Loan Policies of Standard Bank Limited
Chapter-1 Introduction
1.1
Background
It has long been recognized that credit is an important tool in increasing productivity and thereby increasing the income of borrower. Adequate flow of credit can remove the financial constrains on the borrower. There has been phenomenal growth in the flow of credit after liberation due to government’s desire to increase productivity in the country. All the credit institutions were glared up through a dynamic credit policy to disburse both short term and long term credit. As a result, the flow of credit has increased significantly. As the volume of the loans has increased substantially over the years, the percentage of loan default increased gradually. This study is kind of analyzing the Loan Management of Standard Bank. It is providing different types of Loan Secured Overdraft (SOD), Loan (general), House Building Loan (Staff), Term Loan (Industrial) Term Loan (Others), Staff Loan Against Provident Fund, Consumer Credit Scheme (CCS).
1.2
Origin of the report
This report originates to fulfill the requirement of studying BBA Program of Dhaka University. This program has been designed to facilitate the students with basic theoretical and practical knowledge in the job activities in the context of Bangladesh as well as worldwide. Since the BBA program is an integrated, practical and theoretical method of learning, the students of this program are required to have practical exposure in any kind of business organization after the completion of his theoretical part in the classroom. This report has been prepared on practical orientation.
1.3
Objectives of the Report
Objectives of this report are as follows • To identify the sectors the bank is providing loans. •
To identify the customer segment.
•
To have some practical exposure that will be helpful in the practical life.
•
To gather knowledge about loan and advance.
1.4. Scope of the Study I have prepared my report on SBL, Topkhana Road Branch. I focused only on the Loans & Advances Division of the Topkhana Road Branch. Necessary data and information was collected mainly from the credit division of this Branch. 1.5. Methodology This report is based on primary & secondary data. For more clarification and better understanding, I have collected primary data in the form of depth interview and personal observation. The Primary Sources • Conversation with the respective executives & officers of the concerned branch of the Bank. •
Informal conversation with the clients.
•
Practical work exposures from the different desks of the various departments of the Branch covered.
The Secondary Sources • Annual Reports of Standard Bank Ltd. •
Periodicals published by Bangladesh Bank.
•
Web site of Standard Bank Limited.
1.6 Limitations This study is subject to the following limitations: • Access to the required information was restricted. •
Most of the employees of the bank were busy and they did not co-operate me substantially in spite of having desire to do that.
•
There are lack of adequate data and information on the relevant topic as these data are treated as very much confidential.
•
To prepare such report it is needed more time, but the report is made only within the one & half months time period.
Chapter-2 Organizational Profile & Structure
2.1. Profile of Standard Bank Limited Standard Bank Limited (SBL) was incorporated in Bangladesh as a Public Limited Company with limited liability under the Companies Act, 1994 on 11 th May 1999 & commenced commercial operation on 3rd June, 1999. The Bank went for the public issue of shares on in 2003 and its shares are listed with Dhaka Stock Exchange and Chittagong Stock Exchange. Now it has 30 Branches all over Bangladesh. 2.2 Financial Highlights
(Figure in Million Taka) Particular s Authorized Capital Paid Up Capital Shareholders’ Equity Deposits Loans Advances
2001
2002
2003
2004
2006
1250
200 5 1250
1250
200 7 3000
200 8 3000
750
750
1250
200
200
200
660
759
910
1093
1967
212.65
220.05
285.25
857.03
1100
1412
1764
2767
2054.1 2 & 751.78
2749.0 7 2365.1 8
4101.5 6 3495.7 1
5612.4 2 4952.2 4
8731
12043.3 9 10183.5 9
14220
19214
12634
17311
7801
2.3. Human Resource Department The Bank has a Human Resource Development & Research Department to develop human resources internally. The Academy is equipped with professional library, modern training aids professional faculty and other facility. It is now under Personnel & Human Resource Development & Research Division. The Academy conducts regularly foundation courses, specialized courses and seminars on different areas of banking to take care of the professional needs. 2.4. Vision & Mission • •
Vision: To be a modern Bank having the object of building a sound national economy & to contribute significantly to the Public Exchequer.
Mission: To be the best private commercial bank in Bangladesh in terms of efficiency; capital adequacy, asset quality, sound management and profitability having strong liquidity. 2.5. Corporate Information
Name of company Legal Form
Registered Office
Telephone Telex No SWIFT Code E-mail Web Page Auditors
the Standard Bank Limited. A public limited company incorporated in Bangladesh on 11th of May, 1999 under the Companies Act, 1994 and listed in Dhaka Stock Exchange Limited and Chittagong Stock Exchange Limited. Metropolition Chamber Building (3rd Floor) 122-124, Motijheel, C/A Dhaka-1000, Bangladesh 7175698,7169134,9560299,9558375 7176367, 7169078 SDBLBDDH sblho@bangla.net www.standarabankbd.com Khan Wahab Shafique Rahman & Co. 55, Dilkusha C/A, Dhaka – 1000.
2.6. Profile of Topkhana Road Branch Topkhana Road Branch of Standard Bank Limited, one of the profitable Branch is located at Press Club (2nd Floor), Topkhana Road, Dhaka. It started its journey 31 st October 1989, Now it has 26 employees (Male 18 & Female 08) which includes one VP & relationship manager, one AVP, four SSO, four SO, Seven officer Grade-I & Three Officer Grade-II, Three computer officer, three cash officer, one office assistant (SG), two security staff, two office attendant. 2.7. Organ gram of Topkhana Road Branch Manager (SVP)
Senior Executive Officer
Executive Officer
Senior Officer
Officer
Probationary Officer
Junior Officer
Assistant Officer
Trainee Assistant Officer
Chapter-3 SME Loan Policies of Standard Bank Limited 3.1 Loan Documentation For all facilities, bank must obtain (as applicable) and limiting to following documents before disbursement of loan can be made: 1) Loan Application Form duly signed by the customer. 2) Acceptance of the terms and conditions advice. 3) Trade license. 4) In Case of Partnership firm: Copy of Registered partnership Deed duly as true Copy or a Partnership Deed on onejudicial Stamp of TK. 150 denomination duly notarized. 5) In Case of Limited Company: a) Copy of memorandum & articles of association of the company including ‘certificates of incorporation’ duly certified by Registrar of Joint stock companies (RJSC) and attested by the Managing Director (MD) accompanied by an up- to- date of directors. b) Copy of Board Resolution of the company for availing credit facilities and authorizing Managing Director/ Chairmen/ Director for execution of documents and operation of the accounts. c) An undertaking of not changing the management of the company and the memorandum and articles of the company without prior permission of the bank. d) Copy of audited financial statement up to last 3 years.
e) Personal Guarantee of all the Directors including the Chairman and Managing
Director. f) Certificate of registration of charge over the fixed and floating assets of the company duly issued by RJSC. g) Certificate of registration of memorandum of charges over the fixed & floating assets of the company duly issued by RJSC in case of repeat loan or charge terms and condition of sanction advice loan amount, securities etc. 6) Demand promissory note. 7) Letter of hypothecation of stock and goods. 8) Letter of hypothecation of book debts & receivables. 9) Letter of hypothecation of plant & machinery. 10) Charge on fixed assets. 11) Personal letter of guarantee. 12) Wherever practical, insurance policy for 110% of the stock value covering all risks with banks mortgage clause in joint name of the bank client. In the case of individual person•
2 (two) copy passport size photographs of intending borrower & guarantor.
•
Letter of introduction from employer (where required).
•
Bank Statement (for last 6 months).
•
Personal net worth statement.
•
Copy of passport/ Voter ID/Driving License (if any).
•
Utility bill copy (Telephone/ Gas/ Electricity) - any one.
•
Salary Certificate/ Trade License.
•
T.I. Number.
•
Copy of offer letter from recognized College/ University for studying abroad.
•
For local private university/ medical college, submission of evidence related to admission and cost. CIB report on the borrower as required.
In the case of sole proprietorship firm•
One copy passport size photograph of the owner.
•
Copy of trade license.
•
Personal net worth statement.
•
Hypothecation of stock.
•
Personal guarantee of a businessman having business at the same area or any person acceptable to the bank.
3.2. Policy Guidelines for Bank: 1. Product Program Guidelines.
2. Segmentation of Duties. 3. Credit Approval. 4. Credit Administration. 5. Risk Management. 6. Collection & Remedial Management. 3.3. Guidelines for bank for giving loan These guidelines include objective/ quantitative parameters for the eligibility of the borrowers and determine the maximum permission limit per borrower. Fundamentally, credit policies and procedures can never sufficiently capture all the complexities of the product. Therefore, the following credit principles are the ultimate reface for making financing decisions: •
Assess the entrepreneur’s character for integrity and willingness to repay.
•
Only lend when the entrepreneur has capacity and ability to repay.
•
Only extend credit if bank can sufficiently understand and manage the risk.
•
Use common sense and past experience in conjunction with through evaluation and credit analysis.
•
Do not base decision solely on customer’s reputation, accepted practice, other lender’s risk assessment or the recommendation of other officers.
•
Be proactive in identifying, managing and communicating credit risk.
•
Be diligent in ensuring that credit exposures and activities comply with the requirement set out in product program.
3.4. Small Enterprise Loan SBL Bank provides the following different types of loans for Small Enterprise: 1. Easy Commercial Loan 3. Transport Loan 5. Possession Right Loan 7. Letter of Guarantee 9. Letter of Credit 11. Loan Against Trust Receipt 13. Project Loan
2.Retailers Loan 4. Commercial House Building Loan 6. Contractor’s Loan 8. Working Capital Loan 10. Loan Against Imported Merchandise (LIM) 12. Builder’s Loan ----------------------------------------
A brief description on the most favorable loans are given below-
Easy Commercial Loan
Issue 1. Customer segment 2. Purpose 3. Nature of loan 4. Nationality 5. Eligibility 6. Age limit for key persons 7. Security
Details Individual, business enterprises (other than Public Limited Company) engaged in any business. To meet business requirement. Overdraft/ loan general. Bangladeshi Customer of the respective branch having Shop / business place in the command area. Minimum age 21 (twenty one) years. Pledge of instrument duly discharged by the other (where applicable). •
FDR/ other deposits of Standard Bank Ltd.
•
FDR/other financial instrument issued from other banks.
•
ICB unit certificate.
•
PSS account
•
Demand shares of A& B group traded in SDE
•
8. Maximum Limit
Any other government security eligible for credit facility (ies). allowable a) Maximum 90% of the face value of FDR/NCD/WEDB. Face Value wound means the original amount for which the FDR/NCD/WEDB was issued or the amount renewed. b) Maximum 90% of the MIS amount where interest is not allowed to be withdrawn until adjustment of the ability c) Maximum 70% of the MIS amount where interest is allowed to be withdrawn on monthly basis. d) Maximum 100% of the deposited principal amount of PSS account where the deposited amount is not less than TK. 10,000. e) Maximum 90% of the face value of ICB unit certificate or quoted ICB buying price whichever is less. f) Up to 60% of 6 months average price of shares under A&B group but not exceeding TK. 35.00 lac. g) Deviation of above criteria may be considered
9. Required documents
10. Penal interest 11. Maximum term of loan (Tenor) 12. Mode of Repayment 13. Disbursement mode 14. Loan processing fee 15. Verification information
16. Disbursement conditions
17. Legal documents
of
pre-
on special case. Trade License. CIB report of the borrower. Memorandum and Articles of association along with certificate of incorporation and resolution from board of directors of the company. Deed of partnership along with letter of partnership bank’s prescribed format. Additional 2% per annum on the overdue amount. 12 (Twelve Month) Lump sum within validity. Overdrawing in CD account/credit to parties CD account in case of loan general. TK. 500. Bank nominated agency or bank official will verify the address of the business enterprise, residence of both borrowers & guarantors. 1. Acceptance of sanction terms 2. Clean CIB report 3. Payment of all chargers. 4. Deposit of instrument duly discharged 5. Executions of all charge documents confirmation of Lien on security from issuing branch. i) D.P. Note ii) Letter of arrangement. iii) Letter of disbursement (for Loan).
iv) Letter of
installment (For loan) v) Letter of continuity (For SOD limit). vi) Letter of lien on security. vii) Letter of authority for encashment of securities. viii) Surrender Form (for ICB unit certificate). x) Pledge of request form 19-1 signed by share holder. xi)
Incase
of
shares
in
the
name
of
Sponsors/Directors of the company two separate declarations are to be obtained in Bangladesh
Bank
letter
terms of
no
(p)/661/13(cha)/2005-3400 dated 25.9.2005.
