This report contains information about all commercial activities that the bank is dealings with EXECUTIVE SUMMERY The internship report is a partial requirement for the Bachelors of Business Administration. As a part of internship program, the placed at Stock Exchange Branch of International Finance Investment and Commerce (IFIC) Bank Limited in Dhaka. During the three month internship. the learned a lot about commercial banking operation of the organization. This report not only explores IFIC Bank’s activities as one of the leading non-government companies, but also highlights the role of IFIC Bank in the financial sector of Bangladesh. This report contains information about all commercial activities that the bank is dealings with. The discussed with banking activities in a classified manner. the divided this report in two major parts. First one is “General Banking operations”. The second part belongs to “Loans and Advanced”. General banking operation includes all the general activities performed by the bank. The part one covers the following tropic in a systematic manner. Then discussed about the types of account holder and different types of accounts such as-Saving Account, Current Account, and Fixed Deposit Rate (FDR), Pension Saving Scheme (PSS) etc. The activities performed in cash department and the basic matter to be look after. Remittance collection and bill payment procedure section covers the pay order, TT, and DD, clearing of cheque, IDBC, IDBR. The discussed about the account section where the maintenance of transfer book, cash vouchers, and different types of register book. The report also covered the Loans and Advance Section of the branch where the explain different types of loan such as-Auto loan, Consumer loan, Easy loan, Porua Loan, Flexi Loan, Thikana Loan, Possession Loan, Peshajibi Loan, and Retail Loan etc. Then explained credit policy and portfolio, risk management, financial highlight, new product, history of Stock Exchange Branch, function and various department, target customer of IFIC Bank, documentation of Loan, credit Folio, manager conference, yearly report, SWOT analysis and many other thing are included this report. 1.0 INTRODUCTION Due to globalization and expansion of international Business, finance plays the major roles for the economic development. The development of a modern economy would not have been possible without the use of money. A fundamental characteristic of money is that it is like a collective commodity. There is a parallel relationship between the money and banking. Bank is an important and essential financial institution for the necessity of the use of money and the protection of the money.
In the backdrop of economic liberalization and financial sector reforms, a group of highly successful local entrepreneurs conceived an idea of floating a commercial Bank with different outlook. For them, it was competence, excellence and consistent delivery of reliable service with superior value products. Accordingly, IFIC Bank Ltd. was set up at the instance of the Government in 1976 as a joint venture between the Government of Bangladesh and sponsors in the private sector with the objective of working as a finance company within the country and setting up joint venture banks/financial institutions abroad. The Government held 49 per cent shares and the rest 51 per cent were held by the sponsors and general public. In 1983 when the Government allowed banks in the private sector, IFIC was converted into a fullfledged commercial bank. The sponsors are reputed personalities in the field of trade and commerce and their stake ranges from shipping to textile and finance to energy etc. IFIC Bank Limited has already made significant progress within a very short period of its existence. The Bank has been graded as 4th in the country through internationally accepted CAMEL rating. The Bank has already occupied an enviable position among its competitors after achieving success in all areas of business operation. IFIC Bank Ltd. offers all kinds of Commercial, Corporate and Personal Banking services covering all segments of society within the framework of Banking Company Act and rules and regulations laid down by Bangladesh Bank. Diversification of products and services include Corporate Banking, Retail Banking and Consumer Banking right from industry to agriculture, and real state to software.
1.1 Origin of the Report: This internship report entitled “General Banking Activities of IFIC Bank Ltd� has started at July 06, 2010 under the instruction of honorable internship supervisor.
1.2 Scope of the Report: The scope of this paper is limited to the organizational structure, background, and objectives, functions, and performance of IFIC Bank Ltd as a whole. The scope is also limited to different general banking aspects. . 1.3 Objectives of the Report:
The first objective of writing the report is fulfilling the requirements of the BBA program. In this report, we have attempted to give on overview of International Finance Investment and Commerce Bank Limited in general. The specific objectives of this report are: • • • • •
To familiar the history and operations of IFIC Bank Ltd. To show overall investment proposal, appraisal procedures, documentation system of IFIC Bank Ltd. To identify strength and weakness of operations of IFIC Bank Ltd. To identify the problems related to operation faced by IFIC Bank Ltd. To gather practical experience about operation of IFIC Bank Ltd.
1.4 Research Methodology: In the organization part, much information has been collected from different published articles; journals, brochures, previous and recent annual report of IFIC Bank Limited and also based on the experience that the gathered during the period of internship. Within this period worked in two departments, General Banking (GB) department and Loans & advance departments. 1.5 Sources of Data: All the information incorporated in this report has been collected both from the primary sources and as well as from the secondary sources. Primary Source: Personal experience gained by working in, different desks and face to face communication with employees of the IFIC Bank Ltd. Secondary Source: Secondary sources of data include •
Annual reports of IFIC Bank Ltd.
•
Data collected from internal report.
•
Bank records.
•
Journals of the Bank
•
Different books, training papers, manuals etc. related to the topic
•
Official Website of the Bank.
1.6 Limitations of the Study:
•
As, more dependence on the primary sources, so there might be some level of inaccuracy with those collected information. Though, adequate verification and crosschecking was used, to minimize the error level.
•
Confidential information regarding past profit or product cost, financial information was not accurately obtained. Alike all other banking institutions, IFIC Bank Ltd is also very conservative and strict in providing those information. In those cases, the relied upon some assumptions, which in result have created certain level of inaccuracy. Still, had tried best in obtaining those sensitive in formations, as much as possible.
•
In reality it was hard to understand all the concepts and acquire sufficient knowledge about the particular field within three months which cover the Internship program.
Chapter two An Overview Of The IFIC Bank Limited 2.0 Banking Industry-Overview: Banking sector has a vital role to play in the economic activities and development of any country. This sector is much more important in a developing country like Bangladesh. The whole scenario of the economy of a country can be ascertained by examining the condition of the banking sector. In Bangladesh, the banking sector dominates the financial sector and macroeconomic management largely depends on the performance of the banking sector. Banking sector grew primarily in the public sector with main emphasis on restructuring of the financial system and development needs of the war-torn economy with gradual liberalization in subsequent years. It was increasingly felt that banks should be allowed in the private sector for giving a fillip to development process on the basis of private initiative. In the 80’s for the first time a number of banks in the private sector were allowed. Subsequently in the mid 90’s some more banks in private sector also commenced operations. Finally, in 1999, 3 rd generation of private sector banks was given permission to operate. As a result while up to 80’s public sector banks dominated financial sector, banks in the private sector were given increased responsibility with the passage of time.
Private commercial banks are divided into three groups according to their commencement of business. They are familiar in the name of 1 st generation, 2nd generation and 3rd generation banks.
1st Generation Banks (Established 1982-1988): National Bank Limited, The City Bank Limited, United Commercial Bank Limited, AB Bank Limited, IFIC Bank Limited, Islami Bank Bangladesh Limited and Al-Baraka Bank Bangladesh Limited. 2nd Generation Banks (Established 1992-1996): Eastern Bank Limited, Prime Bank Limited, National Credit & Commerce Bank Limited, Southeast Bank Limited, Dhaka Bank Limited, Al Arafa Islami Bank Limited, Social Investment Bank Limited and Dutch-Bangla Bank Limited. 3rd Generation Banks (Established 1999 to present): Mercantile Bank Limited, Standard Bank Limited, One Bank Limited, EXIM Bank Limited, Premier Bank Limited, Mutual Trust Bank Limited, First Security Bank Limited, Bank Asia Limited, The Trust Bank Limited, Jamuna Bank, BRAC Bank Limited and Shahjalal Bank Limited. Number of Organization in the Industry
Nationalized Commercial Banks
04
Specialized Banks
05
Private Commercial Banks
30
Foreign Commercial Banks
9
Number of Branches
6,930
Source: Scheduled Banks Statistics, Quarterly April’ 09- June’09 The following table shows the overall deposits of last three years. The total volume is shows in terms of deposit BDT. 251046.30 crores in 2009, while in 2008 the total deposit was BDT. 216105.00 crores. During the one-year the volumes of deposit have increased more than BDT. 34943 crore.
Table: 2.1
Overall Deposits
(Figures BDT in Corers) June 2007
June 2008
June 2009
184860.50
216105.00
251046.30
Source: Scheduled Banks Statistics, Quarterly April’ 08 - June’09
The table below shows the overall advances of last three years. The total volume in terms of advances BDT. 255920.00 crores in 2009 while in 2008 the total was BDT. 215929 crores. During the one-year the volume of advances have increased more then BDT.39991 crores. Besides these the liquidity status of all the banks was satisfactory.
