Internship Report of First Security Islami Bank Ltd

In these days our lives deeply entwined in the labyrinth of the banking system. The house we live in may have been mortgaged to a bank, the car we drive or the taxi and the bus we ride to our office may have been bought with money borrowed from yet another bank. The businesses we see around have their links with banks; they might have borrowed money from a bank to finance their working capital or fixed assets. If nothing else, they will have at least a current or a savings account for deposit of the day’s sale proceeds. If we want to invest our money for profit or simply to hide it from the prying eyes or nimble fingers of all the wrong people in the wrong places we can step into the nearest branch of a bank. So it is clear that Bank and Banking business is very much important for us in all aspects and steps of our life.

The last two decades have seen a revolutionary development in the banking field of Bangladesh. The expansion of the branches of banks, privatization of major national banks, introduction of the scheme of social control, have all resulted in growth of banking habit among the people and realization by banks of their social responsibilities. Basic changes are being introduced in the working patterns of our banks so that they can fit in well in our new economic and social system. On account of the growing importance of banking institutions most of the universities and educational institutions give priority on the study about banking and its industry. For this reason I conduct my intern in First Security Islami Bank Limited (FSIBL) and try to accumulate the knowledge regarding banking industry.

 Objective of the study:

This  study  has  been  conducted  as  partial  fulfillment of  requirement  of  the  Bachelor  in Business  Administration  (BBA)  under  the  Department  of  Accounting,  Stamford  University  Bangladesh;  therefore  this  is  purely  academic  in  nature. Basically  based  on  both primary and secondary  data and  information, the  process  and  findings  of  the  study  is  mainly  indicating  the  report  writer’s  capability. The  report  writer’s  area  of  specialization  is  Accounting  and  the  area for  this  study  is  especially  in First  Security  Islami  Bank  Limited. The objective of the study mainly lies on below:

• To achieve a broad idea about Operations, Functions, Performance, Accounting policy & system of banking organization.
• To know the implementation and application of Theoretical knowledge within banking organization.
•  Make sense about the managerial technique and customer relationship.
• Acquire a rosy picture about the organizational culture of bank.
• Develop communication skill through communicating different employee of banking organization.
• Know about the general activities of organization and make sense about the internal environment of banking organization.
• Contribution of banking organization towards the overall economy.

 Methodologies of the study:

The methodology indicates the selection of sample banks, sources of data and the method of data analysis followed by indicating the limitation of the study. Data has been collected from both primary and secondary sources. Informal meeting with the senior officer was also helpful. In order to make the report more meaningful and presentable, two sources of data and information have been used: primary data and secondary data

 Data/Information required:

Preparing a meaningful report of any organization required information and data regarding the performance, background, functions, and operations of the organization. So I tried to collect the maximum amount of information for the report

Source of Data:

Most of the data included in the report collected from two types of sources.

    Primary Sources

    Secondary Sources

Primary sources:

Primary sources means the sources of data which were never is used in anywhere and which data are presented first time.

  Secondary sources:

Secondary sources mean the sources of data which were already existed and used. Many journals, books and data from websites are used here as a source of secondary data.

Collection of Data:

The important amount of data I collected from the Head Office of the bank and from their Annual Report and IPO Prospectus of last year. Except those I try to collect some information regarding banking and banking industry from various books and websites.

 Scope of the study:

Knowledge and learning become perfect when it is associated with theory and practice. Theoretical knowledge gets its perfection with practical application. The study is very much related to the BBA program. The study helps to compare the knowledge gathered from the program and the real world banking sector operation. I have come to know the product and procedure of bank operation. The contribution of banks in the overall economy as financial intermediary. Huge of knowledge can be gathered from the study of banking sector operation.

Limitation of the study:

The study was conducted at the premises of the FSIBL Topkhana Road branch. So it is difficult to present an overall clear idea about the Operations and Performance of FSIBL only by the information of one branch. As the report prepared with a short span of time, the report could not be made comprehensive and conclusive. Some usual constraints I did face during the course of my investigation. Due to the banks policy of maintain secrecy I did not get the opportunity to collect information regarding all departments.

The  task  of  banking  is  not  that  much  easy  and  it  has  a very wider aspect. So it is quite difficult to get a clear picture about the operations of banking business within a short period of time. So the study is simply able to give an idea not the whole picture. I have conducted an analysis of the financial performance of FSIBL.

 Background of FSIBL:

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 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.

The company philosophy “A step ahead in time” has been precisely the essence of the legend of Asian success; 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 21^st century. At first in 1999 the bank incorporated as First Security Bank Ltd. and then in January 01, 2009 the bank changes its name and mode of business and incorporated as First Security Islami Bank Ltd.

 Corporate Information

Name of the Company                                    : First Security Islami Bank Ltd.

Chairman                                                         : Mohammad Saiful Alam

Vice Chairman                                                : Alhaj Mohammad Abdul Maleque.

Managing Director                                          : A.A.M. Zakaria

Company Secretary (Current Charge)            : Abdul Hannan Khan

Legal Status                                                    : Public Limited Company

Date of Incorporation                                                 : 29 August1999

Date of Commencement of Business                         : 29 August 1999

Date of Permission from Bangladesh Bank    : 22 September 1999

Date of Opening of First Branch                    : 25 October 1999

Registered Office                                           : House#SW(I)1/A, Road#8, Gulshan-1,

                                                                          Dhaka-1212, Bangladesh.

Line of Business                                             : Banking

Authorized Capital                                         : Tk.3, 600 Million

Paid up Capital                                               : Tk.2, 300 Million

Date of consent of IPO                                  : 04 June 2008

Phone                                                              : 9560229 (Hunting), 9550334, 7171029-30

Fax                                                                  : 880-02-9561637

E-mail                                                              : bcs@fsiblbd.com

Website                                                           : www.fsiblbd.com

SWIFT                                                            : FSEBBDDH

Auditors:

Syful Shamsul Alam & Co.

Chartered Accountants

15, Dilsusha C/A (6th Level)

Dhaka-1000, Bangladesh

Phone: 7169487, 9569256

Email: syful@intechworld.net

The Law Counsel:

Shariah Council of FSIBL

 Table-1: Shariah Council of FSIBL

Board of Directors:

 Table-2: Board of Directors of FSIBL

 Vision of the Bank:

First Security Islami Bank Limited aims to become one of the leading banks in Bangladesh by quality of operations in their banking sector. The bank has some mission to achieve the organizational goals.

These are listed bellow:

• The bank believes in strong capitalization.
• It maintains high standard corporate and business ethics.
• First Security Islami Bank Limited extends highest quality of services, which attracts the customers to choose them first.
• First Security Islami Bank Limited provides products and services that encourage savings.
• First Security Islami Bank Limited’s main business mission is to obtain fine position in the banking sector of Bangladesh as well as internationally.
• It also emphasizes on a reasonable return from its investment to satisfy the shareholders.

  Mission of the Bank:

In the words of First Security Islami Bank Limited,

Our Mission is to provide

Banking Services to our

Valued Clientele with

Utmost proficiency & sincerity

Reinforced by an efficient workforce

And the latest state of

The Art Technology.

For this mission FSIBL has the following objectives and goals:

• Their main objective is to maximize profit, which in turn will maximize wealth.
• First Security Islami Bank Limited is always ready to maintain the highest quality of services by banking technology prudence in management and by applying high standard of business ethics through its established commitment and heritage.
• First Security Islami Bank Limited is committed to ensure its contribution to national economy by increasing its profitability through professional and disciplined growth strategy for its customer and by creating corporate culture in international banking area.

 Organizational Structure:

Senior Management

FSIBL is functioning with professional management team headed by the Managing Director Mr. A. A. M. Zakaria. Among other senior executives currently two DMD, One Principle(Training Center), two SEVP, fourteen SVP, eight VP, five FVP, eleven SAVP, five AVP and three FAVP are discharging their services in progression of the banks business.

Top management of the bank is supported by human resource strength of 483 executives and officers. For smooth functioning of the Bank, following committees have been formed: Management committee (MANCO) comprises of senior members of the management headed by Managing Director of the bank. Asst Liability Management Committee (ALCO) headed by the Managing Director, is responsible for balance sheet risk management. The committee participate is the monthly ALCO meeting and review the liquidity position, review rate of interest on deposit and lending, and review the ALCO papers on presentation by treasury back office on the position of profit, deposit, advance, cost analysis, maturity bucket of deposit & advance, balance sheet, profit and loss account and many other issues relating to banks business and assets-liability management.

Internal Control and Compliance:

Operational loss may arise form errors and fraud due to lack of internal Control and Compliance. FSIBL has separate Internal Control and Compliance division (ICCD) headed by a Vice President. This Division consists of 3 units, namely:

a)      Audit and Inspection Unit,

b)      Compliance Unit, and

c)      Monitoring Unit.

Corporate Governance:

Corporate governance is about how corporation is running its operations to achieve its corporate objectives. Bangladesh Bank (BB) gives emphasis on implementing corporate governance among the financial institutions and to do that, BB emphasizes implementation of the guidelines issued by them for improving corporate governance in banking. Good Corporate Governance practices enhance an entity’s corporate image and market credibility, which attract capital and increase its borrowing power. These can be reflected in the quality of financial reporting and disclosures; strength of internal control system and internal audit function induction of professionally competent, independent non-executive Directors on corporate Board; formation of Audit Committee; delegation of authority to executives and staff; protection of corporate governance for strengthening organizational strength. With a view to ensure effective participation and deep interest in the affairs of the company and as per Articles of Association of the Company and as per Bangladesh Bank Circular No. 16 dated March 24, 2003 the bank has set up the following 2 committees:

Executive Committee:

FSIB has constituted 09 members executive committee of the board as per Bangladesh Bank guidelines to ensure corporate governance in the business of which managing director of the Bank is Ex-officio Member. The executive committee of the board is responsible for developing policy and strategy for smooth operations of business and business development of the bank to ensure maximization of shareholders wealth’s protecting other stakeholder’s interest in the company Mr. Alhaj Md. Saiful Alam, Chairman of the board of Directors is the Chairman of the present Executive Committee of the bank. He is very dynamic person and leading the executive committee of the bank in a very manner.

 Audit Committee:

FSIB has formulated an audit committee can play an effective role in formulating an efficient and secured banking system. The Audit Committee has been formed comprising three members of the Board of Directors. As per corporate governance guidelines the Chairman of the Audit Committee should have sound knowledge and expertise in finance & accounting or auditing. Mr. Hamidul Haq, who is also a Director of the Bank, is Convener of the committee. He is associated in banking field over long years.

 Human Resources:

Total number of employees stood at 483 as on 31^st December 2008. The bank continued to encourage its employees to receive training and participate in various seminars and workshop to enrich their professional skills.

Table-3: Human Resource trends.

Products & Services:

Products

• Loan Schemes:

1. Term Loan
2. Loan (General)
3. Secured Overdraft (SOD)
4. Transport Loan
5. Cash Credit (C.C)
6. HouseBuilding Loan
7. Payment Against Document (PAD)
8. Loan against Imported Merchandise (LIM)
9. Loan against Trust Receipts (LTR)
10. Consumer Finance Scheme
11. Hire-Purchase Scheme

• Financial Products:

Deposit                                                                             Rate(%)

1)      Al-Wadiah Current Deposit                                        N/A

2)      Mudarabah Savings Deposit                                       7.00%p.a

3)      Short Term Deposit                                                     6.00%

4)      Mudarabah Term Deposits:

         For One Month                                               8.00%

         For Three Months & above:

         Up to 50 Lac                                       10.00%

          Above 50 Lac                                                 10.00%

5)      Mudarabah Special Notice Deposits (SND)

(On monthly average balance)

            Up to 10.00 Crore                                           7.00%p.a

            Above 10.00 Crore                                         7.7.5%p.a

6)      Non-resident Foreign Currency Deposit

7)      Resident Foreign Currency Deposit

• Scheme:         

1)      Mudarabah Monthly Profit Scheme (MMPS)

2)      Mudarabah Monthly Savings Scheme (MMSS)

3)      Mudarabah Double Deposit Scheme (MDDS)

• ATM Banking:

First Security Islami Bank Ltd. has implemented successfully Automated Teller Machine (ATM) 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.

