Académique Documents
Professionnel Documents
Culture Documents
The report is an opportunity for readers and it bears a great significant for me. It
familiarizes readers with the practical business operations of EXIM Bank. Readers of
report get the chance to understand the real business world closely and familiarize
themselves with internal and external expects of business. It gives them an
opportunity to develop the analytical skill and scholastic aptitude.
All over the world the dimension of banking has been changing rapidly due to
Deregulation, Technological innovation and Globalization. Commercial banks in
Bangladesh have to keep pace with the change in global business. Now banks have to
compete in market place both with local institutions as well as with the foreign
institutions.
To survive and thrive in such a competitive banking world, two important
requirements are development of appropriate financial infrastructure by the central
bank and development of “professionalism” in the sense of developing an appropriate
manpower structure and its expertise and experience. To introduce skilled banker,
only theoretical knowledge in the field of banking studies is not sufficient. An
academic course of the study has a great value when it has practical application in real
life situation.
So, I need proper application of my knowledge to gate some benefit from my
theoretical knowledge make it more tactful. Such theoretical knowledge is obtained
from a course of study at only the half way of the subject matter. Report paper implies
on other the full application of the method and procedures through rich acquire of
subject matter can be forcefully applied in my day-to-day life situation. Such a
procedure of practical application is known as report paper.
Basically I tried hard to find out a proper picture of EXIM Bank’s investment
operation through analyzing its annual report of 2009 and 2010. I also interviewed
some personnel of EXIM Bank to know the hidden information about investment
operation.
To have an overall idea about Islamic Banking System that is based on the Al-Quran and
Sunnah.
To know about the interest free Banking System and how it could be processed.
To find out the difference between conventional banking system and Shariah based banking
system.
To know the different modes of Investment of EXIM Bank Bangladesh Ltd.
This paper is an attempt to evaluate the Different Modes of Investment of EXIM Bank
Bangladesh Ltd. in terms of productivity and effectiveness.
METHODOLOGY
Every report is prepared by following a concrete methodology. The success of the
report depends on the followed methodology in major portion. My study is performed
based on the information extracted from different sources collected by using a specific
methodology. All the methodology is mentioned below:
Variables: In the report banking system variables are used. Two variables are:
Islamic system
Conventional system
Analytical Method:
Descriptive method
Conventional versus Islamic banking
Performance and Growth
SWOT analysis
SOURCES OF DATA
All the relevant data regarding this study are collected from two sources:
Primary Sources
Secondary sources
This report has been prepared through discussion with bank employees and with the
clients. Annual report provided the bank mainly helps to prepare the report. At the
time of preparing the report, I had a great opportunity to have an in depth knowledge
of all the banking activities theoretically by the EXIM Bank Limited.
The officers are very co-operative but they are too busy to give me time to get
knowledge about their activities. Moreover they have to deal in a very competitive
environment based on money related activities. I have to prepare this report alone. I
faced some usual constraints during preparing the report. These are as follows:
I had to complete this report writing within a shorter period of time. So the time
constraint of the study hindering the course of vast area and time for preparing a
report within the mentioned period is really difficult.
The officials had some times been unable to provide information because of their
huge routine work.
Many officials are not well informed about different systems of EXIM bank. They
know but less. I had to face much difficulty to collect this information.
Some desired information could not be collected due to confidentially of business.
The study was conducted mostly on secondary data.
Since banks are the financial institution. So, most of the personnel were not agree to
provide accurate data due to their privacy.
INTRODUCTION
ISLAMIC BANKING
From 1st of July of 2004 the bank became Shariah Based Islamic Bank and from then
it is rendering 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.
CORPORATE MISION
The bank has chalked 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 based most efficient banking environment for its customers.
To ensure ethics and transparency in all levels.
To ensure sustainable growth and establish full value of the honorable shareholders and
CORPORATE VISION
The gist of the 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 services. To achieve the desired goal, there will be
pursuit of excellence at all stages with a climate of continuous improvement, because,
in EXIM Bank, they believe, the line of excellence is never ending. Bank’s strategic
plans and networking will strengthen its competitive edge over others in rapidly
changing competitive environments. Its personalized quality services to the customers
with the trend of constant improvement will be cornerstone to achieve their
operational success.
