Chapter-01

Organizational Overview of EXIM Bank ltd.

Page No:
11-19

10

In the later 19th century, Finance was a part of the Economics. But due to the globalization and more expansion of international trade, Finance plays the major role for the economic development. The development of a modern economy would not have been possible without the use of money. Bank is an important and essential financial institution for the necessity of the use of money and the protection of the money. Bangladesh is now integral part of global market. As such there is an urgent requirement for Bangladesh to place the traditional banking pretties in harness with the global trades of a free market economy by following international banking customs, practices and standards. Today clients of a bank in Bangladesh are exposed as well as international markets. They have to stay update with their practice and standards to meet the demands of achieving harmony in the high standards of a free economy.

Overview of EXIM Bank of Bangladesh:

Export Import Bank of Bangladesh Limited falls into the third generation segment and undoubtedly leads its own generation. EXIM Bank was established in the year 1999 under the leadership of Late Mr. Shahjahan Kabir, Founder Chairman who had a long dream of floating a commercial bank which would contribute to the socio-economic development of our country. Its a scheduled commercial bank in the private sector, started its banking operation on the 3rd of August, with its name as Bengal Export Import Bank Limited. 1999. On 16th November 1999, it was renamed as Export Import Bank of Bangladesh Limited and from 1st July, 2004 the bank converted its banking operation into Islamic Banking based on Islamic Shariah from conventional banking operation. During the same year, the bank issued 3,138,750 ordinary shares through IPO placement.

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Islami Banking:
From 1st of July of 2004 the bank became Shariah Based Islamic Bank and from then it is conventional banking services according to Islamic banking principles. For smooth operations, the Board of Directors established a Shariah Board, which decides on the banking principles according to which the bank will operate its business.

Mission:
Every financial institution want earn at least a reasonable profit for its long-term survival and also want to obtain a sustainable position in the Banking sector in the country. In keeping this in mind, the bank has checked out the following corporate objectives in order to ensure smooth achievement of its goals To be the most caring and customer friendly and service oriented bank. To create a technology base most efficient banking environment for its customers. To ensure ethics and transparency in ail levels. To ensure sustainable growth and establish full value of the honorable shareholders. Above all, to add effective contribution to the national economy. Eventually the bank also emphasize on: Provide high quality financial services in export and import trade. Providing efficient customer service. Maintaining corporate and business ethics. Being trusted repository of customers money and their financial adviser. Making its products superior and rewarding to the customers. Display team spirit and professionalism. Sound Capital Base. Enhancement of shareholders wealth. Fulfilling its social commitments by expanding its charitable and humanitarian activities. 12

Vision:
The gist of our vision is Together Towards Tomorrow. Export Import Bank of Bangladesh Limited believes in togetherness with its customers, in its march on the road to growth and progress with service. To achieve the desired goal, there will be pursuit of excellence at all stages with climate of continuous improvement, because, in Exim Bank, we believe, the line of excellence is never ending. Banks strategic plans and networking will strengthen is competitive edge over others in rapidly changing competitive environment. Its personalized quality services to the customers with trend of constant improvement will be the cornerstone to achieve our operational success.

Objective & Goal of Exim Bank:

EXIM Bank fully appreciates the importance and implication of the rapidly emerging competition in the Banking and finance sector of Bangladesh. It intends financing its customer Suited to his or her place in the market. In this regards EX1M Bank emphasizes in its employment the software aspects of human resource capability. It also emphasizes competence among its Banking professional to cater to varied customer requirements to the modem time.

The objectives and the goals of EXIM Bank Limited are the following: Their main objective isnt maximizing profit, maximize wealth. EXIM 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. EXIM 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. To establish welfare oriented Banking systems.

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Feature of EXIM Bank:

There are many reasons behind the better performance of EXIM Bank Limited than any other newly established banks: The inner environment of all branches is well decorated. EXIM Bank Limited provides attractive profit rate in deposit scheme, which are the highest among other conventional banks. The bank invests to the customer business at lower profit rate with easy and flexible condition than the other do. L/C commissions and other charges are relatively low than other banks. The bank has established correspondent relationship with many foreign banks.

Bank Operational Area:

As a full-fledged Islamic bank in Bangladesh, EXIM Bank extended all Islamic banking services including wide range of saving and investment products, foreign exchange and ancillary services with the support of sophisticated IT and professional management. The investment portfolio of the bank comprises of diversified areas of business and industry sectors. The sectors include textiles, edible oil, ready-made garments, chemicals, cement, telecom, steel, real state and other service industry including general trade finance. The bank has given utmost importance to acquire quality assets and is committed to retain good customers through customer relationship management and financial counseling. At the same time efforts have been made to explore/induct new clients having good potentiality to diversify and create a well established structured investment portfolio and to minimize overall portfolio risk.

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Corporate Culture of EXIM Bank :

During the last two decades Corporate Culture has become an important theme in business as an intangible concept which clearly plays a meaningful role in corporations, affecting employees and organizational operations. It is not the only determinant of business success or failure, but a positive culture can be a significant competitive advantage over organizations with which a firm competes. EXIM Bank, as an amenable bank, who believes if the employees can identify the culture and if he/she can relate him with the culture then the work environment tends to be more enjoyable, which boosts morale and leads to increased levels of teamwork, sharing of information, and openness to new ideas.

Branch Network :
Since the growth and profits of banking business largely depend upon the locations of branches where large concentration of other businesses and industries are involved, But EXIM Bank are not so much strength-full on location-based strategy. They have only 62 branches, which are divided, into seven different regions. They have only 11 ATM booths in overall Bangladesh, which are relatively a poor situation to comparison with other Conventional & Islamic bank. So for what their clients need to use their EXIM Bank card on other bank booths e.g. DBBL, BRAC bank; for what clients are charged by 10 to 30 tk. on each transaction. Regions Dhaka Chittagong Sylhet Rajshahi Khulna Barishal Rangpur No of Branches 30 16 8 2 3 1 2 ATM Location 10 1 -

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Overall Performance :
(Amount in Million Tk.) 2009 2010 10000.00 3373.96 2092.97 73835.46 68609.91 2189.54 10000.00 6832.27 3154.76 94949.40 93296.65 6012.86

SL 1 2 3 4 5 6

Particulars Authorized Capital Paid-up Capital Statutory Reserve Deposits Investment (General) Investment ( Shares on Bonds)

2007 3500.00 2142.2 1134.64 41546.57 40195.24 2457.72

2008

2011 20000.00 9223.56 3489.78 107881.20 99699.63 6734.03

3500.00 2677.75 1532.55 57586.99 53637.68 2894.02

Investment as a % of total Deposit

96.75%

93.14%

92.92%

98.26%

92.42%

Foreign Exchange Business

117900.14 156434.57

162604.61

227966.60

254407.47

No. of Foreign Correspondent

256

278

333

354

336

10

Net profit after provision and tax

930.84

1096.63

1694.1

3476.01

2009.37

11

Return on Assets After Tax

2.00% 32 (7C,25B)

1.83% 26 (0C,26B) 42

2.19% 35 (0C,35B) 52

3.54% 35 (0C,35B) 59

1.65% 14 (0C,14B) 62

12

Dividend

13

Number of Branches

35

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Product & Services :

The Bank serves all types of modern, progressive and dynamic business as well as banking services to the customers of all strata of society. During the short span of time, the Bank has been highly recognized and praised by the business community, from small entrepreneurs to large traders and industrial conglomerates, and emerged as the fastest growing among the third generation banks in respect of business and profitability. EXIM Bank Limited successfully marketed its products designed to fulfill the needs of various socio-economic strata. Attractive features of the products have given a distinctive image among the private banks. The Bank has been making continuous endeavor to offer new products and services. However, the principal products and services of the bank include the following:

Deposit Scheme Al-Wadia Current Deposit Mudaraba Savings Deposit (MSD) Mudaraba Special Notice Deposit (MSND) Mudaraba Term Deposit Receipt Mudaraba Cash Wakf Deposit Mudaraba Monthly Savings Scheme Mudaraba Monthly Income Scheme Mudaraba Super Savings Scheme (06 Years) Mudaraba Multiplus Savings Scheme (10 Years) Mudaraba Hajj Scheme Mudaraba Education Savings Scheme Mudaraba Marriage Savings Scheme

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Foreign Exchange Import Letter of Credit Murabaha Import Bills (MIB) Murabaha Trust Receipt (MTR) Murabaha Post Import: (MPI) Izara Bill Baia Export Pre Shipment Finance Back to Back L/C Export Cash Credit Packing Credit Post Shipment Credit Negotiation of Documents under L/C Purchase of DP & DA Bills Advance against bills for Collection Foreign Currency Account Non-resident Foreign Currency Deposit Account Resident Foreign Currency Deposit Account

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Investment Corporate Finance Industrial Finance Project Finance Syndicate Investment Mode of Investment Murabaha Bai Muazzal Izara Bill Baia Wazirat Bill Wakala Quard Local Documentary Bill Purchased Foreign Documentary Bill Purchased Other Services: SME Banking EXIM Uddyog EXIM Abalamban Agri Banking (EXIM Krishan) Visa Islamic Card SMS Banking Locker Services

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Chapter-02
Introduction of the Study

Page No:
21-23

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Rationale of the Study:

Now a days banking sector have built up as the most important player of the economy. Economists have observed that investment is of the most important aspects of economic activity because of its great role in establishing various projects that generates production and thus generating employment. The only important aspect of investment is economic and social development in addition to achieving a suitable profit margin. Islamic banks consider investment as the basic motivation for community development and a means to get rid of social and economic problems through employment and operation of available resources, such as money and individuals. Especially after the financial crunch, Islamic banking and Islamic investment have proved to be more profitable and less risky. Since EXIM bank is a Shariah based bank, the major portion of it assets consists of Investment. By analyzing the investment the productivity of a bank can be analyzed. Moreover analyzing the investment helps us to analyze the actual well-being caused by Islamic investments. This report is an opportunity for readers as it bears a great significance emphasizing the concept of investment. It familiarizes the readers with the practical business operations of EXIM Bank. By the reports readers can get a chance to know about the real business world closely and can familiarize with internal and external aspects of business. Basically, a proper picture of EXIM Banks investment operation will be found through analyzing its annual report of 2010 and 2011.