Services:

• Online any Branch Banking :

FSIBL have set up Wide Area Network through Radio, Fiber-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.

• Utility Bills :

The utility bill’s received following Branches

 Branch Name                                   Bill’s Type

 Mohakhali, Dhaka                               DESCO

 Topkhana, Dhaka                              Under process (Electric bill)

 Gulshan , Dhaka                               Titas Gas

 Shafipur , Gazipur                               Dhaka Pally Biddut Shomitty

 Keranihat, Chittagong                        Pally Biddut Shomitty

 Operational Area of FSIBL:

Bank is nothing but an intermediary between lender (surplus unit) and borrowers (deficit unit). Savings and deposits are the main strength of the banks to provide loan. And the interest earned from the difference borrowing and lending is the major portion of banks income. Banks also earn from variety of operation. Branch banking includes four operational divisions in First Security Islami Bank Limited. They are:

1. General Banking
2. Loan and Advance
3. Foreign Exchange
4. IT Division

 General Banking:

General banking is the side where banks offer different alternatives to the clients to deposit and remit their money. Accounts division is also included in general banking. To encourage the clients, bank offers different options in front of their clients. Most of these options are very much similar between the banks, but the customer services and facilities may not be the same. First Security Bank Limited has variety of services provided to the retail as well as for corporate clients. General Banking department aids in taking deposits and simultaneously provides some ancillaries services. It provides those customers who come frequently and those customers who come one time in banking for enjoying ancillary services. In some general banking activities, there is no relation between banker and customers who will take only one service form Bank. On the other hand, there are some customers with who bank are doing its business frequently. It is the department, which provides day-to-day services to the customers. Everyday it receives deposits from the customers and meets their demand for cash by honoring cheques. It opens new accounts, demit funds, issue bank drafts and pay orders etc. since bank in confined to provide the service everyday general banking is also known as retail banking.

The services provided under general banking include the following:-

• Account opening
• Account closing
• Cheque book issue
• Remittance
• Clearing
• Crossing
• Endorsements
• Dispatch

Account opening:

Initially all the accounts are opened through deposit money by the customer and these accounts are called deposit account. Normally a person needs to open an account to take services from the bank. Without opening an account, one cannot enjoy variety of services from the bank.  Thus, the banking usually begins through the opening of the account with the bank.

Bank accounts are mainly of three (3) types:

1. Current Deposit Account
2. Saving Bank Account
3. Fixed or Time Deposit

There are also some other types of account facilities provided by the bank. These are:

1)      Short Term Deposit (STD)

2)      Mudarabah Monthly Profit Scheme (MMPS)

3)      Mudarabah Monthly Savings Scheme (MMSS)

4)      Mudarabah Double Deposit Scheme (MDDS)

1. Current Deposit Account:

A current account is a running and active account, which may be operated upon any number of times during a working day. It is purely demand deposit account because the bank is bound to pay the amount to the accountholder on demand at any time within the banking hour. There is no restriction on the number and the amount of withdrawals from a current account. Generally the minimum amount to be deposited initially is tk. 1000/- for opening a current account.

2. Saving Bank Account:

A saving account is meant for the people of the lower and middle classes who wish to save a part of their incomes to meet their future need and intend to earn an income from their savings, it encourages savings of non-trading persons, institutions, society and clubs etc. The deposits are mostly small amounts. Frequently withdrawals are not allowed.

• Opening of Current and saving Account:

A current or a saving account could be opened through the following steps:

Step: 1 

Application on the prescribed form: The person willing to open a current account with the bank has to apply in the prescribed form. The form must be filled up and signed accordingly by the applicant (s).

Step: 2

Documentation: The documents that must be provided by the party/parties willing to open a current account are mentioned according to different aspects:

i)          Individual

• Two copies of passport size photograph
• Introducer’s signature in the A/C opening Card & photograph
• Nationality Certificate/passport’s photocopy (duly attested)
• Nominee’s Photograph
• Mother’s name
• Date of Birth & age
• TIN

ii)         Proprietorship

• Two copies of passport size photograph
• Introducer’s signature in the A/C opening Card & photograph
• Nationality Certificate/passport’s photocopy (duly attested)
• Up-to-date copy of trade license
• Nominee’s Photograph
• Mother’s name
• Date of Birth & age
• Seal
• TIN

iii)        Partnership

• Passport size photograph A/C Operator authorized by partners) Two copies (each)
• Introducer’s signature in the A/C opening Card & photograph
• Nationality Certificate/passport’s photocopy (duly attested)
• Up-to-date copy of trade license
• Seal
• TIN
• Partnership deed (from Notary public), partnership letter.

iv)        Limited company

• Passport size photograph A/C Operator (authorized by Board) Two copies (each)
• Introducer’s signature in the A/C opening Card & photograph
• Company resolution/Constitution
• Common seal of Company
• Memorandum & Articles of association (Certified by Joint Stock Company)
• List of Directors with sign
• Certificate of Incorporation
• Up-to-date copy of trade license
• Seal
• TIN

v)         Societies, Clubs, etc

• Passport size photograph A/C Operator (authorized by Board) Two copies (each)
• Introducer’s signature in the A/C opening Card & photograph
• Nationality Certificate/passport’s photocopy (duly attested)
• Up-to-date copy of Office Bearers/ Governing Body/ Managing Committee
• Memorandum & Articles of association
• Seal

Incase of saving account opening the following documents are required:

• Two copies of passport size photograph
• Introducer’s signature in the A/C opening Card & photograph
•  Nationality Certificate/passport’s photocopy (duly attested)
• Nominee’s Photograph
• Employer certificate

Step: 3

Introduction to the Applicant:

The applicant required to furnish in the application form the names of the referees from whom the banker may make requires regarding the character, integrity and respectability of the applicants. In most cases, the customer of the bank does the introduction or some other person known to the bank by signing on the application form with the account number.

Step: 4

Specimen signature:

Every customer is required to supply to his banker with one or more specimens of his/her signature. These signatures are taken on cards, which are preserved by the banker, and his signature of the account holder on the cheque is compared with Specimen signatures.

Final Step:

After the above formalities are over, the banker opens an account in the name of applicant. Then the bank provides the customer with:

    A pay in slip/deposit book: To facilitate the receipt of credit items paid in by a customer, the bank will provide the customer a pay in slip either loose or in a book forms. The customer has to fill up the pay in slip at the time of depositing the money with the bank. The casher with his/her initials and stamps will return the counter foil to the customer on the receipt of the money.

    Cheque Book: To facilitate withdrawals and payments to third parties by the customer, the bank will also provide a chequebook to the customer. But it is noted that to get a chequebook, the customer has to dully fill up the cheque requisition slip to the banker.

• Closing of Current or Saving Account:

A customer’s account with a bank may be closed for the following circumstances:

1. upon the request of a customer, an account can be closed.

• The customer may inform the bank in written of his/her intention to close the account. The customer has to apply to the branch in charge for closing the account. Then the in charge will remark on the account closing application for closing the account.
• By drawing a cheque of the whole amount and a nil balance confirmation to be taken from the account holder.
•  Recover the unused cheque leaves and enter into the “Broken cheque book Register”
• Remove the account opening form, specimen signature card and all other papers relating to the closed account.
• Remarks of account closing at the ledger folio should be authenticated by the manager of supervising officials

2. The bank may itself ask the customer to close the account when the banker finds that the account is not been operated for a long lime.

• If the account is not operated upon for 6 months the banker will try to do the bilateral communication with the account holder, but if the banker does not then the account becomes “Dormant” account get any response from the account holder
• If this not the operated upon for 2 years then the account becomes “inoperative” account.
• If the current account lying in “inoperative” current account for many years then the account will be transferred to the “unclaimed deposit account.
• A new register for unclaimed deposit account will be maintained called “unclaimed deposit account.
• For withdrawal at any amount from the account, permission from head office or controlling office wins is required.

3. Fixed Deposit Receipt:

These are the deposits, which are made with the bank for fixed period specified in advance. It is purely a time deposit account. The bank doesn’t maintain cash reserves against deposits and therefore the bank offers higher rates of interest on such deposits. A FDR is issued to the depositor acknowledging receipt of the sum of money mentioned therein.

Procedure of Opening Fixed Deposit Account:

Before opening a Fixed Deposit Account a customer has to fill up an application form, which contains the following:

• Amount in figures
• Beneficiary’s name and address
• Period
• Rate of interest
• Date of issue
• Date o of maturity
• How the account will be operated (singly or jointly)
• Signature (s)
• F. D. R. no
• Special instruction (if any)

After fulfilling the above information and deposit the amount, FDR account is opened. A FDR receipt is issued and it is recorded in the FDR Register, which contains the following information:

• FDR account no.
• FDR no.
• Name of the FDR holder with address
• Maturity period
• Maturity date
• Interest rate

At present the rate of interest for Fixed Deposit Receipt (FDR) in the First Security Bank Limited are as follows:

Other Types of Deposit Accounts:

There are also some other types of account facilities provided by the bank. These are:

i.   Short Term Deposit (STD)

ii.   Monthly Saving Schemes (MSS)

iii.  Monthly Benefit Saving Scheme (MBSS)

iv.  Double Benefit Deposit Scheme (DBDS)

i. Short Term Deposit (STD)

It is also a time deposit account. The formalities for opening is of this account are to those required for current account. The only difference is that, frequent withdrawal is discouraged and 7 days notice is required for withdrawal of any sum and interest is paid.

In Short Term Deposit Account, interest offered is less than of savings deposit, 6% interest is paid on this deposit.

ii. Mudarabah Monthly Savings Scheme (MMSS)

Mudarabah Monthly Saving Scheme is that kind of scheme of FSIBL, where deposit is monthly installments of various sizes for a fixed deposit and the benefit is lump sum returns after various terms of period.

The objectives of this scheme are:

• Building the habit of saving
• Attract small savers
• Saving for rainy days
• Ensure regular income flow

So this scheme is introduced to attract depositors and encourage saving (mainly the smaller earner people).

iii. Mudarabah Monthly Profit Scheme (MMPS):

Mudarabah Monthly Profit Scheme is that kind of scheme, where a fixed amount of money has to be deposited every month for five years.

Monthly benefit amount on the deposited amount are as under:

Table-4: Monthly Benefit of MMPS

The objectives of this scheme are:

• Help the retired persons for investing their retirement benefits

• Create investment opportunities for non resident Bangladeshi
• Explore investment opportunities for school, college, university etc.

iv. Mudarabah Double Deposit Scheme (MDDS)

In this scheme, a fixed amount of money, say tk. 50,000 or it’s multiply for 7 years has to be deposited. After 7 years deposited amount will be doubled.

Deposit amount to be doubled in 7 years, details are as under:

 Table-5: Benefits of MDDS.

The objectives of this scheme are:

• Give maximum profit

• Help in meeting specific needs like education, marriage etc.

