsibilities, and promoting the ongoing process for improvement of the Banking Sector in Bangladesh in the context of

globalization. This puts in place a robust process for proactive management of loan portfolios in order to minimize loss and enhance return to shareholders. The Bank has introduced credit policy guidelines for CRM The Bank has segregated their Credit Operations at the Head Office under the divisions of (1) Credit Division, (2) Corporate Banking Division (3) Credit Administration Division and (4) Credit Monitoring & Recovery Division.

Human Resources Division In FSBL has a separate Human Resources Division (HRD) to manage the employee policies and practices. In 2007 total human resources strength of FSBL was 409. Bank follows a standardized human resources policy. The Bank has defined HR policies including recruitment, training & development, promotion, leave, transfer, and disciplinary action policy. Usually internal recruitment procedures are considered to fill up the mid and top management positions, while entry-level positions are filled with regularly through competitive recruitment exams. The Bank established fully equipped training centre. For HR quality improvement, they conduct training program from their training centre.

IT Division FSBL has an Information Technology Division at the head office to provide IT support to all its branches. The Bank has well documented guideline on information and communication technology (ICT). From the very beginning FSBL was using computerized banking software “PcBank/M” for all the branches. Recently the Bank has replaced PcBank/M software with PcBank2000 to provide online banking facilities to its clients. FSBL is now providing online banking facilities with distributed system. The Bank also has SMS banking service. FSBL has a plan to introduce centralized system for online banking.

Corporate Governance To assess Bank’s corporate governance practices CRAB evaluates the quality of financial reporting and disclosures, strength of internal control system and internal audit function; induction of professionally competent, independent non executive directors on corporate Board, formation of audit committee; delegation of power to executives and staff; protection of shareholder rights etc. First Security Bank Limited has addressed most of

the issues of corporate governance for strengthening organizational strength. The Bank has set up Executive Committee and Audit Committee in this regard. But the Bank has not yet appointed independent director which is required by SEC. 1. Board of Directors FSBL’s Board of Directors comprise 13 members headed by Alhaj Md. Saiful Alam, Chairman of the Board. Mr. Alam is a well-known business personality of the country.

Ms. Sarwar Jahan Maleque, a Sponsor shareholder is the Vice – Chairperson of the Board. A total of 8 meetings were held by the board in 2007. Most of the directors participated in the meetings.

2. Executive Committee FSBL has constituted 9 members executive committee of the board as per Bangladesh Bank guidelines to ensure corporate governance in the business. The executive committee of the board are responsible for developing policy and strategy for smooth operations of business and business development of the Bank to ensure maximization of shareholders wealth protecting other stakeholders’ interest in the company. Mr. Alhaj Md. Saiful Alam is the chairman of the present Executive Committee of the Bank. It is to be mentioned that Mr. Alam is also the chairman of the Board of Directors. A total of 3 meetings were held by the executive committee in 2007.

3. Audit Committee FSBL has formulated an audit committee so that the committee can play an effective role in formulating an efficient and secured banking system. The Audit Committee has been formed comprising three members of the Board of Directors. Mr. Hamidul Haq, is the convenor of the audit committee. The audit committee convened 3 meetings in 2007.

Delegation of Authority The Board approves the business policy issues. The Executive Committee headed by its Chairman looks into all issues on routine basis. All credit proposals, except those, which fall within the discretionary powers of the management, are placed before the Executive Committee. The level and extent of delegation of authority for credit approvals and operational expenditures are defined clearly in the form of a written Circular of the Bank. For credit approval purposes, there is no

delegation of approving power at branch level.

Internal Control and Compliance System FSBL has separate Internal Control and Compliance division (ICCD) headed by a VP. This Division consists of 3 (three) units namely (a) Audit & Inspection Unit (b) Compliance Unit and (c) Monitoring Unit. At present 06 (six) employees have been working in the ICCD.

Branch network By the end of 2008, the total number of branches of FSBL reached at 29 in six different districts – Dhaka, Gazipur, Chittagong, Rangpur, Khulna and Sylhet.

Being a 3rd generation private commercial bank FSBL offers all the conventional products and services.

General Information of FSBL First Security Bank Limited ( FSBL) was incorporated in Bangladesh on 29 August 1999 as a banking company under Companies Act 1994 to carry on banking business. It obtained permission from Bangladesh Bank on 22 September 1999 to commence its business. The Bank carries banking activities through its Twenty (20) branches in the country. The main motto of this bank is to provide comparative better and improved modern banking services to its customers.

First Security Bank becomes Shariah-based bank .The authorities of First Security Bank Limited have stated that the bank has decided to convert its present conventional banking system into Islamic banking system and introduce full-fledged Islamic Shariah-based banking from January 1, '09. • AB Bank Limited (Merchant Banking Wing) has prepared the Prospectus from information supplied by First Security Bank Limited (the Issuer Company) and also after several discussions with the Chairman, Managing Director, Directors and concerned executives of the Bank. The Directors of both First Security Bank Limited and AB Bank Limited (Merchant Banking Wing) collectively and individually, having made all

reasonable inquiries, confirm that to the best of their knowledge and belief, the information contained herein is true and correct in all material aspects and that there are no other material facts, the omission of which, would make any statement herein misleading.

• No person is authorized to give any information or to make any representation not contained in this Prospectus and if given or made, any such information and representation must not be relied upon as having been authorized by the Bank or AB Bank Limited (Merchant Banking Wing).

• The Issue as contemplated in this Prospectus is made in Bangladesh and is subject to the exclusive jurisdiction of the Courts of Bangladesh. Forwarding this Prospectus to any person resident outside Bangladesh in no way implies that the Issue is made in accordance with the laws of that country or is subject to the jurisdiction of the laws of that country.

• A copy of this Prospectus can be obtained from the Corporate Head Office of First Security Bank Limited, AB Bank Limited (Merchant Banking Wing), the Underwriters and the Stock Exchanges where the securities will be traded.

Chapter 3 Branch Banking General Banking Account Department Loan and Advance Division Foreign Exchange Division

Branch Banking

Bank is nothing but an intermediary between lender (surplus unit) and borrowers (deficit unit). Savings and deposits are the main strength of the banks to provide loan. And the interest earned from the difference borrowing and lending is the major portion of banks income. Banks also earns from variety of operation. Branch banking includes four operational divisions in First Security Bank Limited. They are: 1. General Banking 2. Accounts Division 3. Loan And Advance 4. Foreign Exchange

General Banking General banking is the side where banks offer different alternatives to the clients to deposit and remit their money. Accounts division is also included in general banking. To encourage the clients, bank offers different options in front of their clients. Most of these options are very much similar between the banks, but the customer services and facilities may not be the same. First Security Bank Limited has variety of services provided to the retail as well as for corporate clients.

The services provided under general banking include the following: •

Account opening

•

Account closing

•

Cheque book issue

•

Remittance

•

Clearing

•

Crossing

•

Endorsements

•

Dispatch

Account Department

Recording all kinds of transactions of the Branch, confirming their accuracy and preparing statements are the main function of this department. Now-a-days under computerized Banking system the job of accounts department became very easy.

The functions of the accounts department can be divided into two parts. ď ś Daily functions, and ď ś Periodical functions Account opening Initially all the accounts are opened through deposit money by the customer and these accounts are called deposit account. Normally a person needs to open an account to take services from the bank. Without opening an account, one cannot enjoy variety of services from the bank. Thus, the banking usually begins through the opening of the account with the bank.

Bank accounts are mainly of three (3) types: 1. Current Deposit Account 2. Saving Bank Account 3. Fixed or Time Deposit There are also some other types of account facilities provided by the bank. These are: I. Short Term Deposit (STD) II. Monthly Saving Schemes (MSS) III. Monthly Benefit Saving Scheme (MBSS) IV. Double Benefit Deposit Scheme (DBDS) 1. Current Deposit Account A current account is a running and active account, which may be operated upon any number of times during a working day. It is purely demand deposit account because the bank is bound to pay the amount to the accountholder on demand at any time within the banking hour. There is no restriction on the number and the amount of withdrawals from a current account. Generally the minimum amount to be deposited initially is tk. 1000/for opening a current account.

2. Saving Bank Account A saving account is meant for the people of the lower and middle classes who wish to save a part of their incomes to meet their future need and intend to earn an income from their savings, it encourages savings of non-trading persons, institutions, society and clubs etc. The deposits are mostly small amounts. Frequently withdrawals are not allowed.

•

Opening of Current and saving Account:

A current or a saving account could be opened through the following steps: Step: 1 Application on the prescribed form: The person willing to open a current account with the bank has to apply in the prescribed form and KYC form. The form must be filled up and signed accordingly by the applicant (s).

Step: 2 Documentation: The documents that must be provided by the party/parties willing to open a current account are mentioned according to different aspects: i)

ii)

Individual 

Two copies of passport size photograph



Introducer’s signature in the A/C opening Card & photograph



Nationality Certificate/passport’s photocopy (duly attested)



Nominee’s Photograph



Mother’s name



Date of Birth & age



TIN (if applicable)

Proprietorship 

Two copies of passport size photograph



Introducer’s signature in the A/C opening Card & photograph



Nationality Certificate/passport’s photocopy (duly attested)



Up-to-date copy of trade license



Nominee’s Photograph



Mother’s name



Date of Birth & age

iii)



Seal



TIN

Partnership 

Passport size photograph A/C Operator authorized by partners) Two copies (each)

iv)



Introducer’s signature in the A/C opening Card & photograph



Nationality Certificate/passport’s photocopy (duly attested)



Up-to-date copy of trade license



Seal



TIN



Partnership deed (from Notary public), partnership letter

Limited company 

Passport size photograph A/C Operator (authorized by Board) Two copies (each)



Introducer’s signature in the A/C opening Card & photograph



Company resolution/Constitution



Common seal of Company



Memorandum & Articles of association (Certified by Joint Stock Company)

v)



List of Directors with sign



Certificate of Incorporation



Up-to-date copy of trade license



Seal



TIN

Societies, Clubs, etc 

Passport size photograph A/C Operator (authorized by Board) Two copies (each)



Introducer’s signature in the A/C opening Card & photograph



Nationality Certificate/passport’s photocopy (duly attested)



Up-to-date copy of Office Bearers/ Governing Body/ Managing Committee



Memorandum & Articles of association



Seal

Incase of saving account opening the following documents are required: 

Two copies of passport size photograph



Introducer’s signature in the A/C opening Card & photograph



Nationality Certificate/passport’s photocopy (duly attested)



Nominee’s Photograph



Employer certificate

Step: 3 Introduction to the Applicant: The applicant required to furnish in the application form the names of the referees from whom the banker may make requires regarding the character, integrity and respectability of the applicants. In most cases, the customer of the bank does the introduction or some other person known to the bank by signing on the application form with the account number.

Step: 4 Specimen signature: Every customer is required to supply to his banker with one or more specimens of his/her signature. These signatures are taken on cards, which are preserved by the banker, and his signature of the account holder on the cheque is compared with Specimen signatures.

Step: 5 After the above formalities are over, the banker opens an account in the name of applicant. Then the bank provides the customer with: •

A pay in slip/deposit book: To facilitate the receipt of credit items paid in by a

customer, the bank will provide the customer a pay in slip either loose or in a book forms.

The customer has to fill up the pay in slip at the time of depositing the money with the bank. The casher with his/her initials and stamps will return the counter foil to the customer on the receipt of the money.

