Banking system of Bangladesh has gone through three phases of development-Nationalization, Privatization and lastly Financial sector Reform. National Credit and Commerce Bank Limited (NCCBL) commenced its banking business from 17 May, 1993 under Bank Companies Act 1991. It was incorporated in Bangladesh as a banking company under the companies Act 1994.
The report attempts to show the summarized picture of several Bank related Acts & Policies that regulate the Commercial Banking Sector of Bangladesh. It has mainly highlighted the compliance of Banking Laws by National Credit and Commerce Bank Ltd.
I undertook the “Banking Law & Practice thereof National Credit and Commerce Bank Limited (NCCBL)” as partial fulfillment of the Bachelors of Business Administration Course of the ASA University. This internship program has been arranged for going knowledge of practical banking and to compare this practical knowledge with theoretical involves identification of weakness in the branch alive and making recommendations for solving the weakness identified. During the three months internship program at NCCBL (Savar Branch) though all departments are covered more or less but it is not possible to go to depth of each activities of branch because of time limitation. So objective of this internship program have not been fulfilled with complete satisfaction. However, highest effort has been given to achieve the objective of the internship program.
In this report a discussion of several laws & policies related to banking sector and that’s implementation by NCC Bank Ltd. is presented. Main focus has been given on selected issues of the Bank Companies Act 1991. Under this_ what is bank, status of commercial banks, business of bank companies, paid up capital, mode of payment, voting rights of shareholders, reserve fund, statutory liquidity reserve, cash reserve etc. have been briefly presented with the accomplishment of National Credit and Commerce Bank Ltd.
Beside that several other issues have been publicized in this report related to Banking activities:
Policy of Capital Adequacy of Commercial Bank has been shown with Definition and components of capital, required level of capital maintained by commercial banks thereof NCC Bank. Due to deregulation and globalization of banking business, banks are now exposed to diversified and complex risks. In Bangladesh Bank’s Guideline of Managing Core Risk in Banking, several advices are for effective management of risks.
By ‘Policy of Loan to directors of Private Bank’ restriction is imposed on unlimited lending to the directors of Bank. Policy of Loan Classification & Provisioning, Policy of Rescheduling of Loans and Policy of Loan Write Off are for guidelines for compliance to manage Loans & Advances efficiently.
Policy of Bank Charges, Policy of Credit Rating, Policy of Merchant Banking by Bank and Policy of Corporate Governance in Bank Management etc. are for general bank management. Bank Deposit insurance Scheme and Anti Money Laundering Act are specially required compliance for banks to ensure safeguard for the deposited amount by depositors and to reduce financial offences. I have presented the Corporate Social Responsibility (CSR) undertaken by NCC Bank Ltd. with compliance of CSR Policy of BB.
The compliance made by NCC Bank Ltd. regarding above laws & policies and the present scenario has been also presented in this report.
Objective of the report:
This report is aimed at providing me invaluable practical knowledge about banking laws & policies. It will also help me to develop my concept of banking and operations. The objectives are:
- To relate theoretical knowledge with practical experience of the banking laws & practices.
- To be acquainted with how bank perform its operation.
- To study compliances of NCCBL according to required laws & practices.
- To present my observation to the bank.
- To make myself more confident and active in future to handle my job.
- Understand the fundamental concepts of management of private bank.
- Understand the implementations of required laws & policies in decision-making.
The purpose of this report is for partial fulfillment of B.B.A program.
Scope of the report:
This report will be dealing with the Banking Law and Practice thereof NCC Bank Ltd.
Sources of data:
- Face to face conversation with the respective officers if the NCCBL.
- Relevant document studies are provided by the officers concerned.
- From my working experience.
- Discussion with my supervisors.
- Annual Reports of NCCBL 2010.
- Organizational charts
- Daily Newspaper, Books, Journals etc.
Limitations of the report:
Banking sector is very sensitive and competitive by its nature. So, data of this report is not available and the interviewees might not disclose accurate facts and figures about their activities. As I have used the information from the Annual Report of 2010, there may be some deviation between the information in this report and therecent information. However I faced the following problems during the study:
- Insufficiency of valuable data and information
- Lack of proper books, journals etc.
- Lack of experience
- Lack of time and resources
- Up-to-date information is not available.
An Overview of National Credit & Commerce Bank Limited
Introduction of National Credit and Commerce Bank Ltd.
Back in 1985, National Credit and Commerce Bank Ltd. started its journey in the financial sector of the country as an investment company. The aim of the company was to mobilize resources from within and invest them in such way so as to develop country’s Industrial and Trade Sector and playing a catalyst role in the formation of capital market as well. Its membership with the browse helped the company to a great extent in this regard. The company operated up to 1992 with 16 branches and thereafter with the permission of the Central Bank converted in to a full fledged private commercial Bank from 17 May, 1993 with an authorized capital of Tk 750 million divided into 7.5 million ordinary shares of Tk 100 each and paid up capital of Tk 195 million to serve the nation from a broader platform. It was incorporated in Bangladesh as a banking company under the Companies Act 1994. Since its inception NCC Bank Ltd. has acquired commendable reputation by providing sincere personalized service to its customers in a technology based in Bangladesh as a banking company under the Companies Act 1994.The Bank has set up a new standard in financing in the Industrial, Trade and Foreign exchange business. Its various deposit & credit products have also attracted the clients-both corporate and individuals who feel comfort in doing business with the Bank.
The Chairman of the Bank, Alhaj Md. Nurun Newaz is renowned business elite. The Vice Chairman Mr. Mustafizur Rahman is also prominent and experienced business elite. The Managing Director & CEO Mr. Mohammad Nurul Amin has long experience in domestic and international Banking. The Bank has made significant process within a very short time due to its very competent Board of Directors, Executive Committee, dynamic management and introduction of various customer friendly deposit and loan products with latest technologies.
To Become the Bank of Choice in serving the nation as a progressive and Socially Responsible financial institution by bringing credit & commerce together for profit and sustainable growth.
To mobilize financial resources from within and abroad to contribute to Agricultures, Industry & socio-economic development of the country and to play a catalytic role in the formation of capital market.
Capital Structure as on 31 December, 2010:
|Authorised capital||Tk.10,000 million|
|Paid up capital||Tk.4501.2533 million|
Sources of fund:
Deposit is the major source of funds of the bank. Besides Paid-up capital, Reserves and Retained Surplus, Call Money, Interbank Deposits, Loan from the central bank.
Functions of NCCBL:
As a modern commercial bank the functions of NCCBL is quite wide and diverse. These are as follows:
- Acceptance of deposit: In the deposit area, NCCBL has quite good number of deposit accounts, namely current accounts, savings accounts, fixed deposits and recurring accounts through which they mobilize deposits or borrow money from the members of the public.
- Lending: Deposits collected by the NCCBL are not kept idle .The funds raised through deposits are lent to people needing those.
- Investment: Another primary function of the NCCBL as incorporated in the N.I Act is investment for various purpose.
- Agency Service: Under agency services fall many important functions of NCCBL.These are:
- Collection and payment of Cheque
- Payment on behalf of customers
- Purchase and sale of stocks
- Acting as trustees.
- Acting as correspondents
- General functions: NCCBL now a day render may other services to the customers. In those cases they do not act as agents of the customers .The general services rendered by the banks are usually of the following types :
- Opening Letter Of Credit
- Safe Custody
- Dealing in Foreign Exchange
- Complete service in foreign trade
- Providing credit reports
- Acting as source of information
- Underwriting of loans
- Providing advisory services
- Providing Remittance facilities
NCCBL at a Glance:
Performance of the Bank: Despite various seat backs in economy, Banks performance may be termed as satisfactory in respect of deposit mobilization and profit earning .During the year under review the bank could enhance quality of its assets and recovered its over dues from default borrowers. At the end of the year, bank’s operating profit stood at Tk. 10157.99million as against Tk. 9333.03 million of the year 2009.
Asset Quality: Like previous years, Bank’s efforts for maintaining quality asset portfolios continued. A crash programme was undertaken by putting team efforts to recover /regularize Bad/Irregular Loans and Advances .Recovery of Bad Loans contributed to higher profitability of the Bank during the year. Classified loan position at the end of the year 2010 was 2.27% as against 2.84% in 2009 of total Advances.
Electronic Banking: All possible steps have been taken to introduce technology based banking Products and Services to the customers. In line with this, NCCBL IT Division has already brought all the Branches under On-Line Banking facility and running Real Time Online Banking System unhindered since 2008. Its Credit Card business is also increasing in spite of competition in the market during the year. Number of card marketed is getting strong despite cautious and careful policy being followed in card marketing.
NCCBL is one of the active members of SWIFT (Society for Worldwide Interbank Financial Telecommunication) SWIFT is members owned co-operative, which provides a fast and accurate communication network for financial transactions such as Letters of Credit, Fund transfer etc.