• Remittance:

Sending money from one place to other places for the customer’s is another important service of banks and this service is an important part of countries payment system. For this service, people specially businesspersons transfer funds from one place to another very quickly. There are various types of remitting money, such as:

a. Pay Order (PO)

The pay order is used for making a remittance to the local creditor. Pay order gives the payee the fight to claim payment from the issuing bank, it can be en-cashed from issuing bank only. Unlike cheque, there is no possibility of dishonoring pay order because before issuing pay order bank takes out the money of the pay order in advance. Pay Order cannot be endorsed or crossed and so it is not negotiable instrument.

b. Demand Draft (DD):

Demand draft is an order of issuing bank on another branch of the same bank to pay specified sum of money to the payee on demand that is the named person or order of the demand. It is generally issued when customer wants to remit money in any place, which is out side of the clearing-house area of issuing branch. Payee can be purchaser himself or another mentioned in the DO. It is a negotiable instrument and it can be crossed or not.

c. Telegraphic or Telephonic Transfer (TT):

This method transfers money to one place to another place by telegraphic message. The sender branch will request another branch to pay required money to the required payee on demand. 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.

When sending money is urgent then the bank uses telephone for remittance. This service is only provided for valued customers, who is very reliable and with which banks have long-standing relationship.

d. Mail Transfer Advice (MTA):

Where the remitter desires the banker to remit the funds to the payee instead of purchasing a draft himself the banker does it through a mail transfer advice. The payee must have an account with the paying officer as the amount remitted in such a manner is meant for credit to the payee’s account and not for cash payment. It is the least used technique for transferring fund. Where there is no telex machine or telephone line then this method is used.

• Clearing:

Clearing house is an assembly of the locally operating scheduled banks for exchange of cheques, drafts, pay orders and other demand instruments drawn on each other and received from their respective customers for collection. The house meets at the appointed hour on all working days under the supervision of two central bank officers or its agent as the case may be, and works within the regulations framed therefore on the basis of prevailing banking practices. In Bangladesh, clearing house sites at Bangladesh bank where there is no office of the Bangladesh bank, Sonali bank acts as agent of Bangladesh bank.

There are mainly two types of clearing system in Bangladesh, such as:

• Internal clearing or inter branch clearing or inward clearing.
• External clearing or inter banks clearing or outward clearing.

Inward Clearing

Inward clearing involves clearing Cheques/DD/PO, which come to the FSIBL, New Eskaton branch through clearing house for collection. The clearing officer receives then enters them in the inward logbook. Then sends them to the cash department for checking the account condition. If any problem is found with the instrument, it is marked as ‘dishonored’ mentioning the reason as mentioned above and he sends to the clearing officer. The clearing officer removes Cheques/DD from logbook and informs the matter to the branch.

Outward Clearing

The cheques, PO, DD of different banks, which are submitted to FSIBL, Topkhana Road Branch, for collection, are known as out- Ward clearing cheques. The procedure is quite lengthy.

Outward Bills for Collection (OBC):

Customers deposit Cheque draft etc for collection attaching with their deposit sleep. Instrument within the range of clearing arc collected through local clearing house but the other which are outside the clearing range are collected through OBC mechanism. A customer of FSIBL bank principal branch local office Dhaka is depositing a Cheque of Sonali bank Cox’s‑Bazar. New as a collecting bank FSIBL  Bank principal branch will perform the following task.

1.      Received seal on deposit slip.

2.      FSIBL local office principal branch crossing indicating them as collecting bank.

3.      Endorsement give payees A/C will be credited on realization.

4.      Entry on register from where a controlling number is given.

Collecting bank can collect it either by its branches of by the drawer’s bank they will forward the bill then to that articulate branch. OBC number will be given on the forwarding letter.

Ex:Two parties(X, Y), two banks (FSIBL, Topkhana Road Branch, FSIBL, Dilkusha Branch). Party “y” gives a Cheque of Dilkusha Branch to party “x” of Topkhana Road Branch. Party x deposit it to Dilkusha Branch than the p.p branch will send it to the Topkhana Road Branch. In that case Topkhana Road Branch will give entry.

            Party a/c……………………Dr.

            Topkhana Road Branch …..Cr.

But when the IBC are collected than the journal will be

            Dilkusha Branch …………..Dr.

            Party a/c ……………………..Cr.

Inward Bills for Collection (IBC):

In this case bank will work as an agent of the collection bank branch receives a forwarding letter and the bill. Next steps are:

1.      Entry in the IBC register, IBC number given.

2.      Endorsement given‑ “our branch endorsement confirmed”.

3.      The instrument is sent to clearing for collection.

4.      Miscellaneous creditor A/C.

Now following procedures will take place in case of the following two cases.

Ex:Suppose party X give a Cheque of Islami bank of Saver in the FSIBL , Dilkusha branch. In that case FSIBL will send an OBC to Islami bank branch at Saver though there is no branch of FSIBL and it is out of clearing house. In that

Case islami bank will give a D.D in favor of FSIBL Dilkusha branch. Than FSIBL Dilkusha branch will send it to the clearinghouse for collection.

The entire number banks representative daily conducts two meetings at a fixed time. In their first meeting they handover cheque, drafts etc. passed, which has drawn upon them. In case there are certain cheques, which could not be honored are returned to the presenting banks with the reason of non-payments in the second meeting at he clearing-house.

a. Operating Procedure:

Clearing operations are completed in three stages:

• Operation at branch level
• Operation at internal clearing house
• Operation at the clearing house in Bangladesh Bank

Bangladesh Bank clearing their house sites twice in a day. In its first meeting Bangladesh Bank clearing-house received instruments and distributes the same among the representatives comes with returned instruments and distributing among the representatives.

b. Software:

Software called NIKASH supplied by Bangladesh Bank is used in clearing of the cheques and other instruments. The in-charge of clearing section makes clearing slip for each cheque through computer using NIKASH and finally this cheques are send to the Bangladesh Bank Clearing-House sorting bank wise.

• Crossing:

Crossing cheque is written across the face of the cheque within two parallel lines. This practice becomes common even outside of clearing house, as an element of safety.

a. Purpose of crossing:

• To avoid possible loss that may occur by open cheques getting into the hands of wrong parties
• Crossing is a direction to the paying bank to pay the money generally to a bank or a particular bank; so that it can be easily traced out for whose use the money was received.

b. Forms of crossing:

General Crossing:

• Not negotiable
• And company and co
• Not transferable

Special Crossing:

• Payee A/C only
• Not negotiable

• Endorsements:

An endorsement is the mode of negotiating, a negotiable instrument.

• Dispatch:

Dispatch includes all correspondence, letter, statements, returns, and telegrams. This dispatch is also known as Mail. Dispatch is primarily divided into two types:

Inward: It means what are receives from the outside.

Outward: It means what sent to the outside.

It is also divided into (a) Ordinary. (b) Registered and (c) Local.

2.     Loan and Advance Division:

FSIBL is committed to provide high quality financial services/products to contribute to the growth of G.D.P. of the country through stimulating trade & commerce, accelerating the pace of industrialization, boosting up export, creating employment opportunity for the educated youth, poverty alleviation, raising standard of living of limited income group and over all sustainable socio-economic development of the country.

In achieving the aforesaid objectives of the Bank, Investment Operation of the bank is of paramount importance as the greatest share of total revenue of the Bank is generated from it, maximum risk is centered in it and even the very existence of Bank depends on prudent management of its investment portfolio. The failure of a commercial Bank is usually associated with the problem in investment portfolio and is less often the result of shrinkage in the value of other assets. As such investment portfolio not only features dominant in the assets structure of the Bank, it is critically important to the success of the Bank also.

Objective and Principles

• The objectives and principles of investment operations of the Bank are:

• To invest fund strictly in accordance with the principles of Islamic Shariah.
• To diversity its investment portfolio by size of investment, by sectors (public and private) by economic purpose, by securities and by geographical area including industrial, commercial & agricultural.
• To ensure mutual benefit both for the Bank and the investment client by professional appraisal of investment proposals, judicious sanction of investment close and constant supervision and monitoring thereof.
• To make investment keeping the socio economic requirement of the country in view.
• To increase the number of potential investors by making participatory and productive investment.
• To finance various development schemes for poverty alleviation, income and employment generation with a view to accelerate sustainable sonic-economic growth and for development of the society.
• To invest in the form of goods and commodities rather than give out cash money to the investment clients.
• To encourage social development enterprises.
• To shown even highly profitable investment in fields forbidden under Islamic Shariah and are harmful for the society.
• The Bank extends investments under the principles of Bai-Murabaha, Bai-Muazzal, Hire Purchase under Shirkatul Meelk and Mudaraba.

Investment Policy and Guidelines

Investment operation of a Bank is vital importance the greatest share of total revenue is generated from it, maximum risk is centered in it and the very existence of a Bank mostly depends on prudent management of its Investment Port-folio.

As such, for efficient deployment of mobilized resources in profitable, safe and liquid investments, a sound, well-defined, well-planned and appropriate Investment Policy framework is necessary prerequisite for achieving the goal of the Bank.

The special feature of the investment policy of the Bank is to invest on the basis of profit-loss sharing system in accordance with the tenets and principles of Islamic Shariah Earning of profit is not the only motive and objective of the Bank’s investment policy rather emphasis is given in attaining social good and in creating  employment opportunities.

Investment client selection:

The study of a borrower is a study of his character, capacity and capital often known as the three “C’s” with a view to consider his credit worthiness and eligibility for a bank investment. Sometimes the words respectability or business moralities are used for character. Respectability does not mean that the borrower should be a title holder or the head of an institution. These points certainly deserve consideration but respectability is more akin to honesty in business dealings. Capacity means the ability to employ the funds profitably and repay the investment according to the terms and conditions of the sanction, the capacity of the investment according to the terms and conditions of the sanction. The capacity of the customer has to be determined and for this purpose enquiries will be necessary to find out his qualifications and experience in the borrower’s own capital. If he has sufficient capital of his own to invest in the business besides the investment applied for he will be considered a more suitable investment customer than one working entirely or mostly with borrowed money.

In order to get a complete picture of the borrower’s credit worthiness, enquiries will have to be made about his business, trade experience assets and liabilities, etc. from various sources. His account with the bank or other banks will throw light on his personal habits and business dealings. His financial statements and income tax returns will have to be seen. Probably an interview with him will be necessary to elucidate or supplement the information that may have been collected. There are hardly any credit agencies in Bangladesh which assist banks in Bangladesh information is usually brief and sketchy and does not give sufficient information that could be of much practical use. It would appear that banks could be in a better position to serve the business community and themselves, if they evolve a system by which detailed credit reports on customers are communicated to each other.

Status Reports:

Status reports on borrowers are sometimes called credit reports, financial reports, bankers, opinion or confidential reports. All these terms carry more or less the same meaning. A status report is an assessment of the borrower’s character, capacity and capital from the point of view of a banker.

Sources:

Banks get information on borrowers through various sources enumerated below:

a) Loan application.

b) Market reports through friends or rivals mostly from the borrower’ trade or business.

c) Mode of living.

d) Borrower’s account with the bank or statements of accounts with other banks.

e) Statements of assets and liabilities. In the case of companies, their balance sheets and profit and loss account for, say, three years, records of the Registrar of companies, etc.

f) Income tax statements.

g) Wealth tax statements.

h) Sales tax returns.

I) Trade and other reports in the press.

j) Reports about actions and decrees in Government Gazettes.

k) Registration, revenue and or municipal records.

l) Other bankers and branches of the bank.

m) Operations by a customer on his safe custody account or locker.

n) Bangladesh Bank Credit Information Bureau.

o) Personal Contact including personal interview.