Statement of the Problem:

Analysis on investment situation of EXIM Bank of Bangladesh Ltd Investment management system of EXIM Bank of Bangladesh Limited, Procedure for different Investment facilities, Portfolio (Loan or advances) management of EXIM Bank of Bangladesh Limited etc..

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Objective of the Study:

The main objective of practical orientation is to get a clear-cut idea about Investment sector of EXIM Bank and how it runs and what functions it does to be acquainted with practical everyday functions of Banking Business. Along with the other main objective of Report are To have a better Understanding on Investment Policy / activities. Try to find out the Investment procedure / method. Know about the overall investment performance situation of bank Trend analyses of the different scheme. An overview on the major financial activity and practices of EXIM Bank. To identify the strategies for EXIM Bank Limited, implementing in constant prosperity of the company. To apply theoretical knowledge with practical situation. To analyze the financing system of the Bank and to have greater contribution towards country's economy.

Scope of the Report:

The scope of this report is limited to the overall description of the company, its services, and its position in the industry and its financial performance analysis. The scope of the study is limited to organizational setup, functions, and performances Since EXIM bank of Bangladesh is still in its growth stage in Bangladesh; it has still to go a long way to achieve its destination. To achieve the long-term goal it must take each step very carefully. The report will mainly focus on investment activities& situation of EXIM bank and might be it will be helpful for reader & EXIM bank to know about their investment section and makes easier to improvised investment section, which may be lead the profitability in future.

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Limitation of the Study:

Basically, this report is prepared through discussion with bank employees and with the clients. The Employees are very co-operative but they are too busy to give me time to provide knowledge about their activities. Moreover they have to deal in a very competitive environment based on money related activities. Thus the following are the limitations to prepare this report Two months time is not enough for such an extensive study. It is very difficult to collect all the required information in such a short period and visit the entire department within this specific time. Due to some legal obligation and business secrecy banks are reluctant to provide data. For this reason, the study limits only on the available published data and certain degree of formal and informal interview. The bankers are very busy with their jobs, which lead a little time to consult with. Many officials are not well informed about different systems of EXIM bank. This way, the collection of different kinds of information became difficult.

Methodology of the Study:

Different data and information are required to meet the goal of this report. Those data and information were collected from various sources, such as, primary and secondary which is showed below: Primary Sources of Data: Personal observation, Face to face conversation of the officers. Face to face conversation of the client. Working at different desks of the bank. Secondary Sources of Data: File study. Annual report of EXIM bank of Bangladesh Ltd, Bank Rate sheet & Progress report of the Bank. Internet.

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Chapter-03
Review of Related Literature

Page No:
25-27

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Review of Related Literature:

Definition of Investment: In general, Investment means an asset or item that is purchased with the hope that it will generate income or appreciate in the future. In an economic sense, an investment is the purchase of goods that are not consumed today but are used in the future to create wealth. From finance perspectives, an investment is a monetary asset purchased with the idea that the asset will provide income in the future or appreciate and be sold at a higher price. Investment is putting money into something with the expectation of gain, that upon thorough analysis, has a high degree of security for the principal amount, as well as security of return, within an expected period of time. Islamic banking activities are consistent with the principles of sharia law and its practical application through the development of Islamic economics. Sharia prohibits the fixed or floating payment or acceptance of specific interest or fees (known as riba, or usury) for loans of money.

Concept of Interest in Islam: Islamic banking refers to a system of banking or banking activity that is consistent with Islamic law Shariah principles and guided by Islamic economics. Islamic financing is based upon the principle that the use of Riba (interest) is prohibited. This prohibition is based upon Shariah ruling. Since Muslims cannot receive or pay interest, they are unable to conduct business with conventional banks. To service this niche market, Islamic financial institutions have developed a range of halal interest-free financing instruments that conform to Shariah ruling, and therefore are acceptable to their clients

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Investment from Islamic bank perspectives: According to conventional bank, a bank loan is an amount of money loaned at interest by a bank to a borrower, usually on collateral security, for a certain period of time. But in Islam, Islam forbids simply lending out money at interest, so for what Islamic rules on transactions have been created to avoid this problem which are known as Fiqh al-Muamalat. The main term is to avoid the prohibition by sharing of profit and loss, via terms such as profit sharing (Mudharabah), safekeeping (Wadiah), joint venture (Musharakah), cost plus (Murabahah), and leasing (Ijar). Islamic banks adopt several modes of acquiring assets or financing projects. In the main, they can all be broadly categorized into four: 1. Investment financing, a. Musharaka b. Mudarabha 2. Trade financing, a. Mark-up Trade Financing b. Leasing c. Hire Purchase d. Sell-and-buy-back e. Letters of Credit 3. Lending a. Loans with a Service Charge b. No-cost Loans c. Overdrafts 4. Other financial services: a. money transfers, bill collections, and trade in foreign currencies at spot rate In Islamic Investment financing, instead of loaning the buyer money to purchase the item, a bank might buy the item itself from the seller, and re-sell it to the buyer at a profit, while allowing the buyer to pay the bank in installments. However, the bank's 26

profit cannot be made explicit and therefore there are no additional penalties for late payment. In order to protect itself against default, the bank asks for strict collateral. The goods or land is registered to the name of the buyer from the start of the transaction. This arrangement is called Murabahah. In Islam, there is a clear difference between lending and investing ;lending can be done only on the basis of zero interest and capital guarantee, and investing only on the basis of mudaraba (profit-and-loss-sharing).Conventional banking does not and need not make this differentiation. But an Islamic bank has to take this into consideration in devising a system to cater to the Muslims. Therefore such a system has to provide for two sub-systems one to cater to those who would lend and another for those who wish to invest. Low Consumer Lending of Islamic Bank: Since Islamic banks do not charge interest rates, consumer loans are therefore unattractive since there is no profit to be derived in the form of interests on the loans. Hence, Islamic banks deliberately avoid consumer lending. Islamic researchers (e.g.Siddiqi, 1983) have tried to excuse the Islamic banks. While recognizing the need for such interest-free loans / benevolent loans qard hasan, especially for meeting basic needs, they seem to think it is the duty of the community and the State through its treasury baitul mal to cater for these basic needs. Downplaying the role of Islamic banks in providing consumer loans, they suggest that Islamic banks give limited overdraft facilities without interest instead. They also consider a portion of bank loanable funds being set aside for consumer loans, provided repayment will be guaranteed by the State. This, they reckon, will minimize the risks involved in consumer lending. Profit-sharing ratios and the modes of payment vary from place to place, from bank to bank and from time to time, depending on supply and demand conditions. Profits are provisionally declared on a monthly basis in Malaysia, on a quarterly basis in Egypt, on a half-yearly basis in Bangladesh and Pakistan, and on an annual basis in Sudan.

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Chapter-04
Overview of Investment Program of EXIM Bank of Bangladesh Ltd.

Page No:
29-36

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Investment of EXIM Bank:

In a financial system of any economy, we know the financial surplus mobilize from surplus economic unit to the deficit economic unit. In the banking world the bank plays an intermediary role between deficit economic and surplus economic unit. Bank mobilizes the fund from surplus economic unit as deposit and makes the fund available to the deficit unit. And after that process basically credits are create. The word credit is derived from the Latin word "credo" which means, "I believe" and is usually defined as the ability to buy with a promise to pay. It consists of actual transfer and delivery of goods and services in exchange for a promise to pay in future. It is simply the opposite of debt. Diversification of banking service increasing the use of credit in the expanded business operation. It is a fundamental instruction of banking that advances are made for the customers and the customer are promises to pay rather than the security held by the banker. According to Islamic Shariah Principle any interest or extra money against the money which was lent, is called "Riba" and for that it is prohibited. For what the financial institute, Shariah Council has made some rules for validity of business transactions, which is safe and easy to maintain the Islamic rules and regulation. According to the Islamic Shariah one cannot lend money to other expecting some more in return. But bank can invest money to other business under various modes and that will be discovered clearly before starting a business. In that point "Credit" is named as "Investment" and for what bank act as an investor and bear profit or loss whatever happens all of that things will be treat like as a business. In conventional system, interest defined as the amount of money generated by a particular amount of money at a particular rate after a particular period. But according to the Islamic Shariah principle lending is related with buying and selling of items which is associated with risk. The extra amount of money that comes from the trade is profit and it is acceptable for investment.