•

Cheque Book: To facilitate withdrawals and payments to third parties by the

customer, the bank will also provide a cheque book to the customer. But it is noted that to get a cheque book, the customer has to dully fill up the cheque requisition slip to the banker.  Closing of Current or Saving Account: A customer’s account with a bank may be closed for the following circumstances: 1. Upon the request of a customer, an account can be closed. 

The customer may inform the bank in written of his/her intention to close the account. The customer has to apply to the branch in charge for closing the account. Then the in charge will remark on the account closing application for closing the account.



By drawing a cheque of the whole amount and a nil balance confirmation to be taken from the account holder.



Recover the unused cheque leaves and enter into the “Broken cheque book Register”



Remove the account opening form, specimen signature card and all other papers relating to the closed account.



Remarks of account closing at the ledger folio should be authenticated by the manager of supervising officials

2. The bank may itself ask the customer to close the account when the banker finds that the account is not been operated for a long lime. 

If the account is not operated upon for 6 months the banker will try to do the bilateral communication with the account holder, but if the banker does not then the account becomes “Dormant” account get any response from the account holder



If this not the operated upon for 2 years then the account becomes “inoperative” account.



If the current account lying in “inoperative” current account for many years then the account will be transferred to the “unclaimed deposit account.



A new register for unclaimed deposit account will be maintained called “unclaimed deposit account.



For withdrawal at any amount from the account, permission from head office or controlling office wins is required.

3. Fixed Deposit Receipt: These are the deposits, which are made with the bank for fixed period specified in advance. It is purely a time deposit account. The bank doesn’t maintain cash reserves against deposits and therefore the bank offers higher rates of interest on such deposits. A FDR is issued to the depositor acknowledging receipt of the sum of money mentioned therein.

Procedure of Opening Fixed Deposit Account: Before opening a Fixed Deposit Account a customer has to fill up an application form, which contains the following: 

Amount in figures



Beneficiary’s name and address



Period



Rate of interest



Date of issue



Date o of maturity



How the account will be operated (singly or jointly)



Signature (s)



F. D. R. no



Special instruction (if any)

After fulfilling the above information and deposit the amount, FDR account is opened. A FDR receipt is issued and it is recorded in the FDR Register, which contains the following information: 

FDR account no.



FDR no.



Name of the FDR holder with address



Maturity period



Maturity date



Interest rate

At present the rate of interest for Fixed Deposit Receipt (FDR) in the First Security Bank Limited are as follows: For 1 month Interest rate for < 1crore is 10%, for >1 core is 10% For 3 month Interest rate for < 1crore is 11.25%, for >1 core is 11.25% For 6 month Interest rate for < 1crore is 11.25%, for >1 core is 11.25% For 1year Interest rate for < 1crore is 12%, for >1 core is 12%

Other Types of Deposit Accounts: There are also some other types of account facilities provided by the bank. These are: i. Short Term Deposit (STD) ii. Monthly Saving Schemes (MSS) iii. Monthly Benefit Saving Scheme (MBSS) iv. Double Benefit Deposit Scheme (DBDS) i. Short Term Deposit (STD) It is also a time deposit account. The formalities for opening is of this account are to those required for current account. The only difference is that, frequent withdrawal is discouraged and 7 days notice is required for withdrawal of any sum and interest is paid.

In Short Term Deposit Account, interest offered is less than of savings deposit, 6% interest is paid on this deposit.

ii. Monthly Saving Schemes (MSS) Monthly Saving Scheme is that kind of scheme of FSBL, where deposit is monthly installments of various sizes for a fixed deposit and the benefit is lump sum returns after various terms of period.

The objectives of this scheme are: 

Building the habit of saving



Attract small savers



Saving for rainy days



Ensure regular income flow

So this scheme is introduced to attract depositors and encourage saving (mainly the smaller earner people). iii. Monthly Benefit Saving Scheme (MBSS) Monthly Benefit Scheme is that kind of scheme, where a fixed amount of money has to be deposited every month for five years.

Monthly benefit amount on the deposited amount are as under: Deposited Amount Tk. 67,000/Tk. 1,34,000/Tk. 2,68,000/Tk. 6,70,000/Tk. 13,40,000/-

Monthly Benefit Amount Tk. 500/Tk. 1,000/Tk. 2,000/Tk. 5,000/Tk. 10,000/-

The objectives of this scheme are: 

Help the retired persons for investing their retirement benefits



Create investment opportunities for non resident Bangladeshi



Explore investment opportunities for school, college, university etc.



iv. Double Benefit Deposit Scheme (DBDS)

In this scheme, a fixed amount of money, say Tk. 50,000 or its multiple of 7 years has to be deposited. After 7 years deposited amount will be doubled.

Deposit amount to be doubled in 7 years, details are as under: Deposited Amount

Interest with deposit

Period

Payable with

7 years BDT. 10,000/7 years BDT. 25,000/7 years BDT. 50,000/7 years BDT. 1,00,000/7 years BDT. 2,00,000/7 years BDT. 5,00,000/The objectives of this scheme are:

Double Double Double Double Double Double



Give maximum profit



Help in meeting specific needs like education, marriage etc.

amount interest

at

maturity BDT. 20,000/BDT. 50,000/BDT. 1,00,000/BDT. 2,00,000/BDT. 4,00,000/BDT. 10,00,000/-

 Remittance: Remittance is significant part of the general Banking. Sending money from one place to other places for the customer’s is another important service of banks and this service is an important part of countries payment system. For this service, people specially businesspersons transfer funds from one place to another very quickly. The Bank receives and transfers various types of bills through the remittance within the country which is known as Inland Remittance or with other countries.

Obviously the bank charges commission on the basis of bills amount. Types of the remittance: •

PO (Pay Order)

•

DD (Demand Draft)

•

TT (Telegraphic Transfer)

•

OBC (Out-Wads Bills For Collection)

•

IBC (Inward Bills For Collection)

•

SP (Shanchaypotra)

Loans and Advances Division Banking business consist of borrowing and lending. One of the primary function of the commercial banks is the sanctioning of credits of borrower. Without adequate finance, there can be no growth or maintenance of a stable output. Bank act as a financial intermediaries between surplus (ultimate lender) and deficit economic unit (ultimate borrower). Thus a banker is a dealer in money and credit. Banks accept deposit from large number of customer and then lend a major portion of accumulated money to those who wish to borrow. In that process banks secure reasonable return for the savers, makes fund available to the borrowers at a cost, and earn a profit after covering the cost of the funds. Bank, besides their traditional rules of intermediaries between savers and borrowers and providing effective payment mechanism, have been allowed to diversify into much new area in better paying business activities.

It’s very important department and a major side of the bank. This department mainly deals with loans that are provided to different parties. First Security Bank Limited continued to extend credit facilities to industries, trade and commerce, productive and priorities sectors and to small and medium enterprises within the policy guidelines of the bank and Bangladesh Bank.

What is credit?

The word is “credit” is derived from the Latin word “credo” meaning “I believe”. The term credit may be defined broadly or narrowly. Speaking broadly, credit is finance made available by on party (lender, seller, or shareholder/owner) to another (borrower, buyer, corporate or non-corporate firm). More generally the term credit is used narrowly for debt finance. Credit is simply opposite of debt. Debt is obligation to make future payment. Credit is the claim to receive the payments. Both are created in the same act of borrowing and lending.

In the credit economy, that is economy with borrowing and lending each spending unit can be placed in any of the three categories: deficit spender, surplus spenders, and balance spenders, as it total expenditure is greater than, less than, or equal to its total receipt respectively. The chief function of credit is to relax the constraint of balance budget.

Safety: The very survival of bank depends on loans and advances. The ideal position of loan and advances refers to the situation that all the loans and advances stand fully secured. Thus First Security Bank Limited considers safety of the advances important among the principle of lending. Now the question is how to ensure safety to lending? To ensure the safety to lending bank judges the following most essential elements of the borrower: Five Cs: (a) Character/ Conduct: Intention to pay the loan. (b) Capacity/ Capability: Borrower competencies in the field of employ to fund profitability and ability to generate income. (c) Capital/ creditworthiness: Financial strength to cover risk. (d) Condition: it is the general business condition. (e) Collateral: Implies additional securities.

Five Ms: (a) Man (b) Management, (c) Money, (d) Material, (e) Market Five Ps: (a) Person, (b) purpose, (c) Product, (d) Place, (e) Profit.

Five Rs: (a) Reliability, (b) Responsibility, (c) Resource, (d) Respectability, (e) Return

Foreign exchange Division

Foreign Exchange and Foreign Trade Refers to the process or mechanism by which the currency of one country is converted into the currency of another country. Foreign exchange is the means and methods by which rights to wealth in a country’s currency are converted into rights to wealth in a country’s currency, in bank when we talk of foreign exchange, we refer to the general mechanism by which a bank converts currency of one country into that of another.

Foreign exchange is divided in three parts. 

Export



Import



Foreign Remittance

1) Export The term exports means carrying out of anything from one country to another, as banker we define export as sending of visible things outside the country for sale. In a word export means goods are outwards and foreign currencies are inward. Export trade plays a vital role in the development process of an economy.

2) Import Import is foreign goods and services purchased by firms, customers and government in Bangladesh. An importer must have import registration certificate (IRC) given by Chief Controller of Import & Export to import any thing from other country.

3) Foreign Remittance There are two types of Remittance:

A. Foreign inward remittance: The remittance in foreign currency, which is received from outside the country to our country, is known as foreign inward remittance. The remittance can be performed in two proceeds: 

Visible inward remittance: e.g. export proceeds.



Invisible inward remittance: e.g.; family maintenance consultant fee. Cash is remitted through TT, DO, etc.

B. Foreign outward remittance: Funds remitted to overseas on behalf of the client.

FSBL Foreign Transactions 

Great Britain pound



U.S Dollar



EURO



YEN

Chapter 4 Industry Analysis on the Banking Sector in Bangladesh Classification of Banks Economic Features of Industry The Drivers of Changes and The Impacts

Macroeconomic and Industry Scenario

Industry Analysis on the Banking Sector in Bangladesh The prosperity of a country depends upon its economic activities. Like any other sphere of modern socio-economic activities, Banking is a powerful medium of bringing about socio economic changes of a developing country. Agriculture, commerce and industry provide the bulk of a countryâ&#x20AC;&#x2122;s wealth. Without adequate Banking facility these three cannot flourish. For a rapid economic growth a fully developed banking system can provide the necessary boost. The whole economy of a country is linked up with its Banking system.

After liberation of Bangladesh in December 1971, it inherited an undiversified and undeveloped financial system, which was overwhelmingly dominated by the commercial banks. Out of historic necessity, the then government in power (just after liberation), nationalized and reorganized all the financial institutions (excepting a few foreign bank branches) and made them to achieve the economic objectives of the government. Even after the change of government in 1975, this policy of supporting the economic objectives of government by the financial institutions did not change. Therefore, since 1972, the financial institutions of Bangladesh used to operate under a regime of rigid government

control and central bank regulations. The regulations covered fixation of interest rate on deposit and credits, direction of credit to public sector enterprises and priority sectors, directed expansion of bank branches, etc. Till 1982, all the financial institutions were kept under the ownership as well as regulatory control of the government.