Table: 2.2
Overall Advances
(Figures BDT in Crores) June 2007
June 2008
June 2009
190135.80
215929.00
255920.00
Source: Scheduled Banks Statistics, Quarterly April’ 09 – June 09’ 2.1 Organization Overview:
As a fully licensed commercial bank, a highly professional and dedicated team is managing IFIC Bank (International Finance Investment and Commerce Bank Limited) with long experience in banking. They constantly focus on understanding and anticipating customer needs. As the banking scenario undergoes changes so the bank and its responsibilities itself changed in the market condition. IFIC Bank Ltd is a banking company incorporated in the People’s Republic of Bangladesh with limited liability. It was set up at the instance of the Government in 1976 as a joint venture between the Government of Bangladesh and sponsors in the private sector with the objective of working as a finance company within the country and setting up joint venture banks/financial institutions abroad. The Government held 49 per cent shares and the rest 51 per cent were held by the sponsors and general public. In 1983 when the Government allowed banks in the private sector, IFIC was converted into a fullfledged commercial bank. The Government of the People’s Republic of Bangladesh now holds 35% of the share capital of the Bank. Leading industrialists of the country having vast experience in the field of trade and commerce own 34% of the share capital and the rest is held by the general public. IFIC Bank Ltd. being a Banking company has been registered under the companies Act 1913 with its registered office at BSB Building (8th, 10th, and 15th to 19th floor) 8 Rajuk Avenue, Dhaka 1000. IFIC Bank operates as a scheduled Bank under Banking license issued by Bangladesh Bank, the central bank of Bangladesh. This Bank is having an authorized capital of Tk. 500 million and Paid up Capital Tk. 406.44 million sponsored by 14 members of board of directors. 2.2 Milestones in the Development of IFIC BANK:
197
•
Established as an Investment & Finance
6
Company under arrangement of joint venture
198
•
with the govt. of Bangladesh. Commenced operation in Foreign Exchange
•
Business in a limited scale. Obtained permission from the Govt. to operate
0 198 2
as a commercial bank. •
Set up a its first overseas joint venture (Bank of Maldives Limited) in the Republic of Maldives (IFIC's share in Bank of Maldives Limited was
198 3 198
•
subsequently sold to Maldives Govt. in 1992) Commenced operation as a full-fledged
•
commercial bank in Bangladesh. Set up a joint venture Exchange Company in
5
the Sultanate of Oman, titled Oman Bangladesh Exchange Company (subsequently renamed as
198 7 199 3 199
•
Oman International Exchange, LLC). Set up its first overseas branch in Pakistan at
•
Karachi. Set up its second overseas branch in Pakistan at
•
Lahore. Set up its first joint venture in Nepal for
4
banking operation, titled Nepal Bangladesh
199
Bank Ltd. Set up its second joint venture in Nepal for
•
9
lease
financing,
titled
Nepal
Bangladesh
Finance & leasing Co. Ltd. (which was merged 200
•
3
with NBBL in 2007) Overseas Branches in Pakistan amalgamated with NDLC, to establish a joint venture bank: NDLC-IFIC Bank Ltd., subsequently renamed
200
•
5
as NIB Bank Ltd. Acquired MISYS solution for real time on-line banking application.
200
• •
Core Risk Management implemented. Corporate Branding introduced.
6
•
Visa Principal and Plus (Issuer and Require)
•
Program Participant Membership obtained. Observing 25th Anniversary of Customer
•
Satisfaction. 64 Branches offering Real Time On-line
•
banking facility. All Branches of IFIC Bank is operating under
200 8 200 9 201 0
state-of-art world class Real Time On-line
2.3 Vision of IFIC Bank: To be the best Private Commercial Bank in Bangladesh in terms of efficiency, capital adequacy, asset quality, sound management and profitability having strong liquidity.
2.4 Mission of IFIC BANK:
IFIC Bank’s Mission is to provide service to their clients with the help of a skilled and dedicated workforce whose creative talents, innovative actions and competitive edge make their position unique in giving quality service to all institutions and individuals that they care for. In Broad sense, their mission is to provide service to their clients with the help of a skilled and dedicated workforce whose creative talents, innovative actions and competitive edge make their position unique in giving quality service to all institutions and individuals that they care for. They are committed to the welfare and economic prosperity of the people and the community, for they drive from them their inspiration and drive for onward progress to prosperity. They want to be the leader among banks in Bangladesh and make our indelible mark as an active partner in regional banking operating beyond the national boundary. In an intensely competitive and complex financial and business environment, they particularly focus on growth and profitability of all concerned. 2.5 Objectives of IFIC BANK: i.
IFIC Bank Limited is designed to provide commercial and investment banking services to all types of customers ranging from small entrepreneurs to big business firms. In this regard it emphasizes on the priority sectors of the economy like agriculture, industry, housing and self-employment.
ii.
Besides the bank aims to provide different customer friendly deposit and loan products in the field of personal banking to fulfill the banking needs of individual customers.
iii.
On delivery of quality service in all areas of banking activities with the aim to add increased value to shareholders investment and offer highest possible benefits to their customers.
2.6 Management Hierarchy:
Senior Executive Vice-President Executive Vice-President Senior Vice-President First Vice-President Vice-President Senior Asstt. Vice-President First Asstt. Vice-President Asstt. Vice-President Senior Staff Officer (SSO) Staff Officer (SO) Officer Grade-I Probationary Officer Officer Grade-II Assistant Officer Officer Assistant Driver Officer Attendant Security Staff
2.7 Organization Structure and Responsibilities: The thirteen members of the Board of Directors are responsible for the strategic planning and overall policy guidelines of the Bank. Further, there is an Executive Committee of the Board to dispose of urgent business proposals.
2.8 Functional Structure of IFIC: 2.8.1 General Banking Section: Its main functions include – 1. Issuing of power of attorney to the officers of the Branches. 2. Maintaining general correspondence with Bangladesh Bank and other Banks etc. 2.8.2 Head Office Accounts: It deals with all the head office transactions with Banks and its Branches and all these are controlled under the following heads: •
Income, Expenditure Posting: All income and expenditure are maintained and posted under this head.
•
Cash Section: Cash section generally handles cash expenditure for office operations and miscellaneous payments.
•
Bill Section: This section is responsible for only inland bills.
•
Salary Wages of the Employees: Salary and wages of the head office executives, officers & employees are given from this department.
•
Maintenance of Employee Provident Fund: Here employee’s provident fund accounts are maintained.
2.8.3 Consolidation of Branch’s Accounts: All branches periodically (especially monthly) send their income & expenditure i.e., profit and loss accounts and head office made the consolidated statement of income and expenditure of IFIC Bank Limited. Here Branch statements are reviewed. This division also prepares different monthly, quarterly, half-yearly statements and submits to Bangladesh Bank. It also analyzes and interprets financial statements for the management and Board of Directors. 2.8.4 Credit Division: The main function of this division is managing IFIC Bank’s credit portfolio. Major functions are the followings: 1) Receiving proposal 2) Appraising the proposals 3) Getting approval from the head office credit committee.
4) Communication with the customer and sanctioning the credit. 5) Monitoring and follow-up of the credit facilities 6) Setting prices for credits and making it effective. 7) Prepares required statements as made mandatory by the Bangladesh Bank. 2.8.5 International Division: The objective of this division is to assist the management to make international dealing decisions and guide Branches to implement the decisions made. Its functional areas are follows1. Maintaining correspondence relationship. 2. Monitoring foreign trade & exchange dealings. 3. Maintaining accounts and reconciliation; 4. Authorizing of signature and test key; 5. Monitoring Foreign Exchange returns &statement; 6. Sending updated exchange rates to concerned branches. 2.8.6 Information Technology Division: IFIC Bank uses automated accounting system. Its transaction system is fully automated. And the computer Division is responsible for keeping the system running. The major functions of this division are: 1. Designing software to support the account operation; 2. Provide required hardware & software. 3. Updating software if there is any lacking. 4. Train the concerned executives and officers regarding the operation of newly developed software. 5. Hardware & software trouble shooting; 6. Provides updated CD’s of Online accounts to the branches; 7. Provides routine check-up of computers of different branches. 2.8.7 Public Relations Division: Public Relations Division is responsible for making liaison with the stakeholders. The Board’s routine functions can be enumerated as follows: 1) Receiving and sanctioning of all advertisement application; 2) Keeping good relation with different newspaper offices;
3) Inviting concerned one for any occasion; 4) Keeping good relation with different offices of electronic media. 2.8.8 Marketing Division: Marketing division is responsible for making the stakeholders concerned about the different products of IFIC Bank Limited. The marketing department is always in persuasion for attracting different customers to take their facilities. 2.8.9 Human Resource Division: HRD performs all kinds of administrative and personnel related matters. The broad functions of this division are as follows:1. Selection & recruitment of new personnel 2. Placement of manpower 3. Dealing with transfer, promotion and leave of personnel 4. Training & development 5. Termination and retrenchment of employees 6. Keeping records of every employee of the Bank 7. Maintenance of employee welfare fund 8. Arranges workshop for employees & executives; 2.8.10 Audit Division: Audit division works as internal monitoring and inspection division of the company. The officers of this division randomly go to different Branches and examine the necessary documents regarding each single account. If there is any discrepancy, they inform the authority concerned to take care of that/those discrepancy. They help the Bank to comply with the rules and regulations imposed by the Bangladesh Bank. They inform the Bangladesh Bank about the current position of the rules and regulations followed by the Bank.