Retailers’ Loan
BRPD
Issue 1. Customer segment 2. Nature of facility 3. Nationality 4. Eligibility
5. Age Limit 6. Required documents 7. Security
8. Tenor 9. Maximum loan limit 10. Rate of interest 11. Penal interest 12. Service Charge 13. Legal documents
Details Individual/ proprietorship firm engaged in retail business. Term Loan. Bangladeshi. Any small and retail business house having valid trade license and must have an account with Standard Bank Ltd. Minimum Age 21 (twenty one) years One copy passport size photograph, copy of trade license, personal net worth statement. Hypothecation of stock, personal guarantee of a businessman having business at the same area or any person acceptable to the bank. Personal guarantee of spouse/ parents. Maximum 24 months Maximum Tk.1 (one) lac. 15% per year with quarterly rest. 2.5% is to be obtained on overdue amount (if). 1% on the loan amount to be obtained as service charge. • D.P. note •
Letter of arrangement.
•
Letter of disbursement (for Loan).
•
Letter of installment (for loan).
•
Personal guarantee of guarantor.
•
Personal guarantee of Spouse/Parents.
Transport Loan Issue 1. Customer segment 2. Purpose 3. Nationality 4. Eligibility
5. Age limit for key persons
Details Individual, business enterprise (other than public limited company) engaged in transport business. Purchase of road/ water transport for commercial use. Bangladeshi Customer of the respective branch having business house/ office in the command area with at least two years experiences in their lien business. • Minimum age 25 years •
Maximum age 65 years on the date of maturity of the Loan
6. Maximum loan limit 7. Debit equity ratio 8. Security/ Collateral: (Primary)
9. Collateral security
10. Required documents
Maximum Tk.50,00,000 (fifty lac only) 60:40. Hypothecation of vehicles. The vehicles to be registered with BRT/BIETA/ Mercantile & Marine department with bank mortgage clause. Comprehensive insurance in the joint name of the bank & borrower. • Legal mortgage of land & building within city corporation and/ or municipal area preferably 1st party. •
Registered power of attorney to sell the mortgaged properties without intervention of court.
•
Personal guarantee of spouse/ parents. (Incase of individual/ proprietorship firm)
•
Personal guarantee of partners / Directors ( incase of partnership firm /private limited company)
•
Registration of charges with joint stock companies under relevant section One copy passport size photograph of intending borrowers as well as guarantors.
• •
Valid trade license.
•
TIN certificate.
•
Bank statement for last six months.
•
Submission of financial statement.
•
Quotation of vehicle accepted by the intending borrower.
•
Original Title Deed of the property.
•
CS, SA,RS & Hal parcha.
•
Mutation with DCR.
•
Up to date rent receipt.
•
Municipal tax receipt.
•
Non- encumbrance certificate.
•
No objection/permission from competent authority for mortgage of properties where required.
•
CIB report on the borrower.
•
Partnership deed registered with RJSC & firm along with letter of partnership on
bank’s prescribed format. •
11. Debt Burden Ratio 12. Rate of interest 13. Penal interest 14. Maximum term of loan 15. Grace period 16. Repayment 17. Disbursement mode 18. Loan processing fee 19. Service charge 20. Verification information
of
21. Substantiation income
of
22. Disbursement conditions
23. Legal documents
pre-
Memorandum & articles of Association along with certificate of incorporation duly certified by RJSC and resolution from the Board of Directors.
• Copy of up to date list of directors. Maximum 60% based on average net monthly return. 14.50% Additional 2% on the overdue amount. Maximum 48 months. One month from the date of 1st disbursement. By monthly installment after one month from the expire of grace period. Payment to the vendor through PO/DD. 1% on loan amount to be realized at the time of disbursement loan. 0.50% on loan amount to be realized at the time of disbursement of loan. Bank’s nominated agency or Bank official will verify the address of the business enterprise, residence of both borrowers & guarantors. 1. Details of income statement 2. Cash flow statement 3. Banks statements 4. Income Tax Return of last period. • Acceptance of sanction terms. •
Clear CIB Report.
•
Completion of mortgage formalities & execution of necessary charges documents.
•
Payment of all charges.
• •
Verification of address, all telephone numbers of borrower & guarantor. D.P Note
•
Letter of arrangement.
•
Letter of disbursement (for loan).
•
Letter of installment (for loan).
•
Letter of hypothecation of vehicles
•
Letter of authority to debit the account.
•
Memorandum of deposit to tile deed.
•
Deed of Mortgage
•
Registered power of attorney to sell the mortgage property without intervention of court.
•
Letter of guarantee
•
Board resolution to borrow fund including completion of documentation as per Memorandum & Article of association.
•
Registration of vehicle with bank mortgage clause.
•
Comprehensive insurance coverage with bank mortgage clause.
•
Pledge of applicable.
•
Letter of lien where applicable.
•
Twelve post-dated cheques in favor of bank for payment of monthly installment cash duly singed by the borrower. After 1 year fresh cheque to be obtained along with memorandum of deposit of cheques.
financial
obligation
where
Commercial House Building Loan Issue 1. Customer segment 2. Purpose 3. Eligibility 4. Age persons
limit
for
5. Minimum income 6. Loan size 7. Debt Equity ratio 8. Security/ Collateral
key
Details Individual, business enterprise (other than public limited Company) having commercial plot. Construction of commercial plot. Any individual /business house in the command area having account with the branch.. • Minimum age 25 years •
Maximum age 65 years on the date of maturity of the loan. Average minimum income from the business is to be sufficient to repay the liability. Maximum Tk.50, 00,000. 70:30 of construction cost. • Legal mortgage of land and building within City Corporation or Municipal area. •
Registered power invention of court.
•
Personal guarantee of spouse/ parents.
•
Personal guarantee of partners/directors
of
attorney
without
9. Required documents
10. Debt Burden Ratio 11. Monthly installment size 12. Rate of interest 13. Penal interest 14. Maximum term of loan 15. Grace period 16. Repayment 17. Disbursement mode 18. Loan processing fee
•
Registration of chargers with joint stock companies under relevant section, where required.
• •
Pledge of financial instrument if any. One copy passport size photograph of proprietor/ partner / managing director as well as guarantors.
•
Valid trade license.
•
TIN certificate.
•
Bank statement for last six months
•
Submission of financial statement
•
Original Title Deed of the property.
•
Bia deed.
•
CS, SA, RS & Hal parcha.
•
Mutation with DCR.
•
Up to date rent paid receipt.
•
Site Map
•
Non- encumbrance certificate.
•
Approver plan for construction from the competent authority.
•
Estimated cost of construction by a civil engineer.
•
CIB report on the borrower
•
Partnership deed registered with letter of partnership on bank’s prescribed format.
•
Memorandum & articles of association along with certificate of incorporation duly certified by RJSC and resolution from the Board of Directors.
• Copy of up to date list of directors. Maximum 60% of net monthly return X100 average monthly return 14.50% Additional 2% on the overdue amount. Maximum 5 years excluding grace period. One month from the date of 1st disbursement. Installment as per repayment schedule. Phase- wise disbursement against progress of work. 1% on loan amount to be realized at the time of disbursement of loan.
19. Service charge 20. Verification information
of
21. Substantiation income
of
22. Legal documents
0.25% on loan amount to be realized at the time of disbursement of loan. Bank’s nominated agency or bank official will verify of the business enterprise, residence of both borrowers & guarantors. 1. Details of income statement 2. Cash flow statement 3. Banks statements 4. Income Tax Return of last period. • D.P Note •
Letter of arrangement.
•
Letter of disbursement (for Loan).
•
Letter of installment (For loan).
•
Letter of authority to debit the account.
•
Memorandum of Deposit to Tile deed.
•
Deed of Mortgage
•
Registered power of attorney to sell the mortgage property without intervention of court.
•
Letter of guaranties
•
Board resolution to borrow fund including completion of documentation as per Memorandum & Article of association.
•
Registration of vehicle with bank mortgage clause.
•
Comprehensive insurance coverage with bank mortgage clause.
•
Pledge of applicable.
•
Letter of lien where applicable.
financial
obligation
where
Possession Right Loan Issue 1. Customer segment
2. Purpose 3. Nature of Loan 4. Eligibility
Details Proprietorship concern having no collateral security to offer other than possession right of shop. Fixed working capital. Term loan Customer of the respective branch having shop/ business place in the command area at least
5. Age limit for key persons
2(two) years experience in their line of business. • Minimum age 25 years •
6. Average monthly returns
minimum
7. Loan size 8. Debt Equity ratio 9. Security/ Collateral: (Primary) 10. Collateral security
11. Required documents
12. Debt Burden Ratio
Maximum age 65 years on the date of maturity of the loan. Average minimum monthly return from the business should be at least three times of equated monthly installment. Maximum Tk.5,00,00,000/50:50 • Hypothecation of stocks duly insured with bank mortgage. • Tripartite agreement among the Bank, Lessor & Borrower to the effect that the Lessee and Lessor can not transfer possession right of the property without prior consent of the bank,. •
Confirmation from the concerned authority that no transfer of ownership will be allowed without prior written consent of the bank.
•
Personal guarantee of spouse/parents.
•
Personal guarantee from an individual acceptable to the bank.
•
One cheque covering residual amount of loan duly signed by the borrower.
• •
Memorandum deposit of cheques. One copy passport size photograph of Proprietor/ partner / Managing Director as well as guarantors.
•
Valid trade license
•
TIN certificate
•
Bank statement for last six months
•
Submission of financial statement
•
Original Title Deed of the property.
•
CIB Report of the borrower.
•
Stock report.
•
Copy of drug license /Homeopathic license
• Up to date rent paid receipt of the shop Maximum 50% based on average net monthly
13. Rate of interest 14. Penal interest 15. Maximum term of loan 16. Mode of repayment 17. Disbursement mode 18. Loan processing fee 19. Service charge 20. Verification information
of
21. Substantiation income
of
22. Legal documents
returns. 15% Additional 2% on the overdue amount. Maximum 36 months. By monthly installment effective from the following month of disbursement of loan. Single disbursement to borrower’s CD/A/C Tk.2,000/-) to be realized at the time of disbursement of loan. 0.050% on loan amount to be realized at the time of disbursement of loan. Bank’s nominated agency or bank official will verify of the business enterprise, residence of both borrowers & guarantors. • Details of income statement •
Cash flow statement
•
Banks statements
• •
Income Tax Return of last period. D.P Note
•
Letter of arrangement.
•
Letter of disbursement (for loan).
•
Letter of installment (for loan).
•
Letter of Hypothecation of stock.
•
Letter of authority to debit the account.
•
Memorandum of Deposit to Tile deed.
•
Insurance Policy
•
Tripartite agreement among the Bank, Lessor & Borrower to the effect that the Lessee and Lessor can not transfer possession right of the property without prior consent of the Bank,
•
One bank cheque dated maturity date of loan duly singed by the borrower.