SOCIAL COMMITMENT
The purpose of banking business is obvious to earn profit, but the promoters and the
equity holders are aware of their commitment to their society to which they belong. A
chunk of the profit is kept aside and/or spends for socio economic development
through trustee and in patronization of art, culture and sports of the country. The
institution wants to make a substantive contribution to the society where it operates, to
the extent of its separable resources.
OPERATIONAL AREAS
Like other commercial banks, the bank provides all traditional banking services
including the wide range of savings and credit scheme products, foreign exchange and
ancillary services. However, the main focus of the bank is on export and import, trade
handling and on the development of entrepreneurship and patronization of private
sectors.
The core business of the bank comprises of trade finance, term finance, working
capital finance and corporate finance. The bank is also providing personal credit
services related to local and foreign remittances and several product related services.
The schemes of the bank, which are designed to help the fixed income group in
raising standard of living are competitively priced and have been widely appreciated
by the customers.
The bank provides credit services such as, corporate finance, industrial finance, lease
finance, hire purchase finance, commercial investments, and project finance and
syndicate loans.
Deposit Products
The bank introduced a number of financial products and services since its banking
operation. Among them Mudaraba Savings Deposit,Mudaraba Short Term Deposit
Mudaraba Term Deposit, Mudaraba Monthly Income Scheme, Mudaraba Monthly
Saving Scheme, Mudaraba Super Savings Scheme, Mudaraba Hajj Scheme.
Foreign Exchange
Other Services
Other services include utility bill collection for Grameen Phone from its users in all
the branches and for Palli Biddut somity of Gazipur from its consumers in Gazipur
branch.
OVERALL PERFORMANCE
Investment
5 32641.27 40195.24 53637.68 68609.91 93296.65
(General)
Investment ( Shares
6 2233.25 2457.72 2894.02 2189.54 6012.86
on Bonds)
Foreign Exchange
7 96175.1 117900.14 156434.57 162604.61 227966.60
Business
Investment as a % of
9 93.18% 96.75% 93.14% 92.92% 98.26%
total Deposit
No. of Foreign
10 246 256 278 333 354
Correspondent
12 Number of Branches 30 35 42 52 59
The banking system at independence consisted of two branch offices of the former
State Bank of Pakistan and seventeen large commercial banks, two of which were
controlled by Bangladeshi interests and three by foreigners other than West Pakistanis.
There were fourteen smaller commercial banks. Virtually all banking services were
concentrated in urban areas. The newly independent government immediately
designated the Dhaka branch of the State Bank of Pakistan as the central bank and
renamed it the Bangladesh Bank. The bank was responsible for regulating currency,
controlling credit and monetary policy, and administering exchange control and the
official foreign exchange reserves. The Bangladesh government initially nationalized
the entire domestic banking system and proceeded to reorganize and rename the
various banks. Foreign-owned banks were permitted to continue doing business in
Bangladesh. The insurance business was also nationalized and became a source of
potential investment funds. Cooperative credit systems and postal savings offices
handled service to small individual and rural accounts. The new banking system
succeeded in establishing reasonably efficient procedures for managing credit and
foreign exchange. The primary function of the credit system throughout the 1970s
was to finance trade and the public sector, which together absorbed 75 percent of total
advances.
The government’s encouragement during the late 1970s and early 1980s of
agricultural development and private industry brought changes in lending strategies.
Managed by the Bangladesh Krishi Bank, a specialized agricultural banking
institution, lending to farmers and fishermen dramatically expanded. The number of
rural bank branches doubled between 1977 and 1985, to more than 3,330.
Denationalization and private industrial growth led the Bangladesh Bank and the
World Bank to focus their lending on the emerging private manufacturing sector.
Scheduled bank advances to private agriculture, as a percentage of sectoral GDP, rose
from 2 percent in FY 1979 to 11 percent in FY 1987, while advances to private
manufacturing rose from 13 percent to 53 percent. . The rate of recovery on
agricultural loans was only 27 percent in FY 1986, and the rate on industrial loans
was even worse. As a result of this poor showing, major donors applied pressure to
induce the government and banks to take firmer action to strengthen internal bank
management and credit discipline. As a consequence, recovery rates began to improve
in 1987. The National Commission on Money, Credit, and Banking recommended
broad structural changes in Bangladesh’s system of financial intermediation early in
1987, many of which were built into a three-year compensatory financing facility
signed by Bangladesh with the IMF in February 1987. The National Commission on
Money, Credit, and Banking recommended broad structural changes in Bangladesh’s
system of financial intermediation early in 1987, many of which were built into a
three-year compens Foreign exchange reserves at the end of FY 1986 were US$476
million, equivalent to slightly more than 2 months worth of imports. This represented
a 20-percent increase of reserves over the previous year, largely the result of higher
remittances by Bangladeshi workers abroad. The country also reduced imports by
about 10 percent to US$2.4 billion. Because of Bangladesh’s status as a least
developed country receiving concessional loans, private creditors accounted for only
about 6 percent of outstanding public debt. The external public debt was US$6.4
billion, and annual debt service payments were US$467 million at the end of FY
1986.