2.8.11 Credit Card Division: IFIC Bank is a member Q-Cash VISA DEBIT/CREDIT card. The Q-cash card is more just than an ATM card. It can be used as a combination of debit and credit facility. Customers can withdrawal their money not only from IFIC’s booth but also they can withdrawal money from those bank’s booth who are also member of Q-Cash. 2.8.12 Merchant Banking and Investment Division: This division concentrates its operation in the area of under writing of Initial Public Offer (IPO) and advance against shares. This division deals with the shares of the company. They also look after the securities portfolio owned by the company. The company has a large amount of investment in shares and securities of different corporation as well as government treasury bills and prize bond. 2.8.13 Board and Company Secretary Division: The main functions of this division are as follows: a. Conducting meeting of the Board of Directors; b. Dealing with Company Act; 2.8.14 IFIC Bank Training Institute: IFIC Bank Training Institute is all along supporting the Bank through various in house training courses, workshop and seminars. The Institute is playing a significant role in strengthening the capabilities of their human resources. 2.8.15 IFIC Bank Foundation and Social Services: The Bank has taken strong initiative to ensuring compliances and attaining greater social goals through good governance. Accordingly, IFIC Bank Foundation had been formed in the later part of 1990 to undertake social welfare related activities. IFIC Bank Limited has always laid emphasis on its commitment to the society and seeks to reinvest parts of its profits for community welfare. The Foundation and employees of the Bank take part in diverse charitable and voluntary programs. The main objective of the Foundation is to invest part of the Bank’s profit in poverty alleviation and community welfare. The Foundation has made allocation in different areas of poverty alleviation and primary health care programs for the low income group. Substantial fund has also been allocated for research works on various socio-economic issues confronting the nation. In all their business decisions, they strictly adhered to environmental and safety regulations and in no way do they compromise on ecological imbalance for which future generation.
2.9 Product and Services: Besides traditional Banking services, IFIC Bank Limited has added a wide range of products/services in its service portfolio. Various products & services offered by IFIC Bank Ltd. include: 2.9.1 Deposit Schemes: •
Current Account Deposits;
•
Savings Bank Deposit;
•
Fixed Deposit;
•
Short Term Deposit;
•
Monthly Benefit Deposit Scheme;
•
Special Deposit Scheme;
•
Pension Savings Scheme;
•
Double Benefit Scheme
2.9.2 Loan Schemes: The IFIC Bank is offering the following loan and advance product to the client for financing different purpose that fulfill the requirements of the bank and have good return to the investment as well as satisfy the client. The loan and advance products are as the following: •
General Loan Scheme;
•
Lease Finance;
•
Consumer Credit Scheme;
•
Car Loan;
•
Any purpose Loan;
•
Loan Against Salary;
•
Doctors loan;
•
House Building Loan/Apartment Loan Scheme
•
Small And Medium Enterprise Scheme,
•
Credit Card;
•
Educational Loan;
•
Marriage Loan;
•
Vacation Loan;
•
Computer Loan;
•
CNG Conversion Loan.
2.10 Automation in Banking Operation: Technology integration for automation of business process and procedures is an integral part of IFIC Bank. Since the very beginning, they have made conscious efforts for induction and up gradation of information technology at various levels to gain competitive edge over the others. Almost all their branches are now in an automated environment as far as customer transactions are concerned and excepting a few branches in locations not accessible by Lease Line,
all
other
branches
are
under
a
wide
area
network.
Their
Website
“www.ificbankbd.com” is frequently visited from home and abroad. The site is always updated with current information about their services and products. All necessary information about their product and services are available at their website. 2.11 Capital Structure: The authorized capital of IFIC Bank Limited is Tk. 500 million and with the increase of Paidup Capital to Tk. 406.44 million, the capital base of IFIC Bank Limited has become one of the strongest. The Bank raised its Paid-up Capital from Tk. 406.39 million to Tk. 406.44 million during 2005. The total Capital Funds of the Bank at the year end 2005 stood at Tk 1754.41 million against Tk. 1,608.80 million in the previous year. Total deposit Increase from 20,774.49 million to 22,505.17 million during 2005. 2.12 Performance at a Glance: The Authorized Capital of IFIC Bank Limited is Tk.500 Million. The Paid-up capital is Tk.406.44 Million at 31.12.2006. The highlights of financial position for the last 3 years are given below: Table: 2.12.1 (Taka in Million) Sl. Particulars
2009
2008 406.3
01 Paid up Capital
670.72
9 2,028.3
02 Total Capital
3,045.09
9
172.3 03 Capital Surplus
644.64
3 36,080.4
04 Total Assets
39,914.15
8 28,620.9
05 Total Deposits
29,900.05
1 25,490.6
06 Total Loan & Advances Total Contingent Liabilities
28,361.46
07 Commitments 08 Credit Deposit Ratio 09 Percentage of Classified
6
&
16,521.4 19,422.59
1
94.85%
89.06%
8.11%
5.64%
Loan
Against Total Loans & Advances
253.8 10 Profit after Tax & Provision Amount of Classified Loans during
964.93
11 the year Provision Kept Against Classified
2,299.90
12 Loans
3 1,437.3 9 970.7
984.02
7 678.0
13 Provision Surplus/Deficit 14 Cost of Fund 15 Interest Earning Assets
1.59 6.58% 35,520.23
3 6.35% 30,940.5 7 5,139.9
16 Non-interest Earning Assets 17 Return on Investment (ROI)
4,393.92 13.56%
1 9.11%
18 Return on Assets (ROA) 2.42% 0.70% Source: www.ificbankbd.com/ificporfile.php
2.13 An Overview of Stock Exchange Branch of IFIC Bank Limited: In October of 2009 IFIC bank Limited has opened its 70 thbranch in the, 16, Motijheel C/A, at Dhaka. It has a total number of 20 employees. The workforce is very much co-operative both
to each other and to the clients. It is expected that soon it can be counted among the best five operated branches of IFIC Bank both in terms of profitability and operational efficiency. 2.13.1 Organizational Hierarchy of Stock Exchange Branch: As
any
other
commercial
bank
in
Bangladesh,
the
Senior
Assistant
Vice
President/Relationship Manager is fully responsible for the activities of the bank and accountable for the day-to-day activities of his branch. Under him, the Assistant Vice President or Operational Manager is working. The AVP supervises all the operations of each department. Then the other three departments have their in-charges, who supervise the activities of their respective departments. 2.13.2 Departments within Stock Exchange Branch: This branch has four departments as the following. 1. General Banking (GB) Department 2. Credit Department 3. Cash Department & 4. Marketing and Customer Care Department The bank also has an Accounts Department, which has only one employee. responsible for making salary statements, checking and maintaining vouchers and accounts, credit card management, etc. General Banking (GB) Department: Some of the day-to-day activities of this department are the following. • Account Opening • Issuance of Cheque • Receiving Cheques for Clearing, Transport, and Dispatch • Issuance of TT {Telegraphic Transfer), PO (Pay Order), DD (Demand Draft), etc. • Opening and Maintaining of FDR, MBDR, and other Scheme Deposits • Fund Transfer • Closing and Transfer of Accounts • Maintaining the Locker of the Bank • Outward Clearing of IBC and OBC • Maintaining On-line Voucher
Cash Department: This department is responsible for cash payment and receipt. The employees in this department are also liable for computer posting, passing cheques, and accuracy of posting, balancing on-line accounts, etc. Credit Department: This department is responsible for the following jobs. •
Meeting the requirements of existing and potential RCS customers
•
Meeting the requirements of Head Office and Customers of General
•
Credit to cooperate with other departments for smooth operation
•
Preparing CIB and CL Statements
•
Preparing Credit Proposal and Statement
•
Administration of Retail Credit
Marketing and Customer Care Department: Searching for new customer, answer the inquiry about the product to the customer. They also look whether customer all documents are given. 2.14 SWOT Analysis of IFIC Bank Limited: SWOT analysis enables an organization to have a comprehensive insight about its current position in the industry compared to its competitors. It provides the organization a scope to strategically improve its position in the market. Here, the internal strength and weakness of IFIC Bank Ltd. as well as the external opportunities and threats are discussed2.14.1 Strength: Company Reputation: Company reputation is the best strength of IFIC Bank Limited. Since its inauguration IFIC Bank Ltd has managed to operate with an image to serve people. It has the reputation to work with integrity and efficiency. Sponsor: IFIC Bank Limited has sponsors from various sectors of Bangladesh. The most successful entrepreneurs from various sectors started this company. As a result there was a combination
of different thoughts and skills in the management of the bank, which is very much essential for success in today’s competitive market. Top Management: IFIC Bank Limited has a very competent and experienced top Management.. had the experience of marketing and customer relationship management in his long career. Strong employee bonding and belongingness: Employees are one of the major assets of the company. The employees of IFIC Bank Limited have a strong sense of commitment towards organization and also feel proud and a sense of belonging towards IFIC Bank Limited. The strong culture of this Bank is the main reason behind this strength. Capital Structure: The huge paid up capital of Taka 406.44 million gives IFIC Bank the strength to freely operate in the worst economic conditions. It also gives the depositors assurance of the safety of their deposits, which is very much important for a bank to achieve. Facilities and Equipment: IFIC Bank has a network of 82 Branches over the country which gives it the ability to reach a larger portion of the people of the country. Very few private banks have a network of this size. IFIC Bank is always in the endeavor to provide the best technology for its employees so that they can provide the best service to the customers. The automated banking system of the bank makes it very easy and quick for the employees to provide service. The Bank has taken up a new project with Misys International Banking System Inc. (UK) to further upgrade its banking operation to state-of-art world class on-line banking solutions to provide faster and even more convenient centralized services to the clients. 2.14.2 Weakness: Advertising and Marketing: Marketing is the weak point of IFIC Bank Limited. It is far behind from its competitors in this side. Not much effort is given for introducing the people with its products. Reference Appointment:
The practice of reference appointment is well established here. It is a big draw back, because without competitive recruitment process it is not possible to have qualified persons in right positions. And if right persons are not in the right position then it is not possible for a business concern to operate successfully. Low Remuneration: Low remuneration package is a major disadvantage for IFIC bank. If the employees are not satisfied with their return then it would be hard for the bank to have competent employees, which will hamper the service quality of the bank very much. 2.14.3 Opportunity: Diversification: The company has the opportunity to diversify its products and services with the huge paid up capital to back up the diversification process. In the developing economy of Bangladesh there is still opportunity to explore with diversification of operations such as Merchant banking, etc. Online Banking: The online banking system of IFIC Bank is not fully operational yet. There is a semi-online system operating, and some branches are still out of that system. By introducing full online banking system the bank can grab a strong position in the market. 2.14.4 Threats: Multinational Banks: Multinational banks are a major threat for IFIC Bank Limited. With their huge capital support and international connection they are tough competitors. The company should take special notice of the factor. Default Culture: The default culture is a foremost threat for the banking sector of Bangladesh. IFIC Bank Limited is not out of that threat. The bank should establish a sound credit policy and review it as often as possible to cope up with this problem.