•
Memorandum or deposited of possession right deed.
•
Letter of confirmation from the concerned authority that no transfer of ownership will be allowed without prior written consent of the bank.
Contractors’ Loan Issue 1. Customer segment 2. Purpose 3. Nature of Loan 4. Nationality 5. Eligibility
6. Age limit for key persons
Details Individual, business enterprise (other than public limited company) having commercial plot. To execute work order awarded by Govt./ semi Govt.& autonomous bodies. Secured overdraft Bangladeshi. Any business house in the command area having at least 2(two) years experience in their line of business. • Minimum age 25 years •
7. Loan size 8. Debt Equity ratio 9. Security/ Collateral (Primary)
Maximum age 65 years on the date of maturity of the loan Maximum Tk.50,00,000/50:50 • Legal mortgage of land and building within City Corporation or Municipal area. •
10. Collateral security 11. Required documents
12. Debt Burden Ratio 13. Rate of interest 14. Penal interest 15. Maximum term of loan 16. Grace period 17. Mode Repayment 18. Disbursement mode 19. Loan processing fee
• •
Registered power of attorney to sell the mortgaged properties without invention of court. Assignment of work order. One copy passport size photograph of proprietor/ partner / Managing Director as well as guarantors.
•
Valid trade license.
•
TIN certificate.
•
Bank statement for last six months
•
Submission of financial statement
•
Original Title Deed of the property.
• CIB report of the borrower A maximum 50% net monthly return 15% Additional 2% on the overdue amount. Maximum 36 months. One month from the date of 1st disbursement By monthly installment effective from the following month of disbursement of loan. Single disbursement to borrower’s CD/A/C. TK.2000 to be realized at the time on
20. Service charge 21. Verification information
of
22. Substantiation income
of
disbursement of loan. 0.25% on loan amount to be realized at the time of disbursement of loan. Bank’s nominated agency or bank official will verify of the business enterprise, residence of both borrowers &guarantors. • Details of income statement •
Cash flow statement
•
Banks statements
•
Income Tax Return of last period.
Letter of Guarantee Issue 1. Customer Segment
Details Business enterprise (other than public Limited Co.) engaged in construction, supply and other businesses. • To participate in tender(s) invited by Govt./ Semi govt. & autonomous bodies.
2. Purpose
•
3. Nature of facility 4. Eligibility
5. Age limit for person(s) 6. Security (primary) 7. Collateral security
8. Required documents
key
To execute job against work order award from different agencies.
• Any other obligation. Bank Guarantee Customer of the respective branch having business place in the command area with at least 2 (two) years experience on their line of business. Minimum age 25 years. Counter Guarantee. • Legal mortgage of land building within city corporation and/or Municipal area preferably 1st party, •
Registration of power of attorney to sell the mortgaged property without intervention of court
•
Line on financial obligation.
•
Personal guarantee of spouse/parents.
• •
Personal guarantee of partners / directors. One copy passport size photograph of intending borrowers as well as guarantors
•
Valid trade license
•
Copy of valid enlistment certificate of the contractor.
•
TIN certificate
•
CIB report of the borrower
•
Bank statement for last six months
•
Submission of financial statement
•
Original Title Deed of the property.
•
Mutation with DCR.
•
Up to date rent receipt.
•
Municipal tax receipt.
•
No objection/permission from competent authority for mortgage of properties where required.
•
Memorandum & articles of association along with certificate of incorporation duly certified by RJSC and resolution from the Board of Directors.
•
Copy of up to date list of directors.
•
9. Margin 10. Guarantee period 11. Commission
Copy of work order awarded with copy of items of agreement Depends on banker-customer relationship. As per requirement and acceptable to the bank. • @0.50% per quarter or part thereof minimum Tk.300/•
@ 0.25% per quarter or part thereof minimum tk-300/-
•
Where the bank guarantee is partially covered by FDR, commission to be charged at pro-rata basis in the manner as stated above.
•
Where fully covered by cash margin Tk500/- to be realized as service charge.
Working Capital Loan Issue 1. Customer Segment
Details Business enterprises (other than public limited
company) engaged in manufacturing, trading business. 2. Purpose 3. Nature of loan 4. Eligibility
To meet working capital requirement. Cash credit.
•
Firm/ companies Bangladesh.
•
Customer of the respective branch having shop/ business place in the command area with at least 2 (two) years experience on their line of business. • Minimum age 25 years
5. Age limit for key persons
incorporated
in
•
6. Loan size 7. Debt Equity Ratio 8. Security (primary)
Maximum age 65 years on the date of maturity of the loan. Maximum Tk.50,00,000/Depending on the nature and risk in the business. • Hypothecation of stock in trade duly insured with bank mortgage clause. •
9. Collateral Security
10. Required documents
•
Pledge of stocks duly insured with bank mortgage clause Legal mortgage of land and building within City Corporation or Municipal area.
•
Registered power of attorney without invention of court.
•
Personal guarantee of spouse/parents.
•
Personal guarantee of partners/Directors.
•
Registration of chargers with joint stock companies under relevant section, where required.
•
Lien of financial obligation.
•
Hypothecation of machinery, where required. One copy passport size photograph of intending borrowers as well as guarantors
• •
Valid trade license.
•
Copy of valid enlistment certificate of the contractor.
•
TIN certificate
•
CIB report of the borrower
•
Bank statement for last six months
•
Submission of financial statement
11. Rate of interest 12. Penal interest 13. Maximum term of loan 14. Grace period 15. Disbursement mode 16. Loan processing fee 17. Service charge 18. Verification information 19. Substantiation income 20. Disbursement: Pre –Conditions
21. Legal documents
of
of
•
Original Title Deed of the property.
•
Up to date rent receipt.
•
Municipal tax receipt.
•
No objection/permission from competent authority for mortgage of properties where required.
•
Memorandum & articles of association along with certificate of incorporation duly certified by RJSC and resolution from the Board of Directors.
• Copy of up to date list of directors. 14.50% Additional 2% on the overdue amount Maximum 12 Months. One month from the date of 1st disbursement Drawing as per D.P TK.2000/- to be realized at the time of disbursement of loan. 0.25% on loan amount or maximum Tk.5000/-. Bank’s nominated agency or bank official will verify of the business enterprise, residence of both. • Details of income statement • •
Banks statements Acceptance of sanction terms
•
Clean CIB Report
•
Completion of mortgage formalities where applicable
•
Execution of necessary charge documents
•
Payments of all charges processing fees, service charge etc.
•
Verification of all addresses, all telephone numbers of borrower & guarantor.
•
Insurance coverage as per sanctioned terms
• •
Stocks report duly verified by the branch official. D.P Note
•
Letter of arrangement.
•
Letter of disbursement (for loan).
•
Letter of installment (For loan).
•
Letter of hypothecation of stock.
•
Letter of authority to debit the account.
•
Letter of pledge.
•
Letter of continuity.
•
Letter of disclaimer.
•
Letter of guarantee.
•
Registered partnership deed.
Loan against Imported Merchandise
Issue 1. Customer Segment
Details Business enterprise (other than public limited company) engaged in imported business. For clearance of imported consignment. Depends on banker customer relationship. Imported goods to be stored at godown under effective control of bank duly insured covering all relevant risks. • Application from the importer.
2. Purpose 3. Margin 4. Security
5. Required documents
•
6. Rate of interest 7. Penal interest 8. Maximum term of loan 9. Repayment of loans
Imported goods should be cleared through approved clearing agent of bank nominated by the importer. 14.50% p.a. with quarterly rest or as revised form time to time. Additional 2% per annum on the overdue amount, if any. As per nature of imported items and or Bangladesh Bank guidelines if any. • Lump-sum. •
10. Disbursement mode 11. Disbursement condition
pre-
Delivery to be made against proportionate payment of landed cost of the items including accrued interest, Go-down, Rent , Insurance & other charges. Imported goods to be cleared as per term of sanction. • Request of the importer for clearance of imported consignment. •
Imported documents to be handed over to the bank’s approved clearing agent
•
Payment of margin by the importer if any.
12. Legal documents
• •
Payment of others charges. D.P. Note
•
Letter of arrangement.
•
Letter of disbursement (for Loan).
•
Letter of authority to debit the account.
•
Letter of pledge.
•
Letter of disclaimer where applicable.
•
Personal guarantee.
•
Registration of charge with the RJSC under relevant section.
•
Deed of registered mortgage.
•
Registered power of attorney to sell the mortgaged property without intervention of court.
Bidders Loan
Issue 1. Customer segment
2. Purpose 3. Nature of Loan 4. Nationality 5. Eligibility
6. Age limit for key persons
Details Individual business enterprise (other than public limited company) engaged in construction and supply business. For issuance of payment order/ security deposit. Loan general (resolving) Bangladeshi. Any business house in the command area of the branch having at least 2 (two) years experience in their line of business. The enterprise to be enlisted with Govt/Semi Govt/ autonomous bodies not below the status of category ‘C’. • Minimum age 21 years •
7. Loan size 8. Security
Maximum age 60 in case of proprietorship firm. Maximum Tk.50,00,000/Legal mortgage of land & building within city corporation and municipal area preferably 1st party. Registered power of attorney to sell the mortgaged properties without intervention of court. Personal guarantee of parties/directors pledge of financial instrument if applicable.
9. Verification information
of
10. Substantiation Income
of
11. Legal Documents
Chapter-4 Consumer Financing Policies of SBL 4.1. Consumer Financing
Bank’s nominated agency or bank official will verify the address of the business enterprise, residence of both borrowers & guarantors including stock and position of the borrower. • Bank statement for last 6(six) months. •
Financial statement
•
TIN Certificate.
•
Disbursement pre- condition: acceptance of terms of sanction.
•
Clean CIB Report.
•
Completion of mortgage formalities & execution of necessary charge documents.
•
Payment of all charges
• •
Verification of all address, all telephone numbers of borrower & guarantor. D.P. Note.
•
Letter of arrangement
•
Letter of disbursement.
•
Letter of authority to debit the account
•
Memorandum of deposit of Title deed.
•
Deed of mortgage registered with Dist. Sub –registrar.
•
Registered power of attorney to sell the mortgage property without intervention of court.
•
Board resolution to borrow fund including completion of documentation in consistence with Memorandum or Article.
•
List of the directors of the company
•
Registered partnership deed along with letter of partnership.
•
Personal guarantee of spouses/ parents
•
Personal guarantee of partners/ directors.
