Term Paper on Fund Management System of National Bank
CHAPTER 01 INTRODUCTION 1.1. Background of the study: Term Paper program has been included to BBA curriculum for providing talent, up-to date and smart, efficient executives. Term paper means gaining supervised experience. Term paper program offers an opportunity to know the environment of a particular organization. By doing this program, I have developed and refined my theoretical knowledge gained in the classroom. This program provides exciting experience of planning, culture, behavior of employee and management style of that organization, which helps me to fill the gap between theoretical and real practical world. Theoretical knowledge does not make a person perfect. To implement the academic knowledge, practical knowledge related to it, is important. A perfect consideration between theory and practice is important in the context of modern business world. In order to resolve the dichotomy between theory and practice, the National University of Bangladesh arranges term paper program as a partial completion of BBA program. This program is necessary for every student to complete his or her academic degree. Term paper program brings students closer to the business theory and practical and thereby help them to substantiate their knowledge so that they can prepare themselves to start a successful career. Under the program, every student is assigned to an organization with a view to acquire practical knowledge. After taking practical knowledge, each student is required to prepare a report on the selected organization under the guideline of his/ her assigned teacher. As a participant in this program, I was place at National Bank Limited, Motijheel branch that is well reputed for trade and commerce in Dhaka city, for a period of three months. 1.2. Objectives of the Study: The main objective of the Term paper program is to formalize me with the real market situation and help me learn how bookish concepts are used in the real market. Therefore,
from the very beginning of the study I have tried my level best to conduct my Term paper with a view to achieve some specific objectives and I have gone across the various department of the bank to acquire some related information and functioning procedure regarding those department. The objectives of the study are mentioned below: 1. To acquire knowledge about the different operations of a bank. 2. To learn how the fund management system of a bank operates. 3. To know the issues those are required to manage to run the fund management system. 4. To identify the problems those are related with the fund management system. 5. To know the sources of fund and the areas in which the fund of a bank are utilized 6. To analyze the reasons for which the growth rate of deposit of a bank increase or decrease day by day. 7. To know the ratios that bank determines to measure its different risk to evaluate its performance. 8. To know the various liquid assets of a bank and their importance. 9. To know the different capital instruments of a bank. 10. To know the different types of reserves and their functions in a bank. 11. To know the steps those followed in providing loan. 12. To know the factors that a bank considers before sanctioning loan. 13. To know the documents those are maintained by a bank in providing loan. 14. To find out the area in which a bank is more interested to invest. 15. To know the problems those are related in loan management. 16. To know the positions those exist in organizational framework of a bank. 17. To know the services those a banks provides for its customers. 18. To go through all the departments of a bank and observe what actually happened in these departments. 19. To find out how the general banking system of a bank runs. 20. To know how the foreign exchange functions of a bank are done. 21. To know the ratios those a bank finds out to know its liquidity position. 1.3. Rationale of the Study:
The purpose of this report is to get a gist idea about the fund management system, which is practice in our country. Banking is a vast term and through this report I have tried to analyze some crucial topics regarding fund management system. Without understanding the nerve position, it is very difficult to go deeply a system. To make the banking concept easier to the people, I tried my best to present the crucial topics in a smooth way. If the liquidity position of the bank is not in a suitable position, the bank may face crisis. Although excess of the fund may create problem because it does not bring anything for the bank however it is a financial intermediary. That is why we should know the different issues regarding the fund management system to get a comprehensive idea about bank. This report basically deals with the fund management system of National Bank Limited covering the areas like General Banking, capital management, liquidity management, credit management, reserve management etc. 1.4. Limitations of the Study: Although I have got the full co-operation from employees, clients officers of NBL and they also gave me much time to prepare this report properly in the way of my study, I have faced some difficulties, which made my conduction of the program little hazardous. Some of these are mentioned below: 1. It should be certainly mentioned that the time two months is very short to get the total view of the banking functions. 2. The officers were quite busy with their regular activities. For this reasons it was also a little problem to collect detail information from them. 3. In some cases, they could not be able to supply me any information for the reason that they have no printed documents. 4. Office secrecy was one of the most important problems. Disclosing of some information was restricted. 5. In case of secondary data collection, there was very little secondary information. There were few support books, reports, journals, etc. moreover, the branch office had very little of this information. That’s why bulk of it had to be collected from the head office.