Chapter three
CREDIT ANALYSIS AND DESCRIPTION 3.0 Credit Analysis and Description: The Bank is committed to provide high quality financial services products to contribute to the growth of the country through stimulating trade and commerce, accelerating the pace of industrialization, boosting up export, creating employment opportunity for the youth, poverty alleviation, raising standard of living of limited income group and overall sustainable socioeconomic development of the country. In achieving the aforesaid objectives of the Bank, Credit Operation of the Bank is of paramount importance as the greatest share of total revenue of the Bank is generated from it, maximum risk is centered in it and even the very existence of Bank depends on prudent management of its credit portfolio. The failure of a commercial Bank is usually associated with the problem in credit portfolio. As such, credit portfolio not only features dominant in the assets structure of the Bank, it is critically importance to the success of the Bank also. 3.1 Guiding Principles of Sound Lending: It is necessary to develop a sound lending principle and modern lending techniques to ensure the performances of the credit provided by the bank. Credit is very much dependent on the judgment of the sanctioning authority. Banker’s ability in taking proper prior measures to minimize the risk is very important. To do this a Bank must follow the “Guiding Principles of Sound Lending” which include: 3.1.1 Principle of Safety: The first lending Principle of sound lending is safety. The very existence of a bank depends upon the safety of its advances. Safety should not be sacrificed for profitability. So utmost care should be exercised to ensure that the funds go to the right type of borrower, are utilized in such a way that they remain safe and the repayment comes in the normal course. 3.1.2 Principle of Purpose: The Bank should not lend money for any purpose for which the borrowers demand loan, the purpose should be productive. So another important point to be considered by a credit officer before lending is the purpose for which the loan is required and also the resources through which the borrower is expected to repay.
3.1.3 Principle of Liquidity: The banker while making advance must see to it that the money lent is not locked up for a long time because, majority of Bank’s liabilities are payable either on demand or after short notice. So the banker should make sure that the loans are liquid enough to meet the banks liability structure. Liquidity means availability or readiness of bank funds on short notice. The liquidity of advance means its repayment on demand on due date or after a short notice. The loan must have fair chances of repayment according to repayment schedule. Otherwise, the liquidity position of a bank may be threatened. 3.1.4 Principle of Security: The security offered by a borrower for an advance is insurance to the banker. It serves as the safety value for an unforeseen emergency. So another principle of sound lending is the security of lending. The security accepted by a banker to cover a bank advance must be adequate, readily marketable, easy to handle and free from any encumbrance. 3.1.5 Principle of Profitability: Commercial Banks obtain funds from shareholders and if dividend is to be paid on such shares it can only be paid by earning profit. Even in the case of public sector banks although they work on service motive they also have to justify their existence by earning profit. This is not possible unless funds are employed profitably. So the fund should be employed in reliable and profitable sources, but for the sake of profitability, the other two principles safety and liquidity can not be sacrificed. 3.1.6 Principle of Diversification: The advance should be as much broad based as possible and must be in conformity with the deposit structure. The advances should not be in one particular direction/ industry/ activity or one or few borrowers because adversity faced by that particular industry will have serious adverse affect on the bank. 3.1.7 Principle of National Interest: The development of banking has reached a stage where a banker is required to identify his business with national policies. Banking Industry has significant role to play in the economic development of a country. So, the savings of the people which are mobilized by banks must be distributed to those sectors which require development in the country’s Planning Program. 3.2 Types of Loans and Advances:
On a broad basis IFIC Bank Limited offers two types of advances 1) Unsecured Advance; 2) Secured Advance; 3.2.1 Unsecured Advances: Unsecured advances are granted to a constituent, which is not backed by any security. Features: An unsecured facility is allowed in exceptional circumstances, only for a short period, with definite repayment arrangement, subject to restrictions imposed by Bangladesh Bank or any other competent authority to a customer based on his personal credit worthiness, standing and reliability. A definite arrangement for repayment, whether by installments or otherwise, must, as a rule, is ensured. 3.2.2 Secured Advances: Secured advances are granted to a constituent that is guaranteed by tangible securities subject to margin restrictions. Secured advances given by the Credit Department are classified as follows: LOAN (GENERAL): Loans are a type of advance allowed to a constituent for a specific purpose and for a definite period. Types of Applicants: Individual, firms, industries; Time Duration: Short term- Up to 12 months; Medium term- More than 12 and up to 36 months; Long term- More than 36 months; Mode of Distribution: The total loan amount is disbursed at a time or in trances within a specific time. Mode of Repayment: The principal and interest are repayable by installment on agreed terms. HOUSE BUILDING LOAN: Loans allowed for construction of house (residential or commercial) fall under this type of advanceTypes of Applicants: Individuals, firms and bank staffs; Loan Size: Maximum 75 lac. Loan Period: Maximum 15 years.
Mode of Disbursement: The amount of loan is disbursed in three equal installments as under: Mode of Repayment: The loan amount and interest are repayable through equal specific numbers monthly installments after the completion of house. LEASE FINANCING: Lease financing is one of the most convenient sources of acquiring capital machinery and equipment whereby a client is given the opportunity to have an exclusive right to use an asset usually for an agreed period of time against payment of rent. Type of Applicants: Manufacturing concerns. Time Duration: Maximum for five years. Mode of payment: Payment is made directly to the seller of the machines. Mode of Repayment: At a specific rent, this is inclusive of the repayment of principal as well as interest for adjustment of the loan. Other Features: a) Non equity payment is required by the client. b) Exempted from the tax for the lease-financing period. CONSUMER CREDIT SCHEME: IFIC Bank Limited plays a pioneer role in providing necessary finance to the fixed income group for buying items that are necessary for raising the quality of living through the Consumer Credit Scheme. Through this special scheme IFIC Bank Ltd. offer Necessity, Convenience and Comfort. Types of Applicants: Reputed Government and Private Service holders. Time Duration: Specific period as per agreed terms and conditions. Mode of Payment: Payment is made directly to the seller of the goods after obtaining a portion of equity from the borrower and personal guarantee. Mode of Repayment; The loan amount and interest are repayable through equal specific numbers monthly installments after the purchases of goods. CREDIT CARD:
A Credit Card is an instrument assuring the Merchant (by the Acquirer) for the payment made by the Cardholder against goods, services or withdrawing Cash from Bank/Institution or Automated Teller Machine (ATM). IFIC Bank Limited is a member of VISA and thus issuing VISA Card in Bangladesh. IFIC Bank is offering following types of VISA Card: •
Gold VISA Card- International;
•
Gold VISA Card-Local;
•
VISA Standard (Silver) Card-International;
•
VISA Standard (Silver) Card-Local;
All Credit Cards are issued by IFIC Bank Card Division in Head Office. Branches just dispatch the application to Card Division and deliver the issued card to its customers. It also collects the Card Bill on behalf of Card Division. SMALL AND MEDIUM ENTERPISE CREDIT SCHEME (SME): IFIC Bank Limited is offering a unique credit scheme only for the Small and Medium Enterprise (SME). Objectives: The main objective of the Small and Medium Enterprise Credit Scheme is to provide credit in flexible terms and conditions for the development of small and medium enterprises in the region easily accessible by the branches of IFIC Bank Limited. The second objective of this scheme is to create opportunity for employment and economic growth through providing facilities to develop the small and medium enterprise sector of the country. Eligibility for Application: The entrepreneur of the Small and Medium Enterprise must have following qualities to avail the credit facility under the scheme: •
Literate;
•
Minimum two years of management experiences of the business;
•
Age limit between 25-50 years;
•
Owner of a Small or Medium Enterprise;
•
The project must be financially viable and socially desirable;
Nature of Loan:
•
Working Capital;
•
Capital Machinery;
Wide Loan Coverage: The scheme provides coverage for small enterprises up to Tk. 2, 50,000 and for medium enterprises up to Tk. 75, 00,000. Time Duration: One Year for the continuous loan; Maximum five years for the term loan; Mode of Repayment: Continuous Loan- The client as per his requirement can withdraw the total loan limit time to time subject to certain conditions. Term Loan- The client can withdraw the total loan amount at a time. Security: •
Personal Guarantee from two persons acceptable to the Bank.