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Principal of Investment:
According to the Qureshi (1997) a prudent banker should more concern to the following general principal: Background, character and ability of the borrowers, Purpose of the facility, Term of facility, Safety, Security, Profitability, Source of repayment, Diversity.

Investment Objective of EXIM Bank:

As a 3rd generation leading commercial bank operating under Islamic Shariah, EXIM bank deals in a variety of banking services including wide range of investment products and etc services. The bank has given utmost importance/efforts to park and maintain quality assets and is committed to retain good customers through congenial customer relationship management and financial counseling considering the customers as a real business partners. At the same time efforts have been made to induct new customers having vast potentiality, to diversify existing portfolio and explore new potential business area adjustable with the change in business growth of national economy and global trend as well. By adapting the previously mentioned technique & process bank has attained a great success in building a well established and structured investment port-folio and minimizing overall portfolio risk.

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The other objectives and principles of investment operations of the Banks are: Maintain the investment fund strictly in accordance with the principles of Islamic Shariah. To diversifies its portfolio by size of investment, by sectors (public and private), by economic purpose, by securities and by geographical area including industrial, commercial and 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 therefore. 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 developments schemes for poverty alleviation, income and employment generation with a view to accelerating sustainable socio-economic growth and up-liftmen of the society. To invest in the form of goods and commodities rather than give out cash money to the investment clients.

Sectors/Areas Allowed for Investment:

The bank invests on diversified areas with all nationally identified thirst sectors/areas of business and industry. The main investment businesses are focused on the following sectors/areas. 1. Knitwear & readymade garments 3. IT related Business 5. Fisheries 7. Transportation 9. House construction & Development 11. Plastic & other synthetics 13. Warehouse & Container services 15. Gunning & Bailing 17. Cold Storage 19. Food & Oil processing Plants 31 2. Hospital & Clinics 4. Agriculture 6. Telecommunication 8. Forestry & Furniture 10. Leather & Leather goods 12. Ceramics 14. Printing & Packaging 16. Cement 18. Horticulture Flower growing & marketing 20. Other admissible trading.

Products & Services of Investment Program:

The Bank has primarily divided all investment facilities into two major categories. In this section are discussed in details.

Term Investment:
On term investment, payment will be happened in several terms, it may be short term, medium term or long term.

Continuing loans:
These are investment having no fixed repayment schedule, but have an expiry date at which it is renewable on satisfactory performance. 1. Izara Bill Baia: These are the investment made by the Bank with fixed repayment schedules. The terms of investment are: Short term Medium term Long term Short term, : Up to 12 months : More than 12 and up to 36 months : More than 36 months Medium term &long term investment allowed to

individual/firm/industries for a specific purpose but for a definite period and generally repayable by installments fall under this head. This type of investment is mainly allowed to accommodate financing under the categories: (i) Large & Medium Scale Industry This category of investment accommodates the medium and long term financing for capital structure formation of new industries or for expansion of the existing units who are engaged in manufacturing goods and services. Investment Facility available under this category is:

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a. Izara (Lease Finance): It is one of the most convenient sources of acquiring capital machinery and equipment whereby a client is given the opportunity to have an exclusive right to use an asset usually for an agreed period of time against payment of rent. It is a term financing repayable by installment. (ii) Small & Cottage industry: These are the medium and long term investment allowed to small & cottage manufacturing industries. 2. Bai-Muazzal: Continuous Investment have no fixed repayment schedule, but have an expiry date at which it is renewable on satisfactory performance. It allowed to individual/firm for trading as well as wholesale purpose or to industries to meet up the working capital requirements against hypothecation of goods as primary security fall under this type of lending. It is allowed under the categories (i) "Commercial Lending" when the customer is other than an industry and (ii) "Working Capital" when the customer is an industry Investment allowed to the manufacturing units to meet their working capital requirements, irrespective of their size-big, medium or small, fall under the category. 3. Murabaha: Financial accommodations to individual/firm for trading as well as for wholesale or to industries as working capital against pledge of goods as primary security fall under this head of investment. It is also a continuous investment.

4. Agriculture: The Bank has committed itself to the governments initiative to provide agricultural investment directly to the farmers for agricultural development of the country. Investment facilities to the agricultural sector fall under this category. It is subdivided into two major heads:

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a) Investment to primary producers: Financing under these categories refers to the investment facilities allowed to production units engaged in farming, fishing, forestry or livestock. b) Investment to dealers/distributors: It refers to the financing allowed to input dealers and (or) distributors in the agricultural sectors. 5. Investment on Export: Investment facilities allowed to facilitate export of all items against Letter of Credit and/or confirmed export orders fall under this category. Investment Facilities available under this category are: a) Musharaka Pre-shipment (Export Cash Credit): Financial accommodation allowed to a customer for exports of goods fall under this head and is categorized as "Investment on Export". The loans are liquidated out of export proceeds with 180 days. b) Musharaka Pre-shipment (Packing Credit): Investment allowed to a customer against specific L/C contract for processing/packing of goods to be exported falls under this head and is categorized as "Musharaka Pre-shipment". The investments are adjusted from proceeds of the relevant exports within 180 days. c) Foreign Documentary Bill Purchase (F.D.B.P): Payment made to a customer through purchase/negotiation of a foreign documentary bills falls under this head. This temporary investment is adjustable from the proceeds of the shipping/export documents. d) Local Documentary Bill Purchase (LDBP): Payment made against documents representing sell of goods to Local export oriented industries that are deemed as exports and which are denominated in Local Currency/Foreign Currency falls under this head. This temporary liability is adjustable from proceeds of the Bill. e) Foreign Bill Purchase (FBP): Payment made to a customer through purchase of foreign currency cheque/drafts fall under this head. This temporary loan is adjustable from the proceeds of the cheque/draft. 34

f) Bai-Muazzal (Export): Investments allowed for purchasing foreign currency for payment against L/Cs (Back to Back) where the exports do not materialize before the date of import Payment fall under this head. This is also a investment for temporary period, which is known as export finance. 6. Investment on Import a) Murabaha 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. b) Murabaha Post Import (MPI): Loans allowed for retirement of shipping documents and release of goods imported through L/C taking effective control over the goods by pledge in go down under bank's lock & key fall under this type of investment. This is a temporary investment connected with import that is known as post-import finance. c) Trust Receipt (TR): Loan allowed for retirement of shipping documents and release of goods imported through L/C falls under this head. The goods are handed over to the importer under trust with the arrangement that sale proceeds should be deposited to liquidate the investment within a given period. This is also a temporary loan connected with import and known as post-import finance. 7. Others: Any investment that does not fall in any of the above categories is considered under the category "Others". It includes loans to i) Transport equipments, ii) Construction works including house (commercial/residential), iii) work order finance, iv) personal loan etc. Investment Facilities available under this category are:

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a) Izara Bill Baia (House Building): Investment allowed to individual/enterprises for construction of building for commercial purpose fall under this type of investment. The amount is repayable by monthly installment with a specified period. b) Izara Bill Baia (Staff House Building): Investment allowed to Bank's employees for purchase/construction of house falls under this Loan. c) Other Loan to Staff: Investment allowed to employees other than for House Building is grouped under head Staff Izara Bill Baia (General). d) Quard (General/Financial Obligation): Investment allowed to individual/firms against financial obligation (i.e. lien on MTDR/PSP/BSP/Insurance Policy/Share etc.).

Investment Facility Parameter :

Tenure: Bank does not ordinarily go for any investment facilities for long-term basis. 1. Short-term investment facilities are for 3 months to 12 months. 2. Medium term investment facilities are for 12 months to 36 months. 3. Long-term investment facilities are for more than 36 months. Size: 1. Maximum 50% (Funded & non-funded) of total capital of the Bank. 2. Maximum 25% (funded) facilities of total capital of the Bank. Security: All assets (Bai-Muazzal & Murabaha) are to be covered under proper insurance risk with enlisted Insurance Companies.

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Chapter-05
Investment Procedure, Rules & Restriction

Page No:
38-46

37

Investment Facilities Restriction:

The bank establishes a specific Industry Sector Exposure Cap for preparing sector wise loan budget in order to avoid over concentration in any one-industry sector. The budget is approved by the Board in the month of January every year and includes the following points: Total Facilities: The aggregated of all cash facilities is kept at 80% of customer's deposits (MSS). It is also governed by the statutory and liquidity reserve requirement of Bangladesh Bank. Term Facilities: Aggregated long-term facilities are restricted to 70% of the total loan portfolio and are not allowed for a period more than 5 (five) year. Unsecured Facilities: Aggregate bank loans to corporate or individual customers who are not secured by collateral and are allowed on the strength of customer's personal integrity and financial standing or the corporate customer's balance sheet, with or without hypothecation of stock is restricted to 30% of the total loan portfolio. Sector-wise Allocation: Sector-wise allocation of loan budget is made in the month of January of each year with the approval of Executive Committee/Board of Directors. This is reviewed from time to time. Security: Security accepted against loan facilities is properly valued and is affected in accordance with the laws of the country in which the security is held. An appropriate margin of security is taken to reflect such factors as the disposal cost or potential price movement of the underlying assets.