6. As the officers were very busy with their day-to-day work, they could provide very little time. CHAPTER 02 CONCEPTUAL ISSUES 2.0. Nature of Business: The Bank engaged in all types of commercial Banking services within the stipulations laid down by Bank Companies Act 1991 and directives as received from Bangladesh Bank from time to time. The Bank within the stipulations lay down by Bank Companies Act-1991 and directives as received from Bangladesh Bank from time to time provides all types of Commercial Banking Services. Mainly National Bank Limited collects deposit from the people at lower rate and invests the same to the people again at higher rate. And difference between lower rate of deposit and higher rate of investment is the earnings of the Bank. National Bank Limited mainly invests in industrial sector like short term, middle term as well as long term for import of capital machineries, establish new industry and working capital assistances with this Bank play’s a significant role in Bangladesh economy. The function of the Bank mainly three categories: A) General Banking B) Credit and investment C) Foreign Trade (Import, Export & Remittance) 2.1. Principles and values: The National Bank Limited is committed to five core business principles: 1. Outstanding customer service. 2. Effective and efficient operations. 3. Strong capital and liquidity. 4. Prudent lending policy. 5. Strict expense discipline. 6. Loyal and committed employees who make lasting customer relationships and international teamwork easier to achieve support the business principles. 7. National Bank Limited also operates according to certain key business values.
8. The highest personal standards of integrity at all levels. 9. Commitment to truth and fair dealing. 10. Hands-on management at all levels. 11. Commitment to quality and competence. 12. A minimum of bureaucracy. 13. Fast decisions and implementation. 14. Putting the team’s interests ahead of the individual's. 15. The appropriate delegation of authority with accountability. 16. Fair and objective employer. 17. A diverse team. 2.1.1. Vision: The main vision of the National Bank Limited is to develop the economy of Bangladesh by profitable investment of public money and build up their confidence to the private institution. To ensuring highest standard of clientele services through best operation of latest information, technology, making due contribution to the national economy and establishing ourselves firmly at home and abroad as a front ranking bank of the country is our cherished vision. 2.1.2. Mission: The missions of the National Bank are as follows: The aim of NBL is to become one of the leading Banks in Bangladesh by its prudence, fair and quality of operation. 1. Its effort for expansion of its activities in home and abroad by adding new dimension to its banking services is contributed unabated. 2. It is also putting highest priority in ensuring transparency, accountability, and improved clientele services as well as to its commitment to serve the society through which it wants to get closer and closer to the people. 3. Its goal is to act as a caring companion in uplifting the national economic standard through continuous gradation and diversification of its clientele services in line with national and international requirement 4. It intends to meet the needs of its clients and enhance its profitability by creating corporate culture. 5. It believes in strong capitalization.
6. Its aim is to ensure its competitive advantages by upgrading banking technology and information system. 7. It maintains high standard of corporate and business Seth's. It provides high quality financial services to strengthen the well being and success of individual, industries and business communities. 2.1.3. Functions of National bank Ltd: Some general function of National Bank are given below1. To maintain all types of deposit Accounts. 2. To make investment. 3. To conduct of reign exchange business. 4. To conduct other Banking services. 5. To conduct social welfare activities. 6. To work for continues business innovation and improvements. 7. To bui1d up strong-based capita1ization of the country. 8. To ensure the best uses of its creativity, well disciplined, well manages and perfect growth. 2.2. Management structure of National Bank Ltd.: In 2007 National Bank Limited made commendable progress in all business, like deposit, credit, fund management, investment, foreign remittance, credit card & foreign exchange related business. Bank has expended business activities as holding previously & parallels by diversification its investment to a new product, as a major financier remarkable portion of total exports of the country. The management processes are as follows: 2.2.1. Planning: The strategic planning approach in NBL is top-down. Top management formulates strategy at the corporate level, and then it is transmitted through the division to the individual objectives. Board of directors or Executive committee usually takes the decision. In this process lower level manager are detached in making process, even brainstorming of lower level manager is absent in decision-making and planning process. 2.2.2. Organizing: Organizing of the National Bank Limited is based on Departmentalization. The organization is divided into twelve departments headed by Executive vice President or
Senior Vice President. In the National Bank Limited the whole operation is centralized and authority is delegated by written guidelines. These guidelines are: 1. Operational manual approved by Head Office, where each aspect or banking operation is elaborately defined. 2. Advance manual including advances limit for different management level. 3. Bad and doubtful recovery manual. 4. Code of conduct. 5. Foreign banking guidelines. 6. Central bank directives. 7. Different management position holders in departments and branches practice their 8. Authorized power in different cases with administrative loophole. 2.2.3. Staffing: Entry-level recruitment process of the National Bank Limited is conducted in three ways. One way is recruitment of probationary officer. Each probationary officer has one-year probation period. After completion of probation period the officer joins as officer grade III (b). The career path of probationary officer is headed toward different management positions. Second way of recruitment is to recruit non-probationary officer who joins as a assistant officer. The career path of an assistant officer is lengthier than probationary officer. The third way of recruitment is recruitment of staff and sub-staff such as typist, Messenger, driver, guard, attendant, cleaner and other lower level positions. Promotion policy of NBL is basically based on seniority basis. Sometimes, employees are promoted to the higher position for their outstanding perfoffi1ance. However, it is found that the average length of a position held by an employee is around five years. 2.2.4. Controlling: The bank has strict control over its all-organizational activities. The Bangladesh Bank directives indicate some control measures. Audits and inspection are conducted by different parties to check whether the bank implement these control system properly or not. The central bank conducts credit inspection by a team. The National Bank Limited has audit and inspection department to take controlling measures in internal operations.