•
Any other acceptable securities available to the borrower.
•
The borrower has to maintain a Savings A/C with a compulsory deposit of 5% of outstanding loan amount per month for building up his own fund.
3.3 Non Funded Facility: Non funded credit facility to a customer refers to a bank’s commitment to a third party on behalf of the customer. The commitment itself constitutes facility but does not involve cash outflow from the bank. The bank’s commitment essentially states that in the event of occurrence or non-occurrence of a particular event, within a particular date, due to a particular reason or reasons, a specific sum of money shall be paid by the bank to the third party upon claim in a particular manner. The non funded facilities are: Letter Of Credit: A Letter of Credit is a commitment (undertaking) by the Bank to pay an agreed sum to the seller of goods on behalf of the buyer (client) under precisely defined condition. This is a
non funded facility provided to the client for import of goods from abroad or in some cases to procure them locally. The letter of credit gives the seller or exporter: •
Credit security by eliminating the credit risk in the sale and shipments of goods;
•
Credit facilities by financing the sale when the goods are in transit;
•
Exchange security by assuring him that the required amount is available to him under credit from the time he receives the buyer’s order and the time of shipment and presentation of shipping documents.
Once the Bank receives the L/C documents as per specified terms and condition of the L/C, the amount is transferred to the Bills under Letter of Credit (BLC) Account. As per commitment Bank pay the seller of goods through Bank and settles the outstanding BLC amount from the client before handling over the L/C documents to him. •
Bank Guarantee:
Bank Guarantee is a contractual relationship between the account (customer) and the beneficiary. The account party requests to the Bank to issue guarantees on their behalf to the beneficiary-committing to make an unconditional payment of certain amount of money to the beneficiary, if the customer (on whose behalf it is given) becomes liable, or creates any loss or damage to the beneficiary. It is a contingent liability for the bank. The Issuance Procedures for Bank Guarantee: Step-1: The party looking for Bank Guarantee at first applies to the Bank in a prescribed form. In the Application, the following information should exist: •
Beneficiary (name & address)
•
Amount;
•
Expiry (with claim period);
•
Delivery Date;
•
Information relating to a guarantee issued under a documentary credit (in case of a foreign guarantee);
•
Special conditions;
Step-2: After that, the bank’s Credit Department official scrutinizes the application and takes the guarantee margin, commission, and postage charge from the customer. Step-3: Securities are taken for issuing Bank Guarantee like FDR, DPS, ‘Sanchay Patra’ etc. Step-4: Then Bank issues Bank Guarantee on Judicial Stamp of Tk. 450. The conditions for issuing Bank Guarantee are: •
The customer must maintain a Current Deposit Account;
•
The customer must keep certain percentage of guaranteed money as margin;
•
Bank Charge commission (usually 0.50%) on the guaranteed money per quarter;
For this issuance, Banker’s liability is created and the following entries are givenCustomer’s Liability Account---------------Dr. Banker’s Liability Account ------------------Cr. Step-5: When the stamp pad is returned to the bank, the bank refunds the margin as well as the securities kept with the bank in this regard to the party. The guarantee is marked as “cancelled” and the following entries are givenBanker’s Liability Account---------------------Dr. Customer Liability Account -------------------Cr. Although Bank Guarantee basically serves the same purpose, i.e., protection against non performance, it can be classified as under: •
Bid/Tender Bond;
•
Performance Bond;
•
Advance Payment Guarantee;
•
Guarantee against Foreign Bank Counter Guarantee.
3.4 Credit Appraisal System: It is very important for the proper functioning of the credit facilities is that they are guided through a definite and structured guiding system. Every project has to be evaluated before funding. The credit worthiness and performance of the clients should also be evaluated before approval of the credit proposal. All these are done using the Credit Appraisal system. The
performance of the bank is highly influenced by the presence and effective utilization of a sound and appropriate credit appraisal system. 3.5 Credit Appraisal System of IFIC Bank Limited: The credit appraisal is the process of identifying and evaluating the risks in any lending proposal. The steps of credit appraisal system of IFIC Bank Limited are as follows: Loan Application Client
IFIC
Continuous Follow up till adjustment
Preparation of Proposal by the Credit Officer
Endorsed/ Signed by Branch Credit Committee
Disbursement
Evaluated by the Head Office Credit Committee
Loan Documentation
Executive Committee: Approves or rejects the proposal
3.5.1 Loan Application
Evaluated By Managing Director
Figure: 3.5.1 Credit Appraisal Systems
3.5.1 Loan Application: The Credit Appraisal System is triggered through the client’s approach to the bank for loan. The prospective borrower approaches the bank for credit facility using the bank’s standard loan application form. For any type of facility the borrower must fill in the application form through which the bank collects its necessary information about the prospective customer. Loan Application Form of IFIC Bank Limited asks the following information about the client.
•
Name of Firm/ Company / Individual
•
Business Address
•
Permanent Address
•
Constitution / Status (Sole Proprietorship/ Partnership/ Public Ltd. Co/ private Ltd. Co.)
•
Date of Establishment and Place of Incorporation
•
TIN number
•
Background and Business Experience
•
Particulars of Assets: o
Land/ Building
o
Bank Deposit
o
Stock / Shares
o
Nature of Business
Financial Statements for the last 3 years explaining the following terms: a) Capital Funds /Net Worth •
Paid up Capital
•
Retained Earnings
•
General Reserve
b) Balance Sheet Statistics •
Current Assets
•
Fixed Assets
•
Current Liabilities
•
Term liabilities
•
Capital / Equity
•
Total Liabilities
For working capital finance clients/ borrowers must provide the following information: •
Annual Production
•
Annual Sales
•
Cash flow Statements
Following two factors are to be considered while submitting the loan application form to the bank: •
Proposed Debt/ Equity Ratio: For processing and getting approval of the requested credit facility the client must provide the above information and should fully co-operate with the bank for further information as needed. Then the credit officials verify the information through both primary and secondary sources. The credit officials also verify other information. Such as- information related to money, banking, foreign exchange, reserves, production, price, national income, cost of living indices, Government policies Covering wages, taxation, tariff, import control, Investment, marketability of product etc. Then the credit management determines the Debt/ Equity ratio.
•
Proposed Form of Financial Statements: For all credit proposals, the borrowers should submit their financial statements including last 3 years' profit & Loss A/c and Balance Sheet (audited) / Statement of affairs. When an individual borrower applies for any credit facility, the submitted financial statements must be signed by competent authority and must contain legend to the signatory, the assets and liabilities (both direct and contingent) and the sources of income and items of expenses.
3.5.2 Loan Proposal: After receiving the loan application the credit officer completes the ‘Lending Risk Analysis’ using
information provided by the applicant and if necessary he inspects the project
physically. From the information provided by the borrower and collected from inspection the credit officer then completes the lending risk analysis. Lending Risk Analysis is the complete evaluation of the risks regarding the project and the applicant. This analysis is done through some quantitative and qualitative factors. •
Quantitative factors are the firm’s financial performance.
•
Qualitative factors are the factors regarding the firm’s management, industry position, customer/supplier relation, customer’s account performance.
The credit officer also seeks information from the ‘Credit Information Bureau’ of Bangladesh bank through the Head Office about the applicant’s relationship with other banks and financial institutions that is whether he has any credit facility with any other financial institution and if he has than how is the performance of those credit facilities. In assessing any credit application the credit officer follows some distinct steps. Those are: •
Evaluating the past performance of the applicant.
•
Assessing the risk of failure by identifying factors in the applicant’s present condition and past performance.
•
Forecasting the future condition of the applicant and evaluating the probability of successfully adjusting the loan.
•
Setting terms and conditions for the loan.
Based on the analysis the credit officer prepares the proposal and with the approval of the branch credit committee, sends it to the head office for the approval of the head office credit division and the executive committee of the board. If the proposal is approved then the credit officer contacts with the applicant and prepares the documentation for loan and makes disbursement. 3.5.3 Grading Risk towards Approval of the Proposal: The over all risk assessment provides four kinds of lending risk for decision-makers, which are as follows: •
Good
•
Acceptable
•
Marginal
•
Poor
Bank do not approve any lending having an overall risk as "marginal" and "poor'' without proper justifications except for renewal of existing facilities under compelling circumstances or for other reason such as salvage, which would also contain covenants for future improvement of the position . All credit applications rated "poor” require the approval of the board regardless of purpose, tenor or amount.
