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“Liquidity and Profitability Analysis of First Security Islami Bank Ltd�
1.1 History When money became an accepted medium of exchange, the need arose to keep the money safe. In addition, some people needed to borrow money. These needs led to the development of banks. The earliest banking records, dated around 2000 B.C., indicate that Babylon had a highly developed banking system. Babylonian banks were not unlike the banks of today, except that you might say they had a monopoly. Many years later, in the sixth century B.C., the first private bank emerged. Like today's bank, it accepted for deposit money on which it paid interest. It also lent money to persons who needed the money for worthwhile purposes and who repaid the borrowed funds with interest. By the fourth century B.C., Greece was the dominant nation in the world. Private and city-state-owned banks existed in the outlying lands of the Greek Empire, but only privately owned banks were allowed in Greece. Government to a great extent regulated those banks; however, Rome then became the dominant empire. Under early Roman law, banks could only be privately owned, but law regulated them. With the fall of the Roman Empire, banking became essentially illegal until the third century A.D. By the fourteenth century, when trade routes were being developed, privately owned banks were once again allowed. And by the fifteenth century, banks were needed to advance the huge sums of money required to send out ships to bring back valuable commodities such as spices, silk and gold. At this time in history, banking was big business. 1.2 Banking Scenario in Bangladesh The banking in Bangladesh has passed three decades through different policy environments and comprises central bank at the apex, nationalized commercial banks (NCBs), private commercial banks (PCBs), foreign commercial banks (FCBs) and specialized financial institutions. In the decade of seventies, in an atmosphere of fully regulated banking, the nationalized commercial banks played the active role in intermediation and allocation of credit along with the specialized financial institutions. The decade of the eighties witnessed the active operation of both the NCBs and PCBs (local and foreign) in the banking sector. Before liberation of Bangladesh in 1971, the total banking system was private owned, urban-based and profit oriented. But after the liberation, the Government of Bangladesh nationalized all the banks operating in Bangladesh in 1972, except a few foreign banks branches. It was due to the economic policy of Pakistan
Government that we were having a privatized banking structure, till the independence of Bangladesh in 1971. Therefore, under such a situation, Bangladesh Government had no other alternative but to take up the control and nationalize the enterprises including the banks. Following nationalization, the government also recognized the existing commercial banks into six (6) distinct new banks in the following manner in terms of the Bangladesh Banks (Nationalization) Order, 1972: Existed Banks The National Bank of Pakistan The Bank of Bahawalpur Ltd. The Habib Bank Ltd. The Commerce Bank Ltd.
Reorganized Bank Sonali Bank
Janata Bank
The United Bank Ltd. The Union Bank Ltd. The Standard Bank Ltd. The Australasia Bank Ltd.
The Eastern Mercantile Bank Ltd. The Eastern Banking Corporation Ltd.
Agrani Bank
Rupali Bank Pubali Bank Uttaras Bank
Source: Khan, Mohammad Khalid, “Banking System in Bangladesh: 1972-1982” The Bangladesh Times, March 20, 1982 1.3 Reorganization of Commercial Banks of Bangladesh in 1972 First 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, Oriental (Al-Baraka) Bank Bangladesh Limited. At present it is ICB Islamic Bank Limited.
Second Generation Banks (Established 1992-1996) Eastern Bank Limited, National Credit & Commerce Bank Limited, Prime Bank Limited, Southeast Bank Limited, Dhaka Bank Limited, Al Arafa Islami Bank Limited, Social Investment Bank Limited, Dutch-Bangla Bank Limited. Third Generation Banks (Established 1996-2000) Mercantile Bank Limited, Standard Bank Limited, One Bank Limited, EXIM Bank Limited, Premier Bank Limited, Mutual Trust Bank Limited, First Security Bank Limited,[now a days it’s incorporated FSIBL] Bangladesh Commerce Bank Limited, Bank Asia Limited, The Trust Bank Limited. Fourth Generation Banks (Established 2000-till now) Shahjalal Bank Limited, Jamuna Bank Limited, BRAC Bank Limited. 1.4 Relevant Laws/ Acts/ Order for Bankers/ Financial Institutions The following Law, Acts and Order are guiding Banks and Financial Institutions-operating in Bangladesh: 1. The Artha Rin Adalat Act-1990 2. The Bangladesh Bank Order-1972 3. The Banker’s Books Evidence Act-1891 4. The Banking Companies Act-1991 5. The Bankruptcy Act-1997 6. The Bangladesh Bank (Nationalism) Order-1972 7. The Bill of Exchange Act-1882 8. The Companies Act-1994 9. The Contract Act-1872 10. The Co-operative Societies Act-1940 11. The Insurance Act-1938 12. The Pre-Shipment Inspection order-1999 13. The Partnership Act-1932 14. The Securities & Exchange commission Act-1993 15. The Foreign Exchange Regulation Act-1947 16. The Bangladesh Export Processing Zones Authority Act-1980 17. The Export Policy- 1997-2002 18. The Guidelines for Foreign Exchange Transaction-1996 (Bangladesh Bank) 19. The Import Policy Order- 1997-2002
2.1 Introduction: First Security Islami Bank Limited (FSIBL) was incorporated in Bangladesh on 29 August 1999 as a banking company under Companies Act 1994 to carry on banking business. It obtained permission from Bangladesh Bank on 22 September 1999 to commence its business. The Bank carries banking activities through its Fifty Three (58) branches in the country. The commercial banking activities of the bank encompass a wide range of services including accepting deposits, making loans, discounting bills, conducting money transfer and foreign exchange transactions, and performing other related services such as safe keeping, collections and issuing guarantees, acceptances and letter of credit. It was commenced its operation as a conventional banks but from 1st January’ 2009 it was converted from interest based bank to an Interest free bank. The company philosophy “Symbol of Security”; the bank has been operating with talented and brilliant personnel, equipment with modern technology so as to make it most efficient to meet the challenges of demands. OUR VISSION 21st century. During this short span of time the Bank successful in positioning itself as progressive and dynamic financial institution in the country. The sponsor and director of the bank are a successful and prominent business group in our business community. OUR VISSION To be the unique modern Islami Bank in Bangladesh and to make significant contribution to the national economy and enhance customer’s trust and wealth, quality investment, employee’s value and rapid growth in shareholder’s equity.