Foreign Remittance: NCCBL has attached to highest priority to boost up foreign exchange remittance business. To motivate and also to ensure increased remittance inflow, it has remittance agreements with various overseas exchange houses and money transfer companies. NCCBL has made an arrangement with reputed NGO-TMSS to use their 250 remote outlets to extend quick and efficient delivery if remittance to the beneficiaries living in rural areas of the country under a joint venture called RPCF with DFID and Bangladesh bank.
SME and Agri. Financing: In order to diversify NCCBL Loans and Advances portfolio, it is extending credit facility to SME and Agri.-sector on priority basis. It has a separate SME wing to meet the demand of the small and medium entrepreneurs. Under this wing, NCCBL has disbursed nearly Tk.947.00 crore up to 2010.
Corporate Social Responsibility: The Bank recognizes its responsibility to the society. In order to discharge its social responsibilities a number of seminars have been arranged in the issues relevant to economy and society paving a way of finding new perspective.
Customer Relationship Management: The Bank has since been succeeded in establishing a progressive image in the minds of the people through its various products and Services. To keep this up, publicity and media coverage have been invigorated in 2010. Moreover, the bank organizes get together meeting of its valued clients to share their views and suggestions to improve its customer services.
Capital market operation: The brokerage house was established with all modern facilities to keep help the potential investors to trade in a hassle free environment. Several Branches of the Bank’s Brokerage House have been opened during last few years. As per guideline of Bangladesh Bank and The Securities & Exchange Commission, NCC Bank has taken necessary steps to form a subsidiary company for Merchant Banking.
Corporate Governance: To bring fairness in governance, establish accountability, identify responsibility and to safe guard depositors fund it is of great importance to establish Corporate Governance in the organization like banks and Financial institutions to ensure accountability and fairness in functions of the company and to comply with the statutory requirements, due care has been taken by NCCBL to improve Corporate Governance.
Human resources development: The management of NCCBL must ensure recruiting quality manpower to deliver personalized services to its clients and thereby to earn good profit and to earn its goodwill. The training institute Training institute of NCCBL is engaged in imparting training on regular basis among employees.
Network of Branches: The bank has plan to expand to its business network to reach large section of the potential clients living in remote areas. Now the total branch of NCCBL is 85.
Managing Core risks in Bank: In complying with the guidelines of Bangladesh Bank all possible measures have been taken to manage core risk in 06(six) major areas of Banking operations such as, Credit Risk ,Foreign Exchange Risk , Asset Liability Management Risk Prevention Of Money Laundering, Information Technology Risk.
Audit and inspection: The Bank has separate Audit and Inspection Unit under Internal control and compliance Division, which identifies lapses and irregularities in the operational level and suggests corrective measures against those. This unit conducts Audit and Inspection of the branches both on regular and surprise basis under specific guidelines. Besides, there is also Managing Director’s vigilant team to conduct special surprise inspection as and when asked for.
Highlights of Success:
Amount in BDT million
|Loans & Advances|
|Non Performing Loan|
|Net interest income|
|Total operating income|
|Net profit after tax|
|Loan to deposit ratio|
|Risk weighted capital|
|Capital Adequacy Ratio|
SWOT analysis is the detailed study of an organization’s exposure and potential in perspective of its strength, weakness, opportunity and threat. This facilitates the organization to make their existing line’ of performance and also foresee the future to improve their performance in comparison to their competitors.
- NCC Bank Limited has already established a favorable .reputation in the banking industry of the country. It is one of the leading private sector commercial banks in Bangladesh. The bank has already shown a tremendous growth in the profits and deposits sector.
- NCC Bank has provided its banking service with a top leadership and management position. The top management officials have all worked in reputed banks and their years of banking experience, skill, and expertise will continue to contribute towards further expansion of the bank.
- NCC Bank Limited has already achieved a leading position in remittance business among the private banks.
- NCC Bank has an interactive corporate culture. The working environment is very friendly, interactive and informal. And, there are no hidden barriers or boundaries while communicate between the superior and the employees. This corporate culture provides as a great motivation factor among the employees.
- The bank failed to provide a strong quality-recruitment policy in the lower and some mid level position. As a result the services of the bank seem to be deprived in the present days.
- Some of the job in NCC Bank has slow growth or advancement path. So lack of motivation exists in persons filling those positions. This is a weakness of NCC Bank for having a group of unsatisfied employees.
- In terms of promotional sector, NCC Bank has to more emphasize on that.
- A large number of private banks coming into the market in the recent time. In this competitive environment NCC Bank must expand its product line to enhance its sustainable competitive advantage. In that product line, they can increase the ATM facility to compete with the local and the foreign bank. They can also expand credit card and debit card system for their potential customer.
- In order to reduce the business risk, NCC bank has to expand their business portfolio. The Management can consider option of starting merchant banking or diversify into leasing and insurance sector.
- All sustain multinational banks and upcoming foreign, private banks posse’s enormous threats to NCC Bank Limited. If that happens the intensity of competition will rise further and banks will have to develop strategies to compete against an on slough of foreign banks.
- The default risks of all terms of loan have to be minimizing in order to sustain in the financial market. Because default risk leads the organization towards to bankrupt. NCC Bank has to remain vigilant about this problem so that proactive strategies are taken to minimize this problem if not elimination.
Principal Activities of NCCBL:
The commercial banking business activities of NCC Bank Ltd encompass a wide range of services including accepting deposits, making loans, discounting bills, conducting money transfer, foreign exchange transactions and performing other related services such as safekeeping collection, issuing guarantees, acceptances and letter of credits through its branches in Bangladesh.
The bank undertakes investments of its fund in the share investment and also engaged in buying and selling of securities for its customers through Brokerage House. The bank carries out all these activities using a membership of Dhaka stock Exchange Ltd. & Chittagong Stock Exchange Ltd. Moreover, as per guideline of Bangladesh Bank and The Securities & Exchange Commission, Bank has taken steps to form tow subsidiary companies for Stock Brokerage business and Merchant Banking.
Every banking company, not being a scheduled bank, shall maintain in Bangladesh by way of cash reserve in cash with itself, or with the Bangladesh Bank or its agent, or both banks in equal parts, a sum equivalent to not less than 5.5 per cent. Of its time and demandliabilities:
Provided that the Bangladesh Bank may, in any particular case, change, by notification in the official Gazette and subject to the conditions settled therein in this behalf, the requirements relating to the cash reserve or repeal, on previous approval by the Government, such requirements.
Cash Reserve Requirement (CRR)
The Cash Reserve Requirement (CRR) for the scheduled banks with the Bangladesh Bank is 6.50% of their total demand and time liabilities. It may be noted that banks are required to maintain CRR daily at the rate of 6% on average on bi-weekly basis provided that the CRR would not be less than 5.5% in any day.
Cash Reserve in NCC Bank
Cash in hand Tk. 73,15,92,743
Balance with Bangladesh Bank & Sonali Bank Tk. 5,50,00,14,510
Balance with other banks & financial institutions Tk. 54,61,23,426
Prize bonds Tk. 54,36,000
Total Cash Reserve at 31December, 2010 Tk. 6,78,31,66,679
Policy on Capital Adequacy of Banks
To adopt the international best practices and to make the bank’s capital more risk-absorbent as well as to build the banking industry more shock resistant and stable, all scheduled banks are obligated to comply with “Guidelines on Risk Based Capital Adequacy (RBCA) for Banks – Revised Regulatory Framework in line with BASEL–II” from January 01, 2010.
The following headings containing specific instructions are issued for compliance by banks:
Definition of Capital:
Regulatory capital is categorized in three tiers:
Tier 1 capital called ‘Core Capital’ comprises of highest quality of capital elements:
a) Paid up capital
b) Non-repayable share premium account
c) Statutory reserve
d) General reserve
e) Retained earnings
f) Minority interest in subsidiaries
g) Non-cumulative irredeemable preference shares
h) Dividend equalization account
Tier 2 capital called ‘Supplementary Capital’ represents other elements which fall short of some of the characteristics of the core capital but contribute to the overall strength of a bank:
a) General provision
b) Revaluation reserves
• Revaluation reserve for fixed assets
• Revaluation reserve for securities
• Revaluation reserve for equity instrument
c) All other preference shares
d) Subordinated debt
Tier 3 capital called ‘Additional Supplementary Capital’, consists of short-term subordinated debt (original maturity less than or equal to five years but greater than or equal to two years) would be solely for the purpose of meeting a proportion of the capital requirements for market risk. For foreign banks operating in Bangladesh-
• Tier 1 capital consists of the following items:
a) Funds from head office
b) Remittable profit retained as capital
c) Any other items approved by BB for inclusion in Tier 1 capital
• Tier 2 capital consists of the following items:
a) General provision
b) Borrowing from head office in foreign currency in compliance with the regulatory requirement.
c) Revaluation reserve for securities
d) Any other items approved by BB for inclusion in Tier 2 capital.