Standard Bank introduced consumer credit scheme for its customer during 1999 duly approved by the Board of Directors of the Standard Bank in their 251 st meeting held on 26.04.1999. Consumer financing means any financing allowed to individuals for meeting their personal, family or household needs. 4.2. Development Guidelines The purpose of this section is to provide direct guidelines to the branches for providing consumer financing under consumer finance scheme. The guidelines have been formulated under the prudential regulation and direction of Bangladesh Bank. These guidelines will assist the branches as to how the CCs loan port-folio should be managed. 4.3. Product Program Guidelines These fundamental guidelines will be the key elements when dealing with customers and managing Landing portfolio of such loans. Any deviations from these guidelines must in all cases, will require approval from the competent authority. Product Program guidelines has been developed for the following seven consumer financing products for the Standard Bank: 1. Easy Loan (Secured Personal Loan). 2. Consumer Durable Loan. 3. ‘Parua’ (Education Loan). 4. Thikana (House Building Loan). 5. Flexi Loan (Personal Loan). 6. Peshajeebi Loan (Loan for professional) Different types of personal loans policies are described in details on the following pagesEasy Loan (Secured Personal Loan) Issue 1. Customer Segment 2. Purpose 3. Nationality 4. Age Limit 5. Eligibility 6. Required documents
7. Security
Details Any individual. To meet personal financial requirement. Bangladeshi. Minimum age 18 (Eighteen) years. Customer must have an account with Standard Bank Limited. • 2 (two) copies passport size photographs from the intending borrower. • CIB report on the borrower is required. Pledge of instrument duly discharged by the holder (where applicable). FDR with Standard Bank Ltd. FDR with other banks, SCB unit certificates. Wage Earner Development Bond
8. Tenor
(WEDB).NFCD, PSS account /MIS, demoted shares of A & B group traded in DSE & CSE. Any other eligible governments’ securities authorized to allow credit facility. • Maximum 12 (twelve) months for overdraft. •
9. Disbursement Mode 10. Repayment Method
11. Maximum Loan Size
Maximum 36 (thirty six) months for Loan General/Term Loan. (Tenor should not exceed maturity of the instrument). Overdraft/ Loan general/ Term loan. Repayment will be made in lump sum within expiry or as per Acceptable terms. Interest to be serviced as & when due (SOD/ Loan General). • Maximum 95% of the face value of FD/NFCD/WEDB etc. Face value would mean the original amount for which the FDR/WEDB/NFCD was issued or the amount renewed. •
Maximum 100% of the MIS about where the interest is not allowed, to be withdrawn until adjustment of the liability.
•
Maximum 100% of the deposited principal amount of PSS account where the deposited amount is not less than TK. 10,000.
•
Maximum 90% of ICB until certificate value or quoted ICB buying price whichever is less.
•
Up to 60% of 6 (six) months average price of shares under A & B group but not exceeding Tk.35 lac.
•
12. Loan processing Fee 13. Rate of Interest 14. Penal Interest 15. Legal documents
Deviation of above criteria may be considered on special case by the management. Tk.300/11.00% p.a. with quarterly rest or as revised form time to time. Additional 2% per annum on the overdue amount. • D.P Note
•
Letter of arrangement.
•
Letter of disbursement (for loan).
•
Letter of installment (for loan).
•
Letter of continuity (for SOD limit).
•
Letter of lien on security.
•
Letter of authority for encashment of securities.
•
Surrender Form (for ICB unit certificate).
•
From DB 19 (for WEDB).
•
Confirmation of lien from issuing branch and concerned banks head office (in case of other bank’s FDR)
•
Pledge of request form 19-1 signed by share holder.
•
Incase of shares in the name of Sponsors/Directors of the company two separate declarations are to be obtained in terms of Bangladesh Bank letter no BRPD (p)/661/13/(cha)/2005-3400 dated 25.9.2005.
Consumer Durable Loan Issue 1. Customer Segment
Details • Employees of Govt./ Semi corporation/ autonomous bodies.
Govt.
•
Employees of reputed multinational corporations and large local corporations.
•
Employees of reputed colleges / schools.
•
Employees agencies.
•
Other persons acceptable to the bank.
•
Tax paying businessmen having adequate cash flow.
•
Tax paying self-employed person and individual having reliable source of income.
of
reputed
universities/ NGOs/
aid
2. Purpose
3. Nationality 4. Eligibility 5. Age limit
Purchase of consumer durables for personal family use items like- Television, Refrigerator, Air-conditioner, Washing Machine, Computers or other household durables. Bangladeshi Customer must have an account with Standard Bank Limited. • Minimum age limit 25 (twenty five) years. •
6. Monthly Income
7. Minimum Service Length
•
Maximum age 60 (sixty) years at the time of maturity of loan Take home salary a minimum of 3 (three) times of equated monthly installment.
•
For businessmen/ individual minimum monthly net income should be 3(three) times of equated monthly installment.
•
Incase
of
government
employees
confirmed service. •
In other cases confirmed/ regular service having at least 1(one) year service with present employer.
•
8. Loan Size 9. Debt Equity Ratio 10. Required documents
11. Rate of interest
Businessmen/self-employed individual at least 2(two) years in business/ profession. Maximum Tk.1,00,000 (one lac) 80:20 • 2 (two) copies passport size photographs of intending borrower & guarantor. •
Letter of introduction from employer (where required)
•
Bank Statement (for last 6 months).
•
Personal net worth statement.
•
Copy of passport/ voter ID/ driving license (if any).
•
Utility bill copy (Telephone/Gas/Electricity) any one.
•
Salary certificate /Trade license.
•
T.I Number.
•
Quotation of the items.
• CIB report on the borrower as required. 16.50% p.a. with quarterly rest or as revised from time to time.
•
12. Tenor 13. Repayment Method 14. Disbursement mode 15. First repayment due 16. Debt Burden ratio (DBR %) 17. Loan Processing Fee 18. Service Charge 19. Penal Interest 20. Verification of personal details 21. Substantiation income
of
22. Restriction on purpose 23. Legal Documents
Minimum 12 (twelve) months.
• Maximum 36 (thirty six) months. Equal monthly installment. Payment to the vendor/ crediting to customer’s saving/ current account. One month after the date disbursement of the loan 33% based on net monthly income. Tk. 500/- to be realized at the time of disbursement of loan disbursement. 1% p.a. on loan amount to be realized at time of disbursement of loan. Additional 2% p.a. on the overdue amount. Banks nominated agency or bank official will verify the address and all telephone numbers of borrower &guarantor. Following as appropriation: salary certificate salary slip, bank statements, income tax return of last paid & personal net worth statement. No facility can be granted for purposes that are in contradiction with the law of the land. • D.P. Note •
Letter of arrangement.
•
Letter of disbursement (for loan)
•
Letter of installment (for loan)
•
Letter of awareness form the employer (where required)
•
Personal guarantee of spouse/ parents.
•
Guarantee from an individual having minimum income not less than that of the borrower supported by evidence.
•
Post dated cheques in favor of bank for payment of monthly installment each signed by the customer.
Thikana (House Building Loan) Issue 1. Customer Segment
Details • Employees of Gov./ Semi corporation/ autonomous bodies.
Govt./
•
Employees of reputed multinational corporations and large local corporations
•
Employees of reputed colleges / schools.
•
Employees agencies.
•
Other persons acceptable to the bank.
•
Tax paying businessmen having adequate cash flow.
of
reputed
universities/ NGOs/
aid
•
2. Purpose 3. Nationality 4. Eligibility 5. Age limit
Tax paying self-employed person and individual having reliable source of income. Purchase of flat/ construction of own house. Bangladeshi Customer must have an account with Standard Bank Limited. • Minimum age limit 25 (twenty five) years. •
6. Monthly Income
7. Minimum Service Length
8. Loan Size 9. Debt Equity Ratio 10. Required documents
Maximum age 60 (sixty) years at the time of maturity of loan. Take home salary a minimum of 3 (three) times of equated monthly installment. For businessmen/ individual minimum monthly net income should be 3(three) times of equated monthly installment. Service holder in Govt./ semi Govt. office or equivalent with 5 (five) years confirmed service. In other cases confirmed/ regular service having at least 5 (Five) year service with present employer. Maximum Tk.5, 00,000/ (Five lac) 50:50 • 2 (two) copies passport size photographs of intending borrower & guarantor. •
Letter of introduction from employer (where required)
•
Bank Statement (for last 6 months).
•
Personal net worth statement.
•
Copy of passport/
•
Voter ID/ driving license (if any).
•
Utility bill copy
•
Salary certificate/ Trade license.
•
T.I Number.
•
15 Quotation of the items.
• CIB report on the borrower as required. 15% p.a. with quarterly rest or as revised from time to time. Maximum 15(fifteen) months. Equal monthly installment. • For purchase of flat six months after the date of disbursement or one month after the date of handing over the flat whichever date is earlier.
11. Rate of interest 12. Tenor 13. Repayment Method 14. First repayment due
•
15. Debt Burden ratio (DBR %) 16. Monthly Installment size 17. Loan Processing Fee 18. Service Charge 19. Penal Interest 20. Verification of personal details 21. Substantiation income 22. Legal Documents
of
For construction of house depending upon construction period but not exceeding 12 months from the date of first disbursement. 35% based on net monthly income. X100 net monthly income. Tk.5000/- to be realized at the time of disbursement of loan disbursement. 2% p.a. on loan amount to be realized at time of disbursement of loan. Additional 2% p.a. on the overdue amount. Banks nominated agency or bank official will verify the address and all telephone numbers of borrowers & guarantor. Following as appropriation: Salary certificate salary slip. Bank statement. Income tax return of last paid. • D.P. Note •
Letter of arrangement.
•
Letter of disbursement (for loan).
•
Letter of installment (for loan).
•
Letter of awareness form the employer (where required).
•
Personal guarantee of spouse/ parents.
•
Guarantee from an individual having minimum income not less than that of the borrower supported by evidence.
•
Post dated cheques in favor of bank for payment of monthly installment each
signed by the customer. Proposal for purchase of flat is to be considered from the banks approved Real Estate Developer only.
23. Special Condition
Flexi Loan (Personal Loan) Issue 1. Customer Segment
Details • Employees of Govt./ Semi corporation/ autonomous bodies.
Govt./
•
Employees of reputed multinational corporations and large local corporations.
•
Employees of reputed colleges /schools.
•
Employees agencies.
of
reputed
universities/ NGOs/
aid
•
2. Purpose
3. Nationality 4. Eligibility 5. Age limit
Other salaries person acceptable to the bank. To meet the following personal financial needs.
• •
•
7. Loan Size 8. Minimum Income 9. Required document
Marriage expenses
•
Holiday expenses
•
Emergency medical needs
•
CNG conversion for own private car.
• Home renovation/ interior decoration. Bangladeshi Customer must have an account with Standard Bank Limited. • Minimum age limit 25(twenty five) years. •
6. Minimum Service Length
•
Maximum age 60(sixty) years at the time of maturity of loan. Incase of Government employees confirmed service. In other cases confirmed/ regular service having at least 1(one) year service with present employer.
Businessmen/self-employed individual at least 2(two) years in business/profession. Maximum 20(twenty) times of basic pay but not exceeding Tk. 3lac. Gross income of Tk.10,000/• 2(two) copies passport size photographs of
intending borrower & guarantor.
11. Tenor 12. Repayment Method 13. Disbursement mode 14. First repayment due 15. Debt Burden ratio (DBR %) 16. Monthly Installment size 17. Loan Processing Fee 18. Service Charge 19. Penal Interest 20. Verification of personal details of
22. Restriction on purpose 23. Legal Documents
Letter of introduction employer(where required)
•
Bank Statement (for last 6 months).
•
Personal net worth Statement.
•
Copy of passport /Voter ID/ driving license (if any).
•
Utility bill copy (Telephone/Gas/Electricity) any one.
•
Salary certificate/ Trade license.
•
T.I Number.
from
• CIB report on the borrower as required. @ 16.50% p.a. with quarterly rest or as revised from time to time. • Minimum 12(twelve) months.
10. Rate of interest
21. Substantiation income
•
• Maximum 36(thirty six) months. Equal monthly installment. Payment to the vendor/ crediting to customer’s saving/ current account. One month after the date disbursement of the loan 35% based on net monthly income. X100 net monthly income Tk.1000/- to be realized at the time of disbursement of loan disbursement. 1% p.a. on loan amount to be realized at time of disbursement of loan. Additional 2% p.a. on the overdue amount. Banks nominated agency or bank official will verify the address and all telephone numbers of borrowers & guarantor. Following as appropriation:•
Salary certificate & salary slip.
•
Bank statements.
•
Income tax return of last paid.
• Personal net worth statement. No facility can be granted for purposes that are in contradiction with the law of the land. • D.P. Note •
Letter of arrangement.