BRANCH NETWORK
INTRODUCTION
Investment is the action of deploying funds with the intention and expectation that
they will earn a positive return for the owner. Funds may be invested in either real
assets or financial assets. When resources are used for purchasing fixed and current
assets in a production process or for a trading purpose, then it can be termed as real
investment. The establishment of a factory or the purchase of raw materials and
machinery for production purposes are examples in point. On the other hand, the
purchase of a legal right to receive income in the form of capital gains or dividends
would be indicative of financial investments. Specific examples of financial
investments are: deposits of money in a bank account, the purchase of Mudaraba
Savings Bonds or stock in a company. Ultimately, the savings of investors in financial
assets are invested by the respective company into real assets in the form of the
expansion of plant and equipment. When money is deposited with an Islamic Bank,
the bank, in turn, makes investments in different forms approved by the Islamic
Shariah with the intent to earn a profit. Not only a bank, but also an individual or
organization can use Islamic modes of investment to earn profits for wealth
maximization.
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.
The bank provides suitable investment services & products for the following sectors
The Bank has primarily divided all investment facilities into two major categories. In
this section they are discussed in details.
Izara Bill Baia: These are the investment made by the Bank with fixed repayment
schedules.
The terms of investment are:
Short term : Up to 12 months
Medium term : More than 12 and up to 36 months
Long term : More than 36 months.
Investment facility available under this category is:
Izara Bill Baia (General): Short term, 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 and (ii) Small & Cottage industry.
Continuing loans: These are investment having no fixed repayment schedule, but have
an expiry date at which it is renewable on satisfactory performance. Investment
facilities available under this category are:
Investment facilities of the Bank are also categorized under seven prime categories:
Agriculture
Investment facilities to the agricultural sector fall under this category. It is subdivided
into two major heads:
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:
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.
These are the medium and long term investment allowed to small & cottage
manufacturing industries.
Working Capital
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:
Commercial Lending
Short-term loans and continuing investments allowed for commercial purposes fall
under this category. It includes export-import financing, financing for internal trade,
service establishment etc. No medium and long-term investments are accommodated
here. Loan Facilities available under this category are:
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.
Inland Bills Purchase (IBP) Payment made through purchase of inland bills/cheques
to meet urgent requirement of the customer falls under this type of loan facility. This
temporary loan is adjustable from the proceeds of bills/cheques purchased for
connection.
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:
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.
Izara Bill Baia (Staff House Building): investment allowed to Bank’s employees for
purchase/construction of house falls under this Loan.
Other Loan to Staff: Investment allowed to employees other than for House Building is
grouped under head Staff Izara Bill Baia (General).
Izara Bill Baia (Hire Purchase): It is a type of installment-based loan under which the
purchaser agrees to take the goods on hire at a stated rental, which is inclusive of the
repayment of principal as well as profit for adjustment of the loan within a specified period.
House Hold Durable Scheme (HDS): It is a special investment scheme of the Bank to finance
purchase of consumer durable to the fixed income group to raise their standard of living. The
investments are allowed on soft terms against personal guarantee and deposit of specified
percentage of equity by the customers. The investment is repayable by monthly installment
within a fixed period.
Quard (General/Financial Obligation): Investment allowed to individual/firms against
financial obligation (i.e. lien on MTDR/PSP/BSP/Insurance Policy/Share etc.).
Bai-Muazzal (Work Order): Investment allowed against assignment of work order for
execution of contractual work falls under this head. This investment is generally allowed for a
definite period and specific purpose not for continuous purpose.
The bank from time to time allows loan facilities to a single customer/Group (Funded
& non funded) up its 50% of total capital out of which funded facilities does not
exceed 25% of total capital. In case a proposal in submitted to Head Office, then the
Bank considers the extent of the Bank’s global exposure (risk) to that customer group.