Conditions for maintaining regulatory capital:
The calculation of Tier 1 capital, Tier 2 capital, and Tier 3 capital shall be subject to the following conditions:
a) The amount of Tier 2 capital will be limited to 100% of the amount of Tier 1 capital.
b) 50% of revaluation reserves for fixed assets and securities eligible for Tier 2 capital.
c) 10% of revaluation reserves for equity instruments eligible for Tier 2 capital.
d) Subordinated debt shall be limited to a maximum of 30% of the amount of Tier 1 capital.
e) Limitation of Tier 3: A minimum of about 28.5% of market risk needs to be supported by Tier 1 capital. Supporting of Market Risk from Tier 3 capital shall be limited up to maximum of 250% of a bank’s Tier 1 capital that is available after meeting credit risk capital requirement.
Eligible regulatory capital:
In order to obtain the eligible regulatory capital for the purpose of calculating Capital Adequacy Ratio (CAR), banks are required to make following deductions from their Tier-1 capital:
a) Intangible asset e.g., book value of goodwill and value of any contingent assets, etc. which are shown as assets
b) Shortfall in provisions required against classified assets
c) Shortfall in provisions required against investment in shares
d) Remaining deficit on account of revaluation of investments in securities after netting off from any other surplus on the securities.
e) Reciprocal/crossholdings of bank’s capital/subordinated debt artificially intended to inflate the capital position of banks
f) Holding of equity shares in any form exceeding the approved limit under section 26(2) of Bank Company Act, 1991. The additional/unauthorized amount of holdings will be deducted at 50% from Tier 1 capital and 50% from Tier 2 capital.
g) Investments in subsidiaries which are not consolidated: The normal practice is to consolidate subsidiaries for the purpose of assessing the capital adequacy of banking groups. Where this is not done, deduction is essential to prevent the multiple uses of the same capital resources in different parts of the group. The deduction for such investments will be 50% from Tier 1 capital and 50% from Tier 2 capital. The assets representing the investments in subsidiary companies whose capital had been deducted from that of the parent would not be included in total assets for the purposes of computing the CAR. Eligible Tier 2 capital will be derived after deducting components (if any) qualified for deduction. Total eligible regulatory capital will be calculated by summing up the eligible Tier 1, Tier 2 and Tier 3 capital.
Minimum Capital Requirement (MCR): Minimum Capital Requirement (MCR) for the each scheduled bank in Bangladesh will be at least 9% of total Risk Weighted Assets (RWA) from July 2010 to June 2011 and 10% of total RWA from July 2011 to onwards or the amount determined by BB from time to time. Moreover, banks have to maintain at least 50% of required capital as Tier 1 capital. Banks have to maintain minimum CAR on ‘Solo’ basis as well as on ‘Consolidated’ basis as per instruction(s) given by BB from time to time.
Approaches for calculating RWA: Under the guidelines, for calculating RWA, Standardized Approach for Credit Risk, Standardized (Rule Based) Approach for Market Risk and Basic Indicator Approach for Operational Risk is being followed.
In this regard, following things are shown in Annexure-I under credit risk:
• Risk weights for Balance Sheet Exposures,
• Risk Weight for Short Term Exposures,
• Risk Weight against ECA Score (Published by OECD),
• Credit Conversion Factor under Current Exposure Method,
• Credit Conversion Factor under Original Exposure method and
• Credit Conversion Factor for Non-market-related OBS transactions.
Supervisory Review Process (SRP)-Supervisory Review Evaluation Process:
In respect of SRP, banks would have a process for assessing overall capital adequacy in relation to their risk profile and a strategy for maintaining their capital at an adequate level. Banks have been asked to form an exclusive body (called SRP team) where risk management unit is an integral part, and a process document (called Internal Capital Adequacy Assessment Process-ICAAP) for assessing their overall risk profile, and a strategy for maintaining adequate capital. Adequate capital means enough capital to compensate all the risks in their business, and to develop and practice better risk management techniques in monitoring and managing their risks. Supervisory Review Evaluation Process (SREP) of BB includes dialogue between BB and the bank’s SRP team followed by findings/evaluation of the bank’s ICAAP. During SRP-SREP dialogue BB will review and determine additional capital to MCR of banks. For this purpose, banks are asked to provide information in specified format on risks addressed by BB under SRP in line with their own ICAAP.
Reporting Requirement: All banks are required to submit the RBCA report (according to the prescribed formats) on quarterly basis within the next 30 days of each quarter-end to the Department of Off-site Supervision of BB.
Penalty for non-compliance: BB may impose penalty and/or punishment as per Bank Company Act, 1991, if a bank-
• fails to meet minimum capital or CAR within the stipulated period,
• will fully furnishes any false information in the reporting,
• fails to submit the RBCA report within stipulated time without any acceptable/ satisfactory reason.
Policy on Loan Classification and Provisioning
The process of gradually upgrading the policies on loan classification and provisioning to the international level is going on, Measures have been taken to strengthen the credit discipline and the process of classification has been simplified. The following revised policies on loan classification and provisioning has been issued amending the previous circulars in this regard:
Categories of Loans:
All loans and advances will be grouped into 4(four) categories for the purpose of classification, namely-
Continuous Loan: The loan Accounts in which transactions may be made within certain limit and have an expiry date for full adjustment will be treated as Continuous Loans. Examples are: CC, OD etc.
Demand Loan: The loans that become repayable on demand by the bank will be treated as Demand Loans. If any contingent or any other liabilities are turned to forced loans (i.e. without any prior approval as regular loan) those too will be treated as Demand Loans. Such as: Forced LIM, PAD, FBP, and IBP etc.
Fixed Term Loan: The loans, which are repayable within a specific time period under a specific repayment schedule, will be treated as Fixed Term Loans.
Short-term Agricultural Credit: This will include the short-term credits as listed under the Annual Credit Program issued by the Agricultural Credit Department of Bangladesh Bank. Credits in the agricultural sector repayable within less than 12 months will also be included herein. Short-term Micro-Credits will include any micro-credits for less than Tk.25,000/= and repayable within less than 12 months, be those termed in any names such as Non-agricultural credit, Self-reliant Credit, Weaver’s Credit or Bank’s individual project credit.
Basis for Loan Classification:
Objective Criteria: Any Continuous Loan if not repaid/renewed within the fixed expiry date for repayment will be treated as past due/overdue from the following day of the expiry date. This loan will be classified as Sub-standard if it remains past due/overdue for 6 months or beyond but less than 9 months, as `Doubtful’ if for 9 months or beyond but less than 12 months and as `Bad-Debt’ if for 12months or beyond.
Any Demand Loan if not repaid/rescheduled within the fixed expiry date for repayment will be treated as past due/overdue from the following day of the expiry date. This Loan will be classified as Sub-standard if it remains past due/overdue for 6 months or beyond but not over 9 months from the date of claim by the bank or from the date of creation of the forced loan; likewise the loan will be classified as “Doubtful’ and Bad/loss if remains past due/overdue for 9 months or beyond but not over 12 months and for 12 months and beyond respectively.
In case any installment(s) or part of installment(s) of a Fixed Term Loan is not repaid within the due date, the amount of unpaid installment(s) will be termed as `defaulted installment’-
In case of Fixed Term Loans, which are repayable within maximum five years of time: –
- If the amount of `defaulted installment’ is equal to or more than the amount of installment(s) due within 6 months, the entire loan will be classified as “Sub-standard”.
- If the amount of ‘defaulted installment’ is equal to or more than the amount of installment(s) due within 12 months, the entire loan will be classified as ”Doubtful.
- If the amount of ‘defaulted installment’ is equal to or more than the amount of installment(s) due within 18 months, the entire loan will be classified as ”Bad -Loss.”
In case of Fixed Term Loans, which are repayable in more than five years of time: –
- If the amount of `defaulted installment’ is equal to or more than the amount of installment(s) due within 12 months, the entire loan will be classified as ‘Sub-standard.’
- If the amount of `defaulted installment ‘ is equal to or more than the amount of installment(s) due within 18 months, the entire loan will be classified as ‘Doubtful’.
- If the amount of ‘defaulted installment ‘is equal to or more than the amount of installment(s) due within 24 months, the entire loan will be classified as ‘Bad-Debt’.
Explanation: If any Fixed Term Loan is repayable at monthly installment, the amount of installment(s) due within 6 months will be equal to the amount of summation of 6 monthly installments. Similarly, if repayable at quarterly installment, the amount of installment(s) due within 6 months will be equal to the amount of summation of 2 quarterly installments.
The Short-term Agricultural and Micro – Credit will be considered irregular if not repaid within the due date as stipulated in the loan agreement. If the said irregular status continues, the credit will be classified as ‘Substandard ‘ after a period of 12 months, as ‘Doubtful’ after a period of 36 months and as ‘Bad Debt’ after a period of 60 months from the stipulated due date as per loan agreement.
All unclassified loans other than Special Mention Account (SMA) will be treated as Standard.
A Continuous credit, Demand loan or a Term Loan which will remain overdue for a period of 90 days or more, will be put into the “Special Mention Account (SMA)”. This will help banks to look at accounts with potential problems in a focused manner and it will capture early warning signals for accounts showing first sign of weakness. Loans in the “Special Mention Account (SMA)” will have to be reported to the Credit Information Bureau (CIB) of Bangladesh Bank. However, it is reiterated that loans in the “Special Mention Account” will not be treated as defaulted loan for the purpose of section 27KaKa(3) of the Bank Company Act, 1991.