After the liberation of Bangladesh, financial institutions including banks and insurance companies were nationalized with a view to exercising social control over the resources of the country. as a result, six nationalized banks emerged under Bangladesh Bank (Nationalization) Order, 1972 replacing banks owned by Pakistani and Bangladeshi owners. The banks were named as : Sonali Bank, Agrani Bank, Janata Bank, Rupali Bank, Pubali Bank and Uttara Bank. But during the early eighties banks were allowed in the private sector and subsequently Uttara Bank and Pubali Bank were denationalized in 1983 and 1984 respectively. Banks were allowed in the private sector mainly to increase competition in the banking sector, to expand the private sector and help develop a healthy banking system in the country, Bangladesh Shilpa Bank and Bangladesh Shilpa Rin Sangstha were established Banks under Presidential Order, in 1972 to finance industrial enterprises. Similarly, Bangladesh Krishi Bank was established during the same period for agricultural finance. Subsequently, Rajshahi Krishi Unnayan Bank was established in 1987 to cater to the agricultural credit needs of farmers in the Rajshahi Division. Bank of Small Industries and Commerce Bangladesh Ltd. (BASIC) was established in 1989 to finance projects in the small industryâ&#x20AC;&#x2122;s sector. Investment Corporation of Bangladesh (ICB) was established in 1976 for under-writing of shares and debentures and help direct investment. House Building Finance Corporation (HBFC) was established in 1973 to finance construction, reconstruction and remodeling of residential houses.

The financial system in Bangladesh includes Bangladesh Bank (the Central Bank), scheduled banks, non-bank financial institutions, microfinance institutions (MFIs), insurance companies, co-operative banks, credit rating agencies and stock exchange.

Among scheduled banks there are 4 nationalised commercial banks (NCBs), 5 stateowned specialised banks (SBs), 30 domestic private commercial banks (PCBs), 9 foreign commercial banks (FCBs) and 29 nonbank financial institutions (NBFIs) as of December 2006. However, Rupali Bank, an NCB is being sold to a foreign buyer, and once this

transaction is completed, the country will have only 3 NCBs. Which are being corporatized. Over and above the institutions cited above, three development financial institutions namely House Building Finance Corporation (HBFC), Ansar-VDP Unnayan Bank and Karma Shangsthan Bank are operating in Bangladesh, all of which are state owned.

Commercial Banks

Specialized Bank and Credit Agencies

Co-operative Banks

Classification of Banks: Nationali zed Bank

Private Banks

Foreign Banks BANKS Bangladesh Bank

Traditional Banks

Bangladesh Krishi Bank (BKB)

Islamic Banks

Rajshahi

Bangladesh

Krishi

Shilpa Bank

Unnayan

(BSB)

Bank

Bank of Small Ind. & Grameen Com. Bnagladesh Ltd. (BASIC) (RAKUB) Bank

Bangladesh Shilpa Rin Sangstha (BSRS

Karmasangs

Ansar-

than Bank

VDP

Unnayan Bangladesh Samabaya

Central Co-operative Bank Bank

Primary Co-operative

Bank Ltd.

Ltd.

Societies

The growth and evaluation of financial system of Bangladesh since liberation can be viewed in three broad phases. The decade of 1970s can be called the period of reconstruction and rehabilitation. The period from 1972 to 1982 was marked by expansion of bank branches, particularly, Nationalized Banksâ&#x20AC;&#x2122; branches to cater to the needs of the war torn economy. The period from 1983 to 1990 was the period of denationalization of banks and allowing new banks in the private sector to augment competition in the banking sector. The period from 1990 uptil now can be termed as the period of financial liberationisation and consolidation of the banking system.

Since 1983, the government of Bangladesh started taking â&#x20AC;&#x153;ownership reformâ&#x20AC;? measures in the financial sector. Two out of six NCBs were denationalized and a number of private these measures of denationalization and privatization would generate competition and improve the level of customer services and operational efficiency of the banking sector.

But the regulatory framework, which was totally dominated by economic regulations, were neither replaced by prudential and information regulations nor the legal framework for debt recovery as well as recovery efforts of the banks were improved at all. As a result, though the post-1983 period witnessed some improvement in the customer

services (specially counter services in urban areas) of NCBs, yet their operational efficiency rather declined further, instead of improving.

Economic Features of Industry The Industry, Banking Sector, has the following dominant economic features: Market Size Every Industry has specific market size. Market size of banking industry can be measured by many means. Total deposit, total loans and advances, total export figure through Bank, total import, total revenue, total non-funded loan are the some of those means. But usually in Banking Business arena market total deposits and total amount of advances determine size. Deposits and advances from 1997 to 2001 are shown in the following table.

Overall Deposits & Advances Year Deposits 1997 48808 1998 53688 1999 61867 2000 74081 2001 85940 Source: Bangladesh Bank Bulletin

Growth Rate 10% 15.23% 19.74% 16.01%

Advances 37102 41927 47301 51933 60303

Growth Rate 13.12% 12.24% 10.18% 17.75%

The banking sector in Bangladesh comprises four types of scheduled banks. It is dominated by the four nationalized commercial banks (NCBs) that held 46.5 percent of industry assets comprised largely of loans to the target sectors. In addition, as of year-end 2001, there were 30 private commercial banks (PCBs) and 12 foreign commercial banks (FCBs). As of year-end 2001, the PCBs held over 37 percent of industry assets and FCBs held almost 8 percent. Presently the scheduled bank industry comprised 50 banks; one foreign bank sold its business to a local bank in the first half of 2002.

Banking system structure (Dec-2001) Bank

Number

Number

Net assets %

of Deposits

%

of

types

of banks

of

(billion

industry

(billion

industry

branches

taka)

assets

taka)

deposits

NCBs DFIs PCBs FCBs Total

4 5 30 13 51

3608 1298 1331 34 6271

5511.52 104.50 409.22 85.80 1100.06

46.5 9.5 37.2 7.8 100.0

486.97 53.96 349.81 65.53 956.28

50.93 5.64 36.58 6.85 100.0

Scope of Competitive Rivalry The market is composed of substantial number of rivals. Competition exists among the local and foreign rival. Competitive scope covers National area.

Market Growth Rate Banking industry in Bangladesh is highly fragmented with categories like: Nationalized Commercial Banks (NCBs), Development Financial Institutions (DFIs), Private Commercial Banks (PCBs) and Foreign Commercial Banks (FCBs). There are altogether 52 banks (local and foreign) operating in Bangladesh. Market growth rate in this industry is slow.

Though is terms of achieving macro-economic stability and following proper sequencing of financial sector reforms measures in Bangladesh, a very minimum short-fall has been observed, yet the results so far achieved out of the reform measures are not very encouraging. The bankers and bank managements are yet to be guided adequately by market forces.

Number of Rivals and Their Relativeâ&#x20AC;&#x2122;s Size: The banking sector in Bangladesh comprises four types of schedule banks. Banking system structure and their number are as follows: Types of Number Banks NCBs DFIs PCBs FCBs Total

of banks 4 5 30 13 51

The NBFIs (Non Banking Financial Institutions) sector comprises 28 institutions including 4 licensed by Bangladesh Bank during 2001-2002. These include 12

institutions engaged primarily in leasing business, 6 in investment financing business, 2 in housing and rest engaged in all these activities. Of the 28 NBFIs, 12 are joint venture with foreign participation and one owned by the government. These institutions have remained marginal accounting for less than 4 percent of financial system assets. Gross assets of NBFIs stood at BDT 23 billion as of June 2002. Gross assets however grew by 50 percent between 2000 to 2002.

NBFIs are expected primarily to fill in the gaps in the supply of financial services that are not normally provided by the banking sector. It is envisaged that NBFIs would continue to progress and assume a significant role in addressing the development strategies of the country by complementing the banking sector to meet financing requirements of the changing economy.

Technology and Innovation It has been observed that due to the technological change the introduction of new digital financial products are getting into the market. Technology integration for automation of business process and procedures is an integral part of our customer service. Since the very beginning, Every Bank has made conscious efforts for upgrading of information technology at various levels to gain competitive edge over the others. Process of selecting top quality banking software was in an advanced stage and some of the Banks had already installed it. Every Bank is seeking high performance, scalable online banking software so that customer service was rendered more efficiently and new products were deployed with little loss of time. In that exercise, they were looking into a total solution to their needs.

The modern technology has changed the Banking service dramatically. Customers are getting banking facilities round the clock, some of them are: Online Bnaking Automated Teller Machine (ATM) Tele Banking Credit card service Any branch banking Product/Service differentiation:

In this industry the market is highly competitive and also has substantial number of rivals. Competition exists among the local and foreign rivals. The product/ service offered by different banks is more or less similar. However, they can be differentiated in terms of their service, technology, pricing, promotion, service charge, location etc.

Stage in life cycle: The banking industry in Bangladesh is in growth stage of the business life cycle.

The Drivers of changes in the Industry and the Impact The Internet and new-e-commerce opportunities and threats On line Baking are the technology blessed banking system in the Banking Industry. It opens all kinds of new opportunity for Banking Industry and mandates fundamental changes in business practices.

Technological changes Technological advancement dramatically alters the Industryâ&#x20AC;&#x2122;s landscape, making it possible to produce new and better services at competitive cost. The Banks have to maintain the cutting edge of technology in order to be competitive in the market. Modern technology helped development of some attractive electronic banking products like ATM, Phone banking, Credit card, Electronic Fund Transfer (EFT), SWIFT, etc. with the progress of information technology we have observed the introduction of new digital financial products. This trend will continue with the improvement in Telecommunication technology.

Marketing Innovations Marketing of banking products and services are new concept in our country. Banks are introducing new ways to market their products and services. Successful new product introductions strengthen the market position of the innovating banks. Banks are trying to intensify their marketing efforts that spark a burst of buyer interest, widen industry demand, and increase product differentiation and lower cost all of which alter the competitive positions of these companies.

Changes in cost and efficiency Widening or reducing differences in the cost and efficiency among key competitors tends to dramatically alter the state of competition. Especially in the face of threat from new private banks, older banks are hard-pressed to achieve highest point of efficiency resulting in lower cost.

Govt. rules and regulations and their changes Government has very strong control on Banking sector and all other financial institution.

Due to this government monitoring is very hard and implementation of rules and regulation is strict. Regulatory and government actions can often force significant changes in Banking industryâ&#x20AC;&#x2122;s practices and strategic approaches, as it is a highly regulated industry.

Macroeconomic and Industry Scenario 1 Macroeconomic Scenario The economy of Bangladesh has experienced a major shake up during 2007. According to ADB forecast, GDP growth is expected to reduce in FY2007-08 from 6.5% in FY2006-07 due to issues referred to above in addition to a slowdown in external demand on garments. During FY2006-07 industry sector recorded robust growth of 9.5% caused by steady expansion of export oriented manufacturing and a rise in domestic demand. In FY2006-07 total export was US$ 12.17 billion which is 15.69% higher than the previous year, however, the first quarter data of FY2007-08 indicates a slowdown in export oriented manufacturing because of a drop in external demand. Export increased in September 2007 following a slow down between July-August 2007. Based on the value of letters of credit (L/C) opened during FY2006-07 imports grew by 14.47% compared to FY2005-06. In the first quarter of FY2007-08, imports rose by 26% compared to the first quarter of FY2006-07. Imports of food grains, intermediate goods and industrial raw materials increased significantly, however, the total value of capital machinery L/C opened increased only marginally. Remittance inflow continued to increase in FY2006-

07, total remittance in FY2006-07 was US$ 5.97 billion, i.e. 24.50% higher than FY2005-06. Growth in Remittance inflow continued in January 2008 amounting to US$ 4.15 billion, Remittance earnings from six GCC states may reduce significantly if Bahrainâ&#x20AC;&#x2122;s proposal for 6-year residency cap on all expatriates working in GCC is approved. Although annual average consumer price index inflation (based on food and nonfood indices) increased in September 2007, inflation on point to point basis fell to 9.6% in September 2007 from 10.12% in August 2007. Weighted average of nominal exchange rate (taka/US dollar) remained stable between BDT68.5-BDT68.8 during JulySeptember 2007, resulting in a healthy build up of foreign exchange reserves. Given the current foreign exchange reserve position, taka appreciation may dampen inflationary pressures partly by cutting import cost.