Tenure: Bank does not ordinarily go for any loan facilities for long-term basis.
Short-term loan facilities are for 3 months to 12 months.
Medium term loan facilities are for 12 months to 36 months.
Long-term loan facilities are for more than 36 months.
Size:
Security: All assets (Bai-Muazzal & Murabaha) are to be covered under proper
insurance risk with enlisted Insurance Companies.
The bank establishes a specific industry sector exposure cap by preparing a 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. It is
also governed by the statutory and liquidity reserve requirement of Bangladesh Bank.
Term Facilities: Aggregated long-term facilities are restricted to 20% 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.
The Bank does not provide loan facilities to the following businesses:
Lending of funds to the traders, businesses and industrial enterprises constitutes the
main business of the bank. A major part of the bank’s income is earned from interest
and discount on the funds so lent. The business of lending, nevertheless, is not
without certain inherent risks. Largely depending on the borrowed funds, a banker
cannot afford to take
Undue risks in lending. While lending its fund, the bank, therefore, follows a very
cautious policy and conducts its business on the basis of the well-known principles of
sound lending in order to minimize the risks. The bank usually follows the following
lending principles in its credit management operations:
Safety: As the bank lends the funds entrusted to it by the depositors, the first and
foremost principle of lending is to ensure the safety of the funds lent. By safety it is
meant that the borrower is in position to repay the loan, along with interest, according
to the terms of the loan contract. The bank takes utmost care in ensuring that the
enterprise or business for which a loan is sought is a sound one and the borrower is
capable of carrying it out successfully and is a person of integrity, good character and
reputation.
Purpose: The bank does not grant loan for each and every purpose. Bank has its own
policy regarding the purpose for which it provides loans. Loans are normally provided
for productive purposes only such as working capital, trading, agricultural, transport,
export-import etc. The bank does not grant loans for purely speculative purposes,
unproductive purpose such as social functions or holiday or for repayment of prior
loans and business having negative net-worth if it is not covered by cash/quasi cash
securities with adequate margin.
Liquidity: Bank lends funds for short periods. The loans are, therefore, largely
payable on demand. The bank ensures that the borrower is able to repay the loan on
demand or within a short period. The bank grants loans on the security of assets,
which are easily marketable without much loss.
National interest/social benefit: The Bank grants loan if the purpose of the investment
is for overall plans necessitating flow of credit to priority sector in the larger national
interest. National interest for financing in some areas, especially in advances to
agriculture, small industries, export oriented industries, and assuming great
importance. The bank also looks at the social and environmental implication of the
project or business that it is financing.
BORROWER/GROUP LIMITS/SYNDICATION:
Bank may allow investment facilities to a single customer/Group (Funded & non
funded) up to its 50% of total capital out of which funded facilities must not exceed
25% of total capital. All proposal submitted to Head Office will also be required to
indicate the extent of the Bank’s global exposure to that customer group.
Group exposure shall be deemed to include the total investment facilities as detailed
below:
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 of at least three years, amount of investment and period,
purpose of advance, source of repayment, terms of payment, security documents that
are offered, types of charge available. 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 commercial credit officer found that the loan request
meets basic bank lending criteria, the next step will be to conduct a more in-depth
investigation, relying upon the documents obtained from the client and from bank’s
own and outside sources.
INVESTMENT RECOVERY
The bank has a Recovery Unit (RU) under CRM. It directly manages account with
sustained deterioration (a Risk Rating of Sub Standard (6) or worse).
All PIs are assigned to an Account Manager within the RU, who is responsible for
coordinating and administering the action plan/recovery of the account, and serves as
the primary customer contact after the account is downgraded to substandard.
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:
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.
There are two ways loans are classified: 1) Objective Criteria, 2) Qualitative Criteria.
Objective Criteria
Irregular for 3 months or more but less than 6 months. Irregular for 6 months or more
but less than 12 months. Irregular for 12 months or above.
Term investment:
If any installment of a term loan is not repaid within as per repayment schedule the
unpaid amount will be treated as overdue installment.
Qualitative Criteria
The investment (continuous, demand, and term loan) are classified by the bank
whenever it has reason to believe the borrower may not be able to repay the loan due
to change is the circumstances under which the loan was originally sanctioned.