(B). Qualitative Judgment:
If any uncertainty or doubt arises in respect of recovery of any Continuous Loan, Demand Loan or Fixed Term Loan, the same will have to be classified on the basis of qualitative judgment be it classifiable or not on the basis of objective criteria.
If any situational changes occur in the stipulations in terms of which the loan was extended or if the capital of the borrower is impaired due to adverse conditions or if the value of the securities decreases or if the recovery of the loan becomes uncertain due to any other unfavorable situation, the loan will have to be classified on the basis of qualitative judgment.
Besides, if any loan is illogically or repeatedly re-scheduled or the norms of re-scheduling are violated or instances of (propensity to) frequently exceeding the loan-limit are noticed or legal action is lodged for recovery of the loan or the loan is extended without the approval of the proper authority, it will have to be classified on the basis of qualitative judgment.
Despite the probability of any loan’s being affected due to the reasons stated above or for any other reasons, if there exists any hope for change of the existing condition by resorting to proper steps, the loan, on the basis of qualitative judgment, will be classified as ‘Sub-standard ‘. But even if after resorting to proper steps, there exists no certainty of total recovery of the loan, it will be classified as ‘ Doubtful ‘ and even after exerting the all-out effort, there exists no chance of recovery, it will be classified as ‘ Bad-Debt ‘ on the basis of qualitative judgment.
The concerned bank will classify on the basis of qualitative judgment and can declassify the loans if qualitative improvement does occur.
But if any loan is classified by the Inspection Team of Bangladesh Bank, the same can be declassified with the approval of the Board of Directors of the bank. However, before placing such case to the Board, the CEO and concerned branch manager shall have to certify that the conditions for declassification have been fulfilled.
Accounting of the interest of classified loans:
If any loan or advance is classified as ‘Sub-standard’ and ‘Doubtful’, interest accrued on such loan will be credited to Interest Suspense Account, instead of crediting the same to Income Account. In case of rescheduled loans the unrealized interest, if any, will be credited to Interest Suspense Account, instead of crediting the same to Income Account.
As soon as any loan or advance is classified as ‘Bad Debt’, charging of interest in the same account will cease. In case of filing a law-suit for recovery of such loan, interest for the period till filing of the suit can be charged in the loan account in order to file the same for the amount of principal plus interest. But interest thus charged in the loan account has to be preserved in the ‘Interest Suspense ‘ account. If any interest is charged in any ‘Bad-Debt’ account for any other special reason, the same will be preserved in the ‘Interest Suspense’ account.
If classified loan or part of it is recovered i.e., real deposit is effected in the loan account, first the interest charged and not charged is to be recovered from the said deposit and the principal to be adjusted afterwards.
Interest accrued on “Special Mention Account (SMA)” will be credited to Interest Suspense Account, instead of crediting the same to Income Account.
Base for Provision:
Provision will be maintained at the above rate on the balance to be ascertained by deducting the amount of ‘Interest Suspense’ and value of eligible securities from the outstanding balance of classified accounts.
In the definition of ‘Eligible Securities’ as mentioned in the above paragraph the following securities will be included as eligible securities in determining base for provision:
- 100% of deposit under lien against the loan,
- 100% of the value of government bond/savings certificate under lien,
- 100% of the value of guarantee given by Government or Bangladesh Bank,
- 100% of the market value of gold or gold ornaments pledged with the bank,
- 50% of the market value of easily marketable commodities kept under control of the bank,
- Maximum 50% of the market value of land and building mortgaged with the bank,
- 50% of the average market value for last 06 months or 50% of the face value, whichever is less, of the shares traded in stock exchange.
Determination of Market Value of Eligible Securities:
In determining market value of easily marketable commodities, land and building, banks are advised to follow the instructions mentioned below:
Easily marketable goods will mean pledged, easily encashable/saleable goods that remain under full control of the bank. However, while the concerned bank branch official will conduct periodic inspection to verify as to whether issues such as the suitability of goods for use, expiry period, appropriateness of documentary evidences, up to date insurance cover, same will have to be assessed by the professional assessor from time to time.
For land and building, banks will have to ensure whether title documents are in order and concerned land and building will have to be valued by the professional valuation firm along with completion of proper documentation in favour of the bank. In absence of professional valuation firm, certificate in favour of such valuation will have to be collected from the specialized engineer. Nevertheless, temporary houses including tin-shed structure shall not be shown as building.
In order to facilitate the on-site inspection by Departments of Bank Inspection of Bangladesh Bank, banks are also advised to maintain complete statement of eligible securities on a separate sheet in the concerned loan file. Information such as description of eligible securities, their assessment by recognized firm, marketability of the commodity, control of the bank, and reasons for considering eligible securities etc. will have to be included in that sheet.
In terms of the above policies, the banks will conduct their classification- activities on quarterly basis. Detailed statements in respect of classification, provision and ‘Interest suspense’ accounts will have to be submitted to Bangladesh Bank within 30 days from the reference date.
Policy for Rescheduling of Loans
Experience shows that the existing system of loan rescheduling has created impediments in the way of realizing defaulted loans. Specially, a tendency has been observed among the defaulted borrowers to avail the opportunity of loan rescheduling again and again without any definite business rationale. Some confusions have also cropped up relating to the condition of cash deposit as down payment for loan rescheduling. After careful and overall review of the aforesaid problems and in suppression of all previous instructions 27the following detailed policies for rescheduling of loans are being issued for compliance by banks:
Rescheduling of Term Loans:
The loans which are repayable within a specific time period under a prescribed repayment schedule are treated as Term Loans. For rescheduling such loans following policies shall, henceforth, be followed:
Application for first rescheduling will be considered only after cash payment of at least 15% of the overdue installments or 10% of the total outstanding amount of loan, whichever, is less;
Rescheduling application for the second time will be considered after cash payment of minimum 30% of the overdue installments or 20% of the total outstanding amount of loan, whichever, is less;
Application for rescheduling for more than two times will be considered after cash payment of minimum 50% of the overdue installments or 30% of the total outstanding amount of loan, whichever is less;
Explanation: If any loan is rescheduled once before issuance of this policy the conditions set forth in this circular for second rescheduling shall be applicable for rescheduling of such loans. Likewise, the terms for 3rd rescheduling as per this circular shall be applicable for rescheduling of any loan which has already been rescheduled twice.
Rescheduling of Demand and Continuous Loan:
The loans which can be transacted without any specific repayment schedule but have an expiry date for repayment and a limit are treated as Continuous Loan. In addition, the loans which become repayable after those are claimed by the bank, are treated as Demand Loans. If any contingent or any other liabilities are turned to forced loan (i.e. without any prior approval as regular loan) those also are treated as Demand Loans. For rescheduling of Demand and Continuous Loans the rates of down payment, depending on the loan amount, shall be as under:
|Amount of Overdue Loan||Rates of Down payment|
|Up to Tk.1.00 (one) crore||15%|
|Tk. 1.00(one) crore to Tk. 5.00 (five) crore||10% (but not less than Tk.15.00 lac)|
|Tk. 5.00(five) crore and above||5% (but not less than Tk.50.00 lac)|
If any Continuous or Demand Loan is rescheduled by restructuring/converting partly or wholly into Term Loan and repayment installments have been fixed, application for rescheduling such loans shall be considered on cash payment of minimum 30% of the overdue installments or 20% of the total outstanding amount of loan, whichever is less. For subsequent rescheduling minimum 50% of the overdue installments or 30% of the total outstanding amount of loan amount shall have to be deposited in cash.
Other Terms and Conditions of Rescheduling:
The Borrowers whose credit facility has been rescheduled will get new loan facility subject to fulfillment of the following conditions:-
The defaulting borrower who has availed interest waiver must settle at least 15% of the compromise amount (excluding the down payment on rescheduling as per present guidelines) to avail any further credit facility from any Bank.
In case of borrowing from other Banks, the same rule will be applicable, i.e. the borrower will have to settle at least 15% of compromise amount (excluding the down payment on rescheduling as per present guidelines), then, will be allowed to take regular facility from other Banks subject to the submission of NOC (No Objection Certificate) from the rescheduling bank.
Export borrowers may be granted further credit facility (after being identified as not a willful defaulter), if required, subject to settle at least 7.5% of the compromise amount (excluding the down payment on rescheduling as per present guidelines) being paid.
If any such issue is already there (such fresh facility has already been allowed after allowing waiver), the same will not fall under purview of this circular.
Information on the loan accounts rescheduled shall be reported to the Credit Information Bureau (CIB) of Bangladesh Bank. While reporting to the CIB, such rescheduled loans/advances may be shown as RS 1 for first rescheduling, RS 2 for second and so on. Interest waivers given to the entity should be mentioned as RSIW.
Where the amount equal to minimum twice the amount of principal loan disbursed has been repaid till the date of issuance of this policy, the instructions contained in this circular shall not be mandatory for rescheduling of such loan for 1(one) year from the date of this circular. For rescheduling as above no prior approval of Bangladesh Bank will be required; however, prior approval of Bangladesh Bank shall have to be obtained if the loan is related to the director/ex-directors of a Bank Company.