2. Monetary and Financial Developments Broad money growth was 15.9% in September 2007 compared September 2006, this was fostered by a decline in the growth of domestic credit despite a continued upward trend in the growth of net foreign assets of the banking system due to a surge in foreign remittances. Private sector credit growth declined to 15.9% in September 2007 from 19.4% in December 2006. This is attributed to uncertainty & poor business confidence rather than tightening monetary policy. Excess Liquidity in the Banking sector amounted to BDT 131.3 billion at the end of August 2007, resulting in a loss of interest income by some banks.

The situation isexpected to improve With restoration of business confidence and increase in external trade in coming months. Bangladesh Bank maintained upward pressure on the yield of government securities of various maturities to contain inflation and maintained

currency stability by reducing excess liquidity.

The gross classified loans in total loan outstanding stood at 14.0 % in September 2007; it was 14.3 % in the same period of the preceding year.

Risk weighted capital asset ratio (RWCAR) for all banks increased to 6.5% in June 2007 from 5.3% in December 2006.

Bangladesh Bank increased the Capital Adequacy ratio from 9% to 10% of RWAâ&#x20AC;&#x2122;s to be effective from 31 December 2007. In addition to this, BB raised the minimum capital requirement from BDT1 billion to BDT 2 billion to be complied with by June 2009.

With the exception of NCBs, all other banks met the required 10% capital adequacy ratio. According to Bangladesh Bank, weighted average lending rates continued to increase and stood at 12.78% at the end of June 2007, where as weightedaverage deposit rate was 6.85% resulting in an interest spread of 5.93%. Bangladesh Bank has recently renewed its focus on interest rate spreads and it is expected that spreads will be reduced in near future. Bangladesh Bank has taken important steps towards the development of an active secondary market for government securities by introducing an auction calendar and a primary dealer system. This should help establish benchmark yields and promote the development of a corporate bond market. Bangladesh Bank has been working towards the implementation of BASEL II and it is expected that the Banking sector in Bangladesh will report capital adequacy under BASEL II with effect from 1 January 2009. It is anticipated that compliance with BASEL II would pose a challenge for many participants

in the banking sector as banks would require to maintain levels of capital that are in line with their credit, market and operational risk exposures.

Chapter 5 Performance of FSBL Performance at a Glance Operational Performance Key Performance Area Capital Adequacy Profitability Relative Contribution to Revenue Credit Rating Report

Performance of FSBL

Operational Performance Market Share and Growth In 2007, the total banking sector deposit was BDT 1983043 million and loans and advances (including money at call) was BDT 1762252 million. FSBL’s market share of deposit was 1.19% in 2007 compared to 1.03% in 2006. The Bank’s deposit growth (33.61%) was much higher than the industry average growth (15.91%) in 2007. On the other hand, the FSBL’s market share of loans and advances (including money at call) was about 1.07% by the end of 2007 whereas this figure was 0.91% in 2006. Loans and advances (including money at call) of the Bank grew by 33.66% while the industry growth of loans & advances (including money at call) was 13.18%.

Exhibit 3: Market Share and Growth of FSBL’s Deposits and Loan and Advances*

Key Performance Area (Operational) In 2007, FSBLâ&#x20AC;&#x2122;s interest income reached at BDT 2180.31 million with a growth of 32.84% although interest earning assets grew by 33.33%. In addition to interest on advances, the other drivers of interest income are money at call and deposit placements with other banks. FSBLâ&#x20AC;&#x2122;s interest expenses in 2007 were BDT 2130.33 million compared to BDT 1499.28 million in 2006 (42.09% growth). This was mainly driven by 33.61% increase in deposit base. Net interest income declined by 64.82% whereas non interest income increased by 30.25% which was mostly geared by commission and interest on treasury bills. Total operating income of the Bank was reduced by 1.76% in 2007.

Operating expenses were composed of personnel expenses (about 50% of total operating cost), infrastructure cost and other overhead cost. FSBL’s operating expenses increased by 30.40% in 2007. Net operating profit of FSBL dropped to BDT 128.53 million (declined by 36.57%) in 2007 from BDT 202.62 million in 2006.

In 2007 FSBL’s operating cost per branch was marginally reduced to BDT 14.30 million from BDT 15.67 million in 2006 which was lower than that of its peer group average. In 2006, FSBL’s cost to income ratio (51.98%) was higher than that of its peer group average (41.53%). But the Bank’s cost to income ratio significantly increased to 68.99% in 2007. FSBL’s staff cost to income ratio also increased in 2007. Bangladesh Bank has taken the FSBL out of the “Problem Bank” category and placed it in “Early Warning” category which shows improvement on past performance.

Capital Adequacy FSBL’s paid up capital and statutory reserve stood at BDT 1096.16 million at the end of 2007. Regulatory requirement is BDT 2000 million which is to be attained by June 2009.

The Bank has a plan to raise its capital through IPO by this year. In 2007, Bank’s tier I

capital grew by 13.02% and reached at BDT 1134.29 million while tier II capital increased by 48.74% and stood at BDT 213.63 million. On the other hand, FSBL managed to reduce its risk weighted assets to total assets ratio from 57.29% in 2006 to 54.70% in 2007 which indicates that the Bank invested in less risky assets in 2007. But FSBL’s risk weighted capital adequacy (RWCA) ratio in 2007 became 9.15% against 10% regulatory requirement. It is to be mentioned that the Bank has decided to inject additional equity capital amounting to BDT 150 million against BDT 125.71 million capital shortfall in 2007. In 2006 RWCA ratio of FSBL was 9.79% whereas its peer group average was 12.55%. FSBL’s equity to total deposit and borrowing ratio was reduced to 4.81% in 2007 from 5.71% in 2006. This was mostly because of deposit and borrowing growth (48.74%).

Profitability Net interest margin2 of FSBL declined significantly to 0.28% in 2007 (2006: 1.02%). In 2007 FSBL’s investment yield grew up to 7.79% from 6.62% in 2006. Return on average Asset (ROAA) of FSBL fluctuated over the last few years. ROAA of FSBL was much below the 25 percentile of its peer group over the years. FSBL’s net margin (Operating profit/Revenues) growth in 2007 was about 14.12%. On the other hand, asset utilization declined to 1.75% in 2007 (2006: 2.30%). Bank’s return on average assets thus resulted from more of net profit margin rather than asset utilization which reflected Bank’s high non performing loan and low net interest margin. In 2007 ROAE was 5.48% compared to -14.49% in 2006. ROAE of FSBL was resulted from higher leverage multiplier rather than ROAA. Bank’s leverage multiplier increased to 22.17 times from 20.15 times in 2006. This depicts that FSBL generated profit with higher risk than that of its peer group average.

In 2007, FSBLâ&#x20AC;&#x2122;s average cost of deposit & borrowings increased by 0.88%, while average lending rate increased only 0.51%. Subsequently spread reduced by 0.38%. In 2006, FSBLâ&#x20AC;&#x2122;s cost of average deposit & borrowings was higher than that of its peer group average but average lending rate was below its peer group average. Spread of FSBL was below its peer group average in 2006.

FSBL’s total assets at the end of 2007 were BDT 26,941.78 million, an increase compared to the previous year of 31.75%. The growth in total assets was largely reflecting the increase of other assets (56.82% growth) which includes accrued income, fixed assets (48.28% growth), loans and advances (36.42% growth) balances with other financial institutions (23.61%). In 2007, FSBL’s assets composition was typically dominated by Loans & Advances with 69% of total assets followed by balance with other financial institutions (10%) and investment (9%). Bank’s investment portfolio comprises high quality assets like treasury bills and Reverse Repo. FSBL did not have any investment in the stock market last year.

Relative Contribution to Revenue The relative contribution to the Bank’s revenue is given below: (As per Audited Accounts in Tk.)

Credit Quality of FSBL CRAB analyzes Bank’s credit quality in terms of past trend, present scenario as well as future aspects.

Looking Back

FSBL’s non-performing loan (NPL) ratio in 2007 reduced to 6.50% from 9.75% in 2006.

The reduction in NPL ratio was mainly attributed by diminution of Gross NPL figure by 9.03% as well as 36.42% growth in total loans and advances. In 2007 fresh NPL generation of FSBL declined by 69.06%. Despite BDT 98.10 million of fresh NPL generation, FSBL’s gross NPL figure reduced in 2007 because of cash recovery and rescheduling. Bank’s rescheduling figure dropped by 67.25% while the cash recovery also declined by 55.26% in 2007.

Exhibit 12: NPL movement of FSBL

Assessing the present scenario In 2007, FSBL’s provision requirement for classified loans and advances was BDT 579.44 million against which BDT 707.69 million specific provision was kept. In addition, the Bank maintained BDT 212.21 million as general provision against unclassified loans and advances as well as off balance sheet items. FSBL’s gross NPL coverage ratio in 2007 was 75.98% compared to 63.86% in 2006. Peer group average of gross NPL coverage ratio in 2006 was 84.29%.

Looking forward In most cases, loan losses are in the first instance charged against profits, not capital, so the first ratio to look at is that of pre-provision profit (PPP) to net loans to assess the Bank’s ability to survive problems in future. FSBL’s PPP to net loan ratio in 2007 was 0.73 % (2006: 1.59%) whereas peer group average was 4.45% in 2006. Pre-provision profit to net loans of FSBL indicates that 0.73% of currently performing loans can be written off without the Bank having to make a charge on reserves and equity.

CREDIT RATING REPORT

BY CREDIT RATING AGENCY OF BANGLADESH LIMITED Ratings Long Term : BBB1 Short Term : ST-3 1. Rationale

Exhibit: Financial Highlights of FSBL

Credit Rating Agency of Bangladesh (CRAB) Limited has assigned BBB1 (Pronounced Triple B One) rating in the long term and ST-3 rating in the short term to First Security Bank Limited (FSBL).

Commercial banks rated in the long term BBB1 belong to ‘Average

Safety’ cohort. These banks are adjudged to be solid banks, characterized by average financials, valuable and defensible business franchises, and an attractive and stable operating environment. This level of rating indicates average capacity for timely payment of financial commitments, moderate likeliness to be adversely affected by foreseeable events. Commercial banks rated in the short term ‘ST-3’ category are considered to have average capacity for timely repayment of obligations, although such capacity may impair by adverse changes in business, economic, or financial conditions. Banks rated in this category are characterized with satisfactory level of liquidity, internal fund generation, and access to alternative sources of funds. First Security Bank Limited (FSBL), one of the third generation private sector banks in Bangladesh commenced its commercial operations from October 1999 with paid-up capital of BDT 200 million. Bank’s paid-up capital as of 31 December 2007 stood at BDT 1000 million. But FSBL’s risk weighted capital adequacy (RWCA) ratio in 2007 became 9.15% against 10% regulatory requirement.