But if it is not possible to recovery the loan even after taking all out efforts then the
loan is treated as bad/loss.
Recovery Units ensure that the followings are carried out when an account is
classified as Sub Standard or worse:
Facilities are withdrawn or repayment is demanded as appropriate. Any drawings or
loans are restricted, and only approved after careful scrutiny and approval.
Investment loss provisions are taken based on Forced Sale Value (FSV).
Investments are only rescheduled in conjunction with the Large Loan Rescheduling
guidelines of Bangladesh Bank. Any rescheduling is based on projected future cash
flows and is strictly monitored.
Prompt legal action is taken if the borrower is uncooperative.
Ratio on investment, classified investment and asset is given below. The lower ration
on classified investment and total investment is better.
CLASSIFIED INVESTMENT
FINDINGS
The share of bad/loss loan, which has no possibility of recovery other than legal
measures, is very high in 2010 compare to 2009. This indicates banks flexibility
regarding credit facility or poor performance of credit department and recovery
system. Also doubtful loan has risen quite sharply this year. This year of 2010 EXIM
Bank has 71% bad loan. But the proportion of substandard loan decreased this year.
FINDINGS
FINDINGS
From above table and column chart one can easily understand the investment practice
of EXIM Bank in terms of division. Here I found out that EXIM Bank invested
mostly in Dhaka division and secondly in Chittagong. In 2010 proportion of
investment for Dhaka, Chittagong, Khulna, Rajshshi, Barisal, Sylhet and Rangpur is
74%, 20%, 1%, 2%, 0.2%, 2% and 0.8% respectively. There are some reasons behind
the percentage of Dhaka division. Major Group or high rated individual has bank
account in Dhaka division. Another reason is than EXIM Banks has more branches in
Dhaka compare to any other division. In 2010 this bank sanctions 69,217.61 million
taka in Dhaka division which is larger than previous year.
FINDINGS
Under this classification I found out that “Over 3 months but not more than 1 year”
represents greater volume than any other in the year of 2009 and also in 2010. Bank
normally gave less concentration on “Repayable on demand” because it generated less
investment income. In 2010 Proportion of Repayable on demand, not more than 3
months, Over 3 months but not more than 1 year, Over 1 year but not more than 5
year & More than 5 year is 3%, 19%, 43%, 14% & 21% respectively. In 2009
Proportion of Repayable on demand, not more than 3 months, Over 3 months but not
more than 1 year, Over 1 year but not more than 5 year & More than 5 year was 3%,
20%, 38%, 15% & 24% respectively.
FINDINGS
Allocation of investment is same this year of 2010 for rural and urban areas as of
2009. Actually production activities are performed mainly in rural areas and financial
activities are performed in urban areas.
FINDINGS
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 2010 from any other previous year though it has highest amount of bad loan
this year erstwhile. So performance of providing investments of the bank is satisfied.
A bank exists mainly on the deposit resources and loan disbursement. Day by day the
deposits generation is becoming harder due to immense competition in this sector,
changes in people saving motive as well as government rules and regulation. The
bank introduced some deposit schemes with attractive return for depositors in recent
years to increase deposits. As Loans and advances are major revenue-generating
assets for any bank, the performance of the bank depends very much on these assets.
Table shows the state of deposit and Investment of the bank of 2010 & 2009. Deposits
stand at Tk. 94,949.40 million in 2010 & Tk. 73,835.46 million in 2009. Investments
stand at Tk. 99,309.51 million in 2010 from Tk. 70,799.45 million in 2009.
FINDINGS
From the above figure it can be concluded that deposit was higher from investment in
year of 2009 but investment is higher than deposit in year of 2010. Which can create
liquidity crisis, but ultimately bank was successful to generate more income.
DEFINITION OF CRG
The Credit Risk Grading (CRG) is a collective definition based on the pre-specified
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.
Credit Risk Grading is the basic module for developing a Credit Risk Management
system.
USE OF CRG
The Credit Risk Grading matrix allows application of uniform standards to credits to
ensure a common standardized approach to assess the quality of individual obligor,
credit portfolio of a unit, line of business, the branch or the Bank as a whole.
As evident, the CRG outputs would be relevant for individual credit selection,
wherein either a borrower or a particular exposure/facility is rated. The other
decisions would be related to pricing (credit-spread) and specific features of the credit
facility. These would largely constitute obligor level analysis.