To be the most caring and customer friendly and service oriented bank. To create a technology based most efficient banking environment for its Customers. To ensure ethics and transparency in all levels. To ensure sustainable growth and establish full value of the honorable Shareholders and Above all, to add effective contribution to the national economy.
OUR STRATEGIES • • • • • • •
To strive our customers best satisfaction & win their confidence. To manage & operate the bank in the most effective manner. To identify customers’ needs & monitor their perception towards meeting those requirements. To review & updated policies, procedures & practices to enhance the ability to extend better customer services. To train & develop all employees & provide them adequate resources so that the customers’ needs reasonably addressed. To promote organizational efficiency by communicating company plans policies & procedures openly to the employees in a timely fashion. To ensure a congenial working environment.
•
To diversify portfolio in both retail & wholesale markets.
OUR NETWORK Branch Networks and Inter Division and Branch Coordination , At present, the bank has 58 branches of which 24 branches are in Dhaka Division, 19 branches are in Chittagong Division, 07 branches are in Sylhet Division, 04 branches are in Rajshahi Division, 03 branches are in Khulna Division and 01 branch is in Barishal Division. All the 58 branches are computerized under distributed server environment. Another few branches are planning to open within December 2010. FSIBL has already started their on-line, SMS and ATM banking facilities for their clients. Objectives An Islamic Bank is a financial institution that operates with the objectives to implement and materialize the economic and financial principles of Islam in the banking arena. The objective of Islamic bank is not only to earn profit, but also to do good and welfare to the people. Islam upholds the concept that money, income and property belong to Allah and this wealth is to be used for the good of the society. Islamic bank operate on Islamic principles of profit and loss sharing, strictly avoiding interest which is the rote of exploitation and is responsible for large-scale inflation and unemployment. An Islamic bank is committed to do away with disparity and establish justice in the economy, trade, commerce and industry; build socio-economic infrastructure and create employment opportunities. The primary objective of establishing Islamic banks all over the world is to promote, foster and develop the application of Islamic principles in the business sector. More specifically, the objectives of Islamic banking when viewed in the context of its role in the economy are listed as follow: 1. Offer Financial Services 2. Baking for development 3. Optimum Allocation of Resources 4. Equitable distribution of Resources Measures to Improve Banker-Customer Relationship in an Islamic Bank: a) b) c) d) e) f) g) h)
Abolition of Interest from transaction Assurance of Distributive Justice Supply of Venture Capital Elimination of Banking Fraud Application of Zakat Rendering Improved Customer Service Legal Reformation Charity Functions
Corporate Culture
FSIBL Bank is one of the most disciplined Banks with a distinctive corporate culture. In this bank, it believes in shared meaning, shared understanding and shared sense making. The people of bank can see and understand events, activities, objects and situation in a distinctive way. They mould their manners and etiquette, character individually to suit the purpose of the Bank and the needs of the customers who are of paramount importance to them.
Management Hierarchy
Managing Director (MD)
Deputy Managing Director (DMD) Principal of Training Center Senior Executive Vice President Executive Vice President Senior Vice President Vice President First Vice President Senior Assistant Vice President Assistant Vice President First Assistant Vice president Principal Officer Senior Officer Officer Junior Officer gr-1
Junior Officer gr-2
Human Resources Development FSIBL has a separate Human Resources Division (HRD) to manage the employee policies and practices. As on FYE 2007, Total 421 executives & officers of the bank have been working for smooth banking operations. Bank follows a standardized human resources policy. HRD of the Bank follow a transparent and free & fair system to ensure the standard recruitment, training & development of human resources of the bank. The bank has defined HR policies including recruitment, training & development, promotion, leave, transfer and disciplinary action policy. Usually internal recruitment procedures are considered to fill up the mid and top management positions, while entry-level positions are filled with regularly through competitive recruitment exams. They follow transparent, well-defined and strict rules for appointment of officers and staff in the Bank's service. Information Technology Division FSIBL has an Information Technology Division at the head office to provide IT support to all its branches. The Bank has well documented guideline on information and communication technology (ICT). From the very beginning FSIBL was using computerized banking software “PcBank/M” for all the branches. Recently the Bank has replaced Pc Bank/M software with PcBank2000 to provide online banking facilities to its clients. FSIBL is now providing online banking facilities with distributed system. The Bank also has SMS banking service. FSBL has a plan to introduce centralized system for online banking.