•
Letter of disbursement (for loan)
•
Letter of installment (for Loan)
•
Letter of awareness form the employer (where required)
•
Personal guarantee of spouse/ parents.
•
Guarantee from an individual having minimum income not less then that of the borrower supported by evidence.
Peshajeebi Loan (Loan for Professional) Issue 1. Customer Segment
2. Purpose
3. Nationality 4. Eligibility 5. Age limit
Details • General physician and Dentist. •
Engineers
•
IT professionals
•
Management consultants
• Other professionals Purchase of items to support professional Needs,(e.g. purchase of medical beds, ultra sonogram machine, engineering/ mechanical tools, or set up an office/ chamber on a small scale etc.) Bangladeshi Customer must have an account with Standard Bank Limited. • Minimum age limit 25(twenty five) years. •
6. Monthly Income 7. Loan Size 8. Debt Equity Ratio 9. Required documents
Maximum age 60(sixty) years at the time of maturity of loan. Monthly income minimum of 3 (three) times of equated monthly installment. Maximum Tk.3,00,000 (Three lac) 60:40 2(two) copies passport size photographs of intending borrower & guarantor. Letter of introduction from employer (where required) Bank Statement (for last 6 months).Personal net worth statement. Copy of passport/ Voter ID/ driving license (if any). Utility bill copy (Telephone/Gas/Electricity) any one. Salary certificate/ Trade license. T.I Number. Quotation
11. Tenor
of the items. CIB report on the borrower as required. 16.50% p.a. with quarterly rest or as revised from time to time. • Minimum 12(twelve) months.
12. Repayment Method 13. Disbursement mode
• Maximum 36(thirty six) months. Equal monthly installment. Payment to the Vendor/ crediting to customer’s
10. Rate of interest
14. First repayment due 15. Debt Burden ratio (DBR %) 16. Monthly Installment size 17. Loan Processing Fee 18. Service Charge 19. Penal Interest 20. Verification of personal details 21. Substantiation income
of
22. Restriction on purpose 23. Legal Documents
saving/ current account. One month after the date disbursement of the loan 33% based on net monthly income. X 100 Net monthly income Tk.1000/- to be realized at the time of disbursement of loan disbursement. 1% p.a. on loan amount to be realized at time of disbursement of loan. Additional 2% p.a. on the overdue amount. Banks nominated agency or bank official will verify the address and all telephone numbers of borrower & guarantor. Following as appropriation : •
Salary certificate & salary slip.
•
Bank statements.
•
Income tax return of last paid.
• Personal net worth statement. No facility can be granted for purposes that are in contradiction with the law of the land. • D.P. Note •
Letter of arrangement.
•
Letter of disbursement (for loan)
•
Letter of installment (for Loan)
•
Letter of awareness form the Employer (where required)
•
Personal guarantee of spouse/ parents.
•
Guarantee from an individual having minimum income not less then that of the borrower supported by evidence.
•
Post dated cheques in favor of Bank for payment of monthly installment each
signed by the customer.. •
One Bank cheque dated maturity date of loan duly signed by the customer.
•
Letter of Hypothecation of goods.
•
Memorandum of deposit of cheques.
FOREIGN EXCHANGE Chapter-5 Findings, Recommendations & Conclusion 5.1 Introduction: International trade involves a flow of goods from seller to buyer in accordance with a contract sale .Different amount of natural resource, while other might have not. Therefore, countries need to exchange goods to satisfy mutual needs and wants. 5.2 INTERNATIONAL TRADE: International trade involves a flow of goods from seller to buyer in accordance with a contract of scale. It is the exchange of goods and services between peoples of different countries. 5.2.1 Reason for international trade: Main reason for international trade is as follows: ►Uneven resources distribution: Different countries have different amounts of natural resources, while other might have not. Therefore counties need to exchange goods to satisfy mutual needs and wants. ►The lack of self-sufficiency: Each country can obtain those goods that each alone can not produce or obtain the resources to run them into finished products. ►specialization: the need for trade will arise because a country cannot survive with only one kind of goods (specialization goods ) ►Economic principal of comparative advantage: it is mutually beneficial if each country specializes on producing the goods which is has greater advantage and obtains those goods from other countries that it cannot produce cheaply at home. ►Difference in the demand of goods among countries: Some countries, which are producers of certain goods, still have to import the same goods from abroad. This may due to the insufficient supply locally to meet the strong demand for the goods. 5.2.2 Benefits of international trade: Some major benefits of international trade are:
►A gain in output for the participating countries: International trade enables a country to specialize in the production of goods and services in which it has comparative advantages. ►Better living Standard: Specialization in production makes goods cheaper, so the Standard of living is improved. ►Economics of scale: As countries specialize in the production of goods and services, they are able to operate on a large scale, and thus enjoy the benefits arising from the economics of scale. ►Transfer of technology: The transfer of technology automatically accompanies an exchange of goods because nation can learn from the products of other nations (computer software). ►Improving international relationship: With more trade activities and closer contact, there comes an exchange of culture and ideas resulting in better understanding among the nation. ►Maintaining price stability: With international trade, shortage of resources And goods can be solved by imports. Demand and supply can be brought closer together. Price fluctuation can be minimized. ►International trade encourages competitions: Competition s may help to prevent the growth of domestic’s monopolies. Efficiency in production can be achieved. 5.2.3 Problems in international trade Risks of goods, credit risk of foreign exchange, differences in legal systems among countries, differences in political systems among countries, economic divergence. The political and economic condition in one country may deteriorate etc. 5.2.4 The role of banks in enhancing international trade: ►Provision of advances: The provision of finance to importer (e.g. trust receipt facility, documentary credit facilities) and exporters (e.g. negotiation of export bills, purchase of bills for collection) encourages enterprise to engage in trade and enhance their liquidity position. ►Provision of alternation payment methods: Importers may not accept the payment of cash in advance, which gives exporters the greatest protections. On the other hand, the exporters may not accept open account, which gives Importers the best payment methods. A letter of credit, through bank channels overcomes the
disadvantages of these two settlement methods and satisfies to a great extent, both the importer and exporters. So with help of banks volumes can be enlarged. â–şMedium of fund transfer: A bank system allows payment to be made safely and quickly by one part to another, e. g. telegraphic transfer. 5.3 Balance of payments: The balance of payments is a bookkeeping system for recording all payments that have as direct bearing on the movement of funds between a nation (private and government) and foreign countries. Different types of balance of payments: Balance of payments
Current
Capital
Account
Account
1) Current Account: The current account shows international transaction that involve currently produced goods and services. The difference between merchandise export (line 1) and import (line2) is called the trade balance. When merchandise imports are greater than exports, we have a trade deficit. if exports are greater than imports, we have trade surplus. The current account accounts are the net payments or receipts that arise from investment income, the purchase and sale of services and unilateral transfer. 2) Capital Account: The Capital account describes the flow of capital United States and other countries. Capital outflows are American purchase of foreign assets(a payment item) and capital inflows are foreign purchase s of American assets (a receipts item). The capital outflows are less than the capital inflows. Balance of payments considerations: Balance of payments considerations were more important than they are the current management floating regime. When a no reserve currency country is running balance-of-
payments deficits. To keep from running out of these reserves, it had to implement concretionary monetary policy to strengthen its currency. 5.4 Letter of Credit 5.4.1 Introduction 5.4.2 Letter of credit 5.4.3 Different types of documentary credit (d/c) 5.4.4 Documentary letter of credit 5.4.5 Parties related to a letter of credit 5.4.6 Securitization of letter of credit application 5.4.7 Accounting treatment in case of l/c opening 5.4.8 Transmission of l/c to beneficiary through advising bank 5.4.9 Presentation of the documents 5.4.10 Examination of shipping document 5.4.11 Amendment of the letter of credit 5.4.12 Retirement of shopping document 5.4.1 Introduction Letter of credit can be defined as a credit contact where by the buyers bank is committed (on behalf of the buyer) to place an agreed amount of money at the sellers disposal some agreed conditions. Importer/ seller who apply for opening an l/c and Bank opens/ issues a l/c on behalf of the importer. Bank adds its confirmation to the credit and it is done at request of issuing bank may or may not be the advising bank . Advising/notifying bank through which the l/c is advised to the exporters. This bank is actually situated in exports country. It may also assume the role of confirming and/or negotiating bank depending upon the condition of the credit. 5.4.2 Letter of credit: Letter of credit can be defined as a credit contact where by the buyers bank is committed (on behalf of the buyer ) to place an agreed amount of money at the sellers disposal under some agreed conditions. Since the agreed condition include among other things, the presentation of some specified documents, the letter of credit is called. 5.4.3 Different types of documentary credit (d/c) A. Red clause credit:
Red clause credit is a special type of credit with a clauses inserted authorized the advising or confirming bank to make advances to the beneficiary before presentation of the documents. The clause is added in the documentary credit at the request of the applicant for the credit. In other words ,it is a reshipment finance in their form of a loan the advising/confirming bank provides to the beneficiary, with payment of principal and interest guaranteed by the issuing in case the beneficiary fails to ship goods and defaults in payment of the advances. The credit specified the advances to be given to the beneficiary , which Can be in the form of percentage or a fixed sum . Finance is given against undertaking from beneficiary certifying that he promise to ship goods and submit documents to advising bank, which has provided him with finance. possible risks in issuing a red clause credit – ■Exporter may use the advance for other purpose ■Documents presented from the exporter may have discrepancies unacceptable to the importer. B. Revolving credit A revolving credit is a credit, which provides for the amount of the credit to be renewed automatically after use without the need to renew the credit every time. It can be revolved with respect to either ■ Time or ■ Amount (i.e. total value of the credit) A revolving credit “with respect to time” can be cumulative or non-cumulative. A cumulative revolving credit allows any unused credit amount of a previous month to be carried forward to the next month. A non-cumulative revolving credit, on the other hand, provides for a maximum amount of credit to be drawn each month. If the exporter fails to draw for the month, the amount in the month (full amount or any utilized balance) will be forfeited automatically. C. Transferable letter of credit A transferable letter of credit, which can be transferred in whole or in part by the original beneficiary to one or more “second beneficiaries”. It is normally used when the first beneficiary does not supply the goods himself, but acts as a middleman between the supplier and the ultimate buyer. D. Back-To-Back letter of credit A Back-To-Back letter of credit is a new credit, it is different from the original credit based on which the bank undertakes the risk under the back-to-back letter of credit. In this case, the banks main surety/security is the original credit (master l/c). the original credit (selling credit ) and the back-to-back credit (buying credit) are separate instruments independent of each other and in no way legally connected, although they both from part of the same business operation. The suppliers (beneficiary of the back-to-back credit ) ships goods to the importer or suppliers goods to the exporter and present documents to the bank as is
specified in the credit. It is intendment that the exporter would substitute his own documents for negotiation under the original credit, his liability under the back-to-back credit would be adjusted out of these proceeds. The exporter L/C is marked lien and no margin is taken. So we can say that back-to-back id term given to an ancillary credit which arises where the seller used the credit granted to him by the issuing bank to his suppliers. E. Confirmed credit If a letter of credit is confirmed by a bank (the advising bank ), this means , in addition to the definite undertaking to the issuing bank to honor beneficiary’s draft, the advising bank makes also its promise to pay the beneficiary . such confirmation by the advising bank not only confirms the undertaking if the issuing bank but also constitutes an additional promise on the advising bank (which becomes a confirming bank). 5.4.4 Documentary letter of credit: Documentary credit may be either 1. Revocable credit 2. Irrevocable credit,. •
Revocable credit: A revocable credit is a credit , which can be amended are cancelled by the issuing bank at any time without prior notice to the seller.