Risk grading would also be relevant for surveillance and monitoring, internal MIS and
assessing the aggregate risk profile of a Bank. It is also relevant for portfolio level
analysis.
The following step-wise activities outline the detail process for arriving at credit risk
grading.
Financial Risk
Business/Industry Risk
Management Risk
Security Risk
Relationship Risk
Each of the above mentioned key risk areas require be evaluating and aggregating to
arrive at an overall risk grading measure.
According to the importance of risk profile, the following weight ages are proposed
for corresponding principal risks.
After risk identification & weight age assignment process (as mentioned above), the
next steps will be to input actual parameter in the score sheet to arrive at the scores
corresponding to the actual parameters.
A thorough loan and risk assessment is conducted prior to the granting of loans and at
least annually thereafter for all facilities. The results of this assessment are presented
in a loan proposal to Head of Loan Division for approval. The guiding principles for a
bank official while collecting and recording information are to remain uninfluenced
by extraneous considerations and secondly he maintains contact with all those who
can be of assistance.
The following steps for completion of Loan Risk assessment for each facility are
followed by the bank in conjunction with the guidelines/instructions given in Head
Office circulars issued from time to time.
Risk Management
Industry Analysis: The key risk factors of the borrower’s industry are assessed. Any
issues regarding the borrower’s position in the industry, overall industry concerns or
competitive forces are addressed and strengths and weaknesses of the borrower
relative to its competitors are identified.
Project Financial Performance: Where term facilities (tenor greater than 1 year) are
being proposed, a projection of the borrower’s future financial performance are
provided, indicating an analysis of the sufficiency of cash flow to service debt
repayments. Loans are not granted if projected cash flow is insufficient to repay debts.
Accounts Conduct: For existing borrowers, the historic performance in meeting
repayment obligations (Trade payment, cheques, profit and principal payments, etc.)
is assessed.
Mitigating Factors: Mitigating factors for risk identified in the loan assessment are
identified. Possible risks include margin sustainability and/or volatility, high debt loan
(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.
Loan structure: The amounts and tenors of financing of loan are justified based on the
projected repayment ability and loan 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 is obtained and the quality and priority of
security being proposed are assessed. Adequacy and the extent of the insurance
coverage are also assessed.
Name lending: Loan proposal and the granting of loans are based on sound
fundamental, supported by a thorough financial and risk analysis and not by an over
reliance on the sponsoring principal’s reputation.
PROJECT APPRAISAL
Management appraisal.
Market appraisal
Technical appraisal
Financial appraisal
Economic appraisal.
Management appraisal
Market appraisal
The bank makes sure that the product, which the borrower has been
manufacturing/dealing with has a good demand in the market. Market appraisal is
done on the basis of following factors.
Production capacity and working capital requirement of the unit and actual exports
made by the company during the last 3 years.
The factory premises of the Garments unit applying for credit facilities.
Financial appraisal
Financial appraisal seeks to ascertain whether the proposed project will be financially
viable in the sense of being able to meet the burden of servicing debt and whether the
proposed project will satisfy the return expectations of those who provide capital. The
aspects looked into while conducting financial appraisal is:
SECURITY VALUATION
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.
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. Head Office approves the price at which
MPI goods to be released to customer or it may be at market price or landed cost
whichever is higher.
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 wholesale price/competitive market price duly verified by the Branch and
approved by Head Office.
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 loan proposal. The loan proposal defines clearly amount and type of loans,
the purpose of the facility, summary of the results of risk assessment, the sources of
repayment, tenor, covenants, the agreed repayment schedule, interest and value of
security.
The credit officer identifies any particular documents required for each facility. The
officer is responsible for the completion of the documentation. The officer enlists
outside legal assistance where necessary e.g. when drawing up special consortium /
term loan agreements etc.
APPROVAL AUTHORITY
After the loan proposal is completely prepared 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 lend up to certain amount under certain
terms and conditions at their discretion. The lending authority is broadly categorized
as follows:
A) Board of Directors
Establishes overall policies and procedures for approving & reviewing loans.
Delegate’s authority to approve and review Loans.
Approves loan for which authority is not delegated.
Approves all extension of loan that is contrary to Bank’s written loan policies.