Product & Services ProductDEPOSIT SCHEME
Al-Wadiah Current Deposit Mudarabah Savings Deposit Mudarabah Short Term Deposit Mudarabah Term Deposit One Month Three Months Six Months Twelve Months Twenty Four Months
Thirty Six Months Foreign Currency Deposit Mudarabah Savings Scheme o Monthly Savings Scheme o Monthly Profit Scheme o More than Double the deposit in 6 years Consumer Finance Scheme We are also emphasizing on non-fund business and fee based income. Bid bond/ bid security can be issued at our customer's request. Our Bank is posed to extend L/C facilities to its importers / exporters through establishment of correspondent relations and Nostro Accounts with leading banks all over the world.
a.
Investment / Deployment of Funds: • Bai-Murabaha (Deferred Lump Sum/ Installment Sale) • Bai-Muajjal (Deferred Installment / Lump Sum Sale) • Ijara (Leasing) • Musharaka (Joint-Venture Profit-Sharing) • Mudaraba (Trustee Profit-Sharing) • Bai-Salam (Advance Sale and Purchase) • Hire-Purchase • Direct Investments • Post Import Investment • Purchase and Negotiation of Export Bills • Inland Bills Purchased • Murabaha Import Bills • Bai-Muajjal Import Bills • Pre Shipment Investment • Quard-ul-Hasan (Benevolent Investment)
b.
Letter of Guarantee • Tender Guarantee • Performance Guarantee • Guarantee for Sub-Contracts • Shipping guarantee • Advance Payment guarantee • Guarantee in lieu of Security Deposits • Guarantee for exemption of Customs Duties
• Others
c.
Letter of Credit (L/C) / Back to Back Letter of Credit (L/C)
d.
Specialized Schemes • Consumer Investment Scheme, • SME Investment Scheme, • Lease Investment Scheme, • Hire Purchase, • Earnest Money Investment Scheme, Investment, • Mortgage • Employees House Building Scheme, • ATM, VISA Investment Card, EEF, etc.
SERVICES Online any Branch Banking FSIBL have set up Wide Area Network through Radio, Fibre-Optics & other available communication media systems to provide any branch banking to our customers. Customer of one branch is now able to deposit and withdraw money at any of our branches. All Branches are included in our Wide Area Network. No TT/DD or cash carrying will be necessary. SMS Banking
First Security Islami Bank Ltd. has officially launched SMS banking service from December 17, 2007. Locker Service For safekeeping of customer's valuables like important documents and goods like jewelries and gold ornaments, FSIBL Locker Service is available in most of the Branches in urban areas. Nature of Service Nature of Charges
Custody of Locker / Safe Rent
Utility Bills The utility bill's received following Branches Branch Name Mohakhali, Dhaka Topkhana, Dhaka Gulshan , Dhaka Shafipur , Gazipur Keranihat, Chittagong Biswanath , Sylhet
Bill's Type DESCO Under process (Electric bill) Titas Gas Dhaka Pally Biddut Shumitty Pally Biddut Shumitty Pally Biddut Shumitty
ATM Banking First Security Islami Bank Ltd. has implemented successfully Automated Teller Machine (ATM) /DBDIT card transaction from June 25, 2008. Through Automated Teller Machine (ATM) /Debit card, customer can avail the facilities like withdrawal money, balance inquiry and purchase goods from Point of sale (POS) using Dutch Bangla Bank Ltd. ATM Booth and POS. 3.1 General Banking Department General Banking Department is considered as the direct customer service center. It is the starting point of all the Banking operation. It opens new accounts, remits funds, honor cheque, takes deposits, issues Bank draft and pay order etc. general Banking is also known as retail Banking. Following are the major section in general banking: • Account opening section • Clearing section • Remittance section • Cash section 3.2 Account Opening Section
The relationship between banker and his customer begins with the opening of an account by the former in the names of the letter. Initially all the accounts are opened with a deposit of money is the customer and hence these accounts are called deposit accounts accepting of deposits of money from the public, is one of the essential functions of a banker according to the definition of banking given in the Banking Companies Act 1991. 3.3 How to Open an Account Requirements for opening savings Bank account: • Introducer • Nationality certificate or Job Identity/Photograph of Passport • Signature card • Photographs To open a savings Bank account customer will have to fill up an application form supplied by the Bank. After filling the form applicant will have to sign thrice on the specimen signature card. Most important thing is that these signatures must match with the signature on application form. These documents are then checked by the concerned officer and sent to the manger of the branch. Manger rechecks all the information and talk with the applicant to know more about him/her. When he is fully satisfied he put his signature on the form and verifies the signature. If any special instructions are required manager write it down at the end of the specimen signature card. The form and the specimen signature card then sent to the officer who put an account number on the form, on the card and on the account register. After completion of the abovementioned formalities a new account is opened with the Bank for the new customer. Account can be opened in joint name by to or more parties but who will operate the account it should be mentioned in the application. 3.4 Types of account Following types of account are generally opened by the FSIBL Bank: 1. 2. 3. 4. 5. 6.