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Sectors/Areas are prohibited for Investment:

The Bank does not provide loan facilities to the following businesses:

Military Equipment/Weapon Finance. Highly Leveraged Transactions. Finance of Speculative Loans. Logging, Mineral extraction/mining, or other activity that is ethically of environmental sensitive. Lending to companies listed on CIB black list or known defaulters. Share lending. Taking an equity stake in Borrowers. Lending to Holding Companies. Bridge Loans relying on equity/debt issuance as a source of repayment. Tannery Finance. Who has no business with the Bank.

Branch Activities:
Branch plays key roles in investment operation. Usually branch investment department targets the potential borrowers, generates the credit relationship and completes the credit analysis and prepares a well-written credit proposal. Branch collects information through pre-designed forms which filled properly by the customer. And this form includes additional information about the client.

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Investment/Lending Procedure:
Lending is the main profit generating activity of EXIM bank ltd. The assessment of investment appraisal process is shown as a set of sequential by the following diagram:

Borrower's Application for Loan Obtaining CIB Report from Bangladesh Bank Collection Documents Scrutinizing the Document at Branch Analysis the Collected Information

Legal Opinion
Sending Investment to Head Office Analysis the Information by Investment Department of Head office Preparing Memo for EC Meeting Sanction Advice Collection of Charge Documents Disbursement of Loan Review & Monitoring

40

Borrower Selection:
Lending is one of the most important functions of a bank. Therefore, it is of paramount importance that the bank chooses a reliable borrower. For this the bank places the kind of mechanisms that helps it identify the borrower who can be creditworthy. This section deals with some of the mechanisms that the bank can able to find the reliable client for investment on his/her business. Investment Application form: A investment application form usually contains information pertaining to the name of the concern, constitution, nature and place of business, year of establishment, borrower's experience in the line, particulars of assets and liabilities, purpose of advance, amount required, period of advance required for, nature of security offered, sources of repayment, names of present bankers with detailed borrowing and other facilities. This is the core step of knowing about the borrower. Personal Interview: The bank arranges interview with the borrower to know more about his specific requirements, the prospects of his employing the funds prudently, his capacity to repay and the suitability of the security offered. The main points that are covered in the interview are: his business, all legal documents required for operation of his business (Memorandum and Article of Association, trade and import license), his capital with reference to working capital, his experience in the business, results of financial statements, amount of investment and period, purpose of advance, source of repayment, terms of payment, security documents that are offered etc The bank officials who conduct the interview try to analyze and judge for themselves the correctness or otherwise of the various statements and documents of the prospective borrower and to arrive at a balanced opinion regarding the acceptability or otherwise of the proposal. After the initial interview, if the officer found that the information meets with the basic investment criteria of the bank, then the next step will be to conduct a more indepth investigation, relying upon the documents obtained from the client and from bank's own and outside sources. 41

Review Credit Information Bureau (CIB) Report:

Reviewing the CIB report are most important task for Bank which are provided by the Bangladesh Bank. Basically EXIM Bank considering the CIB report for the purpose on business investment to know about previous information of client. Therefore bank strictly follow the CIB report as per rules & regulation of BRPD instruction. After receiving the client information, bankgo for checking CIB of the particular clients via online from Bangladesh Bank website. The purpose of this report is to be whether or not the borrower has taken any loan and advances from any other bank and the status of those loan and advances.

Credit Risk Grading:

The Credit Risk Grading (CRG) is a collective definition based on the prespecified scale and reflects the underlying credit-risk for a given exposure. A Credit Risk Grading deploys a number/ alphabet/ symbol as a primary summary indicator of risks associated with a credit exposure. Basically Credit disk Grading is the basic module for developing a Credit Risk Management system. Function of Credit Risk Grading: Well-managed credit risk grading systems promote bank safety and soundness by facilitating informed decision-making. Grading systems measure credit risk and differentiate individual credits and groups of credits by the risk. This allows bank management and examiners to monitor changes and trends in risk levels. The process also allows bank management to manage risk to optimize returns.

42

Use of Credit Risk Grading:

The credit risk grading matrix allows application of uniform standard to credit
to ensure a common standard approaches to assess the quality of individual obligor.

As evident, the CRC output would be relevant for individual credit selection,
wherein either a borrower or a particular exposure/facility is rated. The other decision would be rated to pricing and specific feature of the credit facility. These would largely constitution obligor level analysis

Risk grading would also

be relevant for surveillance and monitoring, internal

MIS and assessing the aggregate risk profile of a institution. It is also relevant for portfolio level analysis.

Components & Weighting of each Key Parameters: Credit risk for counterparty arises from an aggregation of the following: Principal Risk Components Financial Risk Business/Industry Risk Management Risk Security Risk Relationship Risk Key Parameters Leverage, Liquidity, Profitability & Coverage ratio Size of Business, Age of Business, Business Outlook, Industry Growth, Competition & Barriers to Business Experience, Succession & Team Work. Security Coverage, Collateral Coverage and Support. Account Conduct, Utilization of Limit, Compliance of covenants/conditions & Personal Deposit. Weight 50% 18%

12% 10% 10%

Credit Risk Grading Score: After risk identification &weight age assignment process, the next steps will be to input actual parameter in the score sheet to arrive at the scores corresponding to the actual parameters. The CRG scale consists of 8 categories with short names and numbers are provided as follow:43

No 1 2 3 4 5 6 7 8

Risk Grading Superior Good Acceptable Marginal/Watch list Special Mention Sub-standard Doubtful Bad & Loss

Short Name SUP GD ACCPT MG/WL SM SS DF BL

Score 100% cash covered Government guarantee International Bank guarantees 85+ 75-84 65-74 55-64 45-54 35-44 <35

Security Evaluation:
Security is a cover against loans and advances. It ensures recovery of loans and advances. Securities play an extremely important role in a loan granting decision.

Valuation of Primary Security

Primary security means the security offered by the borrower himself as cover for the loan. It refers to the asset, which has been bought with the help of the bank. Such as when machinery or some goods have been bought with the help of the bank the machinery and goods constitute the primary security. Murabaha Post Import (MPI) MPI facility is allowed, as post-import finance against imported goods under the Bank's L/Cs. MPI facility does not exceed invoice value net of L/C margin unless the Bank agrees to finance duties/VAT. However, where market price of the goods is lower than landed cost banks makes necessary arrangement with the customer to obtain additional deposit. Murabaha Valuation of the goods to be pledged to the Bank against Murabaha limit in no case exceeds: The landed cost or market prices whichever is lower in case of imported goods. The mill/factory price of market price whichever is lower is case of domestically manufactured commodities as evidenced by invoice. The wholesale price/competitive market price duly verified by the Branch and approved by Head Office. 44

Valuation of Collateral Security

All other additional security other than the primary securities such as land or building etc. are considered as collateral securities which may be offered or deposited by the borrower or, by any other third party. The Bank follows the following steps for valuation of collateral security: The property is physically inspected and verified jointly by 2 (two) bank's Officers. A valuation certificate mentioning market value and forced sale value is prepared in a designated form supplied to the officials and is jointly signed by the inspecting officers of the Bank. The forced sale value of the collateral security is to be 1.5 times higher than the facility/facilities allowed. "A Site Plan" and "Map" along with 3R size district photographs of the mortgaged property covering full exposure from 3 angles mentioning detailed particulars on the back of the photographs. The collateral security must be in the physical possession of the mortgagor and the mortgagor/owner has valid title over it. A letter of satisfaction from the Bank's Lawyer is obtained that the mortgage formality has been properly created.

DOCUMENTATION
The bank does not disburse any loan facility until the required documentation is properly completed. After completion of credit investigation, the bank official begins to prepare investment proposal. The investment proposal defines clearly amount and type of investment, the purpose of the facility, summary of the results of risk assessment, the sources of repayment, tenor, covenants, the agreed repayment schedule, profit and value of security. Where security is to be accepted as collateral for the facility all documentation relating to the security are to be in the approved form. All approval procedures and required documentation are completed and all securities are in place, prior to the disbursement of the facilities. There may be requirement of specific banking or legal documents to secure a investment according to sanction terms and conditions. All required documents are required before any investment is disbursed. 45

APPROVAL AUTHORITY
After preparing the investment proposal by the branch officers, it is sent to the head office for approval to the approval authority. To ensure proper and orderly conduct of the business of the Bank, the Board of Director empowers the Managing Director and other Executives of the Bank to finance up to certain amount under certain terms and conditions at their discretion.

Time Schedule for Investment Appraisal Process:

There is no exact time required for the total investment appraisal process. It varies for different types of investments. EXIM Bank depends a lot on CIB report of the borrower and for previous track record. Therefore if the CIB report is clean and provided by the central bank promptly, then it is up to Banks efficient service that how quickly the bank can serve its customers by appraising the credit proposal.

Investment Recovery:
The Law and Recovery unit of Head office directly manage the continued declining accounts. The recovery unit functions as following way:

Determine account action plan/recovery strategy. Pursue all options to maximize recovery. Ensure sufficient and timely investment loss provisions
actual and expected losses.

are made based on

Regular review of the weak accounts.

46

Chapter-06
Analysis of Investment Program

Page No:
48-71

Financial Analysis:
47

Investment Scenario:
Financial soundness of all banks depends on the performance of its disbursed loan on various sectors. Loan performance means how the loans were scheduled to act and how they are actually acting. It is closely associated with timely and steady repayment of interest and principal of a loan. A loan is said to be well performed when its repayment is duly made. If a loan fails to be repaid duly for some consecutive period or installments, it falls under the classification criteria.