To organize and manage the lending activities smoothly, the bank divided the credit
department into different functions. This was also been done to improve the
knowledge levels and expertise in Investment (Loan) Department, to impose controls
over the disbursement of authorized loan facilities and to obtain an objective and
independent judgment of loan proposals. The overall operation of credit of the bank is
organized under following functions as shown the figure below.
INVESTMENT ADMINISTRATION
Disbursement
Disbursement under loan facilities is only made when all security documentations are
in place, all formalities regarding loan approval have been completed, all loan
Approval terms have been met and sanction letter in duplicate copies detailing the
terms and conditions under which the sanction has been made and the same has been
obtained from the customer duly signed by him.
Custodian Duties
Investment disbursements and the preparation and storage of security documents are
centralized in the regional loan centers.
Appropriate insurance coverage is maintained (and renewed on a timely basis) on
assets pledged as collateral.
Security documentation is held under strict control, preferably in locked fireproof
storage.
INVESTMENT MONITORING
To minimize loan losses, the bank put in place monitoring procedures and systems
that provide an early indication of the deteriorating financial health of a borrower. The
bank officials monitor the followings:
Past due principal or profit payments, past due trade bills, account excesses, and
branch of loan covenants;
Investment terms and conditions, financial statements on a regular basis, and any
covenant breaches or exceptions for timely follow up.
Timely corrective action to address findings of any internal, external or regular
inspection/audit.
Computer systems and where automated systems are not available manual processes
are used to produce accurate exception reports. Exceptions are followed up on and
corrective action taken in a timely manner before the account deteriorated further
PERFORMANCE EVALUATION
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 EXIM
bank as a business firm and analyze its strength, weakness, opportunity and threats the
scenario will be as follows:
STRENGTH
WEAKNESS
OPPORTUNITY
THREATS
Because of the intense competition, most of the competitor banks of EXIM Bank Ltd
are coming up with new service line ATM.
The competitor banks of EXIM Bank Ltd have more geographical coverage than
EXIM Bank Ltd.
State law defers with the Islamic Shariah.
In the money market of Bangladesh there is no call money system of Islamic Shariah.
Some other conventional banks have open their Islamic banking branch.
Ratio analysis is a relatively simple yet powerful tool in diagnosing the financial
condition of an organization. No single ratio could begin to meet the burden imposed
be different needs. Thus five major categories of financial ratios have been developed,
each designed to address important aspect of the firm’s financial condition.
1. Liquidity ratio: Such as current ratio measure the quality and adequacy of current
assets to meet current liabilities as they come due.
2. Activity ratio: Such as fixed turnover, total assets turnover measure the efficiency
with which the firm is using its resources.
4. Profitability Ratio: Such as gross profit Margin, Operating profit margin, return on
total asset, etc. measure management effectiveness as indicated by the return on sales,
assets and owner’s equity.
Price Earnings Ratio = Current market share/price Earnings per share. In general, a
high P/E suggests that investors are expecting higher earnings growth in the future
compared to companies with a lower P/E. Recent P/E ration is decreased. However,
the P/E ratio doesn’t tell us the whole story by itself.
Capital Adequacy Ratio (CAR) = (Tier One Capital + Tier Two Capital)/Risk
Weighted Capital. Measurement of bank’s capital. It is expressed as a percentage of a
bank’s risk weighted credit exposures. This ratio is used to protect depositors and
promote the stability and efficiency of financial systems around the world.
Earnings per Share=Net profit after tax/No. of Shares outstanding. The portion of a
company’s profit allocated to each outstanding share of common stock. Earnings per
share serve as an indicator of a company’s profitability. Earnings Per share are
generally considered to be the single most important variable in determining a share’s
price. It is also a major component used to calculate the price-to-earnings valuation
ratio. This year EPS is twice than previous year. It shows improvement of EXIM
bank.
DISBURSEMENT OF LOAN
At least 2% of EXIM bank’s annual profit of every year is put aside for the foundation
to conduct Corporate Social Responsibilities (CSR) activities. The mainstream CSR
activities that are carried out through this foundation are:
Healthcare service.
Scholarship program for brilliant poor student.
Education Promotion Scheme (Interest free loan).
Helping people affected by natural calamities.
Helping people in slum areas.
Donation to educational institutions to setup computer lab.
Beautification of Dhaka City.