Savings Account (SB A/C) Current Deposit Account (CD A/C) Fixed Deposit Receipt Account (FDR A/C) Short Term Deposit (STD A/C) Mudarabah Monthly Saving Scheme FSIBL Bank Special Savings Scheme
Savings Bank Account (SB A/C)
Short Term Deposit (STD A/C) • Interest rate 6 % p.a. • Interest Rate 6 % p.a. • Initial minimum amount Tk. 1,000 • Payable on a Short Notice • Two withdrawals permitted per week but no interest will be paid on rest amount for • Minimum deposit for that month. • Individual Tk 2,00,000/• The depositor withdrawals money from bank up to 25% of his/her accounts without • Corporate Tk 10,00,000/permission but more than 25% withdrawals; required pre-notice before 7 days of • The banks not maintain cash reserves against these deposits. withdrawals. • If the depositor close his/her accounts; bank will deduct Tk.100 from his/her accounts. Current Deposit Account (CD A/C) • • • • • •
No interest is given and charge for incidental charges. Initial minimum deposit is Tk. 5,000 Running and active account which can be operated any number of times during a working day No restriction on the number and the amount of withdrawal It is a demand liabilities of a banker Objective of CD A/C is to save big customer as big business, joint stock companies, public authorities etc. from the risk of handling cash themselves
Fixed Term Deposit (FDR A/C) • Deposit for a fixed period specified in advance. • The banks not maintain cash reserves against this deposit. • The banks offers higher rates of interest on FDR • Minimum deposit is TkScheme 10,000/FSIBL Bank Special Saving • Category of Deposits and interest rates: • • • • • • •
3 months FDR @11.50% Like “Deposit Pension Scheme" 6 months FDR @ Monthly Installment of Tk11.75% 500/- to Tk 5000/-. 12 months FDR @is12.00% Duration of the scheme 5 or 10 years No withdrawal shall usually be allowed before maturity date If account is needed to be closed before maturity, interest at prevailing rate on saving A/C shall be paid along with the principal No interest shall be paid if the A/C is closed before 6 months Maximum up to 80% loan on deposit may allowed to the A/C holder
The depositors will be paid a specified as per the following table: Duration Monthly installment (Taka) 5 years (Taka)
10 years(Taka)
500/1,000/1,500/2,000/2,500/3,000/3,500/4,000/4,500/5,000/10,000/-
100,804/201,608/302,412/403,216/504,020/604,824/705,628/806,432/907,236/1,008,040/2,016,080/-
38,138/76,268/1,14,402/1,52,530/1,90,670/228,804/266,938/305,072/343,206/381,340/762,680/-
3.5 Remittance Facilities Customers of a Bank need to transfer his fund or money to anywhere within the country they can do it through the remittance section of the Bank. Remittance section of general Banking deals with only local remittances. Bank normally deals with four types of local remittances. These are: 1. Demand Draft (DD) 2. Telegraphic Transfer (TT) 3. Pay Order (PO) 4. Mail Transfer (MT) 1. Demand Draft o This is an order to pay money, drawn by one office of a Bank upon another office of the same Bank for a sum of money in any place. o Which is outside of the clearinghouse area of issuing branch? o It is a negotiable instrument. o It can be crossed or not. 2. Pay Order (PO) o It is like cash but not exactly cash. o It is an instrument, which is issued from a certain branch of a Bank and must be enchased from the same branch. o Unlike cheque, there is no possibility of dishonoring pay order because before issuing pay order Bank takes out money of the pay order in advance. o It is not a negotiable instrument because it cannot be endorsed or crossed. 3. Telegraphic Transfer (TT) o In case of TT the issuing branch sends a telegraphic message to another branch to pay a certain some of money to a named payee account.
o Test code is furnished on the TT message for the protection of it. o Generally for such kind of transfer, payee should have account with the paying Bank; otherwise it is very difficult for the paying Bank to recognize the exact payee. o At customer’s request branch transfers fund to another branch through telex and it is known as the TT, in short. TT facility is available only in that branch having telex facility. 4. Mail Transfer (MT) o Where there is no telex machine or telephone line, then this method is used. o It is the least used technique for transferring fund because it is time consuming and risky because mail may be missed. o When the transfer of fund from one branch to another takes place by mail but most of the time over telephone, it is called MT. o The process of TT and MT is almost identical, only difference is the media. 3.6 Cash Section Cash is the most liquid asset and it should be dealt very carefully. So this department is really handled with intensive care. This department starts the day with cash in vault. All cash receipts and payments are made through this department. Cash section is a very sensitive organ of the branch and handle with extra care. I was not authorized to deal in this section because of its sensitivity. But I was lucky enough to know the procedures of this section. Operation of this section begins at the start of the Banking hour. Cash officer beings his/her transaction with taking money from the vault, known as the opening cash balance. Vault is kept in a much secured room. Keys to the room are kept under control of cash officer and branch in charge. The amount of opening cash balance is entered into a register. After whole day’s transaction, the surplus money remains in the cash counter is put Bank in the vault and known as the closing balance. Money is received and paid in this section. A. Cash Receipt Depositors deposit money in their account through this section by deposit slip. This section also receives cash from customer for opening pay order, Bank draft, telex transfer etc. This is Bank’s all cash receipts are taken by this department. B. Cash Payment This section accepts the cheques from the depositors for payment in cash. After receiving cheque, first the cheque is scrutinized whether it is a valid one. Cash officer judges the amount both in figure and the word, date of the cheque and signature etc. Then finally authorized officer compares the signature on the cheque with the specimen signature, and check whether the balance in the account is sufficient. If every thing is satisfactory, then payment is made against the cheque. This department is also made payment against various debit vouchers for various miscellaneous expenses of the branch. 3.7 Clearing and Bills Section Local offices branch of FSIBL Bank receives different types of instruments, such as cheque, PO, DD etc. from its customers for collection. It also pays on behalf of its customers for those instruments that come to it through clearinghouse. When instruments of FSIBL Bank are sent for collection or received for payment through clearing house it is called Inter Bank Clearance or IBC. These are treated in a little different manner than instruments of other Banks.When the cheques are presented to a Bank by the other Banks for collection of fund