•
Irrevocable credit : An irrevocable credit constitutes a definite undertaking of the issuing bank(since it cannot be amended or cancelled without the agreement of all parties there to), provided that the stipulated documents are resented and the seller satisfies the terms and conditions. This sort of credit always referred to irrevocable letter of credit.
5.4.5 Parties Related to a Letter of Credit: The parties are:1. the issuing bank 2. the confirming bank, if any 3. the beneficiary . Others parties, which facilitate the documentary credit, are: 1. the applicant 2. the advising bank 3. the negotiating bank / applicant bank 4. The transferring bank, if any. The parties of letter of credit Importer: purchaser/buyer who applies for opening L/C. Issuing bank : it is the bank which opens/issues a L/C on behalf of the importer. Confirming bank: it is the bank, which adds its confirmation to the credit and it is done at request of issuing bank. Confirming bank may not be the advising bank.
Advising/notifying bank: it is the bank through which the L/C is advised to the exporters. This bank is actually situated in exporter’s country. It may also assume the role of confirming and /or negotiating bank depending upon the condition of the credit. Negotiating bank: it is the bank that negotiates the bills and pays the amount of the beneficiary. The advising bank and the negotiating bank may or may not be the same. Sometimes it can be confirming bank. Paying /accepting bank: it is the bank on which the bill will be drawn (as per condition of the credit). Usually it is the issuing bank. Reimbursing bank: it is the bank that would reimburse the negotiating bank after getting payment instruction from issuing bank. 5.4.6 Securitization of L/C application: The SBL official scrutinizes the application in the following manner— 1. The terms and conditions of the L/C must be complied with UCPDC 600 and exchange control & import trade regulation. 2. Eligibility of the goods to be imported. 3. The L/C must not be opened in favor of the importer. 4. Radioactivity report in case of food item. 5. Survey report or certificate in case of old machinery. 6. Carrying vessel is not of Israel or of Serbia-Montenegro. 7. Certificate declaring that the item is in operation not more than 5 years in case of car. 5.4.7 Accounting Treatment in case of L/C Opening: Now if the officer thinks fit the application to open an l/c,the following entries are given to realize the l/c commission , charges, postage, l/c margin etc. Clients account ----------------------------------------------------------------
Dr.
Sundry deposit on L/C -------------------------------------------------------
Cr.
Income a/c commission ------------------------------------------------------
Cr.
Sundry deposit margin foreign currency clearing (F.C.C.) A/C---------
Cr.
Vat (15% of commission) on l/c --------------------------------------------
Cr.
After that l/c number and the above entries are given in the l/c register ,the contra entries stating the liability of the bank and the client are as follow. Customers liability --------------------------------------- ----------
Dr.
Bankers liability -------------------------------------------------------------
Cr.
5.4.8 Transmission of L/C to Beneficiary through advising Bank: When the transmission of T/C is done through tested telex or fax to advise the l/c to the advising bank. The advising bank verifies the authenticity of the L/C. The import procedure can be shown by the following flow chart IMPORT REGISTRATION CERTIFICATE
PURCHASE CNTRACT WITH FOREIGN SUPPLIER DIRECTLY OR THROUGH AGENT
LETTER OF CREDIT AUTHORIZATION (L.C.A) FORM
OPENING OF LETTER OF CREDIT BY THE IMPORTERS BANK
DESPATCH OF LETTER OF CRDIT TO THE BENEFICIARY BY ISSUING BANKS CRRESPONDENT
RECEIPT OF IMPORT DOCUMENTS FROM NEGOTIATING /COLLECTION BANK SCRUTINY OF IMPORT
DOCUMENTS
INSTRUCT REIMURSING BANK NOT TO HONOUT CLAIM
ARE THE DOCIMENTS?
LODGEMENT OF IMPOT BILLS
REQUEST THE OP TO DELIVERY OF IMPORT DOCIMENTS
INFORM NEGOTIATING BANK ABOUT DISCREPENCIES
INFORM OPENER ABOUT DISCREPENCIES
WHETHER THEY RESPOND
WHERE THEY WANT POST IMPORT FINANCE
RETIRE THE IMPORT BILL AND DOCUMENTS TO THE OPENER FOR REALESE OF GOODS
WHETHERE THEY ACCEPT DOCUMENTS WITH
REQUEST NEGOTIATING BANK FOR DISPOSAL INSTRUCTION
DO THEY ACCEPT DOCUMENTS ON COLLECTION BASIS
DELIVER THE DOCUMENTS TO THE IMPOTER FOR REALESE OF GOODS
SEND BACK THE DOCUMENTS
RETIRE THE BILL THRI CREATION UGH CREATION OF FORCEDLIM & CLEAR THE GOODS THROUGH C& AGENT & STORE THE SAME UNDER EFFECTIVE CONTROL RELEVENT EXPENSES IN CONNECTION WITH CLEARING OF GOODS BY DEBITED FORCEDLIM A/C
IF YOU AGREE RECOVER FURTHER MARGIN FROM THE OPENERS & RETIRE THE DOCUMENTS BY CREATION OF LIM & CLEAR GOODS THROUGH C&F & STORE THE SAME UNDER BANKS EFFECTIVE CONTROL RELEVENT EXPENSES OF CLEARING OF GOODS BY DEBITED LIM A/C
SBL has corresponding relationship or arrangement throughout the world by which the L/C is advised. Actually the advising bank does not take any liability if otherwise not required. 5.4.9 Presentation of the document 1. The seller being satisfied with the terms and the conditions of the credit makes shipment of the goods as per L/C terms. 2. after making the shipment of the goods in favor of the importer, the exporter submits the documents to the negotiating bank.
3. After receiving all the documents, the negotiating bank then checks the documents against the credit. If the documents are found in order to. The bank will pay, accept or negotiable to SBL. 4. Branch & bank received seal to be affixed on the forwarding schedule. 5. The bill of exchange & transport documents must immediately be crossed to protect loss or fraudulent. SBL checks the documents. The usual documents are: --• Invoice. • Bill of lading. • Certificate of origin. • Packing list/weight list. • Shipping advice. • Non-negotiable copy of bill of lading. • Bill of exchange. • Pre-shipment inspection report. • Shipment certificate. 5.4.10 Examination of shipping documents One of the principal of document credit is that all parties deal with document and not with goods (articles 6 of UCPDC-600). That is why; the documents should be scrutinized properly. If any discrepancy in the documents is found that is to be informed to the pity. A checklist may be followed for examining the documents. 5.4.11 Amendment of the letter of credit: When the parties involved in a L/C, especially the seller want to change the terms and conditions due to some obvious and genuine reasons the credit should be amended. SBL transmits the amendment by tested telex to the advising bank. If the L/C is amended, service charge and telex charge is debited from the account accordingly. According articles 6 of UCPDC 600. Amendment must be complete and precise. 5.4.12 Retirement of shipping document: On scrutiny , if is found that the document drawn in conformity with the terms of the credit i.e. the documents are in order SBL lodges the documents in pad and following voucher passed. Accounting treatment •
L/C margin Pad a/c
---------------------
Dr.
---------------------
Cr.
(Margin amount transferred to pad a/c) •
Customer a/c
--------------------
Dr.
Pad a/c
-----------------
Cr.
(Customer a/c debited for the remaining account) •
Pad a/c -------------------------------- Dr. SBL General a/c ---------------------- Cr. Exchange Gains a/c ------------------ Cr.
(Amount given to SBL general a/c and interest credited ) Reversal entries •
Bankers liabilities --------------- Dr. Customer’s liability ----------
Cr.
(Lodgments is given) After realizing the telex charges, services charges, interest (if any), the shipping documents is then stamped with pad numbered and entered in the PAD registered. Intimating is given to the customer calling on the banks counter requesting retirement of the shipping documents. After passing the necessary vouchers, endorsement is made on the back of the bill of exchange as received payment and the bill of lading is endorsed to the effect please delivered to the order of M/S, less than two authorized signature of the banks officers (P.A. holder). Then the documents are delivered to the imp.
6. Financial Performance Analysis With the help of 5 years balance sheet and income statement managed from the Annual Reports of Standard Bank Limited I have done the following ratio analysis. Financial indicators in the last six years Item
Ratio
2007
2006
2005
2004
2003
Earning
Return on Equity
20.59%
16.71%
23.16
16.05%
10.94% 0.99%
Ability Return on Assets
2.19%
2.11%
% 1.25% 087%
Net Interest Margin
3.89%
3.74%
2.86% 2.30%
3.93%
Earning Base in Assets
95.21%
99.42%
93.94
95.70%
87.49%
274.91
228.23
% Productivity
Deposit Per Branch
485.00
374.16
315.5 0
Cost Efficiency
Deposit Per Employee
21.56
17.32
15.65
16.82
8.41
Advance Per Branch
433.38
330.14
268.9
236.52
83.53
Advance Per Employee 19.26
15.28
0 13.34
9.85
3.08
Net Profit Per Branch
10.12
5.08
3.53
2.59
0.469
0.248
0.131
0.095
11.96%
16.71
18.37%
9.28%
13.59
Net Profit Per 0.604 Employee – Manpower Expense to 13.35% Total Expense
%
Total Interest Expense 5.35% to Earning Assets
6.53%
6.44% 6.40%
22.02%
Total Non-Interest 2.13% Expense to Earning Assets
2.50%
2.81% 2.91%
7.52%
6.1 Comments on Different Ratios: Return on equity: Net Profit After Tax/Total Equity Capital Equity Capital = Paid-up Capital + Reserve & Surplus + Undistributed Net Profit Note: ROE is a measure of the rate of return flowing to the bank’s shareholders. Though it could not make any profit in the first year, it started improving gradually. The highest ROE achieved in 2004. Return on assets: Net Profit After Tax/Total Assets Note: ROA is primarily an indicator of managerial efficiency. It indicates how capably the management of the bank has been utilizing the institution assets to generate net earnings. After the initial loss started improving, but the rate is too low. The highest ROA achieved in 2006. Net interest margin: (Interest Income – Interest Expense)/Total Assets Note: The net interest margin measures how large a spread between interest revenues and interest cost management has been able to achieve by close control over the earning assets and pursuit of the cheapest sources of funding. Increasing over the years except in the year 2002 & 2003. Earning base in assets: Total Earning Assets/Total Assets = (Total Assets – Non
Earning Assets)/Total Assets .Note: Non-Earning Assets = Cash + Fixed Assets + Intangibles Almost increasing and shows good indicators. Deposit per branch: Total Deposits/No. of Branches. It is increasing every year. Deposit per employee: Total Deposits/ No. of Employee. Consistently increasing over the years. Advance per branch: Total Amount of Advances/Total No. of Branches. Good performance. Consistently increasing over the years. Highest was in 1999 Advance per employee: Total Advances/Total No. of Employee. Very good. Consistently increased over the years. Profit per employee: Net Profit After Tax/No. of Employee. Gradually increasing every year. Profit per branch: Net Profit After Tax/No. of Branch. After initial loss start earning profit and it increases every year. Highest was in 2004. Manpower expense to total expense: Manpower Expense/Total Expense This ration is not in a good shape. One year it is decreasing, another year it is increasing over the years. Total interest expense to earning assets: Total Interest Expense/Earning Assets It is in good shape. It is decreasing every year. Total non-interest expense to earning assets: Total Non-Interest Expense/Earning Assets It is decreasing over the years. Good sign for the bank. CAMEL Rating CAMEL rating has some formula and Standard level of values for each measure for rating the bank’s performance as strong, satisfactory, fair, marginal and unsatisfactory. The rating formulas with its Standards are given below: ► Capital Adequacy Ratio: It is the ratio of capital and reserve (adjusted) to the risk weighted assets. The main objective of this ratio is to find out the proportion of reserve to the risky assets that mean the capacity to cover the risk with reserve. Incase of capital banks (Tier-1 and Tier-2) have to maintain not
less than 9% of total risk weighted assets with at least 4.50 % in Tier-1 capital. [BRPD Circular No.10 issued by Bangladesh Bank on 25th November 2002] Capital and Reserves (Adjusted) Capital Adequacy = __________________________ X 100 Total Risk Weighted Assets. 6.2 Constituents of Capital: Core Capital (Tier-I) A. B.