Compliance by NCC Bank Ltd
NCC Bank Ltd. strictly follows above policy to reschedule the nonperforming Loans and Advances. At the time of considering loan rescheduling proposal bank must assess the borrower’s overall repayment capacity taking into account the borrower’s liability position with other banks. The rescheduling shall be for a minimum reasonable period of time. Information on the loan accounts rescheduled shall be reported to the Credit Information Bureau (CIB) of Bangladesh Bank.
Policy for Loan Wright Off
In course of conducting credit operations by banks the quality of a portion of their loan portfolio, in many cases, deteriorates and uncertainty arises in realizing such loans and advances. These loans are adversely classified as per existing rules and necessary provision has to be made against such loans. Writing off bad loans having adequate provision is an internationally accepted normal phenomenon in banking business. Owing to the reluctance of banks in Bangladesh in resorting to this system their balance sheets are becoming unnecessarily and artificially inflated. In order to avoid possible legal complications in retaining the claims of the banks over the loans written off section 28 ka has been incorporated in 2001 in the Bank Company Act, 1991. In this context the following policies for writing off loans are being issued for compliance by banks:
Banks may, at any time, write off loans classified as bad/loss. Those loans which have been classified as bad/loss for the last five years and for which 100% provisions have been kept should be written off without delay. After issuance of this circular the process of writing off all other loans classified as bad/loss should be started immediately. Under the process the oldest bad/loss classified loans should be considered first for written off.
Banks may write off loans by debit to their current year’s income account where 100% provision kept is not found adequate for writing off such loans.
All out efforts should be continued for realizing written off loans. Cases must be filed in the court of law before writing off any loan for which no legal action has been initiated earlier.
A separate “Debt Collection Unit” should be set up in the bank for recovery of written off loans.
In order to accelerate the settlement of law suits filed against the written off loans or to realize the receivable written off loans any agency outside the bank can be engaged.
A separate ledger must be maintained for written off loans and in the Annual Report/Balance Sheet of banks there must be a separate “notes to the accounts” containing amount of cumulative and current year’s loan written off.
In spite of writing off the loans the concerned borrower shall be identified as defaulter as usual. Like other loans and advances, the writing off loans and advances shall be reported to the Credit Information Bureau (CIB) of Bangladesh Bank.
Prior approval of Bangladesh Bank shall have to be obtained in case of writing off loans sanctioned to the director or ex-director of the bank or loans sanctioned during the tenure of his directorship in the bank to the enterprise in which the concerned director has interest.
Banks in general are free to fix the fees and commissions relating to the services offered by them to their customers. In applying the fees there should be no discriminations among customers for similar services. In other words, all customers are required to be treated at par for similar services.
Bangladesh Bank has issued master circular incorporating necessary instructions for rationalization of different service charges received by banks. Banks have also been advised to upload the schedule of charges in their respective websites and display the same in all of their head offices and branches, for ready reference of the clients.
Considering the interest of small depositors it has been decided that no charge can be imposed as account maintenance fee for average deposit balance up to Taka Five Thousand (BDT 5,000). It has also been decided that Taka One Hundred (BDT. 100) at maximum may be imposed as account maintenance fee on six monthly basis for average deposit balance up to Taka Twenty Five Thousand (BDT 25,000). Taka Three Hundred (BDT. 300) at maximum may be imposed as account maintenance fee on six monthly basis for average deposit balance above Taka Twenty Five Thousand (BDT 25,000).
No additional service charge can be imposed on any type of loans including Export Credit since interest and service charge are included in the Rate of Interest on loans.
Several service charges of NCC Bank Ltd:
|Account Maintenance Charge||Current Deposit/ STD||Tk.500.00 half yearly|
|Savings Deposit||Tk.200.00 half yearly|
|All Loan Acc||Tk.500.00 half yearly|
|LC ( Import)||0.60% for first quarter & 0.30% for rest amount|
|Local Collection||Min. Tk.25.00 & Max. Tk.100.00|
|Outstation Collection||Min. Tk.30.00 & Max. Tk.4000.00(over 5 lac)|
|Issuance of DD||Min. Tk.30 or 0.10%|
|Cancellation of DD||Tk.50.00|
|Issuance of PO||Min. Tk.10.00 & Max. Tk.200.00|
|Online Service||Cash Withdrawal||Min. Tk.10.00 & Max. Tk.30.00|
|Cash Deposit||Min. 0.10% & Max. Tk.100.00|
In terms of the BRPD Circular Letter No. 05 dated May 29, 2004 it was made mandatory for the banks to have themselves credit rated to raise capital from capital market through IPO. The issue was reviewed and with a view to protecting the interest of the prospective investors, depositors and creditors and also the bank management as a whole for their overall performances in each relevant areas including core risks of the bank, it was decided to make it mandatory from January 2007 for all banks to have themselves credit rated by a Credit Rating agency. Banks had been advised to take necessary measures from that time so that they could have their credit ratings in all relevant areas as well as the bank management.
Credit rating of NCC Bank Ltd
As per the above BRPD circular, NCC Bank has done its credit rating by the Credit Rating Agency of Bangladesh (CRAB) based on the financial statement dated December 2009. The rating is as follows:
Date of rating
Guidelines on Managing Core Risks in Banking
Due to deregulation and globalization of banking business, banks are now exposed to diversified and complex risks. As a result, effective management of such risks has been core aspects of establishing good governance in banking business in order to ensure sustainable performance. In recognition of the importance of an effective risk management system, Guidelines on Managing Core Risks in banking has been issued in 2003 and the five core risks that have been advised to manage in these guidelines are: a) Credit Risks, b) Asset and Liability/Balance Sheet Risks, c) Foreign Exchange Risks, d) Internal Control and Compliance Risks and e) Money Laundering Risks. A document (interpretation to measure risks using Gap Analysis) has been issued for the banks which may help banks to measure and manage their Liquidity Risk, Interest Risk and Foreign exchange risk and minimize their losses.
Guidelines on Information & Communication Technology for Scheduled Banks has been introduced to manage another core risk for the banks to take adequate measures to prevent the information from unauthorized access, modification, disclosure and destruction so that customers’ interest is fully protected. This guideline has recently been updated and renamed as Guideline on ICT Security for Banks and Financial Institutions, 2010.
Merchant by Banking Companies
Banks are advised to operate merchant banking activities constituting separate legal entity i.e. subsidiary company to protect the interest of the depositors.
Merchant Banking of NCC Bank Ltd
As per guideline of Bangladesh Bank and The Securities & Exchange Commission, NCC Bank has taken necessary steps to form a subsidiary company for Merchant Banking. Although, Its separate Brokerage House has now a sizeable network having unit all over the country. Several Branches of the Bank’s Brokerage House have been opened during last few years; this expansion will continue to augment the service to stock traders. It is a matter of pleasure that the house has been converted in to a subsidiary company.
Bank Deposit Insurance Scheme
The Bank Deposit insurance Act, 2000 established the rules governing the role of insurer, the level of coverage provided and the laws governing the payments in event of a bank failure. Under the law deposits of all scheduled banks are insured up to BDT 100,000 per depositor. The Act is as under:-
Short title. – This Act may be called the Bank Deposit Insurance Act 2000.
Definitions. – In this Act, unless there is anything repugnant in the subject or context – ‘Deposit’ means in case of any scheduled bank, the summation of unpaid residue of its depositors’ accounts; ‘Trustee Board’ means the Trustee Board of the fund as mentioned under Section 8 hereof; ‘Scheduled Bank’ means the Scheduled Bank as defined under Article 2(j) of the Bangladesh Bank Order, 1972 (P.O.No.127 of 1972); ‘Fund’ means the Trust Fund as preserved under Section 3 hereof; ‘Auditor’ means chartered accountant as defined under Article 2(1)(b) of the Chartered Accountants Order, 1973 (P.O.No.2 of 1973); ‘Premium’ means premium payable by the insured bank as specified under Section 5 hereof; ‘Bangladesh Bank’ means Bangladesh Bank established under Bangladesh Bank Order, 1972(P.O.No.127 of 1972); ‘Insurance’ means deposit insurance; ‘Insured Bank’ means bank insured under this Act.
Deposit Insurance Trust Fund.-
(1) Bangladesh Bank shall maintain a Fund in the name of Deposit Insurance Trust Fund and monies of the Fund can be invested by Bangladesh Bank in any approved sector.
(2) The following monies will be deposited in the Fund namely: – Money received from insured bank;
(a) Return on investment of monies of the Fund;
Money received from the bank liquidated under Section 7 hereof;
(b) Income received from other sources.
(3) Monies of the Fund shall not be spent for any purposes other than for repayment of dues of the depositors of the bank liquidated under the provision of Section 7 hereof and for the cost of maintenance of the Fund; (4) Nothing of Income Tax Ordinance 1984 (XXXVI of 1984) shall apply to the income of the Fund.