and to credit that into the party’s account, the instrument must be cleared though Bangladesh Bank clearing house. A receiving officer, receiver check by a deposit slips over the counter. A. Inward Clearing When instruments are sent to the Bank via clearinghouse, it entered into the clearing register. The officer checks the instruments thoroughly before it is sent to the computer section for posting. If any kind of error is found in any instrument it is dishonored and sent back with appropriate reason for doing so. Instruments are also dishonored or insufficiency of fund. The information is then sent back to the clearinghouse for taking appropriate action. The instruments drawn on FSIBL Bank are received from other Banks in the clearinghouse. The amount and numbers of instrument received are entered in the house from the main schedule of respective Banks. The instruments with schedules are arranged branch wise. The instrument sent to branches concerned for clearance. The instruments are sent to the respective departments and the schedules are filled. B. Outward Clearing After filling the deposit in slip bearer of the instrument deposits the instrument to the respected officer. Upon receiving the instrument the respected officer checks the essential features of the instrument and whether the deposit in slip is filled accordingly or not. Then s/he crosses the instrument with a seal containing Banks and branch’s name, signs the deposit in slip and provides the customer with counter foil of the slip. Then both the instrument and slip is sealed with ‘CLEARING’ seal and date seal contain the date of clearing. An endorsement seal is also sealed on the back of the instrument and the officer endorses it on behalf of FSIBL Bank Motijheel Main Branch. It is then given entry in the clearing out register mentioning the name of the Bank and branch of it, amount of money in deposit in slip, amount of money in the instrument, number of the instrument and date of it. Then the officer separates the instrument from the deposit in slip. Deposit in slip is kept in the Bank and the instrument is sent for clearing. C. Short Collection (SC) FSIBL Bank has many branches, which are not member of clearinghouse. When instruments of these branches come to the branch for collection, different procedures are followed known as short collection. When an instrument arrives for short collection following procedures are applied: The instrument is crossed with crossing seal. Sealed with SC seal on its face. Endorsed by the officer and ‘the account will be credited on realization’ is written on the back of it by the officer. The instrument is then sent to the drawer branch. D. Inward Bills for Collection
All clearing cheques are not received on the counter. Some cheques are received from other source for collection. These cheques are received.
From other branch of FSIBL Bank. These are settled by sending Inter Bank Credit Advice (IBCA). From another Bank outside the clearinghouse. These are settled by debiting depositor’s account and sending DD, TT, MT in favor of the sender Bank These cheques are called IBA (Inter Bank Advice)
E. Inward Clearing Bills It refers to the instrument drawn on FSIBL Bank branch received from other Banks in the clearinghouse by the representative. 3.8 Closing of Accounts For closing any type of accounts in FSIBL, an account holder has to give an account closing related application to the Manager. Then this account holder has to also give some closing charge in below accounts: Closing Charge
CD A/C SB A/C FDR A/C STD MSS MBSS DBDS Tk.100/- Tk.100/- Tk.100/- Tk.100/- Tk.100/- Tk.100/- Tk.100/-
3.9 Banking Remittance The word “Remittance” means sending of money from one place to another place through post and telegraph. Cash remitting from one place to another is risky. So, bank remits funds on behalf of the customers. By considering the quick transaction and safety, the modes of bank remittance are divided into the three (3) types. These are as follows
Remittance Pay Order (PO)
Demand Draft (DD)
a. Pay order Total amount of pay order (PO)
Telegraphic Transfer (TT)
Commission + VAT (Tk)
Tk 1-1000.................................... Tk 1001-100000.......................... Tk 100001-500000...................... Tk 500001-10000000..................
15 25 50 100
+ + + +
2 4 8 15
b.
Demand Draft Commission + DD Tk 1.50 for Tk 1000 + c. TT
VAT 15% on total DD amount
Telegraphic Transfer is also an easy method to remit money between from one bank to another bank in a country. It is most rapid method to transfer money. FSIBL charges commission, VAT & telex charge on the amount of telegraphic transfer:Commission + VAT + Telex charge TT Tk 1.50 for Tk 1000 + 15%vat on total + Tk 50 amount of TT
Know Your Customers (KYC) To prevent money laundering, to grow relation with customer and to know financial status of customer etc, following information are needed: 1. Name of Account: Father’s Name Mother’s Name Spouse Name 2. Date of Birth 3. Nationality 4. Voter ID Card No. And Particulars of Passport 5. Occupation and it’s nature 6. Address: Business Present Permanent 7. Telephone No. (Office and Residence) 8. E-mail address 9. Director information (if required) 10. Nominee information 11. Mandating information 12. Particulars of introducer 13. TIN NO. 14. Transaction Profile 15. Total Debit Balance for a certain period 16. Total Credit Balance for certain period 17. Total No. of Transaction 18. Maximum Withdrawn (Cash, Clearing & Transfer) 19. Maximum Deposit (Cash, Clearing & Transfer) 20. SBS Statement Related Code Option 21. Source of income All information regarding KYC, output will deliver from 1(one) menu and output for the specific information from the above for a certain period of time as per requirements. 4.1 Concept of Liquidity Liquidity is a business firm's ability to repay its short-term debts and obligations on time. Short-term usually means one year or less. The degree to which an asset or security can be bought or sold in the market without affecting the asset’s price. Liquidity is characterized by a high level of trading activity. Assets that can by easily bought or sold, are known as liquid assets. It is the ability to convert an asset to cash quickly. Liquidity indicates how quickly an asset can be converted into cash. 4.2 Concept of Profitability Profitability refers to the the ability of an investment, or a company to make a profit after costs, overheads, etc. A company should earn and grow over a period of time profit is the difference between revenue and expenses over a period of time. It is the ultimate outcome of a company and the company will have no future if fails to make sufficient profit. The profitability ratios are calculated to measures the operating efficiency of a company.