Personal Interview:

In addition to the information collected from outside sources, it is advisable and perhaps profitable to arrange for a personal interview with the borrower. An experienced banker armed with the reports he already has with him, can gather a lot of information on various points through an interview and should thereby be in a position to asses the three “C’s” of the prospective borrower.

A personal interview is one of the most important duties of a banker and this responsibility should in no case be delegated to an inexperienced officer.

An interview with the borrower may be held in the bank’s office or outside say in a club where the borrower may be invited, or even at the borrower’s place. It may be formal with previous appointment or may be arranged through a common friend. Whatever may be the venue or the manner of the interview, its essential purposes in only one, via, to make first hand study of the borrower?

Points Covered In an Interview:

The main points that will be covered in an interview with the borrower are:-

I) His business.

ii) His capital with particular reference to his working capital.

iii) His experience in the line.

iv) Working results.

v) Amount of the advance and period.

vi) Purpose of the advance.

vii) Source of repayment.

viii) Terms of repayment.

ix) Security offered.

x) Type of charge available.

Proposal on Investment

The proposal on investment contains the following things:

1. All proposals for investment /financial assistance should be prepared on the relevant forms prepared by the bank.
2. A proposal must contain exhaustive information under all the columns in the prescribed form.
3. No query should be left unreeled or vaguely replied.
4. A resume of the party’s relation with the bank should be given in detail.
5. The proposal must contain the details as to the amount, type of security, nature of the change to be created, rate of return, margin, insurance risk to be covered etc. It must also contain the sources of the payment clearly.
6. Where a guarantor is proposed the credit report on the guarantor and his worth should be prepared.

The class to which the party belongs, his character, and ability to run the particular business, his reputation in the trade of profession, his technical or other qualifications, the demand and potential for the end product, the purpose for which the investment is being raised, the condition of the industry as a whole, and if it will help in earning foreign exchange for the country reduce unemployment, promote all round production in the agricultural and industrial field etc are some of the important information which require to be reported/taken care of when processing a proposal for investment.

Investment Assessment & Risk Grading

Investment Assessments

A through investment and risk assessment should be conducted prior to the granting of investments and at least annually thereafter for all facilities. The results of this assessment should be presented in an investment proposal that originates from relationship manager/account officer and is approved by Head of Investment Division. The relationship manager/account officer should be the owner of customer relationship and must be held responsible to ensure the accuracy of the entire investment proposal.

The following steps for completion of Investment Risk assessment for each facility should be followed in conjunction with the guidelines/instructions given in Head Office circulars issued from time to time. All proposals of investment facilities must be supported by a complete analysis of the proposed investment. A comprehensive and accurate appraisal of the risk in every investment exposure of the Bank is mandatory. No proposal can be put up for approval unless there has been a complete written analysis.

Risk Management

Investment proposal should summaries the results of the risk assessment and include, as a minimum, the following details:

• Amount and type of investment(s) proposed.
• Purpose of investments.
• Investments Structure (Tenor. Covenants, Repayment Schedule, Profit)
• Security Arrangements.
  In addition, the following risk areas should be addresses

Borrower Analysis

The majority shareholders, management team and group of affiliate companies should be assessed. Any issues regarding lack of management depth, complicated ownership structure or inter group transactions should be addressed, and risk mitigated.

Industry Analysis

 The key risk factors of the borrowers industry should be assessed. Any issues regarding the borrower’s position in the industry, overall industry concerns or competitive forces should be addressed and the strengths and weaknesses of the borrower relative to its competition should be identified. Supplier/Buyer Analysis Any customer or supplier concentration should be assessed. Any issues regarding the borrower’s position in the industry, overall industry concern or competitive forces should be addressed and the strengths and weaknesses of the borrower relative to its competition should be identified.

Historical Financial Analysis

An analysis of a minimum of 3 years historical financial statements of the borrower should be presented. Where reliance is placed on a corporate guarantor, guarantor financial statements should also be analyzed. The analysis should address the quality and sustainability of earnings, cash flow and the strength of the borrower’s balance sheet specifically; cash flow, leverage and profitability must be analyzed.
Mitigating Factors

Mitigating factors for risk identified in the investment assessment should be identified. Possible risk include, but are not limited to margin sustainability and/or volatility, high debt investment (leverage/gearing), overstocking or debtor issues; rapid growth, acquisition or expansion; new business line/product expansion; management changes or succession issues; customer or supplier concentration; and lack of transparency of industry issues.

Investment Structure

The amounts arid tenors of financing proposed should be justified based on the projected repayment ability and investment purpose. Excessive tenor or amount relative to business needs increase the risk of fund diversion and any adversely impact the borrower’s repayment ability. Security a current valuation of collateral should be obtained and the quality and priority of security being proposed should be assessed. Investments should not be granted based solely on security. Adequacy and the extent of the insurance coverage should be assessed.

Name Lending

Investment proposals should not be unduly influenced by an over reliance on the sponsoring principals reputation, reported independent means, or their perceived willingness to inject fund into various business enterprises in case of need. These situations should be discouraged and treated with great caution. Rather, investment proposals and the granting of Investments should be based on sound fundamental, Supported by a thorough financial and risk analysis.

Risk Grading

The risk grading system should define the risk profile of borrowers to ensure that account management, structure and pricing are commensurate with the risk involved. Risk grading is a key measurement of a Bank’s asset quality, and as such, it is essential that grading is a robust process. All facilities should be assigned a risk grade. Where deterioration in risk is noted, the Risk Grade assigned to a borrower and its facilities should be immediately changed. Borrower Risk Grades should be clearly stated on investment proposal.

There are two major parts of this department:

1. Funded Part
2. Non-funded Part

a. Funded Part:

Over draft and loans comes under this section. By taking collateral from the borrower bank allows to take overdraft facility is a continuous process borrower has to pay interest for the withdrawn money. There are two types of loan:

• Time loan
• Term loan

Funded credits are as follows:

1.        I.      Overdraft: When a current account holder is permitted by the bank to draw more than what stands to his credit, such advance is called an overdraft. The banker may take some collateral security or may grant such advance on the personal security of the borrower. FSIBL gives this overdraft facility to its reputed clients.
2.     II.      Consumer credit: Consumer credit is relatively new field of micro credit activities. People with limited income can avail this facility to buy household products such as Furniture, TV, Refrigerator, Car, etc.
3.  III.      General loan: When a advance is made in a lump sum, repayable either in fixed monthly installment or in lump sum and no subsequent deduction allowed except by way of interest or incident charge etc. is called a general loan. The whole amount of loan id debited to the customers name on a loan account to be opened by the bank and is paid to the borrower either in cash or in his/her CD/SD account.
4.  IV.      Payment Against Documents (PAD): A PAD facility is provided by the bank to customer against the banks to documents/bill, like bill of leading, warehouse keeper certificate, delivery receipt, dock warrant. In other word, payment made by bank against lodgment of shipping documents of goods imported through L/C facility under this head.
5.     V.      Packing credit: Packing credits is essentially a short-term advance granted to an exporter for assisting him to process, pack, and ship the goods.

Other funded credits are as:

1.              I.      Staff loan
2.           II.      Term loan
3.        III.      Cash credit hypothecation
4.        IV.      Loan Against Trust Receipt (LTR)
5.           V.      Small loan

b. Non-funded Part:

There is no cash amount involved in this kind of loan. L/C and Bank Guarantee fall in this kind of loan. In case of L/C foreign exchange department mainly deals with it.

Non-funded credits are as follows:

1. L/C
2.  Bank guarantee.

Loans based on Islamic Shariah:

Bai-Murabaha

The terms “Bai-Mubaraha” have been derived from Arabic word and the word   means purchase and sale and the word means an agreed upon profit. “Bai-Mubaraha” means sale on agreed upon profit. Bai-Mubaraha may be defined as a contract between a Buyer and a seller under which the seller sells certain specific goods permissible under Islamic Shariah and the Law of the land to the buyer at a cost plus agreed profit in cash or on any fixed future date in lump or by installments.

Important Features

Bank shall purchase the goods so that ownership of Bank on the good is established at least for a moment. The bank may also engage the investment client as Buying Agent as per previous agreement to purchase the goods from third party on behalf of the Bank who after purchase shall handover possession of the same to the Bank at least for a second and there after the same shall immediately taken into pledge of the Bank. (Please refer to engaging investment client as buying agent for detailed procedure).

There must be three parties in order to perform buying a selling under Murabaha (a) Bank (b) Seller of Goods (c) Purchaser of Goods. Goods however must not be purchased from client of from any of its sister concern. Goods must also be halal as per Shariah.

• A commodity in the true sense of the term must be involved in buying and selling.
• There must be an agreement between the Bank and the client. Cost of the goods sold and the amount of profit added there with should be separately and clearly mentioned in the Murabaha Agreement.
• After procurement of the goods the client shall take delivery of the same signing on the reverse of the purchase schedule and immediately there after the bank shall take the goods in to pledge as security of Bank’s investment.
• On expiry of the stipulated period, Bank can terminate the contract and dispose of the pledged goods at its own discretion

Terms and Condition

• The client makes a request to the bank or prescribed pro-forma along with the original purchase memo/invoice of the goods from the supplier of goods. The client specifically mentioned the price of the goods and amount of profit he likes to offer to the bank.
• The branch verifies the actual wholesale and retail price of the goods, its quality and its present, past and future market trend through its marketing personnel. The marketing report of the goods duly signed by the authorized officer is a part and parcel of the investment proposal. The credit report of the client must invariable be included in the proposal. After being fully satisfied about the client, the branch on receipt of HO approval will purchase the goods in the name of the bank.
• The payment is made directly to the supplier/seller of the goods/commodities through account payee-pay order after completion of all documentation and other formalities required by bank.
• The branch will retain margin in goods, as determined by the bank.
• The goods are insured covering all possible risks with bank’s mortgage clause in the joint name of the bank and the client. Registers like, murabaha ledger, stock valuation register, insurance register etc. must be maintained.
• The goods are purchased and transported to the bank’s or client’s go down. As the case may be under strict control and supervision of the bank and the goods are stored under bank’s lock and key.
• The client has to execute, sign and submit documents before making disbursement of investment amount. It varies for firms & individual and limited company. In case of firms and individual:
  • Murabaha Agreement.
  • D.P Note.
  • Letter of Pledge along with original purchase memo/ invoice of the goods.
  • Letter of Authorization.
  • Letter of Acknowledgment.
  • Letter from the client handing over physical possession of go down.
  • Letter from the client making them liable in case of theft from go down.
  • Insurance policies.

Types of Murabaha:

A. Ordinary Bai-Murabaha:

If there are only two parties, the seller and the buyer, where the seller as an ordinary trader purchases the goods from the market without depending on any order and promise to buy the same from him and sells those to a buyer for cost plus profit, then the sale is called ordinary Bai-Murabaha.

B. Bai-Murabaha on Order and promise:

If there are three parties, the buyer, the seller and the bank as an intermediary trader between the buyer and the seller, where the Bank upon receipt of order from the buyer with specification and a prior outstanding promise to buy the goods from the Bank, purchases the ordered goods and sell those to the ordering buyer at a cost plus agreed profit, the sale is called “Bay-Murabaha on or promise”, generally known as Murabaha.

C.  Bai-Murabha Import Bills (MIB)

Payment made by the bank against Lodgment of shipping documents of goods imported through L/C falls under this head. It is an interim investment connected with import and is generally liquidated against payment usually made by the party for retirement of the documents for release of imported goods from the customs authority. It falls under the category “commercial Lending”.