Audit and inspection team send to the branches now and then and is responsible for preparing report that will be submitted to the chief Administration to take necessary actions. CHAPTER – 3 DATABASE 3.1. DATABASE The nature of this report is descriptive. So instead of doing any survey, observation method is used to complete this qualitative research. I have tried to collect all such information that will reflect the actual situation of the bank for any report. I have collected various types of primary and secondary data while I was performing my job. I have collected various data from various sources by face to face interview with the employees working in different departments of National Bank Limited, Motijheel branch, personal investigation bankers of different branches of NBL, circulars sent by Head office and maintaining daily diary which contains all the activities that has been observed in the bank. 3.1.1. Population: The report has prepared on fund management system of National Bank Limited. Therefore, for the purpose of the study, all the branches of National Bank Limited have been considered as the population of the study. 3.1.2 Sampling Unit: Only one branch of National Bank Limited has been taken as the sampling unit for the study, i.e. Motijheel branch. 3.1.3. Sampling method: Random sampling method has been used for the purpose of the study. 3.2. SOURCES OF DATA:
The report is based on both primary and secondary sources of information. Interviewing the managers and officers of the bank, talking to the customers, the primary data have been collect. Further more different publications of the bank annual reports and the bank websites have been used for the purpose of collecting secondary data. 3.2.1. Primary sources of data: 1. Guidelines and suggestions from fund management in charge of NBL (Motijheel Branch). 2. Opinions and suggestions of bank officials. 3.2.2. Secondary sources of data: 1. Annual report of NBL. 2. Published booklet of NBL. 3. Various published document. 3.3. METHOD OF DATA COLLECTION: For the purpose of the study, two methods of data collection have based: A. Observation method. B. Interview method. CHAPTER 04 FINDING OF THE STUDY ‘FUND MANAGEMENT OF NBL’ 4.1 FUND MANAGEMENT STUCTURE The main sources of fund of National Bank are shareholders’ equity and savings of the public which the bank mobilizes as deposits and deploys as short and long term loans and advances as well as invest in different financial institutions including the Bangladesh Bank to earn profit. Total funds of the bank is controlled by and utilized through the Treasury Division, Loan division and merchant of the bank’s total demand and time liabilities are required to be maintained as:
Table-8: Sources of funds of NBL
CRR in current account with Bangladesh Bank (on which no interest is received) and the rest 13% are maintained in different approved securities, treasury bills, bonds, debentures and foreign currencies. In utilizing its resources, the bank keeps in view the need for maintaining required liquidity and earning maximum profit through lending and investing. Table-9: Application of funds
4.2 FUNDING STUCTURE Generally National Bank collects funds from three sources. These are: a) Capital b) Deposit c) Borrowed fund A) Capital Capital is the first source of each bank’s fund. NBL was incorporated under the Registrar of Joint Stock Companies on 15th March, 1983 as the first private sector bank of the country with an authorized capital of Tk. 10 corer and a paid up capital of Tk. 4.4 corer. With an initial public offering of Tk.3.60 corer, the bank was enlisted with the Dhaka Stock Exchange in 1985. The authorized capital of National Bank increased by Tk. 145 corers to 245 corers in 2006. Through right share issues on 4(four) occasions and bonus share on 8 (eight) occasions, paid up capital of the bank now stands at Tk.80.55 corer, which we believe to have been playing a significant role in easing the liquidity problem in the capital market. B) Deposit Deposit is the main source of a bank’s fund. Despite the adverse impact of high prices of oil and other essential commodities in the international market, phasing out of the MFA, soaring inflation in the domestic economy and labor and political interest in the country, National Bank Limited has been able to maintain its trend of growth in 2006. Total deposits mobilized by NBL in 2006 stood at Tk. 4035.08 core, which is higher by Tk. 736.68 corer or 22.33% than in 2005. This has been possible as a result of proper directions and guidance of a prudent and farsighted Board of Directors, timely adaptation of appropriate measures under changing condition in the economy, strict observance of risk management principles, close review and analyzing of money and capital market conditions, intensive supervision, strengthening of internal control and, above all, relentless efforts of a team efficient workplace under the leadership of a worthy Managing Director. In order to keep the growth continues, priority is given to the mobilization of costless and low cost deposits. Deposit resources are raised by