3.6 Credit Performance and Classification Status of IFIC Bank Ltd. 3.6.1 About Classification & Provision: In the banking sector classification refers to give each and every loan case a status and provisioning means setting aside funds from the profit against possible loan loss. Banks may fall into engulfing crisis or may wind up with consumption of capital if they do not practice proper loan classification and provisioning practice. The Central bank, as the controller of the financial discipline, usually issues guidelines on classification and provisioning system and supervises the same to make the credit discipline strong and confident. Loan classification and provisioning is done for safeguarding the depositor’s money, protecting owner’s equity and ensuring proper recycling of funds so as to accelerate the economic growth of a country. Besides a proper loan classification and provisioning system ensures credibility of the financial system that in turn restores trust and confidence in the minds of the depositors. In order to have a breakthrough and to control the increasing percentage of default loans, Bangladesh bank formally introduced BCD circular No. 34 on 16 ht November 1989 on loan classification and making provisions thereof. 3.6.2 Objective of Loans Classification: The objectives of loan classification and provisioning are as follows: •
To regularize follow-up and monitoring.
•
To strengthen the credit system and to bring trust and confidence to the financial system.
•
To improve recovery position and to transfer necessary amount from the income as interest suspense.
•
To raise a fund (reserve for provision) gradually, this may help the bank to lessen the burden of loan loss in a single year.
•
To comply with Bangladesh bank instruction.
3.6.3 Classification Method: BCD Circular No. 34 of 1989 (first formal circular regarding loan classification) states that each and every bank will classify their advances as per the overdue criteria given by Bangladesh bank. Besides, each bank may use some qualitative judgments to identify whether the loan is classified or not. It states that all outstanding loans are to be classified broadly as Unclassified and Classified. Classified loans are further to be classified as SubStandard (SS), Doubtful (DF) and Bad/Loss (BL).According to the qualitative judgment, a
bank can classify any loan if it forecasts the uncertainty of recovery, of the loans due to the following reasons: •
Credit extended without the approval of competent authority or without any logical basis (under pressure).
•
Incomplete documentation.
•
Insufficient security or drastic fall in the value of security.
•
Borrower sustains heavy loss in capital due to natural calamity or business condition.
•
Frequent overdrawn of limit.
•
Rescheduling terms are not maintained.
•
Borrower cannot be traced out or death of the borrower.
•
Filing a suit against the borrower for the recovery of credit.
3.6.4 Category of Loans and Advances under Classification System: For classification and provisioning purposes, loans and advances have been divided in the following categories: a. Continuous loan: The loans and advances, which have no particular repayment schedule but have a fixed sanctioned limit and an expiry date. The borrower can draw and deposit money freely up to that limit and the facility remains valid up to the expiry date, which is renewable. Over Draft, Cash Credit, LIM etc. are of this category loan. b. Demand Loan: Loans and advances that are repayable on banks claim (through issuance of formal notice) to the borrower. If contingent and any other liabilities is converted to compulsory/forced loan or a loan is disbursed without prior approval as a regular loan may be of this type. For example: PAD, forced LIM etc. c. Term Loan Payable within Five Years: The term loans which are payable within a period of five years as per the contractually fixed repayment schedule. The repayment can be in monthly, quarterly or half yearly installment basis. Any term loan other than STAG or Micro credit allowed for a period of maximum 5 years should be of this type. Loans under the consumer credit Scheme and Money Saver’s Scheme up to 5 years are also included.
d. Term loan Payable More than 5 Years: Term loan which are payable in a period of more than 5 years as per the contractually fixed repayment schedule. e. STAG/ Micro Credit: Credit facilities, which are extended for agricultural purpose, like purchase and storage of seeds, fertilizer, insecticide, etc. and repayable within a period not exceeding 1 year are treated as Short Term Agricultural Loans (STAG). Micro credit are those which does not exceed an amount of Taka 10,000/- and are repayable within 1 year. After its first formal circular regarding Bangladesh bank has changed the loan classification. Table: 3.6.4.1
Current Classification System
Types of Loan
Length of Overdue
Loan: Less than 6 months 6 months or more but less than 9 Overdue period will be months. accounted from the day 9 months or more but less than following the date of 12 months expiry of such loan. More than 12 months Demand Loan: Less than 6 months 6 months or more but less than 9 Overdue period will be months. accounted from the day 9 months or more but less than following the date of 12 months expiry of such loan. More than 12 months Term Loan payable If default amount of installment Continuous
Status
of Rate of
Classification Unclassified
Provision 1%
Sub-Standard
20%
Doubtful
50%
Bad/ Loss Unclassified
100% 1%
Sub-Standard
20%
Doubtful
50%
Bad/ Loss
100%
Years: is equal to installment payable in Sub-Standard Overdue period will be 6 months If default amount of installment accounted from the day is equal to installment payable in Doubtful following the expiry of 12 months the due date of payment If default amount of installment of installment of such is equal to installment payable in Bad/ Loss loan. 18 months within
Term
5
Loan
20%
50%
100%
Payable If default amount of installment
More than 5 Years: is equal to installment payable in Sub-Standard
20%
Overdue period will be 12 months If default amount of installment Doubtful accounted from 6 is equal to installment payable in
50%
18 months If default amount of installment months
following
the
is equal to installment payable in Bad/ Loss
100%
expiry of the due date of
24 months payment of installment STAG/ Micro Credit: Less than 12 months Unclassified Overdue period will be 12 months or more but less than Sub-Standard accounted from 6 36 months. 36 months or more but less than months following the Doubtful 60 months expiry of the due date of payment of installment More than 60 months of loan.
Bad/ Loss
5% 5% 5% 100%
3.7 Performance of Different Types of Loans: Among the different credit facilities provided by IFIC Bank Ltd, Loan General and cash credit had a steady growth over the three years. Loan general and Cash Credit consisted of 20.03% and 11.26% respectively of the loan portfolio in 2005-06 whereas it was 29.35% and 17.14% respectively of the loan portfolio in the year 2007-08. On the other hand House building, Lease finance, and hire purchase all had a declining trend over the years. Loan General and Cash Credit are short term loans while House building, Lease Finance are Long term loans. So it is apparent from the figure that IFIC Bank Ltd is focusing on the short term loan rather then long term. Table: 3.7.1 Trend of Different Types of Credit Facility Provided By IFIC * Figures in lac Type of Loan
2007-08 Amount
%
2006-07 Amount
Loan General
7191
29.35
6155
House building
1902
7.76
2240
Lease finance
2864
11.69
2917
Hire Purchase
5632
22.99
5922
Cash Credit
4198
17.14
3554
% 23.6 9 8.62 11.2 3 22.7 9 13.6 8
2005-06 Amount
%
3833
20.03
2159
11.28
2978
15.56
5918
30.92
2155
11.26
SOD
(Work
321
1.31
261
SOD General
2387
9.75
4933
Total
24496
100
25982
order)
1 18.9 9 100
40
Loan General
30
House building
423
2.21
1671
8.73
19137
100
Lease finance
20
Hire Purchase 10
Cash Credit
20 07 -0 8
20 06 -0 7
20 05 -0 6
0
SOD (Work order) SOD General
Figure: 3.7.1 Trend of Different Types of Credit Facility Provided By IFIC Although IFIC has increased cash credit facility in its portfolio in the past years but it had the highest percentage of Bad/ Loss loans in 2007-08 and almost the same percentage in the year before. Cash credit alone had the highest amount of classified loans in the year 2006-07, more then 20% of total cash credit allowed to customers. The second highest classified loan was loan general, with 25.20 % of total loan general provided. Although loan general had an increasing trend in the IFIC’s portfolio on the past three years, it also had an increasing classified amount. Lease Finance, House Building and SOD (work order) facilities had decreasing classified loan amount in the past years.