Profitability is used primarily to describe any ongoing process in which a good or a service would produce more benefits than consequences. Profitability is a term used by corporations and financial experts when they discuss whether to make or sell a good or service. It is an expectation of making more income from sales of the good or service than they spend performing the services or making the goods. Profitability is different from "profit" in that profitability is an idea or expectation while the "profit" is the physical result. 4.3 Liquidity Ratio: Liquidity ratio measures the ability of a firm to meet the current obligation .A firm should ensure that it does not suffer from lack of liquidity and also does not have execs liquidity, will result in a poor creditworthiness, loss of creditors confidence. The most common ratios which indicate the extent of liquidity or lack of it are as follows:
4.3.1Current Ratio
It is the relationship between the current assets and current liabilities and shows the proportion of current assets available per unit of current liability. It is worked out using the following formulaCurrent Ratio =
Current Assets Current Liabilities
A worthwhile target for the current ratio is 2:1. Firms with inventories which are easily realized, such as food retailers can manage with significantly lower ratios, but there is no excuse of going mush below unless, a firm sees liquid investments as a sound home for its resources. The current ratio cannot be judge except in relation to the needs of a particular commercial situation. Anything between 1:1 and 4:1 could be acceptable. Comparison must be made with industry norms and those competitors whom one respects. In the absence of other data, 2:1 is not unreasonable.
4.3.2 Acid-Test Ratio
The Acid-Test or quick ratio establishes the relationship between quick or liquid assets and current liabilities. Quick assets mean current assets excluding inventory. The exclusion of inventory is for the reason that it is not easily and readily convertible into cash. A high quick ratio is an indication that the firm has liquidity and easiness to meet the current obligations. On the other hand, if the quick ratio is low, it is a clear indicator of illiquidity. The quick ratio is a more rigorous and penetrating test of the liquidity position when compared to the current ratio. It is calculated as follows—
Quick Ratio =
Quick Assets Current Liabilities
Quick Assets Refers to Cash, Short-term investments, Net receivables etc. Normally a quick ratio of 1:1 is considered satisfactory. 4.3.3 Current Cash Debt Coverage Ratio Current cash debt coverage ratio is calculated by dividing Net cash provided by operating activities by Average current liabilities. So we can ratio these: Net cash provided by operating activities Average current liabilities Activity Ratio Activity ratios are employed to evaluate the efficiency with which the firm managers and utilizes its assets. This ratio indicates the speed with which assets are being converted or turned over into sales thus activity ratio involve a relationship between sales and assets . Assets Turnover Ratio Assets are used to generate sales. A firm can compute net asset turnover by dividing sales by average total assets. So assets turnover will be: Assets Turnover = Net Sales Average total assets Receivable Turnover Receivable turnover ratio is calculated by dividing Net sales by Average trade receivable. So we can ratio these:
Net sales Average trade receivable
4.4 Profitability Ratio A company should earn and grow over a period of time profit is the difference between revenue and expenses over a period of time. It is the ultimate outcome of a company and the company will have no future if fails to make sufficient profit. The profitability ratios are calculated to measures the operating efficiency of a company. 4.4.1 Profit Margin on Sales Profitability ratio in relation to sales is the profit margin or gross margin. It is calculate in the following way: Profit margin on sales = Net Income Net sales 4.4.2 Return on Assets (ROA) An overall measure of profitability is Return on Assets. An indicator of how profitable a company is relative to its total assets. ROA gives an idea as to how efficient management is at using its assets to generate earnings. Calculated by dividing a company's net income by its average assets, ROA is displayed as a percentage. Sometimes this is referred to as "return on
investment". Rate of return on assets =
Net Income Average total assets
4.4.3 Return on Common Stockholders Equity Another widely used profitability ratio is return on common stockholders equity. It measures profitability from the common stockholders viewpoint. This ratio shows how many dollars of net income the company earned for each dollar invested by the owners. We compute it by dividing net income by average common stockholders equity. Rate of return on common Stockholders equity = Net Income Average common stockholders equity
4.4.4 Earnings per Share (EPS) Earnings per Share (EPS) are a measure of the net income earned on each share of common stock. It is computed by dividing net income by the number of weighted average common shares outstanding during the year. A measure of net income earned on a per share basis provides a useful perspective for determining profitability. Earnings per share is computed by EPS =
Net Income Weighted average common shares outstanding
4.4.5 Price Earnings Ratio The Price earnings (PE) ratio is an oft-quoted measure of the ratio of the market price of each share of common stock to the earning per share. The price earnings (PE) ratio reflects investor’s assessments of a company’s future earnings. We compute it by dividing the market price per share of the stock by earning per share. The formula is Market price per share of stock Price earnings ratio = Earning per share 4.4.6 Payout Ratio The Payout ratio measures the percentage of earnings distributed in the form of cash dividends. We compute it by dividing cash dividends by net income. Companies that have high growth rates generally have low payout ratios because they reinvest most of their net income into the business. The formula is Cash Dividends Payout ratio= Net Income 4.4.7 Cash debt Coverage Ratio
These ratios calculate by dividing net cash provided by operating activities by Average total liabilities. Calculated by = Net cash provided by operating activities Total Liabilities This chapter contains the calculation of liquidity and profitability ratios for evaluating the performance of First Security Islami Bank Ltd. First Security Islami Bank Ltd. Current Ratio: (Current assets/Current liabilities) Year