Paid up Capital Non-repayable share premium account
C. D. E. F. G.
Statutory Reserve General Reserve Retained Earnings Minority interest in Subsidiaries Non-Cumulative irredeemable Preference Shares
Supplementary Capital (Tier II) A. General provision (1% of Unclassified loans) B. Assets Revaluation Reserves C. All other Preference Shares D. Perpetual Subordinated debt _________________________________________________________________ ∗ If there is any shortfall in required provision and if there is any loss then it shall have to be adjusted and after such adjustment, the capital & reserve of the bank is determined. Risk-weighted Assets: Balance sheet assets and off-balance sheet exposures are to be weighted according to broad categories of relative risk. There are five categories of risk weight-0, 10, 20, 50 and 100 percent. A brief explanation of the components of risk category may help to understand the basic approach given to risk-based plan. The first category zero percent is given to items like cash in hand and in banks indicating that the banking company holds no risk in retaining the assets. The last category of maximum 100 percent is given to items private business and consumer loans indicating highest risky assets. The items like export and other foreign bills, private sector loans etc. Risks are assigned according to nature and anticipated risks associated with the Balance Sheet assets. Off-balance sheet transactions are to be converted to balance sheet equivalents before being allocated a risk weight. Four categories of credit equivalents-100, 50, 20 and 0 percent will apply. Particulars 2007 2006 2005 2004 2003
Capital Adequacy Ratio
15.63%
21.00
10.07%
11.27%
27.05%
% Capital Adequacy Ratio Rating Scale Rating 1 2 3 4 5 â–ş
Description Strong Satisfactory Fair Marginal Unsatisfactory
Percentage 10.00% and above 9.00% - 9.99% 8.00% - 8.99% 7.00% - 7.99% 6.99% and below
Asset Quality Ratio:
This ratio is between classified loans to total loans. Loans and advances are the assets of a bank. If can is made without prudential judgment that involves project appraisal, proper repayment schedule, industry conditions and so many others the loans and advances have every possibility to be classified. A higher amount of classified loans indicate the inefficiency in management. Classified Loans Asset Quality = ________________ * 100 Total Loans. Particulars Assets Quality Ratio
2006 0.43%
2005 0.47%
2004 0.52%
2003 16.60
2002 0.00
Asset Quality Rating Rating Percentage Scale Description 1 Up to 5.00% Strong 2 5.01% - 10.00% Satisfactory 3 10.01% - 15.00% Fair 4 15.01% - 20.00% Marginal 5 Above 20.00% Unsatisfactory â–ş Earning Ratio (E): Earning ratio is the ratio between net income and total assets. It measures that how much the bank earns utilizing its total assets. If earning is higher, the bank is certainly in good position. Net Income Earning Ratio = ____________ *100 Total Assets. Particulars Return on Assets (ROA)
2006 4.44
2005 4.06
2004 2.31
2003 2.19
Earning Rating Rating 1
ROA 1.80% and above
Remarks Strong
2002 2.12
2 3 4 5
0.60%-1.79% 0.25%- less than 0.60% Below 0.25% Net losses
Satisfactory Fair Marginal Unsatisfactory
â–ş Liquidity (L): Liquidity is one of the most important decision on the part of a bank. Because if a bank has not enough liquid money, it will not be able to meet up the public demand which in result deposit position may be deemed. So banks have to maintain a good amount of liquid money to meet up the public demand. Liquid Assets = ___________________________ * Total Time and Demand Deposits.
*Liquidity (SLR)
100
Total Loan Liquidity (LDR)
= ----------------------------------------------X 100 Total Deposit Tk. in Million 2006 2005 2004 2003 2002 2721.14 2018.43 1685.76 1505.24 1439.13 & 8731.00 5612.42 4101.56 2749.07 2054.12
Particulars Liquid Assets Total Time Demand Deposits Total Loan 7801.00 SLR 31.16% LDR (Loan Deposit 89.34% Ratio)
4952.24 35.96% 88.23%
3495.71 41.10% 85.22%
2365.18 54.75% 86.03%
751.78 70.06% 36.60%
6.3 Liquidity Rating Rating 1 2 3 4 5
Rating Scale Statutory Liquidity Reserve (SLR) 30% and above 20.00%-29.99% 19.00%-19.99% 10.00%-18.99% Below 10%
Remarks Loan Deposit Ratio (LDR) Less than 60% Strong 60% to 80% Satisfactory 81% to 85% Fair 86% to 90% Marginal 91% and above Unsatisfactory
*In accordance with the Section 33 of Bank Companies Act 1991 and subsequent BCD Circular No.13 dated May 24, 1992; BRPD Circular No.12, dated 20.09.1999 and BRPD Circular No.22, dated 06.11.2003 the bank has to maintain Statutory Liquidity Reserve (SLR) at least 12%. Comments: It has been observed from the above that from 2004 to 2007 the Bank possessed strong position in the CAMEL rating. The overall performance of Standard Bank on the basis of composite rating 1 (strong) is defined as follows:
• • •
Basically sound in every respect. Resistant to external economic and financial disturbance. No cause for supervisory concern.
7. SWOT Analysis
SWOT Analysis is an important tool for evaluating the company’s Strengths, Weaknesses, Opportunities and Threats. It helps the organization to identify how to evaluate its performance and scan the macro environment, which in turn would help the organization to navigate in the turbulent ocean of competition. 7.1 STRENGTHS
Company Reputation
SBL has already established a favorable reputation in the banking industry of the country particularly among the new comers. With in a period of six years, SBL has already established a firm footing in the banking sector having tremendous growth in the profits and deposits. All these have leaded it to earn a reputation in the banking field.
Sponsors
SBL has been founded by a group of eminent entrepreneurs of the country having adequate financial strength. The sponsor directors belong to large industrial conglomerates of the country. The Board of Directors headed by its Chairman Mr. Kazi Akram Uddin has earned the reputation of being a successful businessman. Other directors are also eminent in their respective business area. Therefore, SBL has a strong financial strength and is built upon a strong foundation.
Leadership
At SBL, eminent banker Mr. Mosharaf Hossain as the CEO of the Bank head of the management team. His years of banking experience at Pubali Bank Limited and others have enable him to navigate the organization in the turbulent ocean of fierce competition and taking SBL to a new millenium. Mr. S. A, Farooqui, currently the DMD of the Bank, supports the CEO. The bold leadership of Mr. Shahajadaa Syed M. Nizamuddinthe, Chief Banking Consultant (CBC) who was the former CEO of the Bank has been guiding the CEO according to his Ex-experience. Top management Like the CEO and DMD the top management of the bank is also a major strength for the SBL and has contributed heavily towards the growth and development of the bank. The top management officials have all worked in reputed banks and their years of banking experience, skill, and expertise will continue to contribute towards further expansion of the bank. At SBL, the top management is the driving force and the think tank of the organization where policies are crafted and often cascaded down.
•
Market share profitability
As already mentioned earlier, SBL has established a fin-n footing among the new comers in the banking industry of Bangladesh. They have already achieved a high growth rate accompanied by an impressive profit growth rate in 2004. The number of deposits and the loans and advances are also increasing rapidly.
Strong financial resources
Standard Bank Limited has strong financial resources to run the banking business. In the year 2004 the capital fund of the bank including paid up capital, reserves, retained earnings stood at around Tk 759.00 million. It is expected that in the near future the banks financial resources will get much stronger. Facilities and Equipmen t SBL has adequate physical facilities and equipment’s to provide better service to the customers. The bank has computerized banking operations under the software called Bexi Bank. Counting machines in the teller counters have been installed for speedy service at the cash counters. Computerized statements for the customers as well as for the internal use of the banks are also available. All the branches of SBL are equipped with telex, SWIFT and fax facilities.
Impressive Branches
SBL has earned a reputation in the banking sector for establishing impressive branches. The Gulshan Branch, Dhanmondi Branch, Uttara Branch , Agrabad Branch and the Jubilee Road Branch are the most lavish and impressive branches of SBL. This creates a positive image in the minds of the potential customers and many people get attracted to the bank. This is also an indirect marketing campaign for the bank for attracting customers. The other branches of the bank are also impressive and are compatible to foreign banks.
Interactive Corporate Culture
SBL has an interactive corporate culture. Unlike other local organization, SBL’s working environment is very friendly, interactive and informal. There are no hidden barriers or boundaries while interactive among the superior or the subordinate. The environment is also lively and since the nature of the banking job itself is monotonous and routine, SBL’s lively work environment boosts up the sprit and motivation of the employees. At the same time.
Team work at mid level and lower level
At SBL mid level and lower level management, there are often team works. Many jobs are performed in-groups of two or three in order to reduce the burden of the workload and enhance the process of completion of the job. People are eager to help each other and people in general are devoted to work. 7.2 WEAKNESSES
No Vision
The greatest irony is that despite claiming to be “Setting a new Standard in Bankin” which is used as its advertising platform and mission statement, the bank as of today has failed to develop a prescribed set of vision as it embarks in to the cyber age of twenty first century. The bank still could not identify the core area of business and where it should concentrate in its business, as the new millenium is already started. The bank does not have any long-term strategies of whether it wants to focus on retail banking or become a corporate bank. till now, the bank is in a nowhere situation. Unofficially, retail banking is discouraged but at the same time the bank is not being able to pull itself away from retail banking. At the same time SBL has failed to be a full-fledged corporate bank. The path for the future should be determined right now. Advertising and Promotion This is a major set back for SBL and one of its weakest areas. SBL does not pursue an aggressive marketing campaign. It does not expose itself to the general public and are not in the lime light unlike other banks. As a result people are not aware of the existence of this bank. Moreover there make ambiguity in most of the people between the existence of Standard Bank and Standard Chartered Bank. Poor Recruitment During its inception, SBL has not recruited competent people in filling up its lower and some mid level positions. Other than the recruitment of the Probationary Officers people who were recruited from banks for the lower management are not competent enough to provide the best output. As a result the services of the bank are being jeopardized. The external search of the bank in attracting people from other banks had flaws in it and the right people were not taken from the right bank. Reference appointment This is one of the set backs of SBL and will have a long-term repercussion on the quality of Human Resource. Many people have been recruited under the reference of the recommendation of the Board of Directors, which has become a chronic disease in the PCB’s. as a result, people having inadequate qualifications and experience have been recruited only because of their ties with the sponsors. The practice must be stopped considering the future of the bank and it is very important to have a component workforce. Low remuneration package The remuneration package for the entry and the mid-level management is considerably low. The compensation package for SBL entry level positions is even lower than the contemporary banks. Under the existing low pay structure, it will be very difficult to attract and retain MBA’s at SBL. Since foreign banks pay double then that of SBL, it will be very difficult to attract competent MBA’s in future for SBL. Therefore SBL will fall to attract competent MBA’s and retain them if they do not revise their pay structure. Human Resources Department The HR department is another weak area of SBL. The HR department is very small relative to the size of the bank and other than the Head of HR wing, the staffs in this wing are incompetent to be an official in the HR department. Most of the HR practices and policies are not being followed or implemented here. The annual performance appraisal report of the employees is not evaluated properly and employees are not getting the required feedback. There is also no prescribed set of promotion policies. The bank is still practicing the traditional method where solely the experience or length of service is considered as the criteria for promotion. On the other hand, criteria for work output or productivity is not considered. Moreover, the HR department is only confined in the Head Office and does not have any role in the branch level activities.