undertaking special saving mobilization programmers at different intervals through the year. Types of deposits All the deposits of National Bank Limited may be classified as follow: 1. Current Account 2. Saving Account 3. Fixed Deposit Account C) Borrowed funds: Sometimes bank faces liquidity crisis. To handle this type of problem NB borrows funds from other banks or resources. This type borrowed fund may be short or long term. Long term borrowed fund may use as capital. 4.2.1 Function of NBL as the user of funds: National Bank limited collects funds through deposit, capital rising and borrowing. These funds are able to earn income. Banks invest these funds after confirming the short term and long term liquidity position. If bank holds its fund idle, it may occur losses. On the other hand, if bank invests all the funds it may cause liquidity crisis. As a good bank, NBL tries to mat6ch its liquidity position and the fund invested. The funds that the bank keeps for maintaining liquidity position may not generate profit. But bankers have to interest on deposit. 1. Therefore National Bank Limited like other banks does the following functions: Investment function. 2. Lending function. 3. Cash assets function: 4. Cash in vault. 5. Items in the process of collection. 6. Balance with the central bank. 7. Balance with the other bank. 8. Other function.
4.2.2. Performance evolution NBL: National Bank Limited also runs profit and loss basis like other business enterprise. It means that NBL is able to provide more dividends to the shareholders as a good bank. Like other enterprises, banks NBL face some risk. As long as it can minimize its risks, it can maximize its profits. For the purpose of evaluating performance, managers of NBL determine some ratios related to a particular risk .The list of these ratios and the present condition of NBL in these ratios are given below: Table-10: Credit Risks
Table-11: Liquidity Risks
Table-12: Interest rate Risks
Table-13: Capital risk Particulars Ratio of share capital and total assets Ratio of fixed assets and total assets Ratio of total liabilities and total assets Ratio of dividend and total income Table-14: Operating risk
4.2.3. Indicators of a successful bank:
Ratio 7% 2.5% 93% 5.6%
It is important to identify a successful bank for banking. Successful bank means those banks that have a low loan risk, good profitability and sound liquidity position. For understanding whether a bank is successful or not, bank’s one year performance is compared with previous year performance. This process is generally known as ratio analysis. Some of these ratios and present condition of NBL in these cases are given below: Table-15: Indicators of a successful bank:
4.3 EARNING BASE IN ASSESTS 4.3.1. Liquidity assets of NBL: Every bank must maintain the liquidity ratio prescribed by the Bangladesh Bank. The liquid assets of NBL to meet the customer demand are given below: Table-16: Liquid assets of NBL
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Nature of National Bank liquidity: 1.
Liquid assets = Liquid liability
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Holding of easily convertible cash to meet shortage of cash assets.
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Mitigation of cash shortage by creation of creditors and borrowings
Types of liquidity: Each bank maintains different types of liquidity according to their business nature. National Bank maintains 6 (six) types of liquidity. These are mentioned below: A. Immediate Liquidity. B. Short Term Liquidity. C. Long Term Liquidity. D. Contingent Liquidity. E. Seasonal Liquidity. F. Economic Social Liquidity. • Demand and Supply for bank liquidity:
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Demand for liquidity means demand of clients, interest person, and group of bank on account of liquidity.