In 2007, FSBL’s net interest income declined by 64.82%, whereas non-interest income increased by 30.25% mostlygeared by commission and interest on treasury bills. Total operating income of the bank was reduced by 1.76% in 2007. The Bank’s cost to income ratio significantly increased to 68.99% in 2007 (2006: 51.98%). Net operating profit of FSBL dropped to BDT 128.53 million (declined by 36.57%) in 2007. Net interest margin of FSBL declined significantly to 0.28% in 2007 (2006: 1.02%) but investment yield grew up to 7.79% from 6.62% in 2006. Although operating profit of the Bank reduced in 2007, FSBL’s profit before tax increased by 144.27% because of 79.09% reduction in current year total provision. The Bank had surplus provision of BDT 136.73 million in 2007. Return on average Asset (ROAA) of FSBL fluctuated over the last few years.

FSBL’s ROAA figure increased to 0.25% in 2007 from -0.72% in 2006. In 2007 ROAE (before tax) was 5.48% compared to -14.49% in 2006. Bank’s leverage multiplier increased to 22.17 times in 2007 from 20.15 times in 2006. This depicts that FSBL generated profit with higher risk than in 2006. FSBL’s total assets at the end of 2007 were BDT 26,941.78 million, an increase compared to the previous year of 31.75%.

FSBL’s non-performing loan (NPL) ratio in 2007 reduced to 6.50% from 9.75% in 2006.

In 2007, fresh NPL generation of FSBL declined by 69.06%. Despite BDT 98.10 million of fresh NPL generation, FSBL’s gross NPL figure reduced in 2007 because of cash recovery and rescheduling. Bank’s rescheduling figure dropped by 67.25% while the cash recovery also declined by 55.26% in 2007. FSBL’s loans and advances portfolio grew by 36.42% in 2007 and reached at BDT 18,616.23 million. SMA to total loans & advances ratio of FSBL was about 0.04% in 2007. This figure was 0.08% in 2006. About 49% of the Bank’s total loans and advances relate to the top 50 funded large loans in the last year. FSBL has its customer base in 20 branches in six different districts. About 91% of total deposit of FSBL belonged to term deposit which is considered as high cost deposit.

Only 5% of total deposit comprised current and savings deposit. FSBL’s loan to deposit ratio in 2007 was 79.20% (2006: 77.57%). FSBL lent BDT 18.47 million to the call market whereas it borrowed BDT 11.21 million in 2007. FSBL’s asset-liability maturity bucket shows that except for 1 to 3 months and 1 to 5years time interval, the Bank possessed positive GAP. But the cumulative GAP can offset all the negative GAPs. FSBL had BDT 7396.35 million cumulative positive GAP up to 12 months for interest sensitive assets and liabilities. This indicates that the Bank will be benefited on increasing interest rates and will be suffered on decreasing interest rate scenario. By the end of 2007, FSBL possessed BDT 699.91 million worth foreign currency denominated assets against which the Bank did not have any foreign currency denominated liabilities. Any appreciation of BD taka would cause the devaluation of FSBL’s denominated assets while the Bank will gain in case of taka depreciation. Although the economy of Bangladesh experienced a major shake up during 2007 mainly due to political turmoil, two severe floods and a cyclone, FSBL increased its return on average assets (ROAA) as well as return on average equity (ROAE). FSBL has its strength in liquidity position and

information technology. On the other hand, principal concerns of the Bank are profit margin, large loan exposures, loan monitoring as well as consistency in performance.

Chapter 6 Performance Evaluation by Ratio Analysis Liquidity Ratios Leverage Ratios Profitability Ratios

Performance Evaluation by Ratio Analysis 1. Liquidity Ratios Liquidity Ratios are those ratios by which we get a clear picture of a companyâ&#x20AC;&#x2122;s short term financial situation or solvency. a) Net Working Capital It is the dollar difference between current asset and current liabilities. This is one measure of the extent to which the firm is protected from liquidity problems. From a management viewpoint, it makes little sense to talk about trying to actively manage a net difference between current asset and current liabilities, particularly when the that difference is continually changing.

Mathematical formula: Net Working Capital = Current asset - Current liabilities.

Year 2003 2004 2005

Current Assets

Current Liabilities

(i) 6,476,837,485

(ii) 2,066,679,628

8,500,274,994

2,767,504,380

10,722,329,293

2,999,386,773

Net Working Capital (iii) = (i) - (ii) 4410157857 5732770614 7722942517

2006 2007

•

13,646,387,225

695,850,733

18,616,225,315

1,079,018,793

1295053649 1753720652

Interpretation:

The current asset of a typical manufacturing firm account for over half of its total assets.

For a distribution company, they account for even more. Excessive levels of current assets can easily result in a firm realizing a substandard return on investment. Again firms with too few current assets may incur shortages and difficulties in maintaining smooth operations.

We can see from the chart of NWC that the amount was quite better in a continuous increasing position but after 2006 the bank faced incredible complexity and this condition is slightly improved in 2007. The management of First Security Bank Limited should keep keen eyes in this regard.

b) Current Ratio The current ratio is also known as the working capital ratio and is normally presented as a real ratio. It shows a firm’s ability to cover its current liabilities with its current assets.

Mathematical formula: Current Ratio =

Current Asset Current Liabilities

Calculation:

Year

2003 2004

Current

Current

Assets

Liabilities

(i)

(ii)

6,476,837,485

2,066,679,628

8,500,274,994

2,767,504,380

Current Ratio (iii) = (i) ÷ (ii) 3.134 3.071

â&#x20AC;˘

2005

10,722,329,29 3

2,999,386,773

2006

13,646,387,22 5

695,850,733

2007

18,616,225,31 5

1,079,018,793

3.575 19.611 17.253

Graphical Presentation

25 20 15

East West

10

North

5 0 2003

â&#x20AC;˘

2004

2005

2006

2007

Interpretation:

The higher the current ratio, the greater the ability of the firm to pay its bills; however this ratio must be regarded as a crude measure because it does not take into account the liquidity of the individual components of the current assets.

Current Ratio shows that the ability of First Security Bank Limited to meet the current liabilities with the available current assets has increased day by day. In 2006 the ability tends to increase significantly. Again in 2007 the ability slightly decreased. c) Quick Ratio The acid test ratio is also known as the liquid or the quick ratio. . It shows a firmâ&#x20AC;&#x2122;s ability to meet its current liabilities with its most liquid (quick) assets.

This ratio is the same as the current ratio except that it excludes inventories- presumably the least liquid portion of current asset- from the numerator. The ratio concentrates primarily on the more liquid current assets- cash, marketable securities and receivablesin relation to current obligations. Thus this ratio provides a more penetrating measure of liquidity than does the current ratio.

Mathematical formula:

2. Quick Ratio =

Current Asset - Inventories Current Liabilities

Calculation:

Year 2003 2004 2005

Current

Current

Assets

Liabilities

(i) 6,476,837,485

(ii) 2,066,679,628

8,500,274,994

2,767,504,380

Inventories

Quick Ratio

(iii)

(iv) = [(i)-(iii)]á(ii)

3,072,901,311 1.647 3,221,295,339 1.907

10,722,329,29 3

2,999,386,773

4,588,685,025 2.045

2006

13,646,387,22 5

695,850,733

2007

18,616,225,31

1,079,018,793

1,020,637,798 18.144 1,600,577,888 15.769

5

•

Graphical Presentation

20 18 16 14 12

East

10

West

8

North

6 4 2 0 2003

•

2004

2005

2006

2007

Interpretation

The Quick Ratio shows that there is a great jump between 2005 and 2006. This indicates that the concern company achieves stronger position to meet its current liabilities with current assets. After 2006, again it is decreasing. So, management should aware of this.

1. Leverage Ratios Financial Leverage Ratios show the extent that debt is used in a company’s capital structure. Followings are the Financial Leverage Ratios that are found in our concerned company.

a) Debt to Asset Ratio The Debt to Asset ratio shows the proportion of a company's assets which are financed through debt.

Mathematical formula: Debt to Asset =

Total Debt Total Asset

Calculation: Year 2003 2004 2005 2006 2007

โ ข

Debt

Asset

(i)

(ii)

12,939,979,985

13,369,489,962

15,638,272,666

16,169,267,944

19,439,453,381

20,260,337,772

19,445,007,757

20,448,667,971

25,807,489,929

26,941,780,871

Graphical Presentation

Debt

to

Asset

Ratio (iii) = (i) รท (ii) 0.9679 0.9671 0.9595 0.9502 0.9579

0.97 0.965 0.96

East West

0.955

North

0.95 0.945 0.94 2003

â&#x20AC;˘

2004

2005

2006

2007

Interpretation

If the ratio is less than one, most of the company's assets are financed through equity. If the ratio is greater than one, most of the company's assets are financed through debt.

Companies with high debt/asset ratios are said to be "highly leveraged," and could be in danger if creditors start to demand repayment of debt.

Debt to Asset Ratios of First Security Bank Limited shows that in 2003 about the ratio was 0.97. After that the tendency of debt financing is declining continuously. But in 2007 it has increased to a significant amount. b) Debt to Equity Ratio

It’s a measure of a company's financial leverage calculated by dividing long-term debt by stockholder equity. It indicates what proportion of equity and debt the company is using to finance its assets.

Mathematical formula: Debt to Equity =

Total Debt Shareholders' Equity

Calculation: Year 2003 2004 2005 2006 2007

•

Debt

Equity

Debt to Equity Ratio

(i) 12,939,979,985

(ii) 429,509,977

(iii) = (i) ÷ (ii)

15,638,272,666

530,995,278

19,439,453,381

820,884,391

19,445,007,757

1,003,660,214

25,807,489,929

1,134,290,942

Graphical Presentation

30.13% 29.45% 23.68% 19.37% 22.75%

35 30 25 East West North

20 15 10 5 0 2003

â&#x20AC;˘

2004

2005

2006

2007

Interpretation

High Debt-Equity ratio generally means a company has been aggressive in financing its growth with debt. This can result in volatile earnings as a result of the additional interest expense.

If a lot of debt is used to finance increased operations (high debt to equity), the company could potentially generate more earnings than it would have without this outside financing. If this were to increase earnings by a greater amount than the debt cost (interest), then the shareholders benefit as more earnings are being spread around to the same amount of shareholders. However, the cost of this debt financing may outweigh the return that the company generates on the debt through investment and business activities and become too much for the company to handle. This might lead to bankruptcy, which would leave shareholders with nothing, so it is a delicate balance. This is what the leverage effect is about and what the debt/equity ratio measures.

The Debt to Equity Ratios of First Security Bank Limited shows that the company mostly financed by debt in 2003 and then companyâ&#x20AC;&#x2122;s strategies for financing by debt declined in a significant manner mostly in 2006. After that there is a big jump in 2007. Here we can see a positive sign. c) Times Interest Earned:

The interest cover ratio tells us the safety margin that the business has in terms of being able to meet its interest obligations.