100% 90%
SOD General
80% 70%
SOD (Work Order)
60%
Cash Credit
50%
Hire Purchase
40%
Lease Finance
30% 20%
House building
10%
Loan General
0% 2007-08
2006-07
2005-06
Figure: 3.7.2 Proportion of classified loans in different types of credit facilities 3.8 Loans in Different Economic Sectors: Although Bangladesh is an agricultural country, but to build a sound economic infrastructure there is no alternative but to develop the manufacturing sector. The main impediment in the development of the manufacturing sector is perhaps the lack of financing. In this regard the financial institutions could play a very important role. In the past three years the financing in the Manufacturing sector by IFIC was upward moving. In 2005-06 the amount was 17.55% of its total portfolio, whereas in 2007-08 it reached to 36.23% of its portfolio, the highest among all sectors. Investment in garments sector had a totally opposite view. It decreased from 37.12% to 29.97%. The other major sectors of the portfolio were Transportation and House building construction consisting of 11.08% and 6.81% in 2007-2008. Another important factor is that the lending facility provided to other non-banking investment institutions has been reduced from 3.10% to 1.65%. Table: 3.8.1 Sectoral Distribution of the Credit Facilities Provided By IFIC – Figures in lac 2007-08 Amount Garments 7342 Manufacturing 8875 Service 352 Trade 1362 Transportation 2713 House building 1669 Investment 405 IT service 9 Sector
% 29.9 36.2 7 1.44 3 5.56 11.0 6.81 8 1.65 0.04
2006-07 Amount 7131 6954 553 15 417 329 1377 2997
2005-06 % Amount 27.45 7103 26.76 3358 2.13 948 0.06 16 1.60 473 1.26 331 5.30 594 11.54 2961
% 37.12 17.55 4.95 0.08 2.47 1.73 3.10 15.48
Importer Exporter Personal Total
521 316 933 24496
2.13 1.29 3.81 100
1713 347 4149 25982
6.59 1.34 15.97 100
1984 483 885 19137
10.37 2.52 4.63 100
40 35
Garments Manufacturing
30
Service
25
T rade
20
T ransportation House building
15
Importer
10
Exporter
5
Personal
0 2005-06
2006-07
2007-08
Figure: 3.8.1 Sectoral Distribution of the Credit Facilities Provided By IFIC
100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 2005-06
2006-07
2007-08
Personal Investment House Building T ransportation T rade Exporter Importer IT Service Manufacturing Garments
Figure: 3.8.2 Sectoral distribution of classified loans With the increase of funding in the manufacturing sector the classified amount has also increased sector. Almost 20% of the classified loans in the year 2007-08 were from this sector, while this amount was approximately 10% in the year 2005-06. Garments sector
showed a significant improvement in its performance in this period. The proportion of classified loan reduced from more than 50 % in 2002-03 to almost 30% in 2007-08. Another major deterioration of performance was the in the trade sector. Trade accounted for approximately 40% of the total classified loans in 2007-08, whereas it was only around 5% in the year 2005-06. 3.9 Loans with Different Terms: Most of the loan provided by IFIC Bank Ltd has a term of 3 to 5 years, and this proportion is increasing over time. The total amount of 3-5 years loan was 61.74% of the portfolio in 200506 and increased to 62.35% in 2007-08. Table: 3.9.1 Distribution of loan according to term Figures in lac Term Loan Below year
of 2007-08 Amount 1 2241
1-3 year
4743
4-6 year
15275
7-9 year 10-12 year 13-15 year Total
883 1236 119 24496
%
2006-07 Amount
9.15
5165
19.3 6 62.3 5 3.61 5.05 0.48 100
3853 14566 951 1327 120 25982
% 19.8 8 14.8 3 56.0 6 3.66 5.11 0.46 100
2005-06 Amount
%
1687
8.82
3135
16.38
11815
61.74
1113 1376 10 19137
5.82 7.19 0.05 100
Figure indicates that IFIC is gradually shifting its assets from long term to short term. Its long term loans are gradually decreasing and short term loans are increasing.
80
60 Below 1 year 1-3 year
40
4-6 year 7-9 year
20
10-12 year 13-15 year 20 07 -0 8
20 06 -0 7
20 05 -0 6
0
Figure: 3.9.1 Distribution of loan according to term As the proportion of short term loans increasing, the performance of these loans is deteriorating. 7.42 % of total loan facilitated with an expiry period of less than three years were classified. And 100% of the total classified loan had an expiry period of below 6 years. The trend was same over the past few years. Most of the classified loans had an expiry period of less then 6 years.
8 13-15 year 6
10-12 year 7-9 year
4
4-6 year 1-3 year Below 1 year
2
20 07 -0 8
20 06 -0 7
20 05 -0 6
0
Figure: 3.9.2 Proportion of Classified loan in IFIC’s Portfolio According to Terms
3.10 Effect of Limit on Loan Performance: The largest portion of IFIC’s loans had a limit of over Taka 100 lac. In 2001-02, 83.11 % of total loan had a limit of over Taka 100 lac, whereas in 2007-08 it accounted for about 80.42% of the total portfolio. Although the amount of loans with smaller limits was increasing over the time. Table: 3.10.1 Distribution of loans according to limit Figures in lac 2007-08 Amount Below 1 lac 464 1 lac - 5 lac 804 5 lac - 10 lac 136 10 lac - 50 lac 1506 50 lac - 100 lac 1887 100 lac - 500 lac 9056 above 500 lac 10643 Total 24496 Limit
% 1.89 3.28 0.56 6.15 7.70 36.97 43.45 100
2006-07 Amount 427 686 131 1285 1731 9548 12174 25982
% 1.64 2.64 0.5 4.95 6.66 36.75 46.85 100
2005-06 Amount 268 63 150 1147 1603 10202 5703 19137
% 1.4 0.33 0.78 5.99 8.38 53.31 29.8 100
60 50
Below 1 lac
40
1 lac - 5 lac 5 lac - 10 lac
30
10 lac - 50 lac
20
50 lac - 100 lac 100 lac - 500 lac above 500 lac
10
20 06 -0 7
20 05 -0 6
20 04 -0 5
0
Figure: 3.10.1 Distribution of loans according to limit
Loans with a limit of Taka 50 lac – Tk. 100 lac had an improving performance relative to the other loans with different limits in the last three years. The percentage of classified loan with
a limit of Tk. 50-100 lac was 8.38% of total portfolio in 2005-06and it was reduced to 7.7% in 2007-08. Loans with a limit of Tk. 1-5 lac and Tk. 100-500 lac had an increase in the amount of classified loans.
8 above 500 lac 100 lac - 500 lac
6
50 lac - 100 lac 10 lac - 50 lac
4
5 lac - 10 lac 1 lac - 5 lac
2
Below 1 lac
20 07 -0 8
20 06 -0 7
20 05 -0 6
0
Figure: 3.10.2 Distribution of Classified Loans According to Limit 3.11 Effect of Security over Loan Performance: Security is a very important factor for credit performance. Sound security not only helps to boost the performance of the credit portfolio but also upholds the interests of the depositors. Security taken against loans are classified into following two types, I.
Primary Security: Security deposited by the borrower himself to cover the loan— FDR, Cash, PSP, PSS easily cashable item.
II.
Collateral security: It is deposited by a third party to secure the advances for the borrower. Collateral security may be any type of security on which the creditor has a personal right of action on the debtor in respect of advance.
By far fixed asset is the mostly used security in IFIC as collateral. It accounts for almost 70% of the total portfolio. The other major security used is machineries. Usually Machineries are held as security against lease finance and Hire purchase facilities. Use of machinery declined from 26.46% in 2004-05 to 21.63% in 2006-07 which indicates the shift of IFIC’s portfolio from lease finance and hire purchase.