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Supply of liquidity means the source of fund from which bank get the supply of fund on demand. The nature of demand for the liquidity of NBL’s funds and supply of liquidity is given below:
Table-17: Demand and Supply for bank liquidity
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Handling bank liquidity crisis: Sensitive problems of NBL relating to liquidity are mentioned below:
A. Short term funds are used in long term investment. B. Large proportion of liabilities is paid in that time period. C. Over sensitiveness of interest rate.
D. Indifferences and lack of close observation of the deposit and loan behavior of the prime customers and industrial customers. E. Inefficient customer services. F. Maintain linkage with the bank rating agencies. G. Increase influence in the money market. H. Enhancing the skill of loan recovery and loan sanction. •
Liquidity Management strategy for bank: Assets conversion strategies-
1. Treasury bills. 2. Collection of government fund through other organization. 3. REPO. 4. Deposit with other bank. 5. Bond and notes issued by local government. 6. Debenture of government organization. 7. Resale of banker acceptances in local secondary market. 8. Short term commercial debenture. •
Liquidity management strategies-
1. Fund of Central Bank, payable on demand to institution. 2. Easily salable less risk debentures repurchase under agreement. 3. Large certificates of deposits belong to the government and NGOs. 4. Borrowing from reserves on government debenture discounted Central Bank fund. •
Balance liquidity management strategies- Balance liquidity management strategies means adjustment of assets conversion strategy and liquidity strategy.
4.3.2. Cash Management of day to day in bank: Like other banks, NBL is a business concern which deals with cash. Owners of the bank are not the owners of the cash because the most of the amount of cash fund comes from the depositors. Generally the capital of the bank owners is not higher than 4% of the total fund. Deposit of the other depositors is the principle instrument of the bank business. So the bank fund must be properly utilized for running the bank business well. Functions of day to day management of cash of NBL are as follows: A. Inflow of cash in a planning way.
B. Outflow of cash payment in due time without giving advances. C. Cash balance maintains in an equilibrium position. D. Filling up the lacking of the cash balance for the primary and secondary reserve. E. Excess reserve must invest in profitable sector for better return. •
Basic assets accounts for cash management:
A. Currency and coin in the bank vault. B. Due from the Central Bank. C. Due from other commercial bank. D. Cash items in the process of collection. 4.3.3. DEPOSIT MANAGEMENT: Deposits are the main part of a bank fund. It is almost impossible to think a bank without deposit. So every bank try to maximize its profit, try to secure it and try to maintain an easy flow deposit. Money market and capital market transactions make deposit collection process for bank. Notice that few years ago current deposit was higher than term deposit. But at present depositors like to keep their fund as term deposit. These deposits have an impact on the banks investment and lending policy. So, banks try to increase their deposits by offering attractive package to the depositors. Depositors have their own choice that is changing with time. With this change the banks introduce new deposit collection policy. These activities of bank related with deposit are known as deposit management. •
Objectives of bank deposit: National Bank Limited mainly collects deposits for increasing its fund. Other than increasing it deposits, NBL has some other objectives. These are:
A. Collect bank fund. B. Ensure productive investment of the savings of the clients, C. Extend the scope of the loan. D. Fulfill the excess need of money. E. Participation in maintaining social responsibility. •
Factors on which the level of NBL’s deposit depend:
A. Rate of interest. B. Physical feature of the branch.
C. Use of modern and electronic technology. D. Skill of bank executive. E. Innovation of new services. F. Attractive loan and investment scheme policy. G. Suitable location of the branches. H. Advantage of early stage in a specific location. I. Economic condition. •
Deposit Processing:
Deposit processing start from account opening section. And with the transaction in account section. Notice that every activities of the accountholder have an impact on the books of account of the bank. The steps of deposit processing are given below: 1. Account opening section gives suggestions to the customer about the suitable accounts that the bank have for their clients. 2. Acceptance of necessary application, photograph and documents. 3. Checking department scrutiny that customers submitted with application. 4. After scrutiny bank manager gives permission to open a new account. 5. Then customer has to deposit required money as initial deposit. 6. In computerized banking system new account is initiated and account holders profile entered into the databases. 7. Delivered checkbook, passbook and deposit receipt to the account holder. 8. In manual banking system, a ledger folio is specified for book keeping of the new account. 9. After a specific period account statement sent to the account holder. 10. Banks review the accounts and verified the correction of the balance of the account. 11. Banks also try to influence the potential depositors to open account with them. 4.3.4. CAPITAL MANAGEMENT •
Meaning of capital: The term bank capital refers principally to funds contributed by the bank’s owner, consisting of stock reserves and those earning that are retained in the bank.