Year 2008 2009 2010 2011

Investment 53,637,677,103 68,609,907,470 93,296,648,855 99,699,627,656

Percentage Change from Preceding Year 15.34% 27.91% 35.98% 6.86%

Investment
100,000,000,000 90,000,000,000 80,000,000,000 70,000,000,000 60,000,000,000 50,000,000,000 40,000,000,000 30,000,000,000 20,000,000,000 10,000,000,000 0 2008 2009 2010 2011 Investment

48

The total amount of investment of the bank stood at TK 99,699.62 million as on December 31, 2011 as against TK 93,296.64 million as on December 31, 2010 showing an increases investment with the growth rate of 6.86%. But investment increases hugely on 2010 rather than from 2009, in terms of percentage which are 35.98%. Investments are the core asset of the bank. The bank should give emphasis to acquire quality assets and does appropriate investment risk analysis while approving commercial and trade investment to clients.

Investment scenario compare with Deposit:

Investment/Loan is the core income sector for each & every financial institution but for doing investment they need to depend on clients deposit. So for what they need to look for deposit to invest in several sectors and besides that also need to look on cash liquidation by which they can able to fulfill the depositors demand because depositors have first priority on their money if bank fails to pay their money at on time, then bank reputation will be decreases. Here it seems that last four year EXIM bank provides above 90% of deposits on investment purposes which are quite risky for a bank from the purpose of liquidation. But good thing is that they can able to fulfill of customer demand for what their growth rate of deposit increases continuously rather than from preceding year same as on investment. The ratio of investment to compare with deposits is given below in table and chart:

Year 2008 2009 2010 2011

Investment

Deposit

Ratio of investment compare with deposits 91.17% 92.92% 98.26% 92.42%

53,637,677,103 58,833,063,661 68,609,907,470 73,835,461,825 93,296,648,855 94,949,400,069 99,699,627,656 107,881,205,901

49

Investment scenario compare with Deposit

120,000,000,000 100,000,000,000 80,000,000,000 60,000,000,000 40,000,000,000 20,000,000,000 0 2008 2009 2010 2011 Investment Deposit

Maturity Wise Classification:

Particulars Repayable on demand Not more than 3 months Over 3 months but not more than 1 year Over 1 years but not more than 5 years More than 5 Years Total Investment (TI) 2008 360,685,460 2009 1,706,060,289 2010 2,453,198,193 2011 1,174,976,786

11,658,442,540 13,600,295,711 17,779,428,934 16,282,060,214 20,137,348,000 26,266,506,000 39,764,280,702 44,077,249,872 9,703,051,000 10,259,648,635 13,204,761,002 12,700,271,000 11,778,150,103 16,777,396,835 20,094,980,024 25,465,069,784 53,637,677,103 68,609,907,470 93,296,648,855 99,699,627,656

Under this classification it seems that Over 3 months but not more than 1 year represents greater volume than any other in last four year. Bank normally gave less concentration on Repayable on demand because it generated less investment income. And other sides EXIM bank also prefer to invest on more than five years sectors because of more profitable amount.

50

45,000,000,000 40,000,000,000 35,000,000,000 30,000,000,000 25,000,000,000 20,000,000,000 15,000,000,000 10,000,000,000 5,000,000,000 0 On Demand Less than 3 Month over 3 to Over 1 year More than 5 Less than 1 Less than 5 year year Year 2008 2009 2010 2011

Percentage of Maturity Wise Classification against Total Investment (TI):

It shows that EXIM bank prefer to invest on more than 3 months but less than 1 year sector because of less risky, cash liquidation and profitable sector which shows the good strategy of the bank management. More than 5 years investment has on their 2nd preference which are quite risky for a bank. Most important thing is that bank management gives less concern to invest on repayable on demand investment, which are relatively riskier for the EXIM bank. Because EXIM bank invest almost 90% of his deposit on investment purposes and among them only 1% to 2% are on repayable on demand sector so for what their has a chance of cash liquidation in case of huge depositors demand. Particulars Repayable on demand investment compare with TI Not more than 3 months investment compare with TI Over 3 months but not more than 1 year investment compare with TI Over 1 years but not more than 5 years investment compare with TI More than 5 Years investment compare with TI 51 2008 0.67% 21.74% 37.54% 18.09% 21.96% 2009 2.49% 19.82% 38.28% 14.95% 24.45% 2010 2.63% 19.06% 42.62% 14.15% 21.54% 2011 1.18% 16.33% 44.21% 12.74% 25.54%

50.00% 45.00% 42.62% 40.00% 37.54% 35.00% 30.00% 25.00% 20.00% 15.00% 10.00% 5.00% 0.00% On Demand 0.65% 2008 <3 month 2.49% 2009 3 month< 1 Year 2.63% 2010 1 < 5 Year 1.18% 2011 more than 5 year 21.96% 21.74% 18.09% 24.45% 19.82% 14.95% 21.54% 19.06% 16.33% 14.15% 12.74% 25.54% 38.28% 44.21%

Mode Wise Investment:

Particulars

2010

2011

Bai-Muajjal 34,689,419,345 36,991,343,058 Bai-Murabaha 16,387,615,174 17,746,405,168 Bai-Salam 2,638,112,443 3,033,228,095 Izara bill baia (commercial) 32,422,859,431 36,825,680,283 Izara bill baia (Staff) 577,200,724 894,471,784 Quard 383,563,586 209,492,097 Local Documentary Bill Purchased 3,074,062,953 2,374,501,763 (LDBP) Foreign Documentary Bill 670,617,006 449,528,622 Purchased (FDBP) Murabaha Import Bill (MIB) 2,453,198,193 1,174,976,786

Change in Percentage from preceding year 6.64% 8.29% 14.98% 13.58% 54.97% -45.38% -22.76% -32.97% -52.10%

52

EXIM bank of Bangladesh provide several suitable and luxurious mode/program to their customer based on their needs. Most popular modes of EXIM bank are BaiMuajjal, Bai-Murabaha, Bai-Salam &Izara bill baia and those modes were increasing every year with a handsome percentage, which credit goes to the investment management mostly.

Mode-Wise Investment
40,000,000,000 35,000,000,000 30,000,000,000 25,000,000,000 20,000,000,000 15,000,000,000 10,000,000,000 5,000,000,000 0 2010 2011

Classification Bill Discounted & Purchased by Country Wise:

Bills discount & purchased are the less risky sector for a bank because here bills works as a collateral so for what most of the banks prefer this program because of less riskier and profitable sector. But in case of EXIM bank which are not in a satisfied situation in 2011 to comparison with 2010. Here it shows that there has been a decrease not only in total amount also in Bangladesh & outside region. Change in Percentage -35.78% -32.97%

Particulars Payable in Bangladesh Payable Outside Bangladesh 53

2010 5,527,261,146 670,617,006

2011 3,549,478,549 449,528,622

Classification Bill Discounted & Purchased by Country Wise

6,000,000,000 5,000,000,000 4,000,000,000 3,000,000,000 2,000,000,000 1,000,000,000 0 Payable in Bangladesh Payable in Outside

2008 2009 2010 2011

Classification Bill Discounted & Purchased on Maturity Wise:

Bills discount & purchased department focused more on less than 1 month and above 6 month investment. But it seems in the table that in 2011 they emphasized more on above 6 month investment and gave less focused on less than 1 month investment whereverin this section investment amount decreased 52.10% from 2010 to 2011. Other sides payable within 1 to 3 month bill discounted & purchased investment increased hugely form 2010 to 2011, in terms of percentage which is 306.16% so it can be said that they should be focused more on payable less than 1 month investment as like as payable within 1 to 3 month investment. Particulars Payable within 1 month Over 1 month but less than 3 month Over 3 month but less than 6 month 6 month or more 2010 2,453,198,193 35,889,317 2011 1,174,976,786 145,769,705 Change in Percentage -52.10% 306.16%

155,628,337 3,553,162,305

125,187,050 2,553,073,630

-19.56% -28.15%

54

Classification Bill Discounted & Purchased on Maturity Wise of 2011

< 1month 1 < 3 month 3 < 6 month > 6 month

Classification Bill Discounted & Purchased on Maturity Wise of 2011 2010

< 1month 3 < 6 month 1 < 3 month > 6 month

29% 40% 64% 4% 3% 1% 2%

57%

Geographical Location Wise Classification of Investment:

Actually production activities are performed mainly in rural areas and financial activities are performed in urban areas. So from this perspectives EXIM bank invest/finance more in the urban area. One thing to note is that a countrys economy mostly depends on rural area, so it can be said that only 4% to 5% investment only rural area is not satisfactory. However, it appears good that their investment on rural sectors was increasing rather than from urban areas on 2011 in comparison to 2010.