Calculations
Ratio
2008
1503207600 / 1754290529
0.86%
2009
1728509664 / 1468260845
1.18%
So Current ratio is Year
Ratio
2008
0.86
2009
1.18
Ratio 1.4 1.2 1 0.8
Ratio
0.6 0.4 0.2 0 2008
2009
Fig: Current Ratio Comment: The current ratio during 2009 is greater than that of 2008. However, the ratios in both the years were below standard. Acid Test Ratio: (Cash, Short-term Investments & Receivable / Current Liabilities)
Year
Calculations
Ratio
2008
986157752 / 1754290529
0.56 %
2009
1089515637 / 1468260845
0.74%
So Acid test ratio is Year
Ratio
2008
0.56
2009
0.74
Ratio 0.7 0.6 0.5 0.4
Ratio
0.3 0.2 0.1 0 2008
2009
Fig: Acid Test Ratio Return on Assets (ROA): (Net Income/Average Assets)
Ratio 1.3 1.28 1.26 1.24 1.22
Ratio
1.2 1.18 1.16Return on Assets Fig: 1.14 1.12 2008
2009
Year 2008
Ratio 1.18
2009
1.29
Comment: Return on assets for the year 2009 is higher than that of 2008. Return on Investment (ROI): (Gain from investment – Cost of investment / Cost of Investment) Year
Ratio
2008
6.42
2009
8.57
Ratio 14 12 10 8
Ratio
6 4 2 0 2008
2009
Fig: Return on Investment Return on Common Stockholders Equity: (Net Income/Average common stockholders equity) Year
Calculations
2008
495785098 / 406250000
2009
552384207 / 497300000
So the ratio is:
Ratio 1.22 1.11
Year
Ratio
2008
1.22
2009
1.11
Ratio 1.32 1.3 1.28 1.26 1.24 1.22 1.2 1.18 1.16 1.14 1.12
Ratio
2008
2009
Fig: Return on Common Stock Holders Equity Earning Per Share (EPS): (Net income/ Weighted average common shares outstanding)
Year
Ratio
2008
7.53
2009
1.42
Ratio 46 45 44 43 42 41 40 39 38 37 36
Ratio
2008
2009
Fig: Earning per Share Price Earning (P-E) Ratio: (Market price per share/ Earning per share EPS) Year 2008 2009
Ratio 11 10.5 10 9.5
Ratio
9 8.5 8 2008
Fig: Price Earning Ratio SWOT Analysis The acronym for SWOT stands for
2009
Ratio 20.28 25.35
Strength
Opportunity Weakness
Threat
The SWOT analysis comprises of the organization’s internal strength and weaknesses and external opportunities and threats. SWOT analysis gives an organization an insight of what they can do in future and how they can compete with their existing competitors. This tool is very important to identify the current position of the organization relative to others, who are playing in the same field and also used in the strategic analysis of the organization. For my practical observation, I understood the following as the strength, weakness, opportunity and threat of First Security Islami Bank Limited (FSIBL): Strength
FSIBL has a bulk of qualified, experienced and dedicated human resources Profit margin ratio has been increasing from period to period. It has excellent reputation in the market Not engaged in unfair business practices Concentrated market The bank has many attractive deposit schemes Well furnished and air conditioned bank Efficient management practice in the bank FSIBL has the reputation of being the provider of good quality services to its potential customers HRD has tried hard to avoid communication barriers & structural bureaucracies Weakness
Liquidity position is not satisfactory Acid-test ratio is not satisfactory Deposit is lower than advance Officers have limited experience and not enough training facilities Long term credit is not sufficient Small market shares in banking business FSIBL has more and high fees and charges compared to its rivals
Opportunities Threat
Current assets can be enhanced by utilizing enhanced profit Can increase the credit scheme Can increase the advertising of the bank Private Banks become more reliable to the local public To keep these customers by reducing its current fees and charges Investment is a national socio economic activity. And activity in the national economy controls the bank
There are many competitors in the market. Competitors have more deposit Ruling government is not conducive in the viewpoint of the bank. Government imposes taxes and VAT on profit and pressures to reduce interest rate The investment in the secondary market by foreign is relatively low Current liabilities must be reduced Liquidity is not satisfactory
Findings of this Study FSIBL started its journey based upon the basic concept of better customer relationship. During my internship program and by the time of when the report was being prepared and from the thesis we have concluded the following findings: (1) In general banking division of FSBL, they follow the traditional banking system. Their entire general banking procedure is not fully computerized. They are not using Data Base Networking in Information Technology (IT) Department. (2) As the account opening form is very complicated and sometimes confusing, it is not easy for customers to fill up. (3) As job description is not clearly known to each and every employee in general banking division, this creates many problems and interpersonal conflicts and reduces the spirit of teamwork. Job Rotation is not adequate in General Banking Division of FSIBL, Mirpur Branch. Thus, monotony incurs among the employees. (4) Physical appearance of the employees is not up to mark. It is an important dimension of service quality by which customers can perceive the service quality of the bank. (5) The General Banking Division is not well equipped with essential instruments such as pen, pencil, and file board, even calculators. Thus it creates chaos among the employees and also hampers the promptness of services. (6) As First Security Islami Bank Ltd. (FSIBL) has not yet able to arrange online facility for its customers, the Bank has the problem of making quick transaction among its branches because of the same problem. (7) In cash section, there are not so active and sufficient number officers in FSIBL to give service quickly. For this reason, most of the time senior officers and clients of this bank become angry. Thus, at the end of the business day, it’s become very hard to equal the balance. (8) FSIBL Bank has insufficiencies of Authorized Dealer Branch in respect of the total foreign exchange business. Bank has only six branches, which have AD licenses. As a result it total foreign exchange business is very small in respect of total market. (9) FSIBL Bank's numbers of customers are also very small in compared to other banks in the market. This is because of small number of branches.