Table: 3.11.1 Distribution of loans in Terms of security used Figures in lac Security Type
% 0.29 21.30 57.55 5.49 12.33 3.04 100
Share & Pledge Machinery
2007-08 Amount 58 5064 12383 916 159 556 19137
% 0.30 26.46 64.71 4.79 0.83 2.91 100
60
80
% 0.34 21.63 67.47 6.37 0.87 3.32 100
2006-07 Amount 76 5535 14952 1426 3203 791 25982
70
Share & Pledge Machinery Fixed Asset Financial Obligation Personal Guarantee With out Collateral Total
2005-06 Amount 83 5281 16474 1556 213 810 24417
40
50
Fixed Asset
20
30
Financial Obligation
10
Personal Guarantee 20 07 -0 8
20 06 -0 7
20 05 -0 6
0
With out Collateral
Figure: 3.11.1 Distribution of loans in Terms of security Used
100% 80%
With out Collateral Personal Guarantee Financial Obligation Fixed Asset
60% 40% 20%
Machinery
20 07 -0 8
Share & Pledge 20 06 -0 7
20 05 -0 6
0%
Figure: 3.11.2 Status of Classified Loans with Different Securities Loans facilitated with out any collateral had an increasingly poor performance in the last three years. Almost 20% of the classified loans were given with out collateral in 2005-06 and
this amount increased to about 38% in 2007-08. Whereas loans given against different financial obligations had a progressive performance with moving from around 20% of total classified loans in 2005-06 to less than 5% of total classified loans in 2007-08. Loans against machineries also had a promising improvement. It shifted from a position of about 7% of total classified loans in 2005-06 to about 2% of total classified loans in 2007-08. 3.12 Performance of the Credit Facilities of IFIC: The performance of the loans and advances of IFIC has been decreasing. Over the years the percentage of Bad/ Loss loans have increased from 2.16% in 2005-06 to 6.67% in 2007-08. Where the amount of unclassified loans have decreased from 95.94% to 91.32% in the respective years. Table: 3.12.1 Performance of credit facility of IFIC in terms of Classification Figures in lac
Bad and Loss Doubt full Sub-Standard
2007-08 Amount 1633 183 310
Unclassified Total
22370 24496
Classification
% 6.67 0.75 1.27 91.3 2 100
2006-07 Amount 1245 263 147
% 4.79 1.01 0.57
24327 25982
93.63 100
2005-06 Amount 414 134 228
% 2.16 0.70 1.19
18360
95.94
19137
100
100 80 60
Bad and Loss Doubt full
40
Sub-Standard
20
Unclassified
20 07 -0 8
20 06 -0 7
20 05 -0 6
0
Figure: 3.12.1 Performance of credit facility of IFIC in terms of Classification
Chapter four
Performance Evaluation
4.0. Performance Evaluation 4.1 Operating Result
1. OPERATING RESULT Operating
2007
2008
% growth
Result Total Assets 3608.05 Profit Before 101.11
3991.41 202.87
4572.56 177.58
14.56% -12.47%
provision Classified
143.74
229.99
195.31
-15.08%
advance ROA ROE Cost of fund Cost of
0.70% 15.52% 6.35% 76.60%
2.43% 36.92% 6.58% 72.15%
1.54% 21.55% 6.12% 67.81%
-36.63% -41.63% -6.99% -6.02%
income ratio Total income Total
368.78% 282.5%
439.02% 316.77%
551.64% 374.06%
25.65% 18.09%
expense
Table: 4.1.1
2006
4.2 Ratio Analysis:
Ratio Analysis
1.54% 21.50% 2008
67.81% 6.12%
2.43% ROA
YEAR
36.92% 2007
72.15%
Cost of Income Ratio
6.58%
Cost of Fund
0.70% 15.52% 2006
76.60% 6.35%
0.00%
20.00%
Figure: 4.2.1. Ratio Analysis
ROE
40.00%
60.00%
80.00%
4.3 Deposit Mix: Deposit Mix (2008, 2007, 2006)
15%
Deposit Mix 2008 44% Fixed Deposit
18%
Current Deposit Saving Deposit Other Deposit 23%
Deposit Mix 2007 19% 37%
Fixed Deposit Current Deposit Saving Deposit
20%
Other Deposit 24%
Deposit Mix 2006 18%
35% Fixed Deposit Current Deposit Saving Deposit
23% 24%
Other Deposit
Figure: 4.3.1 Deposit Mix (2008, 2007, 2006) 4.4 International Trade:
International Trade (2006, 2007, 2008): 6655.65
7000 5486.54
6000 4900.88
5000
3676.07
4000
e ro TC D B
5033.69
4435.35 Import
3000
Export
2000
1227.67 677.74
658.28
1000 0
2006
2007
2008
Figure: 4.4.1 International Trade (2006, 2007, 2008) 4.5 Total Income, Total Expense, and Profit before provision and Recovery:
Total Income, Total Expense, Profit before provision and Recovery (2006, 2007, 2008): 600
551.64
BDT Crore
500 400 368.78 300
268.5
0
316.77 202.87
200 100
439.02
112.63 101.11 2006
374.06
Total Expense 177.58
112.72 2008
Total Income Profit before provision Recovery
2008
Figure: 4.5.1 Total Income, Total Expense, and Profit before provision and Recovery (2006, 2007, 2008) 4.6 Income Source of Year:
BDT Crore
Income Source ( Yr- 2006,2007,2008) 450 400 350 300 250 200 150 100 50 0
Net Investment Income Investment Income Other Income
Other Income
Investment Income
Net Interst Income
Figure: 4.6.1 Income Source of year (2006, 2007, 2008)
Chapter five FINDINGS, CONCLUSIONS, AND RECOMMENDATIONS 5.0 Findings: Proper General Banking is the most important function of any bank. But for some reasons the general banking activities faces some problems, which hampers the proper functioning of the system. Some reasons are, 
When a joint stock company comes to open an account if the company happens to be an existing one, the banker should demand copies of the balance sheet and profit and loss account, which will reflect the financial growth of the company and its soundness. But in practice companies and the bankers as well don’t even brother.
Officers of the bank are competent. Even though many of them simply know the working procedure of what they are doing but don’t know the philosophy behind doing those.
Project loan requires testing of feasibility of project and judging the marketability of the product. It requires infusion of knowledge of both the fields-marketing and Banking. But the bank has hardly any person with this kind of ability.
Like most of the private bank, IFIC Bank Ltd. also imposes a target deposit for collection upon its employees. Every employee has to go out for the purpose of deposit collection, which they call “development purpose”. It is an effective method no question about it, since many banks of our country relies on this method. But sometime affect negatively and cause job dissatisfaction. Officers of the desk, where workload is very high, hardly get the chance to go out for development purpose and always feel that their duties for the organization would not be evaluated unless they can show a good amount of deposit collection against their name.
6.0. Recommendations: In order to make the service more efficient and hence increase the performance of the General Banking facilities, IFIC Bank Limited should consider the following: •
Reduce Pressure: Management should talk with the regulatory bodies & try to go with some more flexible rules & regulations.
•
Change Habitual Factors: Peoples impression on bank loan as don’t need to repay is needed to be changed. Some public awareness and some strict steps on loan defaulters can solve this problem quite a lot.
•
Correction in Approval Procedure: IFIC’s loan approval process is needed to be reconstruct because of its huge time consuming nature. This will sure motive and
encourage clients to take more loans from the bank. Besides complexity in approving loans will make it easy to maintain accounting records in a proper & easy way. •
Reduce Interest Rate: Bank should consider a low when lending. This encouraging step would increase the lending amount and attract more and more clients.
•
Increase Supervision & Monitoring: Cover lacking in management policy, use updated software, reward for recovery of CL, bring new packages, adequate manpower, offer flexible works for the employees, increase responsibility of the officers are the result of high quality supervision & monitoring.
•
Cope up with Policy Change: Bank should always prepare himself to face the any kind of change in the government or regulatory bodies’ policy or in the economic condition. This preparation would not allow it to face sudden losses.
•
Correct Irregularity in Providing Loan: Bank should provide loans to all those who are eligible to take the loans. Personal relationship with the customer should not be considered while approving loans. Bank should also concentrate on giving small loans to new entrepreneurs.
Besides IFIC Should: •
Introduce full on line banking in between all its branches so that the customers will be attracted to the bank.
•
The practice of delegation of power should be exercised in the root level. This would develop the ability of the employees. Delegation of power would definitely encourage the employees by giving them more responsibilities, and thus the service would be prompt and efficient.
•
Diversification of products is required. IFIC Bank is in the traditional line of business. It does not have anything special in its products. There should be innovations. For this purpose the research and development wing should be improved.
•
Provide continuous training programs for the employees, so that their skills are developed and they become more efficient and effective.
•
Concentrate more on the marketing of the existing products, so that people become well aware of them
•
Improvements of salary and compensation are much needed to motivate the employees and change the tendencies of job switch.
7.0 Conclusions In concluding a remark as a picture is describable stronger than thousand words, so there is little left to describe. Although something should be said as to the sales data that characterize IFIC Bank Ltd, Stock Exchange Branch. It is limited only to the study. For the criticality of the data series pattern, it is hard to get a clear picture of the Credit policy of IFIC Bank ltd. Though hard, it is tried to describe with some of the most available tools used to forecast time series data. As we know that in Bangladesh there is trend of floating foreign exchange rate, that’s why banks like IFIC Bank Ltd worked very hard to cope up with the foreign exchange market. Another most important thing is that, every bank has a vision to strive for excellence. IFIC Bank Ltd from the very beginning showed its determination to do well through providing good customer services. As the day will progress people will seek better service from the better bank. In the category of better bank IFIC Bank Ltd has proven to be great name. Our economy has been sluggish due to some political instability, which had a great disaster for our economy. Banks are still working hard to build our economy in a stronger position. There is some lacking in our banking sector. The lacking is like that, there is shortage of proper accountability and internal auditing system. We have seen some banks are declared to be insolvent like orient bank which gives a very negative scenario in the servicing sector of banking. In the past people were not so much willing to keep in touch with the bank due to lack of security. Though people began to come to close of banking sector in the last few years but again people are in vague after this incident of orient bank insolvency. That’s why would like to say that speculators of the banking sector must be very adroit to find out the possible outcomes through which they can invest this thing for the betterment of our nation. REFERENCES •
Kotler Philip(1997); Marketing Management, Ninth Edition, Prentice Hall of India pvt. New Delhi
•
Lesikar Raymond V., Marie E. Flatley. Basic Business Comminication; New York: McGraw-Hill, 10th edition, 2005.
•
Toufic A. Choudhury, Iternational Trade Payment and Finance, BIBM; Dhaka, 2005
•
Ministry of Commerce, Government of Bangladesh, Import Policy (2003-2006); Dhaka; March, 2004
•
Different prospectus of IFIC Bank Ltd.
•
Horne Van; Financial Management and Policy, Tenth Edition
•
Robbinson; The Management of Bank Funds, Second Edition
•
Scall Lawrence D. Charles Halley W.(1999); Introduction to Financial Management, McGraw-Hill, Inc., Singapore
•
Report on Practical Orientation in Banks, Several Issues
•
www.ificbank.bd.com
•
Annual Report of IFIC Bank Ltd. 2009
•
Academy Calendar of IFIC Bank: 2009
•
Bangladesh Bank Annual Report: 2008-2009