A) Healthcare service
A 5 storied building having 10,000 Sft floor space at 840 Kazi Para, Rokeya
Sarani,Mirpur, Dhaka-1216 has been hired to set up Exim Bank Hospital. The
decoration of this hospital is going on in full swing. A doctor has been recruited who
is working as a resident director of the hospital. Other doctors and hospital staffs have
been in the process of selection through recruitment notice already published in the
national dailies. They will be appointed as soon as the decoration of the hospital is
complete.
This is a stipend package for poor and meritorious students that take care of the
beneficiaries throughout their student life. EXIM Bank Scholarship Program,
launched in 2006 with 61 poor and meritorious students selected from different
reputed educational institutions of Dhaka City including Govt. Laboratory High
School, Viqarunnissa Noon School and College, Dhaka University, BUET, Dhaka
Medical College, etc. enrolled as many as 1000 students from around 150 reputed
educational institutions across the country by 31 December 2010. They are enrolled in
the this program to be taken care of for their whole educational life subject to their
fulfillment of the eligibility criteria that include satisfactory academic results,
non-involvement in student politics, financial insolvency etc. So far Tk. 19.3 million
has been disbursed as scholarship under this program.
Under Education Promotion Scheme, quard or interest-free loan is provided for poor
and meritorious students to help them bear monthly educational expenditure including
academic expenses, food, accommodation, etc. The quard is disbursed to the selected
students in monthly installments till their accomplishing the master degree. Under this
program the students are required to repay the amount (only the principal amount) in
long-term monthly installments after they have joined a confirmed job accomplishing
their education properly. By 31 December 2010, Tk. 19.7 million was sanctioned to
take care of around 138 poor and meritorious students from a number of reputed
educational institutions like Dhaka University, Chittagong University, Dhaka Medical
College, BUET, Bangladesh Agricultural University, Shahjalal University of Science
and Technology etc.
Another vital area we are dealing with as part of our CSR activities is helping people
survive natural calamities. Under this welfare programme, EXIM Bank provides relief
in cash and kind for flood, fire or cyclone victims and cold-stricken people. The aim
of these CSR activities is to help the target group overcome their provisional handicap
and contribute to the socio-economic growth as soon as possible.
Besides natural calamities, fire breaks out sometimes in slum areas that guts the
shanties and renders the affected people totally helpless. In that situation, we help the
victims fight against the hard days and return to normal life.
In response to the call of the Dhaka City Corporation, EXIM Bank has been sharing a
good portion of the mammoth task of beautifying the capital since 2005. To make the
capital a modern city enriched with adequate urban amenities, EXIM Bank always
joins hands with the government.
The main focus of this paper is on investment management of EXIM Bank. Besides
this the paper also looked at the Islamic banking in Bangladesh as the EXIM bank
was converted to an Islamic Shariah based bank in July 2005.
Islamic banking in Bangladesh has been a tremendous success over the last decade or
so. The annual growth rate of Islamic banking is 30%. Islamic banking is based on
cardinal two principles laid down in Shariah:
1) prohibition of interest
The bank grants investment to a number of sectors through various loan facilities for short,
medium and long period.
The bank’s lending activities mainly focus on trade and industry sector
In this paper bank’s deposit mobilization and loan disbursement, current growth rate
of deposit and investment is 26.54%, 40.27% respectively. For investment sanctioning
it is observable that in this year loss from general investment is about .004% and bad
loan was 1.34% of total investment. Overall their growth rate is well from the date of
establishment.
EXIM bank within a short period of just few years has made good progress in terms
of profitability and growth rate of deposits and loans and advances despite
tremendous competition in the industry and world economic crisis. The bank has to
keep updating its credit 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
loan granting process it can become laden with heavy bad loans.
The segregation of duties will improve the knowledge levels and expertise in each
department.
The organization structure should have to be changed to put in place the segregation of the
Marketing/
Relationship Management function from Approval / Risk Management / Administration
function.
The responsibilities of the key persons of the above function must also be clearly specified.
An Early Alert Account system 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)
There should be a Recovery Unit to manage directly accounts with sustained deterioration.
To encourage
Recovery Unit incentive program may also introduced.
The bank can establish a Marketing department to increase deposits
The bank can open ATM booths and internet banking facilities
The bank should introduce up to date baking software solutions designed to speed up
banking process and delivery of services
The bank should give its loan products to customers by publishing brochures and advertising
them under different ‘brand’ names.
Ensure proper training of its staff.