Particulars In rural areas (Bangladesh) In urban areas (Bangladesh)

2010 4,058,955,605 89,237,693,250

2011 4,407,290,012 95,292,337,644

Change in Percentage 8.58% 6.78%

55

Division Wise Classification of Investment:

From below table and chart, we can easily understand the investment focus of EXIM Bank in terms of division. Here it found that EXIM Bank invested mostly in Dhaka division and secondly in Chittagong. There are several reasons behind the percentage of focus in Dhaka division. Major Group or high rated individual industries have bank account in Dhaka division. Another reason is that EXIM Banks has more branches in Dhaka compared to any other division. In 2011, this bank sanctioned 74,196.53 million taka in Dhaka division, which is larger than previous year. Particulars Dhaka Division Chittagong Division Khulna Division Rajshahi Division Barisal Division Sylhet Division Rangpur Division 2010 69,217,616,211 18,983,551,658 1,216,423,534 2,091,847,565 44,802,374 1,287,748,514 454,658,999 2011 74,196,536,500 19,631,800,230 1,129,931,000 2,468,888,989 115,962,832 1,397,388,113 759,119,994 Change in Percentage 7.19% 3.41% -7.11% 18.02% 158.83% 8.51% 66.96%

Division-Wise Classification of Investment 2011

Dhaka Barisal Chittagong Sylhet 2.48% 1.40% 19.69% 0.76% 1.13% 0.12% Khulna Rangpur Rajshahi Dhaka Barisal

Division-Wise Classification of Investment 2010

Chittagong Sylhet 2.24% 20.35% 1.30% Khulna Rangpur Rajshahi

0.05% 1.38% 0.49%

74.42%

74.19%

56

Industry Wise Classification of Investment:

It is particularly important to monitor whether the increase of investment in the economy is concentrated in sectors that are vulnerable to shifts in economic activity. Investment concentration in a specific economic sector or activity makes banks vulnerable to adverse developments in that sector or activity. Hence, the quality of a financial institution's investment portfolios is closely related to the financial health and profitability of its borrowers. Table shows that the most of the loans in 2011, 2010, 2009& 2008 are concentrated in trading sector such like as about 70,828.62 million taka, which is about 71% of total in 2011.So its clear than bank prefers mostly in trading sector. Nevertheless, most important thing is that banks provide less preference on garments, textile and agro based industries, which are the most economical sectors of Bangladesh. And it seems that, in last four years, investment amount on this sectors are fluctuating and some sector investment decreased continuously. Particulars Garments Textile Agro based Industry Other Industry Trading & Others 2008 5,858,788,000 3,321,360,000 1,411,800,000 10,085,410,000 32,960,319,103 Particulars Proportion of Garments industrys investment of TI Proportion of Textiles industrys investment of TI Proportion of Agro-based industrys investment of TI Proportion of Others industrys investment of TI Proportion of Trading & Others industrys investment of Total Investment(TI) 2009 11,166,652,000 4,383,785,000 2,828,200,000 9,050,204,000 41,181,066,470 2010 2011

10,349,130,205 11,212,866,978 4,527,133,027 3,302,302,317 9,202,643,426 6,947,692,892 3,255,602,117 7,454,840,360

65,915,439,880 70,828,625,309 2008 2009 16.28% 6.39% 4.12% 13.19% 60.02% 2010 11.09% 4.85% 3.54% 9.86% 70.65% 2011 11.25% 6.97% 3.27% 7.48% 71.04%

10.92% 6.19% 2.63% 18.80% 61.45%

57

Industry-Wise Classification of Investment

70,000,000,000 60,000,000,000 50,000,000,000 40,000,000,000 30,000,000,000 20,000,000,000 10,000,000,000 0 Garments Textile Agro based Industry Other Industry Trading & Others 2008 2009 2010 2011

Investment favoring various client groups:

Particulars AKH Group ABA Group Marine Vegetable Oils &lts Association Pretty Group (S.Suhi) Comfit Composite ltd Badsha Group Masco Group JMS Garment Ltd. MP Spinning Mills Ltd. &lts Association S.Alam Group OK Group Legacy Fashion Ltd. KDS Group MEB Group Shadhin Group 2010 4,222,300,000 1,706,200,000 1,554,900,000 2,670,000,000 1,852,000,000 2,689,300,000 3,604,000,000 1,466,600,000 ---1,898,900,000 -----1,670,800,000 1,492,700,000 1,476,700,000 1,463,300,000 2011 4,352,100,000 2,669,800,000 2,490,500,000 2,429,700,000 2,175,500,000 2,172,600,000 2,035,200,000 1,749,500,000 1,739,700,000 1,737,100,000 1,649,100,000 --------------

58

There has a complements that 80% profit will comes from 20% clients from that thinking EXIM bank makes leagues with some renewed organization with whom bank doing business for longer time and for what at a certain time they became a part of EXIM bank, some of their investment amount are given above.

Types of Classified Investment:

Performance of banks investment is usually measured through the percentage of classified and unclassified investment of total outstanding. If the amount of classified investment is high, overall investment performance of a bank is poor and low amount of classified investment indicates an effective and efficient performance. Loan classification is required to have a real picture of the loan and advances provided by the Bank. It helps to monitor and take appropriate decision regarding each loan account. All types of loans fall into following four scales: Categories of investments and advances of a bank:

Un-classified: The repayment of investment and advances are regular. Sub-standard: The repayment of investment and advances are irregular
but has reasonable prospect of improvement.

Doubtful debt: It is unlikely to be repaid but special collection efforts may

result in partial recovery.

Bad/loss:

There is little chance of recovery of investments and advances.

59

Classification Wise Investment:

Status of investment is one of the criterions of judging the performance of a bank. In case of classified or unsound investment EXIM Bank's performance has not been changed on last four years. With the increase of investment disbursement the amount of classified investment, especially bad investment, has increased quite fast to compare with their investment in 2011. In 2011 doubtful investment also increased than previous years. The share of bad/loss investment, which has no possibility of recovery other than legal measures, is very high in 2011 compare to 2010. This indicates banks flexibility regarding credit facility &recovery system. Also doubtful investment has risen quite sharply this year. In 2011EXIM Bank has 60% bad investment. And the proportion of substandard investmentalso increased on 2011 year. Particulars Unclassified Investment Including Staff Unclassified Investment Special Mention Account (SMA) Substandard Classified Doubtful Bad/Loss 260,280,220 271,334,791 476,229,790 770,207,791 220,610,822 848,872,454 162,742,636 365,019,363 1,327,483,595 239,595,733 414,980,894 971,958,642 848,023,993 902,226,101 510,311,168 1,785,782,000 51,781,808,309 65,867,990302 90,931,092,093 96,287,310,387 2008 2009 2010 2011

60

Classification-Wise Investment of 2011

Substandard Doubtful Bad/Loss

Classification-Wise Investment of 2010

Substandard Doubtful Bad/Loss

15% 25% 71%

9% 20%

60%

Classification Wise Investment

1,400,000,000 1,200,000,000 1,000,000,000 800,000,000 600,000,000 400,000,000 200,000,000 0 Bad/Loss Bad/Loss Bad/Loss Substandard Substandard Substandard Substandard Bad/Loss Doubtful Doubtful Doubtful Doubtful Amount

2011

2010

2009

2008

61

Percentage of Classified Investment to comparison with Investment:

years Particulars Substandard 2008 Doubtful Bad/Loss Substandard 2009 Doubtful Bad/Loss 2010 Substandard Doubtful Bad/Loss Substandard 2011 Doubtful Bad/Loss Amount 260,280,220 271,334,791 476,229,790 770,207,791 220,610,822 848,872,454 162,742,636 365,019,363 1,327,483,595 239,595,733 414,980,894 971,958,642 99,699,627,656 93,296,648,855 68,609,907,470 53,637,677,103 Total Investment Amount Ratio 0.49% 0.51% 0.89% 1.12% 0.32% 1.24% 0.17% 0.39% 1.42% 0.24% 0.42% 0.97%

Basically bank invests the depositors money into several sector but its quite tough to recover 100% of the investment, thats mean some the investment will be classified. Basically banks performance depends on lower rate of classified investment and higher rate of recovery. Last four years EXIM bank has averagely 2% classified investment of total investment, which seems satisfactory. In 2011 classified investment percentage to comparison with total investment are decreased which shows the good recovery rather than from preceding year i.e. 2010..

62

Provision Required for Investment:

Particulars Provision Required: Unclassified Investment Special Mention Account Substandard Doubtful Bad/Loss EIIL Total provision on Investment Unclassified Investment Balance at 1st January Add:- Provision made during year Balance at 31st December Special Mention Account Balance at 1st January Add:- Provision made during year Less:- Provision no longer required Balance at 31st December Classified Investment Balance at 1st January Less:- Fully provided Investment written off Less:- Profit waived Add:- Provision made during year Balance at 31st December EXIM Islamic Investment Ltd. (EIIL) Balance at 1st January Add:- Provision made during year Balance at 31st December 270,763,271 ----(147,534,765) 246,671,295 369,899,801 369,899,801 ----(140,697) 152,673,279 522,432,383 522,432,383 ----(3,697,846) 20,470,883 539,205,420 539,205,420 (179,224,770) (3,450,410) 42,907,357 399,437,597 22,005,816 20,043,644 ----42,049,460 42,049,460 1,826,954 ----43,876,414 43,876,414 -----(19,078,506) 24,797,908 24,797,908 62,312,442 ---87,110,350 387,655,694 126,147,321 513,803,015 513,803,015 147,125,520 660,928,535 660,928,535 256,996,019 917,924,554 917,924,554 59,586,244 977,510,798 2008 513,803,015 42,049,460 32,436,127 81,681,325 255,782,349 ----925,752,276 2009 2010 2011

660,928,535 917,924,554 977,510,798 43,876,414 24,797,908 87,110,350 62,356,591 21,591,079 9,905,000 29,065,300 84,630,459 120,456,383 431,010,492 432,983,882 269,076,214 ---8,411,325 11,411,000 1,227,237,332 1,490,339,207 1,475,469,745

--------------

-------------

---8,411,325 8,411,325

8,411,325 2,999,675 11,411,000

63

Basically provision is one kind of fund which will be deposited in to Bangladesh bank from the concern of depositors. Banks collects money from the depositors and invests those among to the borrowers so for that as a central bank Bangladesh bank are totally responsible to follow up on depositors money. That means if bank fails to recover invested amount on that time bank need to deposit certain portion of those unrecoverable amount into the Bangladesh bank according to Bangladesh bank rules. Way of calculating provision required for investment of EXIM bank is shown in above.