Bai-Muajjal

Bai Muajjal  may be defined as a contract between Buyer and Seller under which the seller sells certain specific goods(permissible under shariah and law of the country),to the buyer at an agreed price payable at a certain fixed future date in lump sum or within a fixed period by fixed installment. The seller may also sell the goods purchase by him as per order and specification of the buyer.

It may be noted here that in case of Bai –Muajjal and Bai –Murabaha, the Islamic Bank is a financier to the client not in the sense that the bank finances the purchase of goods by the client rather it is a financier by deferring the receipt of the sale price of goods, it sells to the client.

If the bank does not purchase the goods or does not make any purchase agreement with the seller but only makes payment of any goods directly purchased and received by the client from the bank seller under Bai –Muajjal/Bai Murabaha agreement, that will be a remittance or payment of the amount on behalf of the client any profit on this amount shall be nothing but interest.

Features of Bai Muajjal (BM)

• The bank is not under obligation to advise the cost of goods/items and profit margin separately to the client.
• Sale price of the goods/items is payable by the client of a certain future date, in lump sum or in installment.
• The deal, being a credit sales, ownership and possession of the sold items is transferred to the client by the bank prior to receipt of sale price.
• There should be three parties involved in sale agreement—the bank, the client and the supplier of goods/items.
• Once the agreement is made then bank will not share in any loss or refax the sale price of commodity at a lower rate even if the goods/items, non-it can add any profit when the client earns high rate of profit due to increases of the price of goods.
• Bank cannot charge penalty or similar fee from the client, in case the client pays in sales price to bank later than the date mentioned in the agreement.

Processing and Appraisal

Branch will outright reject the proposals that are:

1. not permitted by Islamic Shariah,
2. restricted by BB, and
3. In conflict with HO guidelines.

Branch manager visits the business site, verify the things mention in the application, client honesty, integrity and business dealing as reasonable sources.

Branch not finalize the proposal until receipt of confidential report from all local banks and financial and credit institution.

Branch manager prepares appraisal report on prescribed form for all proposals. Branch will have inspected the property of the client that will be mortgage. Lawyer declaration is also need for this purpose.

Sanction and Disbursement

On completion of appraisal the branch send a proposal to the HO for approval of BM investment. The HO perusal the proposal and if it thinks fit for investment HO give approval and sent to the branch. HO shall not issue any separate sanction/regret advice to the branch.

The branch obtains a copy of BM Advice from the client duly accepted. This should be preserved with other documents as here under provided. They maintain all kinds of ledger and register books.

Insurance

The assets shall be kept insured to the extent of its book value plus 10% covering all risks including fire, R&D, R.C.C. in the joint name of the bank as owner and the client as hirer at bank’s cost. The condition of obtaining of insurance policy may however be waived for the assets representing consumer durable with prior permission of HO. On receipt of the policy from the insurance co.; check it up to ensure that it has been issued for the amount and with the warranties desired by the bank and also the policy is duly stamped.

Purchase of Goods

Branch should engage a responsible officer to purchase/procure goods from market as per invoice /quotation or according to specification as requested by client. The branch must obtain transit insurance in case the goods are required to be purchased from outstation. Help of local branch may be obtained to purchase goods. Imported goods must be cleared from the custom authority through clearing agent or bank’s approved list.

 Valuation of Commodity

Valuation of the goods to be purchased for investment shall in no case exceed:

The landed cost at the port of entry as assessed by the customs in case of imported goods.

The ex-mill/factory price in the case of domestic manufacture commodities.

The wholesale price fixed by the government, if any, when no such wholesale price is fixed by the government valuation will be based on the competitive price to be ascertained by the bank.

Custody and Control of Goods

Just after procurement/purchase goods, branch should prepare a schedule of goods. This schedule is to be signed jointly is by the incumbent-in-charge/officer-in-charge, investment department and the godown inspector/keeper of the branch. The client will also put his signature on the schedule as a token of his consent regarding procurement of the goods as per his order. The godown deeper shall retain one copy of the schedule in a file to be maintained in the godown.

Follow Up, Supervision and Recovery

If any BM investment is secured by personal guarantee of any third party he should be brought under constant and effective follow up. Branch should send reminder to the client before fifteen days of due date of the payment so that the investment does not become overdue. The client will be served a final notice to make payment within seven days form the date of notice. If no response is received, steps should be taken to dispose off the hypothecated goods/mortgage properties to recover the amount. Suit may be field with permission from HO.

Out of sale proceeds of securities, the investment account of the client will be adjusted and excess amount if any will be refunded to him by issuing and account payee payment order in his favor. In case of shortfall the matter may be immediately intimated to HO. Cash security, if any should also be appropriated.

 3.     Foreign exchange: 

Refers to the process or mechanism by which the currency of one country is converted into the currency of another country. Foreign exchange is the means and methods by which rights to wealth in a country’s currency are converted into rights to wealth in a country’s currency, in bank when we talk of foreign exchange; we refer to the general mechanism by which a bank converts currency of one country into that of another.

Importance of Foreign Exchange Business:

• International trade gives exchange opportunity of goods.
• Consumers get privilege through international trade.
• International trade helps to produce domestic production as well as global production.
• Natural assets of a country are to be utilized property

FSIBL gives paramount importance in its foreign exchange business to ensure profitability. FSIBL has been continuing to extend special importance on foreign business form the beginning of its establishment which is still prevailing during the year. To look after the business and also to ensure prompt service to the import and export officers having exposure and expertise in foreign exchange, posted both Head Office and Authorized Dealer branches.

Foreign exchange is divided in three parts.  

  Export

  Import

  Foreign Remittance

EXPORT:

The term exports means carrying out of anything from one country to another, as banker we define export as sending of visible things outside the country for sale. In a word export means goods are outwards and foreign currencies are inward. Export trade plays a vital role in the development process of an economy.

Export business of FSIBL:

During the year performance of export business of the bank was satisfactory. In 2008 export business stood at Tk. 4,145.00 million as compared to the volume of Tk. 3,648.40 million of 2007.

(Amount in Million)

 Table-6: Export business of FSIBL

In order to export any goods or services to overseas the exporter must have attested photocopies of the following documents with the up to date ERC. The documents are as follows-

  Bill of exchange

  Commercial invoice

  Certificate of origin

  Packing list

  Insurance coverage

  Insurance coverage

If the bank authority satisfies with all the information provided by the exporter, steps are taken to smooth out the process of export.

Procedure of Export:

The Exports Act, 1950 regulate the country’s export trade. There are a number of formalities, which an exporter has to fulfill before and after shipment of goods. These formalities or procedures of export mechanism are enumerated as follows:

Registration:

The exports from Bangladesh are subject to export trade control exercised by the ministry of commerce through chief controller of imports and exports. No exporter is allowed to export any commodity permissible for export from Bangladesh unless he or she is registered with CCI & E and holds valid export registration certificate (ERC). The ERC number is to be incorporated on EXP forms and other documents connected with exports.

Obtaining EXP:

After having the registration, the exporter applies to the bank with trade license and ERC for getting EXP. If the bank satisfied an EXP is issued to the exporter. Securing the order after having the registration, the exporter may proceed to secure the export order. Contracting the buyers directly through correspondence can do this.

Signing of the Contact: The following points are to be mentioned while making a contract-

  Description of the goods

  Quantity of the commodity

  Price of the commodity

  Shipment

  Insurance and marks

  Inspection

Procuring the Materials:

After making the deal and on having the L/C opened in this favor, the next step for the exports is to set about the task of procuring the contracted merchandise.

Shipment of Goods:

The following the documents normally involved at the stage of shipment 

  EXP form

  Photocopy of registration certificate

  Photocopy of the contract

  Photocopy of the L/C

  Freight certificate from the bank

  Railway receipt, barges receipt or truck receipt

  Shipping instructions

  Insurance policy

After those, exporter submits all those documents along with a letter of indemnity to the bank for negotiation; an officer scrutinizes all the documents. If the document is a clean one, FSBL purchases the documents on the basis of banker-customer relationship. This known as foreign documentary Bill purchase (FDBP).

Procedure for FDBP:

After purchasing the documents, FSIBL takes FDBP charges from customers A/c. a FDBF register is maintained for recording all the particulars.

Foreign Documentary bills for Collection:  FDBP signifies that the exporter will receive payment only when the issuing bank gives payment. The exporter submits duplicate EXF form and commercial invoice, an FDBP register is maintained where first entry is given, when the documents are forwarded to the issuing bank for collection and the second one is after realization the proceeds.

Advising L/C:

When L/C export) is transmitted to the bank for advising the bank sends advising letter to the beneficiary depicting that L/C has been issued. The procedure of L/C advising is as follows—

  Verify the signatures

  Given entry in the L/C advising register.

  Issued voucher for L/C advising commission

Letter of Credit (L/C):

Letter of Credit (L/C) is an arrangement between an importer and the bank (issuing bank). The bank provides L/C in order to purchase goods from the exporter. The bank acts on the behalf of the clients to deal with exporter and the clients make the payments after receiving the goods accordingly.

Requirement of Opening a L/C:

  Current deposit account holder

  IRC (Import registration Certificate)

  Import policy

  L/C authorizing form duly registered

  L/C authorizing form duly registered

 L/C applications duly fill up and sign

  L/C applications duly fill up and sign

  Contract/indent

  Insurance coverage

  Income tax document

  Contingency liability voucher

  L/C registration

Parties involved in L/C

Opener /Buyer/Importer

The person who opens the L/C is known as opener /Buyer/Importer of the L/C. the buyer and the seller conclude a sales contract providing for payment by documentary credit.

Opening Bank

The bank issuing the L/C in favor of exporter in known as opening bank. the opening banks open L/C on request of importer according to the application of the importer.

Advising Bank

The bank though L/C is advised, L/C will be sent to the beneficiary through their agent (corresponded bank) abroad. The duty of the advising bank is to authenticate the message so that reseller can act on it without any fear of forgery etc.

Beneficiary

Seller and export whose favor the L/C is opened. The beneficiary is normally the seller of goods who receive payments under documentary credit if he has compiled with terms and conditions thereof.

Negotiating bank

The bank that is authorized to handle (purchase) the documents under the L/C in the exporting country is known as negotiating bank. L/C will stipulate either a notified bank to negotiate (restricted L/C) or any bank can negotiate in the seller’s country (unrestricted L/C).

Reimbursing bank

The bank that is (by the L/C issuing bank) to effect reimbursement is known as reimbursing bank. Reimbursing bank is authorized to honor the reimbursement claims in settlement of negotiation/acceptance /payments lodged with it by the paying /negotiation/accepting bank.

Confirming bank

A confirming bank is one which adds the guarantee to the credit opened by another bank, thereby undertaking the responsibility of payment /negotiating/acceptance under the credit in addition to that of the issuing bank. A confirming bank normally does so requested by the issuing bank.

Types of L/C

• Revocable/Irrevocable L/C.
• Confirmed/unconfirmed L/C.
• Transferable L/C.
• Back to bank L/C.
• Acceptance L/C.
• Revolving L/C.
• Red Clause L/C.
• Green clause L/C.

Back-to-Back Letter of Credit (BTB L/C):

A back-to-back letter of credit is a new credit. The banks main security is the original credit. Bank to back L/C is opened under a master L/C one or more L/C is opened against one master L/C.

Requirements of Opening a Back-to-Back L/C:

  Master L/C

  Valid import registration certificate and Export Registration certificate

  L/C Application and LCA form duly filled in signed

  Pro-forma invoice or indent

  Insurance cover note.

  IMP form duly signed.