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Types of capital: Like all other banks, National Bank has two types of capital. These are:
(A) Primary capital and instrument of primary capital: A. Ordinary share. B. Perpetual preferred share. C. Share premium. D. Undistributed profit. E. Mandatory convertible instrument F. Loan reserve. (B) Secondary capital and instrument of secondary capital: A. Limited life stock share. B. Subordinated notes and debentures. C. Mandatory convertible instruments not eligible for primary capital. •
Instrument of raising bank capital:
At national bank, there are two types of documents. These are: A. Equity based instruments. B. Debenture based instruments. Table-18: List of capital instruments
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Importance of bank capital:
Like any other bank, National Bank requires capital for the following reason: A. For building public confidence. B. To provide the normal hazard and unforeseen contingencies. C. To act as a cushion in times of restricted monetary policy. D. To raise awareness that bank owners have state along with the depositors in the supply loan able fund.
E. To obtain permission for opening new branches. F. To avoid punitive measures for reason of capital adequacy. •
Function of bank capital:
The functions of capital in the National Bank are given below: A. Acquire the physical plant and basic necessities needed to render banking services. B. Act as one of the source s of funds for loan and investment. C. Protect the uninsured depositors in the events of insolvency and liquidation. D. Act as an unanticipated loss restraint. E. Serve as a regulatory restraint. •
Capital planning process of NBL:
Capital planning is the part of bank assets and liabilities management. Bank fix up the further targeted profit by considering the interest and other income and expenses of last year. National Bank follows the following three steps in capital planning: 1. Generate preformed balance sheets and income statements for the bank. 2. Assume / select a dividend layout. 3. Analyze the cost and benefit of alternative source of external capital. • Measures of capital adequacy of National bank: Adequacy is a relative term. Adequacy of capital is not same for all banks. It differs from bank to bank. Capital adequacy of a National Bank depended on the following subjects: 1. The quality of bank management. 2. The liquidity of bank assets. 3. The history of earning and retention there of. 4. The liquidity and character of ownership. 5. The burden of meeting occupancy expenses. 6. The potential volatility of deposit structure. 7. The quality of operating procedures. 8. The capacity to meet the present and future financial needs of their trade areas. Considering the competition it faces. 9. Variation in the use of technology. 10. Need for placement of assets.
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Capital adequacy ratio:
For the purpose of determining the capital adequacy, National Bank Limited measures the following ratio for the total capital of NBL and also for the capital of its each branch’s capital Table-19: Capital adequacy ratio Particulars Equity capital to total assets Equity capital to total deposit Equity capital to loan and discount Total capital to total assets Loans to total capital Classified assets to total assets Fixed assets to total capital
Ratio 0.07:1 0.08:1 0.10:1 0.69:1 10:1 0.03:1 0.50:1
4.3.5. RESERVE MANAGEMENT •
Types of reserves:
Every bank maintains some required reserve funds to meet some specific requirements of Central Bank and to fulfill the condition of Banking Law. National Bank Limited has maintaining the following reserve funds: • Primary reserve: Like any other bank, NBL has deposited a portion of its total deposit at Central Bank and also a portion in its own vault with the knowledge of Central Bank. (A)Constituents of Primary Reserve: Primary reserves are not only the reserve that maintain with the central bank. It has some other components. Like any other bank the primary reserve of NBL is consisted of the following components: 1. Cash in hand. 2. Balance with central bank. 3. Demand deposit with other banks (B) Function of Primary Reserve: •
It protects the bank from possible liquidity crisis.
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It plays the role of first line of defense.
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It enables the bank to satisfy depositors claim instantaneous.
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It enables the bank to perform the expected on the community.
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It enables the bank to meet the establishment expenses.
(C) Types of Primary Reserve: There are two types of reserve. Such as•
Statutory reserve
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Working reserve
Statutory reserve: It is one kind of stature cash reserves which are maintained by the order of Central Bank on the basis of deposits. At present the normal rate is 9% in Bangladesh. It varies from country to country. Working reserve: It is the excess reserve out of the statutory reserve kept in Central Bank on current account as cash or cash equivalent. At present the normal rate of working reserve is 18%. •
Factors determining the working reserve:
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All the factors, on which the amount of working reserve depends, can be divided into two groups. These are:
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Internal factors
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External factors o Secondary reserve:
NBL maintain secondary reserve to protect liquidity for forecast able cash need as well as more remote contingencies. NBL maintains the following secondary reserve 1. Treasury bills 2. Short term securities (A) Condition of secondary reserve: Secondary reserve is not keep in cash. But this type of reserve can easily convert into liquid assets at any time. This reserve is considered as assets on the basis of some condition. These conditions are as follows: 1. Convertibility. 2. Low risk. 3. Yield.