Percentage of Provision made Yearly Based to Compare with Investment:

Provision is an expense set aside as an allowance for bad loans, which will deposited into the Bangladesh Bank. It seems into table that, in last four years EXIM bank need to deposit less than 1% of their total investment into the Bangladesh bank as a provision for during year. Figures seem satisfactory from this perspective. Years 2008 2009 2010 2011 Amount of Provision made during year 392,862,260 301,625,753 266,799,721 167,805,718 Total Investment Amount 53,637,677,103 68,609,907,470 93,296,648,855 99,699,627,656 Ratio 0.7324% 0.4396% 0.2860% 0.1683%

Percentage of Provision made Yearly Based to Compare with Investment

0.80% 0.70% 0.60% 0.50% 0.40% 0.30% 0.20% 0.10% 0.00% 2008 2009 2010 2011

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Pledged Collateral Against Investment:

Pledged collateral refers to assets that are used to secure a loan. The borrower pledges assets or property to the lender to guarantee or secure the loan. Pledging assets, also referred to as hypothecation, does not transfer ownership of the property to the creditor, but gives the creditor a non-possessory interest in the property. This means that the borrower still retains the ownership of the property, but the lender has a claim against it. It seems into the table that, in 2011 EXIM bank provide 83.84% investment against the 100% pledged collateral that means an investor gets 80 tk. for 100 tk. collateral, which was 70.83% in 2010. Particulars Land & Building MTDR, Securities etc.. Share Certificates Others Total Percentage of Investment against Collaterals 2010 111,501,900,480 8,015,484,100 104,719,250 12,102,803,490 131,724,907,320 70.83% 2011 99,767,944,348 7,839,097,500 38,587,011 11,266,182,511 118,911,811,370 83.84%

Income from Investment:

Particulars Bai-Muajjal Bai-Murabaha Bai-Salam Izara bill baia Foreign Bill Negotiation 2008 2009 2010 2011

2,179,676,907 2,861,995,019 3,744,874,954 5,638,938,092 1,500,422,215 1,750,004,728 1,974,651,846 2,597,650,678 322,694,784 321,772,801 332,712,865 456,772,392

2,553,595,649 3,161,674,966 3,543,824,333 4,285,302,438 1,943,967 ---11,071,769 13,901,488

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As EXIM Bank increases its investments from year to year, so it is logical that it income from sanctioning investments are more. The bank has achieved the highest profit in 2011 from any other previous year though it had highest amount of bad loan also in that year. So performance of providing investments of the bank is satisfactory.

Income from Investment

6,000,000,000 5,000,000,000 4,000,000,000 3,000,000,000 2,000,000,000 1,000,000,000 0 Bai-Muajjal Bai-Murabaha Bai-Salam 2008 2009 2010 2011

Izara bill baia

Percentage of Investment to comparison with Income from Investment:

EXIM bank has several types of mode/program among them Bai-Muajjal, BaiMurabaha, Bai-Salam & Izara bill baia are most popular mode of the investment program. In 2011, EXIM bank invest 39,991 million tk. and from where they got 15.24% income, which are the highest individual income from any particular mode. Not only the Bai-Muajjal also Bai-Murabaha, Bai-Salam, Izara bill baia also got highest individual income rather than from preceding year from their radical investment. So it can be said that all of this four investment are in satisfied situation in terms of income and not only that Bai-Muajjal, Bai-Murabaha & Bai-Salam got highest individual income from their radical investment to compare with their last four years percentage of income against their radical investment.

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Year

Particulars Bai-Muajjal Bai-Murabaha Bai-Salam Izara bill baia Bai-Muajjal Bai-Murabaha Bai-Salam Izara bill baia Bai-Muajjal Bai-Murabaha Bai-Salam Izara bill baia Bai-Muajjal Bai-Murabaha Bai-Salam Izara bill baia

Investment Amount 15,674,399,356 10,885,066,418 2,597,501,097 21,413,945,025 34,689,419,345 16,387,615,174 2,638,112,443 33,000,060,155 22,651,461,352 14,082,917,549 2,392,768,456 27,013,057,035 36,991,343,058 17,746,405,168 3,033,228,095 37,720,152,067

Income from Investment 2,179,676,907 1,500,422,215 322,694,784 2,553,595,649 3,744,874,954 1,974,651,846 332,712,865 3,543,824,333 2,861,995,019 1,750,004,728 321,772,801 3,161,674,966 5,638,938,092 2,597,650,678 456,772,392 4,285,302,438

2008

2010

2009

2011

Percentage of Income compare with Investment 13.91% 13.78% 12.42% 11.92% 10.80% 12.05% 12.61% 10.74% 12.63% 12.43% 13.45% 11.70% 15.24% 14.64% 15.06% 11.36%

30,000,000,000 27,000,000,000 24,000,000,000 21,000,000,000 18,000,000,000 15,000,000,000 12,000,000,000 9,000,000,000 6,000,000,000 3,000,000,000 0 Bai-Muajjal Bai-Muajjal Bai-Muajjal Bai-Muajjal Bai-Salam Bai-Salam Bai-Salam Bai-Murabaha Investment Income

Izara bill baia

Bai-Murabaha

Bai-Murabaha

Bai-Murabaha

Izara bill baia

Izara bill baia

Bai-Salam

2011

2010

2009

2008

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Izara bill baia

Comparison of Investment Income with Total Income:

Investment is the core sector for a bank, basically most of the income comes from this sector. Thats mean if the loan/investment sector is more than a bank can be able to generate more profit likewise EXIM bank also give more emphasis on this sector. In 2011, they got 83.05% investment income from their total income which is the largest portion among the last four years. So it can be said that EXIM bank focused more on investment income rather than commission, brokerage, gain from share securities & others, which shows the majestic idea of bank management.

Particulars Investment Income from investment in Shares/Securities Commission, Exchange & Brokerage Gain on sales of investment in shares Other operating Income Total Income Percentage of Investment Income of Total Income

2008 6,575,384,481 49,290,682 1,358,584,309 4,958,930

2009 8,147,113,948 45,980,606 1,379,371,723 192,447,997

2010 2011 9,606,185,898 13,122,774,352 143,927,878 1,809,572,534 1,292,104,250 99,232,341 1,831,245,268 -----

368,603,392 618,702,207 872,161,614 748,628,692 8,356,821,794 10,383,616,481 13,723,952,174 15,801,880,653 78.68% 78.46% 70.00% 83.05%

2011
Investment Commission, Exchange & Brokerage Other operating Income 11.59% 0.00% 0.63% 83.05% 4.74% Income from investment in Shares/Securities Gain on sales of investment in shares

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2010
Investment Commission, Exchange & Brokerage Other operating Income 9.41% 13.19% 70.00% 1.05% 6.36% Income from investment in Shares/Securities Gain on sales of investment in shares

SWOT ANALYSIS:
SWOT is an acronym for the internal Strength and Weakness of the firm and the environmental Opportunity and Threat facing that firm. So, if we consider Investment sector of EXIM bank as a business firm and analyze its Strength, Weakness, Opportunity and Threats the scenario will be as follows:

STRENGTH
Get good concern from the people because of Shariah based Islamic bank By this time it has established an integral, customer friendly relationship with its clients. EXIM bank has adequate finance & deposit which are sufficient for their investment. For adequate financial ability, they can provide more investment facility to their rather than other Banks.

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 All of the employees of EXIM Bank are honest and reliable. They are always devoted themselves to the clients for better customer. Most of the people of Bangladesh are Muslim and they are trusted in superior performance of EXIM bank as a Shariah based-Islamic Banking. They have experienced investment management team. All of the investment is sanctioned from the head office so there has no chance of nepotism into the branch. High attention on recovery of overdue amount and or pre-overdue situation. Close monitoring on investment clients. High attention on making quality investment and disposal of proposals. It has prominent saving scheme named MDPS for a fixed or lower income group of people of this society from where they can able to take loan at any time.

Sound profitability growth and high asset quality.

WEAKNESS
EXIM Bank Bangladesh Ltd. has very limited human resources compared to its financial activities. EXIM bank has lack of modern technologies and equipments like adequate online facilities as well as cash card and credit card system. EXIM bank has only 11 ATM booths and among them almost all of them are in Dhaka city so what their credit card & visa card cant able to perform well. EXIM bank has lack of aggressive advertising like other banks. They dont telecast any attractive advertise in the media by which peoples will be informed about their investment program. The investment decision making of the bank is too many centralized. No decision is made without the authorization of the head office. So its takes too time to sanction a investment after all procurement.