Types of BTB L/C:

There three types of BTB L/C they are–

  Local BTB L/Cs

  Foreign BTD L/C

  EPZ

Opening Process of a L/C:

a) Approach by the applicant with submission of under mentioned documents:

  Approach letter

  L/C agreement

  L/C authorization form

  IMP form

  Pro forma invoice

  Insurance

b) Preparation of proposal by the branch. Parts of proposal are stated bellow:

  Name and address of the applicant

  Nature of constitution with name of owners

  Nature of business

  IRC # TIN #

  Commodity to be imported

  Beneficiary’s name and address

  Beneficiary’s credit report

  Country of origin Liability

  Security

  Other Conditions

  Recommendation 3 on receipt approval from the competent authority, branch issues L/C.

c) On the issuance of L/C, Branch may use the printed copy as prepared by the individual bank or developed by the concerned official. Related copies are stated bellow:

  Original copy

  Applicant copy

  Advising bank copy

  Issuing bank copy

  CCI and E copy (only for foreign L/C)

d) Parts of a L/C are discussed bellow: 

  The L/C may be irrevocable document

  L/C opening date must be mentioned

  L/C number

  Beneficiary’s name with address

  Applicants name with address

  Advising bank

  Amount

  Date of shipment

  Sight

  Date and place of expiry

  Pro-forma invoice with date that had been sent by the Beneficiary

  Signature of authorized officials

  Other terms and conditions

Documentation:

At first prepare forwarding. Then arrange the following documents-

  Bill of exchange

  Commercial invoice

  Packing list

  Certificate and other documents

Retirement:

This means wait for payment. When the beneficiary sends the goods, they send related documents for payment to the bank. The bank starts the retirement procedure. At first checking these documents with the L/C, L/C time, date number, invoice, terms and conditions, beneficiaries.

Foreign Payment:

The issuing bank prepares voucher, then entries in the IBTA register, ETDA, and then sends to the ID. Id informed the bank, which maintains liaison between the issuing bank and advising bank. Then the bank pays to the beneficiary after checking the authentication code.

Payment:

Then they pay in local payment and foreign payment

Local Payment:

Local payment, the bank used P.O and Demand Draft.

Accounting Treatment for L/C:

 IMPORT:

Import is foreign goods and services purchased by firms, customers and government in Bangladesh. An importer must have import registration certificate (IRC) given by Chief Controller of Import & Export to import any thing from other country.

Import Business of FSIBL:

During the Year performance of import business of the bank was not satisfactory. In 2008 import business stood at Tk. 9,287.00 million as compared to the volume of Tk. 14,344.44 million of 2007.

(Amount in Million)

 Table-7: Import business of FSIBL

Import Procedure:

The importer enters in to a purchase contract with foreign suppliers. If suppliers have local agent, the importers obtain an indent and pro-forma invoice. If the suppliers have no local agents in Bangladesh, the importers holding valid import registration certificate (IRC).

Documents that needed for opening an import L/C are listed bellow:

  L/C application duly signed and sealed by the opener.

  At least 4 copies of pro-forma invoice/indent duly signed and sealed by the opener and beneficiary.

  Party application form duly signed and sealed by the opener.

  LCA/IMP forms duly signed and sealed by the opener.

  Beneficiary credit report

  Insurance cover note with money receipt.

Import Mechanism:

The exports and imports Act, 1950 regulate the country’s import trade. The chief controller of import and export provided the registration to the importer. Then the person secures a letter of credit Authorization from Bangladesh bank. And then a person becomes a qualified importer.

The import mechanisms are discussed bellow:

  To have an import L/C limit, an importer submits an application to the import department. An officer scrutinizes this application and accordingly prepares a proposal and forwards it to the head office. If the MD satisfies, he sanctions the limit and returns to the branch.

  After sanctioning the limit, an officer of FSIBL makes a L/C application.

  After making the L/C application, must be scrutinized by the authority.

  The transmission of L/C is done through tested telex or fax or mail to advise the L/C to the beneficiary.

  After receiving all documents, the negotiating bank checks the documents against the credit. It the documents are found in order, the bank will pay accept or negotiate to FSIBL.

The officials have to very much careful while making payment. This task constitutes the following–

  Usually payment is made within seven days after the documents have been received.

 A sale memo is prepared at B.C. rate to the customer. As TI and 00 rate is paid to the ID, the difference between these two rates is exchange trading. Finally, an inter Branch Exchange Trading credit advance is sent to ID.

  For arranging necessary fund for payment, a requisition is sent to the ID

  Telex is transmitted to the correspondent bank ensuring that payment is being made.

Remittance means to sent or transfer money worth from one place to another In this case, the bank acts as the media to transfer or remit the money. Against the service it charges some commissions from the client.

Drawing arrangements:    

Drawing arrangements is made to facilitate remittance through concluding accounting relationship between a bank and corresponding, which may exist in the following three forms of accounts.

NOSTRO A/C:

A foreign currency account that a local bank maintains that account with another bank in abroad. Nostro accounts are usually in the currency of the foreign country. This allows for easy cash management because currency doesn’t need to be converted.  Nostro is derived from the latin term “ours.”

VOSTRO A/C:

An account, which a foreign bank maintains with a local bank, is called VOSTRO A/C. The account a correspondent bank, usually U.S. or UK, holds on behalf of a foreign bank. Also known as a loro account. Account used by a bank to describe a demand deposit account maintained with it by a bank in a foreign country.

A Nostro or Vostro (from Latin: nostra and vostra, ours and yours) Account is a deposit account that a bank holds at a foreign or correspondent bank for the purpose of holding foreign currency and making/receiving international payments. A single deposit account is a Nostro account from the perspective of one bank and a Vostro account from the perspective of another. The bank that owns a correspondent account at a bank in another jurisdiction refers to such account as a Nostro account (“our account at your bank”). The correspondent bank will refer to the same account as a Vostro account (“your account with us”).

The terms nostro and vostro remove the potential ambiguity when referring to these two separate accounts of the same balance and set of transactions. Speaking from the bank’s point-of-view:

• A nostro is our account of our money, held by you
• A vostro is our account of your money, held by us

A bank counts a nostro account with a credit balance as a cash asset in its balance sheet. Conversely, a vostro account with a credit balance (i.e. a deposit) is a liability, and a vostro with a debit balance (a loan) is an asset. Thus in many banks a credit entry on an account (“CR”) is regarded as negative movement, and a debit (“DR”) is positive – the reverse of usual commercial accounting conventions.

With the advent of computerized accounting, nostros and vostros just need to have opposite signs within any one bank’s accounting system; that is, if a nostro in credit has a positive sign, then a vostro in credit must have a negative sign. This allows for a reconciliation by summing all accounts to zero (a trial balance) – the basic premise of double-entry bookkeeping.

For example: FSIBL does some transactions (loans, foreign exchange, etc.) in US$, but banks in BD will only handle payments in BDT. So FSIBL opens a US$ account at foreign bank CitibankNew York, USA, and instructs all counter-parties to settle transactions in US$ at “account no.123456 in name of FSIBL, at CitibankNew York, USA. FSIBL maintains its own records of that account, for reconciliation; this is its nostro account. CitibankNew York, USA record of the same account is the vostro account.

  Foreign Remittance

FSIBL is authorized dealer to deal in foreign exchange business. So it must provide some services to the clients regarding foreign exchange and this department services these facilities.

The basic function of this department are outward and inward remittance of foreign exchange from one country to another country. In the process of providing this remittance services, it sells and buys foreign currency. The conversion of one currency into another takes place at an agreed rate of exchange, which the banker quotes, one for buying and another for selling. The difference between bank’s buying rate and selling rate is termed as ‘dealing spread’ or the exchange profit.

The remittance process involves the following four modes:

   1. Cash Remittance

   2. Traveler’s Cheque (TC)

   3. Foreign Demand Draft

   4. SWIFT charges

In these processes of remittance, bank profit as a business institution. Profit is made in two ways:

   1. Commission charged

   2. Difference in the buying and selling

FSIBL has been successful in terms of expansion of its remittance business with its correspondent and exchange houses. This bank has arrangement for drawing with the banks and exchange companies situated at the important countries of the world. In the mean time the bank has been able to draw confidence of the Bangladeshi expatriates by easy and quick delivery of their hard earned foreign remittance to pays at home. In 2008 foreign remittance stood at Tk. 806.00 million as compared to the volume of Tk. 330.00 million of 2007.

(Amount in Million)

 Table-8: Foreign Remittance of FSIBL

Types of Remittance: There are two types of Remittance:

1. A.    Foreign inward remittance:

The remittance in foreign currency, which is received from outside the country to our country, is known as foreign inward remittance. The remittance can be performed in two proceeds:

  Visible inward remittance: e.g. export proceeds.

  Invisible inward remittance: e.g.; family maintenance consultant fee. Cash is remitted through TT, DO, etc.

B. Foreign outward remittance: Funds remitted to overseas on behalf of the client:

FSIBL FOREIGN TARNSACTIONS:

  Great Britain pound

  U.S Dollar

  EURO

  YEN

4.     IT Division:

FSIBL has an Information Technology Division (IT) 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 PcBank/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. FSIBL has a plan to introduce centralized system for online banking.

Network Privileges:

Most Network users will have access to the following types of network resources.

Access to Banking Application: There is several category users using the banking application. As per their tasks distribution, IT division provides the User ID privilege to the users.

Access to Databases: Most databases will have a standard user level which gives users appropriate permissions to enter data and see report information. However only the database administrators will have full access to all resources on a database.

Server Operator: Server operator has full privileges on servers including reading and writing of data, installing programs, and changing settings.

Domain Administrator: Domain Administrator has full privileges on all computers in the domain including servers and workstations. Privileges include reading and writing data, installing programs, and changing settings.

User ID maintains: Every user must have their unique user ID with valid password. If any user makes 3 consecutive unsuccessful attempts, he/she will be log out from the application. System never allows the same user ID and Password.

Network Security Policy:

FSIBL has a network documentation policy which is an internal policy. This policy defines the level of network documentation required such as documentation of which switch ports connect to what rooms and computers. It defines who will have access to read network documentation and who will have access to change it. It also defines who will be notified when changes are made to the network. This policy is designed to provide for network stability by ensuring that network documentation is complete and current. This policy should complement disaster management and recovery by ensuring that documentation is available in the event that systems should need to be rebuilt. This policy will help reduce troubleshooting time by ensuring that appropriate personnel are notified when changes are made to the network.

Business Continuity Plan (BCP):

The Business Continuity Plan examines plans and priorities for the use and support of information technology in the various products of FSIBL. The Bank’s BCP combines high level strategic planning with some degree of deliberate planning. The bank has undertaken this BCP process for several reasons:

• To establish a plan for during he office hour disaster.
• Outside the Office hour disaster.
• Immediate and long term action plan in the line with business.
• Emergency contact policy with the corresponding personnel as well as with the vendors
• Backup, restore etc.

Currently FSIBL banking software is running under distributed system. Bank has it’s own policy for the above matters.

• For any office hour disaster, branches can restore their own backup data. Backup data are available in the branch level, different geographical location as well as in the Head Office.
• Outside the office hour disaster branches can take the same procedure.
• Bank has it’s own long-term business plan as well as short term policy. All the application software, which are running at the branch level and Head Offcie level are well documented with the user manuals.

Backup/Restore Policy:

Policy for backup/restore the transactional data is daily practice for the Bank. If any disaster is occurred with the life system than FSIBL need to use this Back-Up data. All the branches preserve Before End of Day (BOD) and After End of Day (EOD) backup for transactional data.

The following steps have taken to keep the backup data for the branches:

1)      Hard Drive Backup.