Insured Bank. – Notwithstanding anything contained in any other law for the time being in force, (a) All scheduled banks existing on the date of enforcement of this Act shall be deemed to have been insured with the Fund from the same date; and
(b) All scheduled banks to be established after enforcement of this Act, shall be insured with the Fund.
Premium of the Insured Bank. – (1) Each insured bank shall pay the premium to the Fund @ 0.07% per annum on such portion of its deposit as may be determined by Bangladesh Bank from time to time. But provided that, Bangladesh Bank, with the prior approval (previous sanction) of the Government, shall have the power to increase or decrease the rate or premium. (2) Insured bank shall pay its premium from its expenditure account. (3) Premium shall have to be paid at such time and mode as specified by Bangladesh Bank. (4) If any insured bank fails to pay its premium, Bangladesh Bank shall have the power to direct as to the deposit of such premium to the Fund by debiting the amount equal to that of the premium from the account of the said bank maintained with Bangladesh Bank.
Action against failure for more than once in payment of premium .- If any insured bank fails for more than once to pay the premium, Bangladesh Bank, allowing the chance of hearing and by notification in the Official Gazette, shall have the power to direct as to refraining any insured bank from accepting deposit for the time as specified in the notification .
Liability of the Fund.- (1) If the order is passed for liquidation of any insured bank, Bangladesh Bank shall pay each of its depositors the amount equal to one’s deposit, not exceeding maximum Tk. 01 (one) lac, from the Fund.
(2) If any depositor has more than one account in the liquidated bank and the balances of the accounts altogether even if stand more than Tk. 01 (one) lac, he shall not be paid back more than Tk. 01 (one) lac. The Official Liquidator against the net asset of the liquidated bank shall adjust such payment with the amount payable to the depositors.
(3) The Official Liquidator, whatever he might be termed, within less than 90 days after assuming his office, shall submit to Bangladesh Bank the list of deposits of the depositors in the form as specified by Bangladesh Bank.
(4) The Trustee Board shall arrange for payment from the Fund the amounts due to the depositors in terms of the provisions of Sub-section (1) within less than 90 days after receipt of the list as specified under Sub-section (3) hereof .
(5) If the amount of the deposited monies of the Fund falls short of the payable amount, Government shall, through Bangladesh Bank lend the Fund the amount of short-fall @ Bank-Rate-based interest.
(6) Notwithstanding anything contained in this Section, the amount payable to any depositor shall be determined net of any claims of the insured bank legally due to it.
Trustee Board.- There shall be a Trustee Board for operation and administration of the Fund and the Board of Directors of Bangladesh Bank shall be the Trustee Board of the Fund .
Annual Report. – The Trustee Board shall submit to the Government the copy of annual accounts of the Fund certified by the Auditor and signed by the Governor of Bangladesh Bank and the Report on activities within 2(two) months from the date of preparation of such accounts.
Repeals and Savings. – (1) The Bank Deposit Insurance Ordinance, 1984 (LIII of 1984) is hereby repealed. (2) All monies of the Deposit Insurance Fund preserved under the repealed Ordinance shall be transferred to the Fund.
Anti Money Laundering Act
A definition of what constitutes the offence of money laundering under Bangladesh law is set out in Section 2 (Tha) of the Prevention of Money Laundering Act 2002 (Act No. 7 of 2002) which is reads as follows: “Money Laundering means – (Au) Properties acquired or earned directly or indirectly through illegal means;
(Aa) Illegal transfer, conversion, concealment of location or assistance in the above act of the properties acquired or earned directly of indirectly through legal or illegal means; “
1.2.3 Properties has been defined in section 2(Da) of the Act as “Properties means movable or immovable properties of any nature and description.
Designation of Anti-Money Laundering Compliance Officers (AMLCO)
- All financial institutions must designate a Chief Anti-Money Laundering Compliance Officer (CAMLCO) at its head office who has sufficient authority to implement and enforce corporate wide anti- money laundering policies, procedures and measures and who will report directly to senior management and the board of directors.
- The position within the organization of the person appointed as CAMLCO will vary according to the size of the financial institution and the nature of its business, but he or she should be sufficiently senior to command the necessary authority. Each financial institution should prepare a detailed specification of the role and obligations of the CAMLCO.
- The CAMLCO may effect his or her responsibilities through a specific department, unit, group, or committee. Depending on the size, structure, business and resources of a financial institution, the designated department, unit, group, or committee or officer may be dedicated solely to the financial institution‘s anti-money laundering responsibilities or perform the compliance functions in addition to existing duties.
- The designated CAMLCO, directly or through the designated department, unit, group, or committee, should be a central point of contact for communicating with the regulatory agencies regarding issues related to the financial institution’s anti-money laundering program.
- Depending on the scale and nature of the institution the designated CAMLCO may choose to delegate duties or rely on suitably qualified staff for their practical performance whilst remaining responsible and accountable for the operation of the designated functions.
- The designated CAMLCO must ensure that at each division, region, branch or unit of the financial unit that deals directly with the public, a senior level officer is appointed as Anti Money Laundering Compliance Officer (AMLCO) to ensure that each division, region, branch or unit is carrying out policies and procedures as required. These officers should report to the CAMLCO regularly on compliance issues and the need for any revisions to policies and procedures.
- All staff engaged in the Financial Institution at all levels must be made aware of the identity of the CAMLCO, his Deputy and the staff’s branch/unit level AMLCO, and the procedure to follow when making a suspicious activity report. All relevant staff must be aware of the chain through which suspicious activity reports should be passed to the CAMLCO.
ANTI MONEY LAUNDERING PROCESSES
Know Your Customer Procedures
- Each Financial Institution is required to perform due diligence on all prospective clients prior to opening an account. This process is completed by fulfilling the documentation requirements(Account Application, Bank References, Source of funds and Identification for example) and also a ‘Know Your Customer’ profile which is used to record a client’s source of wealth, expected transaction activity at it’s most basic level.
- Once the identification procedures have been completed and the client relationship is established, Financial Institutions should monitor the conduct of the relationship/account to ensure that it is consistent with the nature of business stated when the relationship/account was opened. Financial Institutions do this firstly by the their staff being diligent, reporting suspicious transactions undertaken by the customer, updating the client’s KYC profile for any significant changes in their lifestyle (e.g., change of employment status, increase in net worth) and by monitoring the transaction activity over the client’s account on a periodic basis.
- KYC profile gives the basic information about the customer like, Name, Address, Tel/Fax Numbers, line of business, Annual sales. If the customer is a Public Figure, the account will become automatically a High Risk Account.
- The KYC Profile information will also include the observations of the Institution’s Staff/Officer when they visit the customer’s business place like, the business place is owned or rented, the type of clients visited, by what method is the client paid (cheque or cash). The Staff/Officer will record his observations and sign the KYC Profile form.
- In the case of high net worth Accounts, the information will include net worth of the customer, source of funds etc
- The KYC Profile leads to Risk Classification of the Account as High/Low Risk.
Internal Reporting Procedures and Records
- Reporting lines should be as short as possible, with the minimum number of people between the person with the suspicion and the CAMLCO. This ensures speed, confidentiality and accessibility to the CAMLCO. However, in line with accepted practice, some financial sector businesses may choose to require that such unusual or suspicious transactions be drawn initially to the attention of supervisory management to ensure that there are no known facts that will negate the suspicion before further reporting to the CAMLCO or an appointed deputy through the branch/unit level AMLCO.
- Supervisors should also be aware of their own legal obligations. An additional fact which the supervisor supplies may negate the suspicion in the mind of the person making the initial report, but not in the mind of the supervisor. The supervisor then has a legal obligation to report to the AMLCO.
- Larger institutions may choose to appoint deputy AMLCOs within divisions or branches, to enable the validity of the suspicion to be examined before being passed to CAMLCO. In such cases, the role of the deputy AMLCOs must be clearly specified and documented. All procedures should be documented in appropriate manual and job descriptions.
- All suspicions reported to the AMLCO should be documented (in urgent cases this may follow an initial discussion by telephone). In some organizations it may be possible for the person with the suspicion to discuss it with the AMLCO and for the report to be prepared jointly. In other organizations the initial report should be prepared and sent to the AMLCO. The report should include the full details of the customer and as full a statement as possible of the information giving rise to the suspicion.
- The AMLCO should acknowledge receipt of the report and at the same time provide a reminder of the obligation to do nothing that might prejudice enquiries, i.e. “tipping off”. All internal enquiries made in relation to the report, and the reason behind whether or not to submit the report to the authorities, should be documented. This information may be required to supplement the initial report or as evidence of good practice and best endeavors if, at some future date, there is an investigation and the suspicions are confirmed
- On-going communication between the AMLCO and the reporting person/ department is important. The institution may wish to consider advising the reporting person, department or branch of the AMLCO’s decision, particularly if the report is believed to be invalid. Likewise, at the end of an investigation, consideration should be given to advising all members of staff concerned of the outcome. It is particularly important that the AMLCO is informed of all communication between the investigating officer and the branch/unit concerned at all stages of the investigation.