Recommendations In order to get competitive advantage & to deliver quality service, top management should try to modify the services. For the improvement of the service the following measures should be taken: Improve office atmosphere to give customers better feeling The General Banking Division of FSIBL, Mirpur Branch should be fully computerized
Device new and easy format for Account Opening Form Job description should be clear to each and every employees of general banking division Physical appearance of the employees should be improved to attract the customers The general banking division should be well equipped with relevant instruments Online facility should be activated Proper and qualified number of employees should be recruited in cash section of FSBL, Mirpur branch Branches should have a separate section to analyze the financial statement for fining its liquidity, profitability & ownership ratios Ensure proper communication system and maintenance of files & machineries should be modernized
Conclusions Financing is a powerful political, social and economical weapon in the modern world. It plays a prominent role not only in the allocation and distribution of scarce resources but also in the stability and growth of the economy. However financial resources are extremely scarce compared with water, they need to be used with optimum equity and efficiency. The inefficient allocation of financial resources of the conventional banking system is also a logical consequence of that system. There are a number of Private Commercial Banks, Nationalized Commercial Banks and foreign Banks operating their activities in Bangladesh. The FSIBL Bank ltd is one of them. For the future planning and the successful operation for achieving its prime goal in this current competitive environment this report can be a helpful guideline. Banks always contribute towards the economic development of a country. Compared with other Banks FSIBL Bank is contributing more by investing most of its funds in fruitful projects leading to increase in production of the country. It is obvious that right channel of Banking establish a successful network over the country and increases resources; will be able to play a considerable role in the portfolio of development in developing country like ours. FSIBL Bank playing, it’s leading role in socio-economic development of the country. Since inception FSIBL Bank has been rendering its Banking services with the needs of the nation to cope with the demands of people in the country. By doing many other works for state & society, FSIBL Bank has emerged as the pioneer of playing key role in the country.
Appendix Financial Statement: Particulars
31 Dec 2009
31 Dec 2008
Paid-up Capital
2,300,000,000
2,300,000,000
Total Capital Fund
3,379,035,832
2,862,198,083
Capital Surplus/(deficit)
267,692,742
1,126,543,146
Total Assets
47,978,552,952
31,239,393,418
Total Deposits
42,423,092,722
25,854,541,500
Total Investments
38,725,874,774
25,094,658,077
Total Contingent Liabilities and Commitments
5,971,673,066
4,611,289,577
Investment Deposit Ratio (in %)
91.28%
96.39%
Percentage of Classified Loans against total 2.14% Loans and Advances (in
4.20%
Profit before tax & provision
189,603,753
750,837,749
Amount of Classified Investments during the 830,515,000 year
1,053,412,705
Provision kept against Classified Investments
507,694,000
597,694,000
Provision Surplus/(deficit)
53,834,571
31,818,406
Cost of Fund
9.28%
11.37%
Profit Earning Assets
41,371,529,125
28,529,063,421
Non-profit Earning Assets
6,607,023,827
2,710,329,997
Return on Investment in Shares & securities 2.79% (ROI) (in %)
15.18%
Return on Assets (ROA)(in %)
1.56%
0.61%
53,510,527
202,345,834
Earning Per Share (Tk.)
14.21
7.35
Net Income Per Share (Tk)
14.21
7.35)
Price Earning Ratio (Times)
15.39
23.74
Income from Securities
Investment
in
Shares
and
Here is the Graphical Representation of the Financial Highlights.
Source: Financial information 2008 to 2009(www.fsiblbd.com/fhighlights.php) Credit Rating Agency of Bangladesh (CRAB) has given BBB 3 (pronounced triple B three) rating in Long Term and “ST-4” rating in Short Term to First Security Islami Bank Limited. Commercial Banks rated ‘BBB' have adequate capacity to meet their financial commitments. However, adverse economic conditions or changing circumstances are more likely to lead the Banks into a weakened capacity to meet their financial commitments. BBB rated banks are subject to moderate credit risk. Such banks are considered medium-grade and as such may possess certain speculative characteristics. At the same time, banks rated “ST-4” in short term are considered to have below average capacity for timely repayment of obligations. Such capacity is highly susceptible to adverse changes in business, economic, or financial conditions than for obligations in higher categories.
Bibliography • • • • • • • •
FSIBL Branches, Available from http://www.fsiblbd.com/news /profiles (Accessed 13/08/2010, 08-09 p.m.). First Security Islami Bank. Annual Report, 2009 Statement of Affairs, Donia Branch, First Security Islami Bank Ltd Foreign Exchange Operation Manual, Part-1 of First Security Islami Bank Ltd. Md. Samaduzzaman (Dolon),Principal Officer, First Security Islami Bank Ltd The Bangladesh Times, March 20, 1982 Md. Abu Hanif Heron , ID# BBA 028-08368 (BBA), Batch: 28th (Stamford University Bangladesh)