Mathematical formula: Interest Coverage =

EBIT Interest Charges

Calculation: Year 2003 2004 2005 2006 2007

โ ข

EBIT

Interest Charges

Interest Coverage Ratio

(i) 385,382,047

(ii) 613,847,508

(iii) = (i) รท (ii)

591,671,242

926,235,800

325,799,722

1,209,977,807

421,954,517

1,499,283,646

414,531,487

2,130,328,088

Graphical Presentation

0.63 0.64 0.27 0.28 0.19

0.7 0.6 0.5

Line 1 Line 2 Line 3 Line 16

0.4 0.3 0.2 0.1 0 2003

â&#x20AC;˘

2004

2005

2006

2007

Interpretation

A high interest coverage ratio means that the business is easily able to meet its interest obligations from profits. Similarly, a low value for the interest cover ratio means that the business is potentially in danger of not being able to meet its interest obligations.

The bankâ&#x20AC;&#x2122;s Interest Coverage Ratio shows that it was enjoying a bad financial condition.

3. Profitability Ratios a) Gross Profit Margin The gross profit margin ratio tells us the profit a business makes on its cost of sales, or cost of goods sold. It is a very simple idea and it tells us how much gross profit per 1TK. of turnover our business is earning. Gross profit is the profit we earn before we take off any administration costs, selling costs and so on. So we should have a much higher gross profit margin than net profit margin.

Mathematical formula: Gross Profit Margin =

Gross Profit Net Sales

Calculation:

Year 2003 2004 2005 2006 2007

•

Gross profit (i) 221,160,326

Sales (ii) 818,290,055

383,737,311

1,253,871,924

125,180,203

1,312,642,313

202,623,523

1,641,344,347

128,530,728

2,180,308,712

Gross Profit Margin (iii) = (i) ÷ (ii) 27.03% 30.60% 95.37% 12.35% 5.90%

Graphical Presentation

120.00% 100.00% 80.00%

East West

60.00%

North

40.00% 20.00% 0.00% 2003

•

Interpretation

2004

2005

2006

2007

First Security Bank Limited was enjoying a good gross profit margin during the first 3 years. A gradual rise in the gross profit margin was indicating potential investment opportunity for the company. This rising trend in the gross profit margin is shown in the graph. But after 2005 there is a big fall in 2006 and 2007. The overall management performance is not a supreme position. The authority should find out the major problem.

b) Net Profit Margin The net profit margin ratio tells us the amount of net profit per ÂŁ1 of turnover a business has earned. That is, after taking account of the cost of sales, the administration costs, the selling and distributions costs and all other costs, the net profit is the profit that is left, out of which they will pay interest, tax, dividends and so on.

Mathematical formula: Net Profit Margin =

Net Profit after Taxes Net Sales

Calculation:

Year 2003 2004 2005 2006 2007

â&#x20AC;˘

Profit after tax (i) 55,849,791

Sales (ii) 818,290,055

101,485,301

1,253,871,924

9,889,113

1,312,642,313

(117,224,177)

1,641,344,347

30,630,728

2,180,308,712

Graphical Presentation

Net Profit Margin (iii) = (i) á (ii) 68.25% 8.09% 0.75% (7.14%) 1.40%

80.00% 70.00% 60.00% 50.00% 40.00%

East West North

30.00% 20.00% 10.00% 0.00% -10.00% -20.00%

â&#x20AC;˘

2003

2004

2005

2006

2007

Interpretation

The net profit margin ratio tells us the amount of net profit per ÂŁ1 of turnover a business has earned. That is, after taking account of the cost of sales, the administration costs, the selling and distributions costs and all other costs, the net profit is the profit that is left, out of which they will pay interest, tax, dividends and so on.

Since First Security Bank Limited faced loss in 2006, this made simultaneously various (bad) effects in different performances. There is no good sign in the graph. The management should try hard to be diehard.

c) Return on Total Asset: This ratio indicates the profitability on the assets of the firm after all expenses and taxes.

Mathematical formula: Return on total assets =

Net income Average total assets

Calculation: Year 2003 2004 2005

Net Income (i) 221,160,326

Total Asset (ii) 13,369,489,962

383,737,311

16,169,267,944

125,180,203

20,260,337,772

2006

202,623,523

2007

128,530,728

โ ข Graphical Presentation

20,448,667,971 26,941,780,871

Return on Total Asset (iii) = (i) รท (ii) 1.65% 2.37% 0.62% 0.99% 0.48%

2.50% 2.00% 1.50%

East West

1.00%

North

0.50% 0.00% 2003

2004

2005

2006

2007

â&#x20AC;˘ Interpretation Trend analysis of Return on Total Asset Ratio shows that there is a zigzag nature. After 2003 the return against total assets has increased but it is obvious that the return is now very far from that of 2004 and is in continuous fluctuating position.

d) Return on Equity The Return on Equity Ratio tells us how much profit earn from the investments the shareholders have made in their company. It compares net profit after taxes (minus preferred stock dividends, if any) with the equity that shareholders have invested in the firm.

Mathematical formula: Return on Equity =

Net Profit after Taxes Shareholders' Equity

Calculation:

Year 2003 2004 2005 2006 2007

•

Profit after tax (i) 55,849,791

Shareholders’ Equity (ii) 429,509,977

Return on Equity (iii) = (i) ÷ (ii) 13.00%

101,485,301

530,995,278

19.11%

9,889,113

820,884,391

(117,224,177)

1,003,660,214

30,630,728

1,134,290,942

Graphical Presentation

1.20% (11.68%) 2.70%

25% 20% 15% East West North

10% 5% 0% -5%

2003

2004

2005

2006

2007

-10% -15%

â&#x20AC;˘

Interpretation

A high return on equity often reflects the firmâ&#x20AC;&#x2122;s acceptance of strong investment opportunities and effective expense management.

The graph shows that First Security Bank Limited got more benefits in 2004. After that period their benefits decline in a significant manner up to 2007. Now we observe that Return on Equity has a negative tendency for increment. Comparatively the shareholders are getting less against their investment in recent years.

All of these profitability ratios are now considerably in declining positions. The reasons are variations in business environment, economical and most importantly the present political instability of our country.

Chapter 7 Competitive Position of FSBL Rivalry Potential Entry Comparative Performance Risk Factors and Management Perceptions

Competitive Position

To gauge the nature and intensity of competition Michael Porter demonstrate five competitive forces for determining the market competition.

Rivalry Rivalry among the Banks is high. The banking sector in Bangladesh comprises four types of scheduled Banks. It is dominated by the four nationalized commercial Banks followed

by Foreign commercial banks (FCBs) and Private commercial banks (PCBs). Presently the scheduled Bank industry comprised 52 Banks. Besides that there are some Nonbanking financial institution (NBFIs) also are providing similar services. All of the major rivals have the similar products. New private Banks are snatching the total deposits and total advances belonging to the NCBs and each other customers by providing extra benefits. Every one is offering low cost and better services. Banking business are now more or less depend on personal relationship of the bankers. Whenever a good banker changes the bank, he/she takes some of the party with him/her to the new one where he is going to join. This is a common trend in Bangladeshi banking industry.

Potential Entry Like any other country in Bangladesh financial institutions are highly regulated by central Bank â&#x20AC;&#x201C; Bangladesh Bank. There are 52 schedule Banks along with 26 NBFIs are now operating in Bangladesh. All of them are controlled by Bangladesh Bank. The financial institutions i.e banking system of Bangladesh is regulated under the Bangladesh Bank order 1927 and banking companies act 1971. Bangladesh Bank as central bank of the country, six to regulate the issue of currency, maintains foreign exchange reserve and manages the credit system of the country. Recently, few days ago Bangladesh Bank incorporated a rule regarding the paid up capital of a bank. The paid up capital of a bank should be at least 100 crore taka. The directorship of the bank has been also ruled by the central bank. By this rule a commercial bank has to assign two directors from the depositors. In an economy like Bangladesh 52 schedule Bank is a large number. So government does not encourage any more bank in this country though 2 or 3 banks are in the queue. Considering all the things the entry barrier in this industry is high.

Comparative Performance The banking sector comprises of three nationalized commercial banks, thirty one private commercial banks, eleven foreign commercial banks apart from the specialized banks and DFIs. Consequently, the participants in this sector come across fierce competition for savings / other deposits and are in continuous quest of sound investing / lending targets.

From a birdâ&#x20AC;&#x2122;s eye view, the private banking sector of Bangladesh is a very profitable sector. Not only they are outperforming the Nationalized Commercial Banks, and Specialized Banks in terms of banking services, they are also widening the scope for investment and wealth maximization.

In this section the performance of the First Security Bank Ltd. is compared with that of Bank Asia Ltd. (Year of Listing 2004), Mercantile Bank Ltd. (Year of Listing 2004), Brac Bank Ltd. (Year of Listing 2007) and Trust Bank Ltd. (Year of Listing 2007) as on 31-12-2007.

Risk Factors and Management Perceptions As with all investments, investors should be aware that there are risks associated with an investment in the Bankâ&#x20AC;&#x2122;s securities. These risks could result in loss of income or capital investment. Investors are encouraged to seek independent financial advice.

Interest rate risk The Bank's products are generally structured at fixed rates for specified periods. Increase in interest rates on borrowing could narrow / eliminate the spread, or result in a negative spread, and hence, may have a material adverse effect on the Bank's business, financial condition and/or results of operations.

Although the consequences of unusual and abrupt increase in borrowing rate cannot be avoided but the Bank will definitely take all the appropriate measures to minimize the negative consequences.

Exchange rate risk Frequent exchange rate fluctuations may affect the foreign exchange business of the Bank. The Bank takes appropriate corrective measures following its defined policy made in line with the Central Bankâ&#x20AC;&#x2122;s guideline and approved by the Board. However, foreign exchange risks have been managed professionally and, as a result, the scope of incurring losses under said transaction is low.

Industry risk The Bank is operating in a highly competitive market. Some of the competitors have more resources than those of the First Security Bank. It is difficult to predict in advance the move of the competitors in the coming years. The Bank is always cautious in offering its products and services at competitive terms and conditions which in turn minimizes its industry risk exposure.

Market and technology related risk In the wide market of 21st century, advanced technology obsoletes the old service / product strategy. So the existing technology may not be sufficient to cope with the future

business trends and needs. The Board of the Bank always emphasizes on development and implementation of the state of the art technology and is always committed to invest in modern and updated information technology. Potential or existing government regulations The Bank operates under the specific guidelines as laid down by the Bangladesh Bank as well as the Securities and Exchange Commission (SEC). Any sudden change of the guidelines/ policies formulated by the Bangladesh Bank, and / or the SEC may affect the business of the Bank adversely.

Unless the regulatory authorities adopt any adverse policies which may materially affect the industry as a whole, the business of the Bank will not be affected that much since the Bank is always particular in complying with rules and regulations of the authorities.

Potential changes in global or national policies The Bank operates in the domestic commercial banking industry of Bangladesh. Any potential changes in either global or national policies might adversely affect the banking industry and thus the businesses of the Bank in future.

The management of the Bank is always concerned about the prevailing and upcoming changes in the global and national policy and shall take any corrective actions as may be required in future.

Operational risk Risks in the form of classified debts originating from the borrowersâ&#x20AC;&#x2122; end due to their management failure, financial imprudence, unfavorable shift in market for their products and services, negative external and uncontrollable impact on the industry in which the borrower operates, civil disturbances or natural and environmental calamities and hazards disrupting the borrowersâ&#x20AC;&#x2122; ability to conduct businesses as usual.