2)      Tape Drive/CD ROM Back-up

3)      Off site Back-up.

Achievements:

Credit Rating:

Credit Rating Agency of Bangladesh (CRAB) Limited has assigned BBB1 (Pronounced Triple B One) rating in the long term and ST-3 rating in the short term to First Security Islami Bank Limited (FSIBL).

Commercial banks rated in the long tern BBB1 belong to ‘Average Safety’ cohort. These banks are adjudged to be solid banks, characterized by average financials, valuable and defensible business franchises, and an attractive and stable operating environment. This level of rating indicates average capacity for timely payment of financial commitments, moderate likeliness to be adversely affected by foreseeable events. Commercial banks rated in the short term ‘ST-3’ category are considered to have average capacity for timely repayment of obligations, although such capacity may impair by adverse changes in business, economic, or financial conditions. Banks rated in this category are characterized with satisfactory level of liquidity, internal fund generation, and access to alternative sources of funds.

Prevention of Money Laundering:

Money laundering risk is defined as the loss of reputation and expenses incurred as penalty for being negligent in prevention of money laundering. For mitigating the risk the bank has designated Chief Compliance Officer at Head Office and Compliance Officer at branches, who independently      review the transactions of the accounts to verify suspicious transactions. Manuals for Prevention of Money Laundering, KYC and Transaction profile have been introduced. Training has been imparted to Executives, Officers and staff for developing awareness and skill for identifying suspicious transactions and other Money Laundering related activities.

List of the Branch:

Table-8: Branch list of FSIBL

Proposed Branch:

Branch Network and Expansion:

During the year 2004 the total number of branches of First Security Islami Bank Limited stood at 12, in 2005 it was not changed and in year 2006 it stood at 15 branches. From 2007 the no. of Branches increased rapidly. In 2007 it was 20, in 2008 it was 29 and in 2009 it was 34. The Bank has proposed a long-term program to Bangladesh Bank to open more branches in phases in important locations in Bangladesh.

Table-9: Branch Expansion of FSIBL

Dividend as % of net Income 

 Analysis:

Analysis is the process of breaking a complex topic or substance into smaller parts to gain a better understanding of it. It also means examination and division of a business-related situation or problem into major elements in order to understand the item in question and make appropriate recommendations. For this report I present the Financial and Operational analysis of FSIBL and lastly I try to present the SWOT analysis of FSIBL.

 Financial Performance:

Interest expense ratio: Interest expense ratio is different method to evaluate the bank’s expense management.

Interest Exp. Ratio = Interest expenses / Total operating income      (Tk. in Million)

Table-10: Interest expense ratio.

Interpretation: From the above data we see that interest expenses ratio was more over stable up to 2005-2007 but increased more in 2008. It indicates that the bank was trying to keep the interest expenses more stables up to 2007 but in later period they were unable to maintain the track.

CAMEL Rating:

The early warning system for problem banks through the CAMEL (Capital, Assets, Management, Earnings, and Liquidity) rating technique introduced tor strengthening and modernizing Central Bank’s supervision and inspection was continued during the year.

CAMEL rating is a suitable way of analyzing bank’s financial performance. It is a technique, which is widely used by the central bank as well as financial analysts to identify bank’s financial position. Five alphabets of CAMEL means:

C = Capital adequacy

A = Asset quality

M = Management efficiency

E = Earnings

L = Liquidity

These cover all major aspects of financial indicators. To appropriately identify bank’s financial position, rating is used which is calculated by following way-

 Table-11 CAMEL rating Calculation.

Elements of CAMEL rating are calculated step by step in the following:

Here we use the data of 2007, because all of the data of 2008 required for CAMEL rating is not available.

1. Capital adequacy: Capital adequacy of First Security Islami Bank Limited was 9.15% in year 2007.

 Interpretation:

Since the capital adequacy ratio of the First Security Islami Bank Limited in 2007 was 16.49%. So, the capital adequacy of First Security Islami Bank Limited is strong. That means rating is 1.

2. Asset quality: To identify of assets quality of First Security Islami Bank Limited, classification of loans and advance and provision for loans and advances is required to know –

 Classified loan ratio = Classified loan / total loan

                                 = 1,210.64million / 18,616.22 million

                                 = 0.06%

 Interpretation:

Classified loan ratio of the First Security Islami Bank Limited at 2007 was 0.06%. So, the asset quality of First Security Islami Bank Limited is Strong. That means rating was 1.

3. Earnings:               ROA = Net income / Total asset                         (Tk. in Million)

Interpretation:

Return on assets of the First Security Islami Bank Limited at 2007 was 0.0021%. So, the Earnings of First Security Islami Bank Limited is Unsatisfactory. That means rating was 5.

4. Liquidity: Liquidity ratio = total liquid assets / total times demanded liabilities

                                               = 4,091.42 million / 20,304.85 million = 20%

 Interpretation: Liquidity of the First Security Islami Bank Limited at 2007 was 4,091.42 million. So, the liquidity ratio of First Security Islamic Bank Limited was 20%. That means rating was 2.

5. Management efficiency:

The management rating is an average of the four ratings given to capital, assets quality, earnings and liquidity.

Rating [(C+A+E+L)/4] = (1 + 1 +4 +2) / 4= 2

Interpretation:  The range of rating of Management efficiency of First Security Islami Bank Limited was 2, which was Satisfactory. That means rating was 2.

 CAMEL Rating:

Composite Rating: Composite rating is the average of the all ratings.

Thus, Composite rating = (1+1+2+5+2) / 5   = 2.2

 Conclusion of CAMEL rating: Since the composite range of CAMEL rating of First Security Islami Bank Limited in 2007 was 2.2. Therefore, it shows that the financial position of First Security Bank Limited is Satisfactory.

 Capital & Reserves:

Capital is an extremely vague term whose specific definition depends on the context in which it is used. In general, it refers to financial resources available for use. In banking capital means-measure of financial strength; funds invested in a bank, including Common Stock and qualifying Preferred Stock, Mandatory Convertible securities, such as Capital Notes plus retained earnings.

Capital funds:

Authorized capital of the bank is tk. 1,000.00 million and paid up capital was tk. 320.00 million in the year 2004. Over the period 2005-2006 the Authorized capital was fixed at tk. 1500.00 million and it increases to 3,600.00 million and 4,600.00 million in the period 2007 and 2008 respectively. After the year 2004 Paid-up Capital increased rapidly such as 600.00, 900.00, 1,000.00, and 2,300.00 in the period 2005, 2006, 2007, and 2008 respectively.      

(Amounts in million Tk.)

Table-12: Trend of Authorized Capital & Paid-up Capital

Capital Adequacy Ratio (CAR):

CAR is a measure of a bank’s capital. It is expressed as a percentage of a bank’s risk weighted credit exposures.

Also known as “Capital to Risk Weighted Assets Ratio (CRAR).” This ratio is used to protect depositors and promote the stability and efficiency of financial systems around the world.
Two types of capital are measured: tier one capital, which can absorb losses without a bank being required to cease trading, and tier two capital, which can absorb losses in the event of a winding-up and so provides a lesser degree of protection to deposit

(Amounts in million Tk.)

Table-13: Capital Adequacy Ratio.

Reserve Funds:

Funds set aside to cover future expenses, losses, or claims. To retain; to keep in store for future or special use; to postpone to a future time.

A legal reserve is a monetary account required by law to be established by insurance companies and banks as protection against losses.

There are two basic types of reserves, Primary Reserves, including cash needed to operate a bank, and cash and deposits at a Central Bank to meet the required Reserve Ratio and secondary reserves. Required reserves are listed in the balance sheet under the asset category “cash and due from other banks.” Secondary reserves are funds that can be kept in liquid investments, Treasury or municipal bonds, and can be sold readily if necessary.

Reserve fund of the bank was tk. 8,190.56 million at 2007 and it decrease to tk. 5,959.99 million as on 31^st December 2008. The reserve fund of First Security Islami Bank Limited for the period 2004-2008 was as follows-

(Amounts in million Tk.)

 Table-14: Trend of Reserve Funds

 Profitability position of FSIBL for last 5 years:

(Amounts in million Tk.)

 Table-15: Profitability position of FSIBL

 Total Assets position of FSIBL for last 5 years:

Trend of total asset is shown in the table from year 2004-2008.

(Amounts in million Tk.)

 Table-16: Total Asset Growth.

Asset Portfolio:

The bank total assets outstanding as of December 31, 2008 amounted to Tk.  31,239.00 million as compared to 2007 amounted to Tk. 26,942.00. Loans & advances contributed 80.33, cash 4.39%, balances with others bank 6.37%, money at call and short notice 0.68%, investments 5.06% and the total other assets 4.13% .

Table-17: Assets Portfolio of FSIBL

Deposits and other Accounts:

Deposits are the major sources of a Banks fund. They serve surplus units offering a wide variety of deposit accounts. During the preliminary stages of operation the volume of deposit was comparatively low. But it started increasing as its operations gets going.

The total deposit of the Bank increased sharply from Tk. 11,231.67 million at the end of 2004 to Tk. 14,012.17 million at the end of 2005 and at the end of the year 2006 it increased to 17,592.00 million. Deposits of the bank stood at tk. 23,504.04 million at the end of December 2007 as compare to tk. 25,854.54 million at the end of December 2008. Deposits of the bank include Savings bank deposits, Term deposits, Current and other account deposits and bills payable.

(Amounts in million Tk.)

 Table-18: Total Deposits Growth.

(Amounts in million Tk.)

Table-19: Trend of Liquid and Fixed Assets.

The above figure shows a significant improvement of the FSIBL in treasury management. In successive years it has a remarkable improvement to increase its current assets while keeping investment in fixed. Even in year 2008 the fixed assets remain approximately close to previous year while there is a large growth in liquid asset this helped FSIBL to gain from money market fluctuation in interest rate.

Asset utilization:

Asset utilization ratio = Total operating income / Total asset

(Amount in Million Tk.)

Table-20: Asset utilization ratio.

Interpretation: The data of asset utilization shows that the ratio of FSIBL gradually decreased from 2004 to 2008 and only in 2006 it increased and again decreased. This indicates that the bank is most inefficient to mobilize profit from total assets. Because after 2006 it again decreased and in 2008 it increased.

 Total Liability & Shareholder equity position for last 5 years:

Liabilities recorded on the balance sheet (right side), liabilities include loans, accounts payable, mortgages, deferred revenues and accrued expenses. Liabilities are a vital aspect of a company’s operations because they are used to finance operations and pay for large expansions. They can also make transactions between businesses more efficient.

Total Liability:

The following figure shows the Total Liabilities of FSIBL for last 5 years

(Amount in million)

Table-21: Total Liabilities of FSIBL

Loans and Advances:

First Security Islami Bank Limited has been extending credit facilities to productive and priority sectors under the guidelines of Bangladesh Bank. Outstanding advances of the bank moved up from tk. 18,616.22million on the 31^st December 2007 to tk. 25,094.65million on the 31^st December 2008. That means the loans and advances of First Security Islami Bank Limited has increased over time. In extending credit facilities, the bank attached due importance to sectoral needs and requirements of both public and private sectors.

(Amounts in million tk)

Table-22: Loans and Advances comparing with Contingent Liabilities.

Shareholder equity:

The following figure shows the Shareholder equity of FSIBL for last 5 years.

(Amounts in million tk)

 Table-23: Shareholder equity of FSIBL

Earnings Per Share (EPS):

Earnings per share in year 2004 was Tk. 31.71 million but decreased in 2005 to Tk. 3.06 million, and in 2006 it was -16.28. After that it started to increase and in year 2007 it stood Tk. 3.20 million and in year 2008 it was Tk. 7.35 million.