- Records of suspicions, which were raised internally with the CAMLCO but not disclosed to Bangladesh Bank, should be retained for five years from the date of the transaction.
The Need for Staff Awareness
The effectiveness of the procedures and recommendations contained in these Guidance Notes must depend on the extent to which staff in institutions appreciates the serious nature of the background against which the legislation has been enacted. Staff must be aware of their own personal statutory obligations and that they can be personally liable for failure to report information in accordance with internal procedures. All staff must be trained to co-operate fully and to provide a prompt report of any suspicious transactions.
It is, therefore, important that financial institutions introduce comprehensive measures to ensure that all staff and contractually appointed agents are fully aware of their responsibilities.
A general appreciation of the background to money laundering, and the subsequent need for reporting any suspicious transactions to the Anti Money Laundering Compliance Officer (AMLCO) should be provided to all new employees who are likely to be dealing with customers or their transactions, irrespective of the level of seniority. They should be made aware of the importance placed on the reporting of suspicions by the organization, that there is a legal requirement to report, and that there is a personal statutory obligation to do so.
Customer Service/Relationship Managers/Tellers/Foreign Exchange Dealers
Members of staff who are dealing directly with the public are the first point of contact with potential money launderers and their efforts are vital to the organization’s strategy in the fight against money laundering. They must be made aware of their legal responsibilities and should be made aware of the organization’s reporting system for such transactions. Training should be provided on factors that may give rise to suspicions and on the procedures to be adopted when a transaction is deemed to be suspicious. It is vital that ‘front – line’ staffs are made aware of the organization’s policy for dealing with no regular (walk in) customers particularly where large transactions are involved, and the need for extra vigilance in these cases.
Processing (Back Office) Staff
Those members of staff who receive completed Account Opening, Payment Order/DD/TT/FDR application forms and cheques for deposit into customer’s account or other investments must receive appropriate training in the processing and verification procedures. Those members of staff, who are in a position to deal with account opening, or to accept new customers, must receive the training given to cashiers and other front office staff above. In addition, the need to verify the identity of the customer must be understood, and training should be given in the organization’s account opening and customer/client verification procedures. Such staff should be aware that the offer of suspicious funds or the request to undertake a suspicious transaction may need to be reported to the Anti Money Laundering Compliance Officer (or alternatively a line supervisor) whether or not the funds are accepted or the transactions proceeded with and must know what procedures to follow in these circumstances.
Senior Management/Operations Supervisors and Managers
A higher level of instruction covering all aspects of money laundering procedures should be provided to those with the responsibility for supervising or managing staff. This will include the offences and penalties arising from the Act for non-reporting and for assisting money launderers; internal reporting procedures and the requirements for verification of identity and the retention of records.
Anti Money Laundering Compliance Officer
In depth training on all aspects of the Money Laundering Legislation, Bangladesh Bank directives and internal policies will be required for the Anti Money Laundering Compliance Officer. In addition, the AMLCO will require extensive instructions on the validation and reporting of suspicious transactions and on the feedback arrangements, and on new trends and patterns of criminal activity.
In addition to the above relatively standard requirements, training may have to be tailored to the needs of specialized areas of the institution’s business. It will also be necessary to keep the content of training programs under review and to make arrangements for refresher training at regular intervals i.e. at least annually to ensure that staff does not forget their responsibilities. Some financial sector businesses may wish to provide such training on an annual basis; others may choose a shorter or longer period or wish to take a more flexible approach to reflect individual circumstances, possibly in conjunction with compliance monitoring.
Steps taken by NCC Bank Ltd. against money laundering
To be complied with the above act NCC Bank Ltd. has adopted several measures to fight against money laundering with the directions of Bangladesh Bank. Such as:
- Appointed a Chief Anti Money Laundering Compliance Officer (CAMLCO).
- Prepared a detailed specification of the role and obligations of the CAMLCO.
- Senior Vice President Mr. Jagadish Chandra Debnath is appointed as CAMLCO.
- Formed Anti Money Laundering Compliance Committee for each & every branch.
- Selected a Branch Anti Money Laundering Compliance Officer (BAMLCO).
- Regular training programs are arranged to make every officer acknowledged about Anti Money Laundering Act to combat against money laundering.
- The KYC is properly filled with relevant information from each client.
- Transaction Profile (TP) must be filled with the acknowledgement of each & every client.
- All the cash transactions are monitored carefully by AMLCO in every branch.
- Cass Transaction Record (CTR) is maintained regularly.
- Instruction has given by higher authority to the branch managers for frequent awareness to the employees.
- Any suspicious transaction is reported to BAMLCO or directly CAMLCO.
Corporate Governance in Bank Management
Board of directors and management of a bank should comprise of the competent and professionally skilled persons with a view to ensuring good and corporate governance in the bank management. It is also inevitable to have specific demarcation of responsibilities and authorities between these controlling bodies over bank’s affairs. In absence of specific division of responsibilities and authorities, even in spite of these bodies’ being formed with skilled and efficient persons, the desired goals of an institution cannot be achieved due to lack of transparency and accountability of all concerned. Such kind of situation is more undesirable in an institution like bank-company as it deals with huge public money and interests of the depositors.
In view of the above, rescinding the previous instructions the specific demarcation of responsibilities and authorities among the board of directors, its chairman, Chief Executive Officer (CEO) and adviser to the private bank in respect of its overall financial, operational and administrative policymaking and executive affairs including overall business activities, internal control, human resources management and development thereof, income and expenditure etc., along with lending and risk management issues, is outlined as follows:-
Responsibilities and authorities of the board of directors:
(a) Work-planning and strategic management:
(i) The board shall determine the objectives and goals and to this end shall chalk out strategies and work-plans on annual basis. It shall specially engage itself in the affairs of making strategies consistent with the determined objectives and goals and in the issues relating to structural change and reorganization for enhancement of institutional efficiency and other relevant policy matters.
(ii) The board shall have its analytical review incorporated in the Annual Report as regard the success/failure in achieving the business and other targets as set out in its annual work-plan and shall apprise the shareholders of its opinions/recommendations on future plans and strategies. It shall set the Key Performance Indicators (KPIs) for the CEO and other senior executives and have it evaluated at times.
(b) Lending and risk management:
(i) The policies, strategies, procedures etc. in respect of appraisal of loan/investment proposal, sanction, disbursement, recovery, rescheduling and write-off thereof shall be made with the board’s approval under the purview of the existing laws, rules and regulations. The board shall specifically distribute the power of sanction of loan/investment and such distribution should desirably be made among the CEO and his subordinate executives as much as possible. No director, however, shall interfere, directly or indirectly, into the process of loan approval.
(ii) The board shall frame policies for risk management and get them complied with and shall monitor at quarterly rests the compliance thereof.
(c) Internal control management:
The board shall be vigilant on the internal control system of the bank in order to attain and maintain satisfactory qualitative standard of its loan/investment portfolio. It shall review at quarterly rests the reports submitted by its audit committee regarding compliance of recommendations made in internal and external audit reports and the Bangladesh Bank inspection reports.
(d) Human resources management and development:
(i) Policies relating to recruitment, promotion, transfer, disciplinary and punitive measures, human resources development etc. and service rules shall be framed and approved by the board. The chairman or the directors shall in no way involve themselves or interfere into or influence over any administrative affairs including recruitment, promotion, transfer and disciplinary measures as executed under the set service rules. No member of the board of directors shall be included in the selection committees for recruitment and promotion to different levels. Recruitment and promotion to the immediate two tiers below the CEO shall, however, rest upon the board. Such recruitment and promotion shall have to be carried out complying with the service rules i.e., policies for recruitment and promotion.
(ii) The board shall focus its special attention to the development of skills of bank’s staff in different fields of its business activities including prudent appraisal of loan/investment proposals, and to the adoption of modern electronic and information technologies and the introduction of effective Management Information System (MIS).
(e) Financial management:
(i) The annual budget and the statutory financial statements shall finally be prepared with the approval of the board. It shall at quarterly rests review/monitor the positions in respect of bank’s income, expenditure, liquidity, non-performing asset, capital base and adequacy, maintenance of loan loss provision and steps taken for recovery of defaulted loans including legal measures.
(ii) The board shall frame the policies and procedures for bank’s purchase and procurement activities and shall accordingly approve the distribution of power for making such expenditures. The maximum possible delegation of such power shall rest on the CEO and his subordinates. The decision on matters relating to infrastructure development and purchase of land, building, vehicles etc. for the purpose of bank’s business shall, however, be adopted with the approval of the board.
(f) Formation of supporting committees: For decision on urgent matters an executive committee, whatever name called, may be formed with the directors. There shall be no committee or sub-committee of the board other than the executive committee and the audit committee. No alternate director shall be included in these committees.
(g) Appointment of CEO: The board shall appoint a competent CEO for the bank with the approval of the Bangladesh Bank.
Responsibilities of the chairman of the board of directors:
(a) As the chairman of the board of directors (or chairman of any committee formed by the board or any director) does not personally possess the jurisdiction to apply policymaking or executive authority, he shall not participate in or interfere into the administrative or operational and routine affairs of the bank.