Secondary reserve must be convertible into cash in a short time. Before making investment in secondary reserve, the management of NBL gives the highest attention in the fact that it will make no loss at the time of return. The turn value must be greater or at least equal. (B) Function of secondary reserve: 1. It helps the bank to avoid liquidity crisis. 2. It earns a moderate income. 3. It helps the bank to maintain the two opposite principles- profitability and liquidity. (C) Secondary reserve assets: The secondary reserve assets of NBL are mentioned below: 1. Call loans to stockholders and commercial bank. 2. Short term loans to commercial bank. 3. Short term loans secured against self-liquidating assets. 4. Investment in treasury bills. 5. Promissory notes on short period maturity. 6. Discounting of nuisance bill eligible for rediscounting from central bank. 7. Short period debenture of companies of unimpeachable credit standing. 8. Certificates of deposit. 9. Govt. notes and bonds. 10. Bonds and securities of Govt. Agencies. (D) Factors determining secondary reserves: The management of NBL considers the following factors in determining the secondary reserve 4.3.6. LOAN MANAGEMENT •
Definition of loan policy:
“A loan policy indicates the use of the fund collected from the bank shareholders and the depositors.” Loan policy is essential for the bank in order to attain its objectives and to serve the people. •
Awareness before lending:
Responsibility of preparing loan policy the board of directors set up the policy of loan. This policy may be changed according to the demand of customers or may be made suitable for the changing environment. •
Written/ unwritten policy:
Maximum policies are written which help both the parties to avoid any kind of mis understanding. •
Weakness of loan Administration:
Loan management is one of the important functions of the bank. Loan recovery largely depends on good loan administration .The following weaknesses of NBL is responsible for creating problem in loan administration: 1. Sometimes the officers disburse loan beyond its policy. 2. The unclear and flexible terms and conditions of loan sanctioned. 3. Loans are centralized to the extreme limited area. 4. Inability of the officer to identify the fund flow and 5. Cash follow of the borrower. The chart of loan administration is given the next page •
Steps in Loan Operation:
The NBL follows the following steps in order to sanction a loan to customer and recover it. Step-1: Collect loan application. Step-2: Collect necessary information. Step-3: Analyze the loan. Step-4: Take final decision to sanction the loan. Step-5: Prepare necessary documents. Step-6: Complete the loan agreement. Step-7: Maintenance of accounting system of loan Step-8: Observe the implementation of loan agreement. Step-9: Recovery of loan. •
Steps in loan analysis:
NBL follows the following steps in the case of loan analysis
Considering factor:
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Officers consider the following factors before sectioning loan to any party:
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Background of the applicant regarding loan and financial performance.
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Ability of using the loan and also the character of the applicant.
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Ability of the applicant to return the loan.
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If the applicant faces any problem during the planning, evaluate the performance of his existing capital.
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National and international factors that have influence on the applicant on his ability to return at present and planning situation.