Such risks exist in the banking industry. The Bank scrutinizes all of its clients and the associated risks systematically using up to date risk evaluation techniques and thereby have been able to maintain good asset quality so far and expects the same in the future.

Some other systematic (Market) risks might arise from the external environment of the Bank, similar to any other banks.

Economic slowdown The overall demand for the Bank's products is linked to macro parameters like GDP growth, demand for project finance, healthy capital markets and the overall growth of Bangladesh economy. A slowdown in economic growth will have an adverse impact on the demand for credit and on quality of borrowers.

The Bank always reviews the changes in the local as well as global economic factors so that we can take necessary steps to address its impact on business of the Bank. Due to the availability of diversified products and services, the Bank expects to minimize the effect of aforesaid risks.

Chapter 8 CAMELS Rating Elements of CAMELS Rating CAMELS Rating Calculation of FSBL Classification of Banks According to CAMELS Rating of Bangladesh

CAMELS Rating What Does CAMELS Rating System Mean?

An international bank-rating system where bank supervisory authorities

rate

institutions

according

to

six

factors.

The six factors are represented by the acronym "CAMELS." CAMELS rating is a suitable way of analyzing bankâ&#x20AC;&#x2122;s financial performance. It is a technique, which is widely used by the central bank as well as financial analysts to identify bankâ&#x20AC;&#x2122;s financial position.

Examiners gather proprietary information, such as details on problem loans, with which to evaluate a bank's financial condition and to monitor its compliance with laws and regulatory policies. A key product of such an examination is a supervisory rating of the bank's overall condition, commonly referred to as a CAMELS rating. This' rating system has been developed within the banking industry to provide a convenient summary of bank conditions at the time of an exam.

Elements The six factors examined are as followsC = Capital adequacy A = Asset quality M = Management efficiency E = Earnings L = Liquidity S = Sensitivity to Market Risk Bank supervisory authorities assign each bank a score on a scale of 1 (best) to 5 (worst) for each factor. If a bank has an average score less than two it is considered to be a highquality institution, while banks with scores greater than three are considered to be lessthan-satisfactory establishments. The system helps the supervisory authority identify banks that are in need of attention.

Capital Adequacy: Capital Adequacy reflects the overall financial condition of the banks and also the ability of the management to meet the need for additional capital. It reflects the leverage the bank has to take the advantage of lucrative investment opportunities that may come up in future as well as to withstand unexpected adversity.

Asset Quality: The prime reason behind measuring the asset quality is to ascertain the component of non-performing assets as a percentage of total asset/ loan and advances. In addition, we have analyzed the ratio of loan loss provision to non performing loan. It reflects the safety margin for the bank against NPL. Higher the ratio, better for the bank.

Management: It involves a subjective analysis for measuring the efficiency of the management. To measure the efficiency of the management in an objective way.

Earning Quality: The quality of income is measured in terms of income generated by core banking activity.

The ratio of interest income is compared to the total income.

Liquidity: The main objective behind this parameter is to assess the ability of a bank to meet the demand from the deposit holders in a particular time. The higher rank for the banks with higher liquidity ratio.

Sensitivity to Market Risk: This includes the nature and complexity of market risk exposure arising from trading and foreign operations. Commodity prices or equity prices, institutionâ&#x20AC;&#x2122;s size, complexity of interest rate risk, exposure to market risk etc.

These cover all major aspects of financial indicators. To appropriately identify bankâ&#x20AC;&#x2122;s financial position, rating is used which is calculated by following wayRating 1 2 3 4 5

Condition Strong Satisfactory Fair Marginal Unsatisfactory

Composite Range 1.0-1.49 1.50-2.49 2.50-3.49 3.50-4.49 4.50-5.00

Composite Ratings Composite Ratings of 3, 4, or 5 may subject the bank to enforcement actions, enhanced monitoring, and limitations on expansion.

Banks with a composite 1 rating generally have components rated 1 or 2. They exhibit the strongest performance and risk-management practices relative to their size, complexity, and risk profile, and give no cause for supervisory concern. Banks with a composite 2 rating have no material supervisory concerns, and generally none of their component ratings should be more severe than 3. Banks with a composite 3 rating have a combination of moderate to severe weaknesses but generally will not cause any component to be rated more severely than 4. Banks with a composite 4 rating may fail if the problems and weaknesses are not satisfactorily addressed and resolved. Banks with a composite 5 rating have deficient performance and inadequate risk-management practices relative to the institution's size, complexity, and risk profile. They are of the greatest supervisory concern.

Explanation of Bank Composite Ratings Composite 1 Banks are sound in every respect. rating Composite

2 Banks are fundamentally sound and stable and are in substantial

rating Composite

compliance with laws and regulations.

3 Banks exhibit some degree of supervisory concern in one or more of

rating

the component areas and require more than normal supervision, which may include enforcement actions.

Composite

4 Banks generally exhibit unsafe and unsound practices or conditions

rating Composite

and pose a risk to the deposit insurance fund.

5 Banks exhibit extremely unsafe and unsound practices or conditions

rating

and pose a significant risk to the deposit insurance fund. Bank failure is highly probable.

Component Ratings Component Ratings for Capital 1 Strong capital level relative to the institution's risk profile.

2 Satisfactory capital level relative to the institution's risk profile.

3 Less than satisfactory level of capital that does not fully support the institution's risk profile. The rating indicates a need for improvement, even if the institution's capital 4

level exceeds minimum regulatory and statutory requirements.

Deficient level of capital. Viability of the institution may be threatened. Assistance

from shareholders or other external sources of financial support may be required.

5 Critically deficient level of capital.

Component Ratings for Assets 1 Strong asset-quality and credit-administration practices. Weaknesses are minor and 2

risk exposure is modest in relation to capital protection and management's abilities.

Satisfactory asset-quality and credit-administration practices. The level and severity of classifications and other weaknesses warrant a limited level of supervisory attention. Risk exposure is commensurate with capital protection and management's

3

abilities.

Asset-quality or credit-administration practices are less than satisfactory. Trends may be stable or indicate deterioration in asset quality or an increase in risk exposure. The level and severity of classified assets, other weaknesses, and risks require an elevated level of supervisory concern. There is generally a need to improve credit

4

administration and risk-management practices.

Deficient asset-quality or credit-administration practices. The levels of risk and problem assets are significant and inadequately controlled, and they subject the bank

5

to potential losses that, if left unchecked, may threaten its viability.

Critically deficient asset-quality or credit-administration practices that present an

imminent threat to the institution's viability.

Component Ratings for Management 1 Strong performance by management and the board of directors and strong risk-

management practices relative to the size, complexity, and risk profile. All significant risks are consistently and effectively identified, measured, monitored, and controlled. Management and the board have demonstrated the ability to promptly and successfully 2

address

existing

and

potential

problems

and risks.

Satisfactory management and board performance and risk-management practices relative to size, complexity, and risk profile. Minor weaknesses may exist, but they are not material to safety and soundness and are being addressed. In general, significant risks and problems are effectively identified, measured, monitored, and

3

controlled.

Management and board performance that needs improvement or risk-management practices that are less than satisfactory given the nature of the institution's activities.

The capabilities of management or the board of directors may be insufficient for the type, size, or condition of the institution. Problems and significant risks may be

4

inadequately identified, measured, monitored, or controlled.

Deficient management and board performance or risk-management practices that are inadequate considering the nature of an institution's activities. The level of problems and risk exposure is excessive. Problems and significant risks are inadequately identified, measured, monitored, or controlled and require immediate action by the board and management to preserve the soundness of the institution. Replacing or

5

strengthening management or the board may be necessary.

Critically deficient management and board performance or risk management practices. Management and the board of directors have not demonstrated the ability

to correct problems and implement appropriate risk-management practices.

Component Ratings for Earnings 1 Earnings are strong and more than sufficient to support operations and maintain adequate capital and allowance levels after consideration is given to asset quality, 2

growth, and other factors affecting the quality, quantity, and trend of earnings.

Earnings are satisfactory. Earnings are sufficient to support operations and maintain adequate capital and allowance levels. Earnings that are relatively static, or even experiencing a slight decline, may receive a 2 rating provided the institution's level

3

of earnings is adequate in view of the assessment factors listed above.

Earnings need to be improved. Earnings may not fully support operations and provide for the accretion of capital and allowance levels in relation to the institution's

overall condition, growth, and other factors affecting the quality, quantity, and trend 4

of earnings.

Earnings are deficient. Earnings are insufficient to support operations and maintain appropriate capital and allowance levels. These institutions may be characterized by erratic fluctuations in net income or net interest margin, the development of significant negative trends, nominal or unsustainable earnings, intermittent losses, or

5

a substantive drop in earnings from the previous years.

Earnings are critically deficient. A financial institution with earnings rated 5 is experiencing losses that represent a distinct threat to its viability through the erosion

of capital.

Component Ratings for Liquidity 1 Strong liquidity levels and well-developed funds-management practices. The bank has reliable access to sufficient sources of funds on favorable terms to meet present 2

and anticipated liquidity needs.

Satisfactory liquidity levels and funds-management practices. The bank has access to sufficient sources of funds on acceptable terms to meet present and anticipated

3

liquidity needs. Modest weaknesses may be evident in funds-management practices.

Liquidity levels or funds-management practices in need of improvement. Banks rated 3 may lack ready access to funds on reasonable terms or may show significant

4

weaknesses in funds-management practices.

Deficient liquidity levels or inadequate funds-management practices. Bank may not have or be able to obtain a sufficient volume of funds on reasonable terms to meet

5

liquidity needs.

Liquidity levels or funds-management practices so critically deficient that the continued viability of the institution is threatened. Institutions rated 5 require immediate external financial assistance to meet maturing obligations or other

liquidity needs.

Component Ratings for Sensitivity to Market Risk 1 Market-risk sensitivity is well controlled and there is minimal potential that the earnings performance or capital position will be adversely affected. Riskmanagement practices are strong for the size, sophistication, and market risk accepted by the institution. The level of earnings and capital provide substantial 2

support for the degree of market risk taken by the institution.

Market-risk sensitivity is adequately controlled and there is only moderate potential

that the earnings performance or capital position will be adversely affected. Riskmanagement practices are satisfactory for the size, sophistication, and market risk accepted by the institution. The level of earnings and capital provide adequate 3

support for the degree of market risk taken by the bank.

Control of market-risk sensitivity needs improvement or there is significant potential that the earnings performance or capital position will be adversely affected. Riskmanagement practices need to be improved given the size, sophistication, and level of market risk accepted by the institution. The level of earnings and capital may not

4

adequately support the degree of market risk taken by the institution.

Control of market-risk sensitivity is unacceptable or there is high potential that the earnings performance or capital position will be adversely affected. Risk management practices are deficient for the size, sophistication, and level of market risk accepted by the bank. The level of earnings and capital provide inadequate

5

support for the degree of market risk taken by the institution.

Control of market-risk sensitivity is unacceptable or the level of market risk taken by the institution is an imminent threat to its viability. Risk-management practices are wholly inadequate for the size, sophistication, and level of market risk accepted by the bank.