(b) The chairman may conduct on-site inspection of any bank-branch or financing activities under the purview of the oversight responsibilities of the board. He may call for any information relating to bank’s operation or ask for investigation into any such affairs; he may submit such information or investigation report to the meeting of the board or the executive committee and if deemed necessary, with the approval of the board, he shall effect necessary action thereon in accordance with the set rules through the CEO. However, any complaint against the CEO shall have to be apprised to Bangladesh Bank through the board along with the statement of the CEO.
(c) The chairman may be offered an office-room, a personal secretary/assistant, a telephone at the office and a vehicle in the business-interest of the bank subject to the approval of the board.
Responsibilities of the adviser:
The adviser, whatever name called, shall advise the board of directors or the CEO on such issues only for which he is engaged in terms of the conditions of his appointment. He shall neither have access to the process of decision-making nor shall have the scope of effecting executive authority in any matters of the bank including financial, administrative or operational affairs.
Responsibilities and authorities of the CEO:
The CEO of the bank, whatever name called, shall discharge the responsibilities and effect the authorities as follows:
(a) In terms of the financial, business and administrative authorities vested upon him by the board, the CEO shall discharge his own responsibilities. He shall remain accountable for achievement of financial and other business targets by means of business plan, efficient implementation thereof and prudent administrative and financial management.
(b) The CEO shall ensure compliance of the Bank Companies Act, 1991 and/or other relevant laws and regulations in discharge of routine functions of the bank.
(c) The CEO shall include information on violation of any law, rules, regulation including Bank Company Act, 1991 while presenting memos before the Board or the committee formed by the board.
(d) CEO will provide all sorts of information to Bangladesh Bank about the violation of Banking Companies Act, 1991 and/ or any violation of Laws, rules and regulations.
(e) The recruitment and promotion of all staff of the bank except those in the two tiers below him shall rest on the CEO. He shall act in such cases in accordance with the approved service rules on the basis of the human resources policy and sanctioned strength of employees as approved by the board. The board or the chairman of any committee of the board or any director shall not get involved or interfere into such affairs. The authority relating to transfer of and disciplinary measures against the staff, except those at one tier below the CEO, shall rest on him, which he shall apply in accordance with the approved service rules. Besides, under the purview of the human resources policy as approved by the board, he shall nominate officers for training etc.
Corporate Governance in NCC Bank Ltd
Establishing Corporate Governance ensures fairness, accountability, responsibility in discharging activities by organization to safeguard interest of the Stakeholders. It is more true for financial institutes, which has been made imperative for the such Institutions by the Central Bank of the country. NCC Bank Ltd. always gives importance in complying with directives of the regulatory bodies and in dealing with valued Shareholders. Accordingly, the Board of Directors of the Bank, Executive Committee and Audit Committee of the Board are performing their duties taking full responsibility and accountability. The Management also acts as per all regulatory norms.
In this regard the Bank has taken befitting steps follows the following principles:
- The Chairman of the Board of Directors and the Chief Executive Officer are separate persons.
- The Board of Directors has an Executive Committee and Audit Committee to support or supplement the Board in taking decision on various policy and business related issues headed by different persons as Chairman of the Committee(s).
- The Board/Executive Committee of the Board reviews and approves short and long term strategic corporate business plans for compliance by the Management. The Board/Executive Committee of the Board acts as per the policy/guidelines issued by the Central Bank regarding operation in various sectors. The Board/Executive Committee of the Board approves the credit proposals as per Banks set policy and Bangladesh Bank guidelines/regulations. The Board also reviews the action plan implemented by the Management.
- The Audit Committee of the Board reviews audit report f the Branches and other functions in its regularly held meeting and advises the Management for development/correction. The said Committee also follows up implementation of its suggestions/decisions on regular basis according to Bangladesh Bank circulars/guidelines.
- The Management operates as per policies, rules and regulations as approved by Board of Directors, complying other statutory requirements.
- The Managing Director & Chief Executive of the Bank and his Management Team carry out decisions fulfilling all norms and rules and regulations related to various sectors of investment.
- The Bank gives utmost priority in submitting periodical and other statements to Bangladesh Bank regularly and other regulatory bodies in time to enable the Shareholders to make correct assessment of company’s affairs/profitability.
- The Board ensures compliance of requirements of regulatory bodies such as Central Bank, Securities and Exchange Commission (SEC), the Stock Exchanges, Registrar of Joint Stock Companies and Firms, NBR, CDBL, etc.
- The Bank has a Chief Financial Officer (CFO) as per SEC’s requirement.
- Self motivated, proactive and committed workforce is a prerequisite for achieving short and long term goals of any organization. In order to ensure this. NCC Bank Ltd. ensures regular training programs and other motivational measures through meetings, seminars & communiqués from time to time.
In 2010, Bank’s Training Institute has arranged a total number of 33 training programs, workshops, etc. on various topics related to finance/banking. A total number of 1115 Executives/Officers have been imparted update information & knowledge in these programs/workshops.
The employees of the Bank are being paid competitive salary and allied benefits as approved by Board of Directors from time to time. Necessary provision against Gratuity has been made as per Bank’s Staff service Rules and as required by regulatory Bodies.
Corporate Social Responsibility (CSR) by banks and financial institutions in Bangladesh
Globally, the notion of Corporate Social Responsibility (CSR) is fast gaining acceptance as the contribution that businesses can and should make voluntarily towards environmentally sustainable and socially equitable development. Besides the usual financial reporting, ‘non-financial’ or ‘sustainability’ reporting is accordingly also fast gaining usage.
Stated briefly, CSR is about (i) taking stock of the economic, social, and environmental impacts of a business, (ii) mitigating the negative impacts and bolstering the benign impacts, (iii) taking up action programs and community investments to reduce social exclusion and inequality and to address the key sustainable development challenges.
Corporate Social Responsibility (CSR) by NCC Bank Ltd.
Of late Bangladesh Bank has made it mandatory for Banks to put due importance to CSR and taken institutional steps of monitoring such activities periodically. It is hoped that the Banks with their extra efforts on discharging social responsibility can bring positive changes in the society supplementing government’s efforts. NCC Bank ltd. gives top mosr priority in discharging its responsibility to the society. It has long history of discharging CSR and to give it an organized shape, the Board of Directors has set up ‘NCC Bank Foundation’ few years back through which various steps have been taken to fulfill CSR.
- NCC Bank Ltd is a banking company incorporated in Bangladesh under the Banking Company Act 1991.
- Principle activities of NCCBL are according to the Laws.
- Paid up Capital of NCC Bank Ltd well above than required level in Banking Act.
- Paid up Capital is divided into ordinary shares of Tk.10.00 each.
- Any of the shareholders doesn’t hold more than 5% of all voting rights.
- General Reserve, Statutory Reserve and Cash Reserve are maintained as required in law.
- NCC Bank Ltd. has adequate capital according to Policy of Capital Adequacy.
- In case of Loan Classification and Provisioning, NCC Bank Ltd. follows the Policy by Bangladesh Bank.
- NCCBL reschedules ‘Loans’ as per the guidelines of Bangladesh Bank.
- In NCCBL, classified loans are written off according to the policy by Central Bank.
- In case of service charges imposed by NCCBL, there are some deviations from instruction.
- Loans to the Directors or their relatives have been given according to the guidelines.
- According to the circular by Bangladesh Bank, NCC Bank Ltd. has credit rated itself regularly by Credit Rating Agency of Bangladesh (CRAB).
- NCC Bank Ltd. has been managing core risks by recognizing the guidelines by Central Bank.
- NCC Bank has taken necessary steps to form a subsidiary company for Merchant Banking. It has already a separate wing for share trading.
- NCCBL has been paying premium to Bangladesh Bank under ‘Deposit Insurance Act2000’.
- NCC Bank has taken necessary steps as ‘Anti Money Laundering Act’ to prevent money laundering.
- The Corporate Governance Practices in NCC Bank is according to the policy by BB.
- NCC Bank Ltd. has made significant efforts in Corporate Social Responsibility.
Banking sector is a vital part for the economic development of a country. Bangladesh has made significant economic progress recent years where banking sector’s contribution is immeasurable. The Banking sector has been growing fast since the introduction of private commercial bank. National Credit and Commerce Bank Limited is one of the renowned banks in Bangladesh for its differentiated financial products and services.
To regulate commercials bank regulatory bodies like _The government of Bangladesh, Bangladesh Bank, Security & Exchange Commission have imposed numerous laws and policies. All commercial banks are required to compliance with all the regulations.
In this report, I have wished to present few selected issues of Banking Laws & Regulations and their practices in NCC Bank Ltd. I have assessed the present condition of NCC Bank Ltd. to compare with the requirements in laws & policies.
The structural condition and activities of NCCBL as a commercial bank seems to be according to the rules & regulations. Although there are some lacks between NCCBL’s practices and requirements in laws. Some steps are required for NCCBL to recover these. The overall compliance made by NCC Bank Ltd. to the laws is satisfactory.