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Elements of special risk- that may influence to recover the loan o Documents of loan:
NBL maintains the following documents in sectioning a loan to a party 1. Principal loan agreement. 2. Application of loan. 3. Financial statement of the loan applicants. 4. Statement of loan analysis. 5. Certificates of the securities. 6. Power of attorney and his signature on behalf of the borrower. 7. Decision of the board of directors on behalf of the borrowing firm. 8. Assurance certificate of the competent authority. 9. Financial agreement of the guarantor. 10. Copy of mortgage and contract agreement. 11. Certificates of the mortgage property. •
Problems in loan management:
Like all other banks, NBL provides loans to different parties for different purpose. The recovery of all these loans is not certain. The loan which recovery is questionable is the main problem in loan management. But it is possible for the bankers to prevent their loan program from bad ones by detecting the risk elements with them and taking measures in time. For this purpose, first of all, the authorized officer in loan section checks the loan application properly in order to choose the right person for providing the loan. He considers two factors to determine whether the loan is good or bad loan. The factors are
willingness and ability to repay the loan. The classification of loans on the basis of these two factors is given below by using a graph: CHAPTER 5 CONCLUSION 5.1. Findings of the Report: After analyzing the annual report and other papers, the evolution of performance analysis and on the basis of my study I have got some findings about the National Bank Limited. These are mentioned below: 1. NBL is the pioneer of private sector banking business in Bangladesh. . As a result it has a huge branch operation with 100 branches and 2000 manpower causing large employment opportunity. 2. The fund management system is very effective. For keeping this system effective, 3. Necessary changes in credit policy, loan and advance policy, provision for provision are made continuously. 4. The Officers engaged in loan management is very much aware in choosing right person to provide loan to ensure its recovery. 5. The top management is more conscious about the liquidity of bank. 6. The strength of the Bank lies on the top management of the company and the financial soundness of the sponsors, as they are all well reputed personalities in the Bangladesh. This impressive lay of National Bank Ltd. helps to have a good image. 7. The top management gives its highest attention in the operation of fund Management. 8. The customer service is very much impressive than other financial institution. 9. Remittances, both local and foreign are effective manner of customers. 10. Computerization is speeding up the performance of the organization. The top management recently has to decide to start online banking system. This decision will motivate the employees who are very effective in computer skills. 11. Top management guidance to its subordinates is very much friendly.
12. Special schemes like consumer credit scheme, monthly saving scheme, insurance scheme etc. are very popular. 13. The overall working environment of the office is very nice. 14. Lack of professional data entry operators. 15. Not a proper skilled human resource in every department. 16. Inadequate workforce in new branches. One is required to do two or three departments work. 17. Lack of proper coordination among different departments. 18. In adequate facilities in maintaining the operation of ATM card, Master card, Visa card etc. 5.2. Recommendations: I have some points to focus which will help the bank to improve the efficiency as well as the quality of work. The points are as follows: 1. Management should set proper planning for its operations of each and every work for the whole bank as well as all branches of NBL. 2. Management must design the jobs on priority basis. 3. As the top management has decided to start online banking system, necessary steps should be taken to make this decision implement as soon as possible. 4. As NBL is a service providing organization, it should introduce new and dynamic services to serve the people and capture the target market 5. It is necessary to assign required qualified manpower for every job. 6. The proper managerial observation and cooperation are required. 7. All branches should properly maintain all documents on daily basis. 8. It must avoid the duplication of work through better communication. 9. It also tries to avoid duplication in any case through accuracy and efficiency. 10. It is required to develop some effective motivational programs. 11. Top management must ensure the proper implication of IT in all branches. 12. And most of all ensure proper communication with head office and other branches. 5.3. Conclusion:
I acknowledged different banking functions and day to bay banking operation on my way to complete this Term paper. From my starting day to up to date my practical implementation of customer dealing procedure during the whole period practical orientation in NBL at Mirpur branch, I have to try my best to reach a firm and concrete a conclusion very confident way. In this report I have explained my best in respect of my real life experience gathered from different departments. I believe that my realization will be in harmony with most of the banking thinkers now a day banking sector is more competitive. To achieve a proper reward about performance, it is essential to satisfy its customer by providing them different valuable and dynamic services. Because a satisfied customer will talk to others about the services those he/she is very justifiable enjoying and a satisfied customers statement is more effective than a thousand of commercial advertisement. People depend on the people – is the mode of human civilization. Therefore, the importance to satisfy customer is increasing day by day in the private commercial sector especially in the private banks. As all the activities those are required to provide valuable services to its customers to make them satisfy, are related with the fund management system, NBL is so much careful about its fund management system. NBL always gives its highest attention in monitoring and managing the bank fund, which is consists of fund, capital, reserve, deposit, loan and advance. At present NBL is successful in effectively and efficiently managing these vital issues. In spite of that, in order to keep its success continue and reach at the pinnacle of success it, its managers, board of directors and employee must have the comprehensive and clear idea about the reserve, fund, loan, capital, deposit and liquidity regarding the smooth control of bank and continue its vital operation toward country’s economic development. BIBLIOGRAPHY 1. Annual Report of NBL 2006 2. Annual Report of NBL 2007 3. Training book of NBL Books:
4. David A. Decenzo, Stephen P. Robins; Human Resource Management; 17th Ed. Pg. 5. Hemple, George H; Bank Management; 9th Ed. pg. 6. Website: •
www.nbl.com
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www.bangladeshbank.org.bd.