Centralized Decision-Making
At SBL, corporate decisions, the CEO. DMD and other top management officials craft policies and strategies and then they are cascaded down. At times the Board of Directors is also engaged in making corporate decisions. As a result of this practice there is only a top down flow of communication at SBL. The scope for bottom up communication is very limited and many bright ideas or opinions are not being able to climb up the ladder to the top management. Ideas remain their forever.
Noise Pollution
This has become another major problem SBL. Since there are no cubical shaped offices, there is a tremendous noise in each department of the Bank. The noise greatly hampers the work activity and the level of concentration. This is the problem of having an open space office where everyone is communicating with each other and creates noise.
Lack of qualified system operators and computer operators
Currently at SBL’s Head office and in the Branches, there are computer operators who do not have any background academic knowledge on computer applications.
Few staff meetings
It has been observed that there are very few staff meetings and departmental meetings at the branch level. This is not a good management practice. Small Market Share It is revealed from the industry analysis that market share of Southeast Bank in terms of deposits and advances are relatively low.
High Concentration on Fixed Deposits
High concentration on fixed deposits has negative effect on Bank’s profitability. From our analysis it is found that during the period under review fixed deposit of the Bank was around 80% to 85% of total deposit. OPPORTUNITIES
Diversification
SBL can pursue a diversification strategy in expanding its current line of business. The management can consider options of starting merchant banking of diversify in to leasing and insurance. By expanding their business portfolio, SBL can reduce their business risk.
Product line proliferation
There are several opportunities for SBL to expand its product line. In this competitive environment SBL must expand its product line to enhance its Sustainable Competitive
Advantage (SCA). As a part of its product line proliferation, SBL can introduce the following products. ATM This is the fastest growing modern banking concept. SBL should grab this opportunity and take preparations for launching ATM. Since SBL is a local bank, they can form an alliance with other contemporary banks in launching the ATM. Few local private commercial Banks have already successfully launched the ATM.
Credit Cards and Tele banking
These are the new retail banking services provided by the foreign banks. SBL can evaluate the option of launching credit cards and Telebanking system. There are the recent developments in the banking sector and SBL should also evaluate the option of doing it.
On-line banking
SBL should move towards the on line banking operations. It is high time that they should go for this because the foreign banks as well as some local banks are already in to the on line banking operations.
Introduction of SBL’s own savings scheme
This can be another new retail product for SBL. They can start introducing their own savings scheme or pension scheme for different professions. For example, Standard Chartered Grindlays has SYFANZ and PLANZ and Standard Chartered also has similar offers. Therefore for attracting more depositors, the management should consider the option of its own savings scheme. Introduction of corporate scheme This is an innovative way of attracting corporate clients to the bank. In stead of providing CCS to executives of various companies, SBL can introduce a special scheme for corporate officers for the purchase of consumer durable at an attractive interest rate. In this way, the bank will be able to attract a lot of corporate clients and in the long run the bank would be benefited by getting business for the bank from the corporate clients in terms of L/C, Loans and advances etc. for example, officers of BTC, Lever Brothers, Square, BStandardco can be entered in to the corporate scheme.
Separate schemes for service holders
The bank as a part of expanding its loan portfolio can assistance in terms of giving loans to service holders under various professions under a separate scheme. The bank can provide assistance to Engineers, Doctors, Lawyers and other professions under a separate scheme. Standard Chartered Grindlays has already introduced such a scheme for different professions.
7.4 THREATS Multinational Banks The emergence of the multinational banks and their rapid expansion poses a potential threat to the new PCB’s. Due to the booming energy sector, more foreign banks are expected to arrive in Bangladesh. Moreover, the already existing foreign banks such as Standard Chartered, CITI N.A are now pursuing an aggressive branch expansion strategy. This bank is establishing more branches countrywide and is expected to get into for operation soon. Since the foreign banks have tremendous financial strength, it will pose a threat to local banks to a certain extent in terms of grabbing the lucrative clients. Upcoming Banks The upcoming private local banks can also pose a threat to the existing PCB’S. it is expected that in the next few years more local private banks may emerge. If that happens the intensity of competition will rise further and banks will have to develop strategies to complete against an on slaughter of foreign banks. Contemporary Banks The contemporary banks of SBL such as Standard Bank, Premier Bank, Bank Asia, and Mercantile Bank are its major rivals. Mercantile Bank and others are carrying out aggressive campaign to attract lucrative corporate clients as well as big time depositors. SBL should remain vigilant about the steps take by these banks as these will in turn affect SBL strategies. No new deposit creation This is a problem and a threat faced by the whole banking sector of Bangladesh. Due to the current economic slowdown, there is hardly any new deposit creation as there few investments and savings accompanied by a galloping inflation. As a result the new banks are not being able to attract absolutely new depositors but rather they have to hunt or snatch away depositors from other banks. Default culture This is a major problem in Bangladesh. As SBL is a very new organization the problem of non-performing loans is very minimum or insignificant. However, as the bank becomes older this problem arises and the whole community suffers from this chronic disease. SBL has to remain vigilant about this problem so that proactive strategies are taken to minimize this problem if not elimination. 8.1 Findings Analyzing the loan policies described on the earlier pages, some weaknesses are found which are mentioned belowA. Small Enterprise Loan: •
Consumer Loan: Standard Bank Limited offers this type of loan for the individuals or business enterprises other than public limited companies to meet their business expenses requirement; but in their loan policies the purpose for which the loan will be provided is not specified. Again they charges additional 2% penal charges per annum on the over due amount which may be considered as an extra burden on the part of the borrowers.
•
Retailers Loan: The bank provides this loan to both the individuals & proprietorship firms. But getting this loan, the borrowers need to have personal security of either the spouse or parents which in many cases impose difficulties to them. The rate of interest & penal interest is also very high that is 15% & 2.5% respectively. In addition, here the bank also charges 1% service charge on the loan amount, which costs a notable amount for the borrower.
•
Transport Loan: This loan is especially for the people engaged in transport business. But here the prospective borrower required to have 2 years experience in the relevant field of business, which can be considered as an impediment on the part of the borrower. The interest rate is also high here that is 14.5%. In this case, the bank charges 1% loan processing fee in addition with the 0.50% service charges, which may deter the borrowers.
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Commercial House Building Loan: This loan is provided to meet the construction cost of commercial buildings. This loan is considered as very tough to be sanctioned for its complex policy. This policy ask for the sufficiency of average monthly income of the borrower to pay the liability but the amount which will be considered as sufficient is not mentioned specifically. It also requires personal guarantee of either spouse or parents, interest rate is charged as 14.5%, penal interest is 2%, loan processing fee is 1%.
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Possession Right Loan: This loan is provided to meet the working capital need. Here both the interest rate & penal interest rate is high that is 15% & 2% respectively. Another notable thing is the maximum term of loan which is only 36 months.
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Contractor Loan: Here again the interest rate 15% & penal interest rate 2% are very high.
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Working Capital Loan: In this case maximum term of loan is low that is 12 months, interest rate is high that is 14.5% & penal interest is also high as 2%.
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Loan against Imported Merchandise: Here the maximum term of the loan is fixed by considering the nature of the imported items, but surprisingly no category of the items on the basis of its nature is provided on the policy. B. Consumer Financing: •
Easy loan: This loan is provided to individuals to meet personal financial requirements. Here the interest rate (11%) is considered as high for any individual; & the penal interest 2% is also a burden on the part of the borrower.
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Consumer Durable Loan: This loan is provided to the individuals to buy their personal family use items. But it has few loads on its back, such as high interest rate of 16.5%, service charge 1% on the loan amount, 2% penal interest on overdue amount.
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Thikana Loan: Here the maximum loan amount (Tk.5, 00,000) is very thin compared to its purpose; in addition it charges higher interest of 15%, service charge of 2%, & also penal interest of 2%.
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Flexi Loan & Peshajeebi Loan: Both of the type of loans poses some burden on the borrowers, such as: both the loan charge 16.5% interest, 1% service charge & 2% penal interest.
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To get most of the category of loans, the prospective borrower required to be the client of the same branch of the bank from which s/he want to get the loan, but it may pose some difficulties to the borrower.
8.2 Recommendations Based on the findings mentioned above, some recommendations are suggested below1. Standard Bank Limited should lower its loan interest rate, which is seemed to be very high in most of the cases. 2. Penal interest is burden for the borrowers & it depends on loan category. The bank should reduce the rate. 3. 1% service charge on Retailers loan, 0.5% on Transport loan, 2% on Thikana loan & 1% on Flexi & Peshajeebi loan should be reduced. 4. The bank also charges loan processing fee on various types of loans such as, commercial house building loan, transport loan etc. It is an extra burden for the borrowers, so bank should reduce the rate & if possible should eliminate it. 5. The maximum loan amount of “Thikana Loan” that is currently Tk. 5,00,000 only should be increased. 6. The provision of personal security of parents or spouse should be exempted, because in many cases the kinsfolk’s are reluctant to keep themselves involved in business dealings, especially where it is with any loan processing. 7. For “Imported Merchandise Loan” the bank should categorize imported items on the basis of their nature which will facilitate both the borrower & banker to determine the maximum term of the loan. 8. The provision that the borrower need to be the client of the same branch from where s/he want to get the loan, should be exempted because s/he might have an account in different branch of the same bank, distant from his business location. So to get the loan, s/he will have to carry out the formalities of opening a new
account or transfer the account to that branch, which is expensive side by side time consuming. 9. The bank should introduce new loan packages such as, car loan, festival loan etc. 10. The bank can build up a separate, adept “Credit Management Team” to handle the loan sanction functions & procedures which will simplify & quicker the overall process for both the bank & borrowers. 8.3 Conclusion Standard Bank Limited which had been started its journey first on 11 th of May, 1999 with the slogan “Setting a new standard in Banking” still now is trying to fulfill its commitment to customers. By providing maximum services to its customers it has been regarded a profitable business organization now. Now a day it has thirty branches in various places of the country. All the branches of Standard Bank are providing the Small Enterprises Loan & Consumer Financing. Under Small Enterprise Loan the Bank is providing thirteen types of credit facilities like Easy Commercial Loan, Retailer’s Loan, Transport Loan, Commercial House Building Loan, Possession Right Loan, Contractor’s Loan, Letter of Guarantee, Working Capital Loan, and Letter of Credit, Loan against Imported Merchandize (LIM), Loan against Trust Receipt, Bidder’s Loan, and Project Loan. And under Consumer Financing it is providing six types of credit facilities like: Easy Loan (Secured Personal Loan), Consumer Durable Loan, ‘Parua’ (Education Loan), Thikana (House Building Loan), Flexi Loan (Personal Loan), and Peshajeebi Loan (Loan for Professional). By providing several types of credit facilities the bank is playing vital role for the development of the economy of Bangladesh. Standard Bank Limited is committed to expand its area & scope of credit facilities as well as other services. That is why there seems to be great potential for the bank to reach its mission in near future and to set a new standard in banking.
2007
Source: Annual Report-2008 (P-24)
Source: Annual Report-2008 (P-32) Source: Annual Report-2008 (P-33) References 1. Annual Report (2007) Standard Bank Ltd. (p-24)
2. Annual Report (2008) Standard Bank Ltd. (pp-42,32) 3. Debnath, R.M (2004), Business of Banking (1st Edition), Lotus Publishers, Dhaka (pp-177-181) Internet 1. www.sblbd.com 24.1.008, 03.30pm 2. http://www.sblbd.com/html/homepages.php 3. http://www.sblbd.com/php/branch.branch_display.php 4. http://www.sblbd.com/html/mission_vision.html.