(Amount in Million)

Table-24: Earnings Per Share

Operational Performance:

Operational performance consists of a set of management and analytic processes, supported by technology, that enable businesses to define strategic goals and then measure and manage performance against those goals. Core BPM processes include financial and operational planning, consolidation and reporting, business modeling, analysis, and monitoring of key performance indicators linked to strategy.

Operating Performance:

Capital to deposit ratio = Total Capital / Total deposit

(Tk. in Million)

Table-25: Capital to deposit ratio.

Loan to deposit ratio: Loan to deposit ratio = Total Loan / Total deposit

(Tk. in Million)

 Table-26: Loan to deposit ratio

Asset Evaluation:

Here I present the Asset Evaluation of FSIBL for the year 2007, because some date needed for asset evaluation of 2008 is not available. FSIBL’s total assets at the end of 2007 were BDT 26,941.78 million, and increase compared to the previous year of 31.75%. The growth in total assets was largely reflecting the increase of other assets (56.82% growth) which includes accrued income, fixed assets (48.28% growth) , loans and advances (36.42% growth), balances with other financial institutions (23.61 growth). In 2007, FSIBL’s assets composition was typically dominated by Loans and Advances with 69% of total assets followed by balance with other financial institutions (10%) and investment (9%). Bank’s investment Portfolio comprises high quality assets like treasury bills and Reverse Repo. FSIBL did not have any investment in the stock market last year.

Asset Composition of FSIBL: 2007

Deposit Position:

About 91% of total deposit of FSIBL belonged to term deposit which is considered as high cost deposit. Only 5% of total deposit comprised current and savings deposit. In 2007 total deposit of FSIBL grew by 33.61% and stood at BDT 23,504.05 million. FSIBL’s total deposit in 2006 was BDT 17,592.01 million which was about 21.85% lower than that of its peer group average.

 SWOT Analysis:

A tool that identifies the Strengths, Weaknesses, Opportunities and Threats of an organization. Specifically, SWOT is a basic, straightforward model that assesses what an organization can and cannot do as well as its potential opportunities and threats. The method of SWOT analysis is to take the information from an environmental analysis and separate it into internal (strengths and weaknesses) and external issues (opportunities and threats). Once this is completed, SWOT analysis determines what may assist the firm in accomplishing its objectives, and what obstacles must be overcome or minimized to achieve desired results. Typically the analysis seeks to answer two general questions: Where is the organization now? And, in what direction is the organization headed? Factors studied in order to answer these questions are the social and political developments impacting on marketing strategy, competitors, technological advances, and other industry developments that may affect the marketing plan.

• Strengths: attributes of the person or company that is helpful to achieving the objective.
• Weaknesses: attributes of the person or company that is harmful to achieving the objective.
• Opportunities: external conditions that is helpful to achieving the objective.
• Threats: external conditions which could do damage to the business’s performance.

The SWOT analysis of FSIBL is given below:

 Findings & Discussion:

Except some aspects FSIBL has maintained a strong market position by adding value to the shares. During the year 2007 and 2008 Deposit Mobilization, enhancement of Loans and effective Risk Management has placed the bank in sound footings.

 Investment income position:

Income coming from interest payments, dividends, capital gains collected upon the sale of a security or other assets, and any other profit that is made through an investment vehicle of any kind. In income statements of publicly traded companies, We are  commonly see an item called investment income (or losses); this is where the company reports the portion of the net income that was obtained through investments made with surplus cash as opposed to being earned with the company’s usual line of business.

Interest on Margin Accounts may be used to offset investment income without limitation. Investment income earned by passive activities must be treated separately from other Passive income.

(Amount in Million)

Table-27: Investment Income Position.

 Profit margin position:

Operating Profit margin:

A ratio of profitability calculated as net income divided by revenues, or net profits divided by sales. It measures how much out of every dollar of sales a company actually keeps in earnings. The profit margin is an accounting measure designed to gauge the financial health of a business firm or industry. In general, it is defined as the ratio of profit earned to total sales receipts (or costs) over some defined period

This ratio indicates operating income of the bank in relation to total revenue after taking into account operating cost.

Operating Profit margin = Operating profit / Total Revenue.

(Tk. in Million)

 Table-28: Operating Profit Margin.

Interpretation: In case of First Security Islami Bank Limited we observed that operating profit margin ratio increased gradually over the period this indicates that the bank is operationally efficient.  

Net Profit margin: This ratio indicates net income of the bank in relation to total revenue after taking into account operating cost, financial expenses and corporate taxes.             

 Net Profit margin = Net income / Total Revenue.

 (Tk. in Million)

 Table-29: Net Profit Margin.

Interpretation: In case of First Security Islami Bank Limited, we observed that net profit margin ratio increased over 2004-2005. But in 2006 it falls badly and reached negative. This ratio has increased due to the decrease of administrative, general expense and income tax relative to revenue.

Return on assets (ROA):

Return on assets measure the success of a firm in using assets to generate earning independent of the financing if those assets. This measure therefore separates financing activity from operating and investing activities. ROA is particularly useful in assessing the performance of business segment of firm when as is typical, financing for those segments comes form a central corporate pool of resources.

In other words ROA means “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 annual earnings by its total assets, ROA is displayed as a percentage. Sometimes this is referred to as “return on investment”.”             

ROA = Net income / Total assets                

(Tk. in Million)

Table-30: Return on assets (ROA)

Interpretation:

The ratio of return on asset of First Security Islami Bank Limited is relatively low; it is lower than 1% over the years 2005 to 2008. It had increased little in 2006 .It indicates that total asset of the bank increased but net profit did not increase with the assets. This shows the management inefficiency in using the bank asset to generate profit.

  Return on Equity (ROE):

Return on Equity (ROE): This ratio indicates the degree to which the form is able to convert operating income into an after income that eventually can be claimed by the shareholder. This is a useful ratio for analyzing the ability of the firm’s management to realize an adequate return on the capital invested by the owners of the firm.

In other words ROE means “A measure of a corporation’s profitability that reveals how much profit a company generates with the money shareholders have invested. “
Calculated as:

Also known as “return on net worth (RONW)”.

Investopedia Says:

The ROE is useful for comparing the profitability of a company to that of other firms in the same industry.

(Tk. in Million)

Table-31: Return on Equity (ROE)

Interpretation: From the above data we find that return on equity of FSIBL in 2004 was 37.22% which was decreased to 02.19% in 2005, and finally it reached to negative figure in 2006. After decrease it again increased in 2007 and 2008, because the bank has increased its net income as well as the equity.

 Investment income as % of total deposit:

(Amount in Million)

Table-32: Investment income as % of total deposit.

Cash as % of total assets:

 Table-33: Cash as a % of Total Assets

The Above figure shows rate of growth of the liquid assets. In this figure we see that in year 2004 cash was 19.10% of total assets and next year it was decreased to 15.72%, due to the expansion of business, major investment in this year was in primary cost of opening of new branches including proclamation of land and installment of computer and furniture. In 2006 it was again increased and then till 2008 it never increased. Because in that time the bank invests more in expanding it’s business and branch.

Dividend as % of net Income:

Distribution of earnings to shareholders prorated by class of security and paid in the form of money, stock, scrip, or, rarely, company products or property. The amount is decided by the board of directors and is usually paid quarterly. Dividends must be declared as income in the year they are received. Obviously, dividends should not be paid unless the company has accumulated a profit or surplus. FSIBL not give any dividend to its share holders

Finding key & Recommendation:

Finding key: After analyzing the annual report and other papers, the evolution of performance analysis and on the basis of my study I have got some findings about the First Security Islami Bank Limited. These are mentioned below: FSIBL is the pioneer of private sector banking business in Bangladesh. . As a result it has a huge branch operation with branches and manpower causing large employment opportunity. The fund management system is very effective. For keeping this system effective, necessary changes in credit policy, loan and advance policy, provision for provisionary made continuously. The Officers engaged in loan management is very much aware in choosing right person to provide loan to ensure its recovery. The top management is more conscious about the liquidity of bank. The strength of the Bank lies on the top management of the company and the financial soundness of the sponsors, as they are all well reputed personalities in the Bangladesh. This impressive lay of FSIBL helps to have a good image. The top management gives its highest attention in the operation of fund Management. The customer service is very much impressive than other financial institution. Remittances, both local and foreign are effective manner of customers. The top management recently has to decide to start online banking system. This decision will motivate the employees who are very effective in computer skills.12Top management guidance to its subordinates is very much friendly. The overall working environment of the office is very nice. Lack of professional data entry operators, Not a proper skilled human resource in every department, Lack of proper coordination among different departments. In adequate facilities in maintaining the operation of ATM card, Master card, Visa card etc.

Recommendation: Though First security Islami Bank Limited tries to give the best customer support, they have some lake and linkage compare to other bank of the same generation. The recommendations for this report are‐

 The authority should recruit more employees to serve the customers. The can recruit experienced employee as well as fresh graduate.

 The bank should introduce more products based on the market demand.

 The bank should reduce their minimum balance to attract more customers.

 The salary of the worker need to be rise, as a result experienced people from other bank will be attract to join First security Islami Bank Limited.

 First security Islami Bank Limited should offer international credit card, because in modern world the use of increasing paper currencies is decreasing.

 Beside social work the bank have to be more serious to get better position in CAMEL retting.

 The bank can open more branches to reach to more customers.

 The bank can open branches or foreign booth because many people send money from abroad every year to Bangladesh.

 The bank should finance to the consumer goods, because many people in the country wants to buy consumer goods from bank loan.

 The marketing department of the bank should more efficient to reach at the hart of the customer.

 For the success of any organization, employee satisfaction is one of he most important factor and FSIBL authority have to look about it.

 The bank should be more profit concern as well as took part to the economics development of the country.

 The departments of the bank should more efficient to make profit by satisfying customers.

 The bank should use printed instruments like cheque, pay orders etc.

First security Islami Bank Limited is bank of new generation. Though my report is on general banking, I tried hard to cover all about the customer and their behavior with the bank.

For a banking operation deposit is one of the most important factor as well as remittance, clearing, cash are also part of general banking and customers are directly related with these department. By making proper interaction among the departments the bank can give the best support to the account holders. On the other hand, if the customers are satisfied they will bring more new customers and this process will be continuing. FSIBL is the best bank, which provides a large fund to develop the society, and the bank has to continue this process. Finally “First security Islami Bank Limited” – ‘Your Partner for Growth’ must be a true partner of the customers.

 Conclusion:

As an organization the First security Islami Bank Limited has earned the reputation of top banking operation in Bangladesh. The organization is much more structured compared to any other bank operating local or foreign in Bangladesh. It is relentless in pursuit of business innovation and improvement. It has a reputation as a partner of consumer growth.

With a bulk of qualified and experienced human resource, First security Islami Bank Limited can exploit any opportunity in the banking sector. It is pioneer in introducing many new products and services in the banking sector of the country. Moreover, in the overall‐banking sector, it is unmatched with any other banks because of its wide spread branch networking thought the country.

This report tries to figure out most of the indicators of problems and strengths of First security Islami Bank Limited as a valid pretender in the competitive banking sector of Bangladesh. A severe cut throat competition is going on currently in this sector and that’s why First security Islami Bank Limited has to work out with different dimensions like – product diversification, market forecasting, proactive activities undertaken by First security Islami Bank Limited and some suggestion to get rid of the predicaments that exist.

Bibliography:

 Annual Report of First security Islami bank ltd 2009

www.fsiblbd.com