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OPPORTUNITY
Scope of market penetration through diversified investment products. Scope of develop new committed entrepreneurs. Service charges in other banks are comparatively higher than EXIM Bank Ltd. EXIM bank has the ability to introduce more Innovative and modern customer services to its customers to survive better in the competition market. EXIM bank has a vast opportunity to hold most of the customers by extending its banking operation all over the country as most of the people of Bangladesh are religious minded. Increasing awareness of Islamic banking among the clients.

THREATS
Because of the intense competition, most of the competitor banks of EXIM Bank Ltd are coming up with new service line ATM but in this sector EXIM bank performance are relatively poor to compare with other conventional & Islamic bank. The competitor banks of EXIM Bank Ltd have more geographical coverage than EXIM Bank Ltd. Rules and regulation of Bangladesh Bank defers with Islami banking system. So they have to face various problems to operate their activities according to the Islamic Shariah. Few other conventional banks have opened their Islamic Banking Branch or program.

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Chapter-07
Major Observation & Recommendation

Page No:
72-79

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Major observation:
From the analysis of the investment program it can be accomplished that performance & financial situation of investment program of EXIM bank are more or less in good position from different aspects & attributes. From the analysis &observation following findings are found: Lengthier investment procedure: Investment procedure of EXIM bank takes too time for completion the overall task. Its starting from gathering client information and preparing the proposal by branch, and subsequently they sending the proposal to the head office and thereafter wait for Executor Meeting and afterwards submit proposal to the meeting, if they find every things are ok then loan will be approved otherwise proposal will be resend to the branch for additional changing. After all of this procurement if Board of Investment thing that everything are fine then they will inform the clients that we have this terms & condition if clients are agree with those then finance will be sanctioned. Illegal Pressure from higher authority: In case of investment, some big parties are applied for investment in reference with the high officials of the bank. They do not submit all papers that required for an investment account & in future they do not feel any urge to submit their papers and in this case, its tough to calculate the issuing amount against on his/her collateral due to lack of information.

Obstacle by the higher authority at time of marking someone as a Classified Investment: When any individual or institution missed persistently, more than 2 or 3 installment on that time his/her account will be marked as classified investment according to Bangladesh bank law but several time bank cant do that because of client or higher authoritys request on that time it makes problem for the bank to maintain Bangladesh bank rules & regulation.

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 Insufficient ATM booth: EXIM bank has only 11 ATM booths in overall Bangladesh, which are not so sufficient to encourage the clients about credit card of EXIM bank. Without one the entire ATM booth into the Dhaka region and several times some of them cant able to perform because of money crisis, network or machine problems. Chance of raising cash liquidation problem: Last four years, EXIM bank financed above 90% of their deposit for Investment purposes, which are quite risky for a bank from aspects of cash liquidation. Less focus on short term Investment: By analyzing of last four years financial scenario of Investment, it asserted that they gave less focus on demand loan & less than 3 months investment, if its goes for longer time then it may be a big deal from perspectives of cash liquidation. More focus on Urban Area: Production activities are performed mainly in rural areas and financial activities are performed in urban areas. So from this perspectives EXIM bank invest/finance more onto the urban area but other thing is that countries economies not only depend on urban area also on rural area so it can be said that only 4% to 5% investment only into the rural area are not satisfied able. More focus on Dhaka region: EXIM bank has almost 45% of branches into the Dhaka region who take place 80% of investment of total and rest of the 20% are performed by outside the Dhakas branches. Strong Investment recovery division: Investment performance of a bank usually depends on classified investment of total outstanding and from this perspectives investment department performance are satisfy able just for 1% to 2% of total outstanding. Strong collateral has deposited against investment: Pledged collateral refers to assets that are used to secure a loan. If mortgage amount are higher than the investment amount on that time bank are in secured situation, from this perspectives investment of EXIM bank are in good situation because of providing 83.84% investment against the 100% pledged collateral.

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 Upright income scenario: By analyzing their income scenario it seems that income from investment picture are in satisfied situation. Credit risk grading: At the time of risk assessment, the risk managers are used to obtain an integrated CRG & CIB for all corporate and individual customers. Insufficient time for risk assessment: The managers often have insufficient time for credit risk management. Huge workload and time constraints for loan approval prevent them from through assessment. So, its very troublesome to manage the risk in a prudent manner for the risk managers. Lack of information into the credit proposal: Risk managers often could not find all necessary documents and information for credit risk assessment. Thats why risk managers use their assumption and experiences on risk management. Problems of Financial analysis: Most of the borrowers do not have audited financials. They provided a financial statement which does not follow the rules of accounting. On that time risk managers need to use assumption to calculate for the necessary ratio so there have the question of accuracy.

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Recommendation:
Banking is a service oriented marketing organization. Its business profit depends on its service quality. Thats why the authority should be aware about their service quality. Though EXIM Bank provides quality service to its customer but it has some weakness in overall performance. To wipe out this weakness I have made the following suggested solution. Improve investment procedure: An integrated planning should be made to reduce time taken by the investment appraisal procedures of EXIM Bank Ltd. The officers of the branch level should make a plan for the sequence of activities. No Interpersonal relationship: One proper standard procedure should be developed for all types of clients and no interpersonal relationship should be involved in approve a investment. Decentralized some power about investment sanction: EXIM Bank practice centralized disbursement system. Branch cannot sanction any investment except MTDR. If head office give branch a certain level of power to sanction investment then the invest process will be faster and efficient. Special procedure for valuable clients: There is a lack of coordination between Branch and Head office. For this, sometimes Branch investment offices can't able to finance to their valuable clients. Head office has to give certain level of power to the branch authority, so that they can keep the client for long time. Early Alert Account system for installment timeline: An Early Alert Account system (EWS) should be introduced to have adequate monitoring, supervision or close attention by management.( An early Alert Account is one that has risk and potential weaknesses of a material nature) Introduce attractive investment scheme: EXIM bank should make its investment schemes more attractive for availing high-return projects. More focus on demand investment: EXIM bank should more focus on demand investment by which they can able to face the uncertainty of cash liquidation.

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 Utilize the potentiality of rural areas: EXIM bank should consider utilization of rural potentials from both efficiency and equity grounds in the context of the present-day socio-economic conditions of Bangladesh. Strong commitments and stepping up through experiment and implementation of innovative ideas are the appropriate ways to do that. Increase Promotional Activities: EXIM Bank should pursue an aggressive advertising campaign in order to build up a strong image & reputation among the potential customers. It must give the idea of maintaining a low profit in the market. Rather it should come in to the limelight through an aggressive marketing campaign such as advertisement in newspaper & magazine, more billboard & neon signs, publicity message & promotional campaigns. EXIM Bank can also pursue promotional campaigns with its customers particularly the corporate clients in order to build up a stronger rapport with them. Advertisement to be made in Newspaper, Journal, Magazine, TV etc. TV advertisement is also a major method for attracting the potential customers. The bank can sponsor sports event of the country. EXIM bank should deserve immediate attention in the promotion of the image of Shariah based banks as PLS (profit-loss-sharing) banks. EXIM bank can diffuse its scope of investment through focusing Shariah concept regarding investment among the bank officers; employer and the clients by strong training, workshops.

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Conclusion
Banking sectors no more depends on only on a traditional method of banking. In this competitive world now a day's banking sector is wide enough to cover any kind of financial services, not only from the local banks but also from the foreign banks. The major task of bank is to survive the services in this competitive environment by managing its assets and liabilities in an efficient way. To make the assets specially investment and advances banks must have too more careful and otherwise this asset will became a burden for the bank. EXIM bank within a short period of just few years has made good progress in terms of profitability and growth rate of deposits and Investment& advances despite tremendous competition in the industry and world economic crisis. The bank has to keep updating its investment operation. Although for the time being the figures are good but the trend in the figure indicate that unless the bank becomes more prudent in its investment granting process else it can become laden with heavy bad debts. Success in the banking business largely depends on effective lending. Less the amount of loan losses, the more the income will be from investment operation the more will be the profit and here lies the success of EXIM Bank Limited.

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References
EXIM bank Annual report; 2008, 2009, 2010,2011 General Banking Booklet of EXIM Bank Ltd. Investment policy manual-2010 of EXIM bank ltd. www.eximbankbd.com http://www.bizresearchpapers.com/attachments_2009_01_13/26.Toni.pdf

Acronyms
EXIM Bank- : Export Import Bank of Bangladesh Ltd. CIB ATM SB CRM MIB BB IBC RM EWS MPI MTDR F.D.B.P LDBP L/C BRPD CRG EIIL EC Meeting : Credit Information Bureau : Automated Teller Machine : Saving Bank Deposit : Credit risk management : Murabaha Import Bills : Bangladesh Bank : Inward Bills for Collection : Relationship management : Early Warning Signals : Murabaha Post Import : Murabaha Trust Deposit Receipt : Foreign Documentary Bill Purchase : Local Documentary Bill Purchase : Letter of Credit : Banking Regulation and Policy Department : Credit Risk Grading : EXIM Islamic Investment Ltd : Executive Committee Meeting.

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