Classification of Banks According to CAMELS Rating of Bangladesh The Capital, Asset, Management, Earning, Liquidity and Sensitivity (CAMELS) Rating of different commercial banks in 2008 were done recently by the regulatory authority.

The serial is made on the basis of performance of 2007 and local banks first, then foreign banks.

Strong

or

A-class

Prime Shahjalal Commercial State Standard Citi

Bank Islami Bank Bank

Ltd. Bank

Limited

of

Ceylon

of Chartered

banks

India Bank N.A.

Satisfactory

or

B-class

banks

Standard

Bank

Limited

Exim

Bank

Ltd.

Mercantile

Bank

NCC

Bank

BASIC

Bank

Pubali

Bank

Southeast

Bank

Mutual

Trust

Bank

Limited

Dutch-Bangla

Bank

Premier

Bank

The

Trust

Bank

Bank

Asia

Jamuna

Bank

BRAC

Bank

One

Bank

Dhaka

Bank

Eastern

Bank

Islami

Bank

Bangladesh

Ltd.

Uttara

Bank

National

Bank

The

City

Social

Bank

Investment

Bank

Habib National Bank Woori HSBC

Bank Bank

of

Pakistan Alfalah Bank

Fair

or

C-class

First

banks

Security

Bank

IFIC

Bank

AB

Bank

United

Commercial

Al-Arafah Bangladesh

Bank

Islami

Bank

Shilpa

Agrani

Rin

Sangstha

Bank

Ltd

Rupali Bank Ltd. Marginal

or

D-class

banks

Sonali

Bank

Ltd

Janata

Bank

Ltd

Bangladesh

Shilpa

Bank

Bangladesh

Krishi

Bank

Rajshahi Krishi Unnyan Bank Unsatisfactory Bangladesh

or

E-class Commerce

banks Bank

Oriental Bank Ltd

First Security Bank is in Composite Rating 3 Financial institutions in this group exhibit some degree of supervisory concern in one or more of the component areas. These financial institutions exhibit a combination of weaknesses that may range from moderate to severe; however, the magnitude of the deficiencies generally will not cause a component to be rated more severely than 4.

Management may lack the ability or willingness to effectively address weaknesses within appropriate time frames. Financial institutions in this group generally are less capable of withstanding business fluctuations and are more vulnerable to outside influences than those institutions rated a composite 1 or 2. Additionally, these financial institutions may be in significant noncompliance with laws and regulations. Risk management practices may be less than satisfactory relative to the institution's size, complexity, and risk profile.

These financial institutions require more than normal supervision, which may include formal or informal enforcement actions. Failure appears unlikely, however, given the overall strength and financial capacity of these institutions.

Early Warning System (EWS) Performance indicators of the banking industry depict a trend similar to that of the state owned banks, which is understandable due to their predominant market share. Ratings done on the basis of the various indicators discussed hereinbefore indicate that financial performance of the PCBs and FCBs in general has been better than that of the industry average. However, 1 of the PCBs rated CAMEL 5 are still in the problems bank list out of 7 put in this category in the mid-nineties. Activities of the problem banks are closely monitored by the central bank with special guidance and care. Up to 2005, 6 such banks were taken off the problem bank list because of improved performance. Newly 3 banks were included in the problem bank list for their distressed financial position. At present 2 banks are in the problem bank list.

To assess the degree to which a bank might be exposed to adverse financial market conditions, the Bangladesh Bank added a new characteristic named as â&#x20AC;&#x153;Sensitivity to market riskâ&#x20AC;? to what was previously referred to as the CAMEL ratings. In particular, Bangladesh Bank started placing much emphasis on banks sensitivity to interest rate movement through the introduction of revised CAMELS rating system since July 1, 2006.

Presently Bangladesh Bank is employing Early Warning System (EWS) of supervision to address the difficulties faced by the banks in any of the areas of CAMEL. Any bank found to have faced difficulty in any areas of operation, is brought under Early Warning category and monitored very closely to help improve its performance. Presently 9 banks are in the EW system. 5.33 Bangladesh Bank is also monitoring the NCBs through its off-site supervision tools. Government of Bangladesh (GOB), the owner of those banks also adequately monitors them. At present, the NCBs are experiencing huge capital and provision shortfall, having large amount of classified loans, low earnings and ineffective

management. Various restrictions have been imposed by the Bangladesh Bank on the activities of the NCBs to put them on right track of business operation and growth. All the 4 NCBs have been made to sign Memorandum of Understandings (MOUs) with the Bangladesh Bank to improve their performance. Approvals of large loans by the banks are also monitored by the Bangladesh Bank on monthly basis to detect the irregularities.

Chapter 9 Problems and Recommendations Problems Recommendations

Problems 1. Decision is made by the top level Management Most of day to day transaction problems are faced by the lower and mid level officials.

They are those who can say what policies and strategies should be taken to solve those problems. So itâ&#x20AC;&#x2122;s must to listen to the suggestion of lower and mid level officials. But all decisions are taken by the Managing Director, Deputy Managing Director and other top

management and then they are cascaded down. As a result of this practice there is only a top down flow of communication. The scope for bottom up communication is very limited and many bright ideas are not being able to reach to the ladder to the top management.

2. Very few Branch level meeting is held Staff meetings and departmental meetings at the branch level can be said doesnâ&#x20AC;&#x2122;t held or very few; which is very essential to develop service quality as well as problem solving.

But this practice is very few. It may create major problem in future.

3. Remuneration package is not consistent There are some officers are only drawing salaries at the end of the month but making a minimum or no contribution towards the organization. On the other hand there are officers who work hard but are not apprised accordingly. Again the remuneration package for the entry and the mid level management is considerably low. Under the existing low pay structure, it will be very difficult to attract and retain BBAâ&#x20AC;&#x2122;s and MBAâ&#x20AC;&#x2122;s, since foreign banks pay double that of this bank. In such a situation this bank will fall to attract competent and experienced, hard working officers and retain them if they do not revise their pay structure.

4. Very small and no or very few role of human resource department The Human Resource department is very small relative to the size of the bank and other than the Head of the Human Resource wing, the staffs in this wing are incompetent to be an official in the Human Resource department. Most of the Human Resource practices and policies are not being followed or implemented here. The annual performance appraisal repot of the employees has not been scrutinized yet and employees are not getting the required feedback. Criteria for work output or productivity are not considered.

5. Lack of exposing itself to the public that is advertising and promotion Perhaps this bank does not pursue an aggressive marketing campaign. It does not expose itself to the public and is not in the lime light . Other than the advertisement in daily

newspapers, the bank does not have neon sign or any advertisement in the city. As a result, people are not aware of the existence of this bank.

6. Lack of modern PC bank and comprehensive banking software PC Bank is not modern and comprehensive banking software. It doesnâ&#x20AC;&#x2122;t provide adequate support on providing the services. It isnâ&#x20AC;&#x2122;t user friendly and management should consider replacing the PC Bank system by a more comprehensive banking system.

Recommendation I have focused and analyzed on performance of the bank while working as an intern. First Security Bank Limited is a new bank in Bangladesh, but its contribution to the socio economic aspect has greatest significance. I have tried to identify the problems as a whole. I have found some of factors which impede the achievements of ultimate goals of the bank. It is not easy to find out the solution of the problems as mentioned, however I have mentioned some suggestions and generated a set of recommendations that might be helpful for solving few problems and improving the service as well as image of the bank.

1. Service Quality must be improved Fast and prompt services should immediately be developed, as customers want their desired services without any delay. The management must take special care and steps to improve the service quality. Adequate people with proper training and skill should be place at this wing of the bank. So the employees should be well equipped and prompt in their work.

2. Decision should be decentralized

The scope for bottom up communication is very essential and must be made without any delay. Many bright ideas are not being able to reach to the ladder to the top management; steps should be taken to make reach the ideas to the top. While making any decision all the ideas must be considered and discussion should be conducted with low and mid level management.

3. Branch level and Staff meeting should be increased Staff meetings and departmental meetings at the branch level must be increased to develop service quality as well as problem solving. Such meeting can also help interchange the inner-qualities of each other and improve qualities employees as well management. Branch level meeting can help interchange improved service qualities.

4. Remuneration package should be improved Payment to the workforce should be such that will encourage the employees to work more. Remuneration package must be impressive and inconsistent with work performance. And it should also increase the remuneration to the employees to attract quality personnel.

5. The bank must decide its vision or long-term strategies The bank must make its long-term strategies of whether it wants to focus on retail banking or become a corporate bank. The path for the future should be determined right now. A prescribed set of vision or target should be made as with consistent with time.

6. Improvement of human resource department The Human Resource wing has to be more active rather than maintaining administrative duties. More qualified and skilled Human Resource professional should be recruited for this department for future growth of the Human Resource of the bank. The management should immediately apply the performance appraisal system and take appropriate actions on the basis of that appraisal. All sorts of promotions or other benefits should be based on the report of the performance appraisal.

7. Increase advertisement and promotion The bank should give an aggressive advertisement campaign to build up a strong image and reputation the potential customers.

8. Modernize technologies such and computer, network and information system Employees should be equipped with latest technologies such as computers, fax and phone. These are also needed for faster service delivery. The bank should have a strong network between their branches. For this all of the branches should be online first, which would reduce paperwork, time and increase effectiveness and promptness in service.

Superhighway information system must be established.

9. Introduce Independent ATM Booth Service Opportunity & Facility Now First Security Bank Limited has joined ATM service with Dutch Bangla Bank.But when it will through the independent service to customers then the bank will reach closest to customer I think.

10. Skilled system operators and computer operators should be appointed There should be system operators who have strong background, skill and academic knowledge on computer applications. As they frequently workout and prepare the various computerized statements.

Conclusion

A number of measures have been undertaken by the Government during the nineties to strengthen the banking system. These include improvement of legal and regulatory framework, passage of the Bankruptcy Act, 1997 and the Loan Court Amendment Act by Parliament, enforcement of loan classification guide-lines, recapitalization of nationalized commercial

banks

and

the

formation

of

Banking

Reform

Committee.

The Government is keen to correct and remedy past failures and imperfections in the financial markets. The reforms of the financial sector and trade liberalization are being complemented by an appropriate foreign exchange measures. An active exchange rate policy to maintain the competitiveness of the economy is also being followed.

The local currency Taka has been made convertible in all current account transactions.

Laws have been amended to boost private and foreign investment in the financial sector.

A number of foreign banks and financial institutions are already active in the country.

Two stock Exchanges in Dhaka and Chittagong are also fully operational.

The central bank described the situations of bank to the standing committee members.

The report said First Security Bank was labeled as a problem bank in 2004 due to poor financial condition and mismanagement, and its capital deficit was Tk 31 crore till March this year. The report, however, observed that there are signs of improvement in the bank's management and financial situation after change of ownership.

From this report it is clear that overall position of First Security Bank Ltd. is satisfactory because its Capital adequacy, Asset quality, Earnings, Liquidity and Management efficiency bear the evidence of satisfaction.

If the First Security Bank takes some actions regarding my recommendation stated in this report, bank may improve its position in the long run.

References

1. DR. A. R. Khan. Bank Management A Fund Emphasis. Dhaka: Ruby Publications, 2008.

2. P. N. Varshney. Banking Law and Practice. Sultan Chand & Sons, 2006.

3. Annual Report 2001-2007, First Security Bank Limited.

4. Quarterly and Annual reports, Bangladesh Bank 5. Different Published Issues 6. Internet