Loan Disbursement and Loan Recovery of Al-Arafah Islami Bank Ltd.
Chapter One Introduction
1.1 Introduction: Banking is one the most competitive industries of Bangladesh that has seen a huge amount of growth during the last decade. A large number of new banks have made their places in the industry and yet there are more to register in the list. In such a highly competitive service industry, the importance of customer satisfaction cannot be de-emphasized. To keep pace with this situation, we need banking knowledge for future career. If we want to build our career in banking area, only theoretical knowledge would not help us. As internship program is established to gather practical knowledge regarding various sector of economy, I chose to get practical knowledge regarding banking sector and I select Al-Arafah Islami Bank as my organization to work. The duration of my program was 3months and during this period, I have learned many things. I observed that there is a great difference between theoretical knowledge and practical knowledge. I learned many terms, functions and nature of banking activities. I also get practical knowledge regarding organizational environment.
1.2 Scope of the study: Al-Arafah Islami Bank Litd. is one of the leading banks in Bangladesh. The scope of the study is limited to the Principal Branch only. The report covers the organizational structure, background, functions and the performance of the bank.
1.3 Objective of the study: The core objectives of the practical orientation program in banks are as follows: (a) To know about the loan strategy of Al-Arafah Islami Bank Ltd.
(b) To find out the marketing strategy of Al-Arafah Islami Bank Ltd. (c) To find out the different banking procedures of the branch. (d) To find out the relations among the various department.
1.4 Methodology of the study: In order to make the report more meaningful and presentable, two sources of data and information have been used widely. The “Primary Sources” are as follows: •
Face-to-face conversation with the respective officers and staffs of the Branch
•
Informal conversation with the clients
•
Practical work exposures from the different desks of the four departments of the Branch covered
•
Relevant file study as provided by the officers concerned
The “Secondary Sources” are as follows: •
Annual Report (2008) of Al-Arafah Islami Bank Ltd.
•
Periodicals published by Bangladesh Bank.
•
Various books, articles, complications etc. regarding general banking function, foreign exchange operation and credit policies.
1.5 Limitations of the study: The following limitations are apparent in the report: ►The report has been conducted within a limited time frame. ►The study is self financed. ►Only Banani branch has been considered for the study. ► Bank’s policy of not disclosing some data and information for obvious reason which could be very much useful.
Chapter One (Overview of Al- Arafah Islam Bank Ltd.
2.1 Background of Al-Arafah Islami Bank Ltd (AIBL): Islamic ideology encourages us to succeed in life here& hereafter. To achieve this success we must follow the way dictated by the HOLY QURAN and the path shown by Rasul (SM). With this goal in view AL Arafah Islami Bank Ltd was established (registered) as a public limited company on 18 June 1995. The inaugural ceremony took place on 27 September 1995. The authorized capital of the Bank is TK.2500.00 million and the paid up capital TK.1153 million. Some very renowned Islamic personalities and pious businessmen of the country are the sponsors of the bank. The total paid up capital was invested locally. The Bank is committed to contribute significantly in the national economy. It has made a positive contribution towards the towards the socio economic development of the country by opening 46 branches on which 16 authorized dealer (AD) throughout the country. The equity of the bank stood at TK.2037 million Crore as on 31 December 2007, the manpower are 1033 and number of shareholders are 12013. The Bank conducts its business on the principles of Musaraka, Bai-muazzal, and hire purchase transactions approved by Bangladesh Bank. Naturally, its modes and operations are substantially different from those of other conventional commercial Bank. There is a Shariah council in the Banks who maintains constant vigilance to ensure that the activates of the bank are being conducted on the precepts of Islam. The Shariah council consists of prominent Ulema, reputed, Bankers, renowned lawyers and eminent Economist.
2.2 Mission of Al-Arafah Islami Bank Ltd (AIBL): •
Achieving the satisfaction of Almighty Allah both here and hereafter.
•
Proliferation of Shariah Based Banking practices.
•
Quality financial services adopting the latest technology.
•
Fast and efficient customer service .
•
Maintaining high standard of business ethics.
•
Balanced growth.
•
Steady and competitive return on shareholders’ equity.
•
Innovative banking at a competitive price.
•
Attract and retain quality human resources.
•
Extending competitive compensation packages to the employees.
•
Firm commitment to the growth of national economy.
•
Involving more in Micro and SME financing.
2.3 Vision of Al-Arafah Islami Bank Ltd (AIBL): •
To be a pioneer in Islamic Banking in Bangladesh and contribute significantly to the growth of the national economy.
2.4 Product and services of AIBL: Deposit Products of AIBL: In order to deposit mobilization from savings surplus unite AIBL offers various deposit products to the clients. The deposit products of AIBL are as follow: a. Installment based term deposit scheme b. Monthly profit based term deposit scheme c. Monthly hajj deposit scheme d. One time hajj deposit scheme e. Mudaraba Kotipoti deposit scheme (KDS) f.
Mudaraba Lakhotipoti deposit scheme (LDS)
g. Mudaraba Milliners deposit scheme (MDS) h. Mudaraba double benefit deposit scheme (DBS) i.
Mudaraba pension scheme (PDS)
j.
Mudaraba cash waqufh deposit scheme
k. Al-Arafah Savings bond l.
Special Savings Scheme
m. Marriage deposit and investment scheme Name of Products
Percentage ( % )
Al-Wadia Current Accounts
14.56%
Mudaraba Savings Accounts
20.23%
Mudaraba Short Notice Deposits
2.91%
Mudaraba Terms Deposits
46.94%
Mudaraba Special Deposit
14.17%
Bills Payable
1.17%
Total
100%
Financial Product of AIBL: All kinds of commercial banking services are provided by AIBL to the customers following the principles of Islamic shariah the provisions of the bank company Act 1991 and Bangladesh Banks directives.Financing products (Debt-Based) are as below: •
Murabaha (Industrial, Commercial, Real estate)
•
Bai-Muajjal Agriculture Transport etc
•
Hire purchase sirkatul milk Agriculture Transport etc
•
Quard Agriculture Transport etc
•
Bai Istisna Agriculture Transport etc
•
Bai Salam Agriculture Transport etc
•
Investment for Fisheries
•
Investment for Poultry rearing
•
Investment for cattle rearing
•
Investment for poultry firm etc
Accounts operation of AIBL: In the Al- Arafah following accounts are operation: •
Al-Wadiah Current account
•
Mudarabah deposit Account
•
Short Notice deposit
•
Mudarabah term deposit
• Mudaraba Hajj deposit • Term Hajj Deposit • Installment term Deposit • Saving installment deposit • Monthly profit based deposit •
Marriage saving installment scheme
•
Al- Arafah Saving Bond.
Functions of AIBL: Function of AIBL may be divided into four categories i. General banking activities ii. Investment banking activities iii. Foreign exchange activities iv. Others activities.
These functions are discussed briefly as below: i.
General banking activities: General banking activities is the heart of banking. Here money collection procedure occurs. General banking activities are discussed briefly as below:
a. Cash Receive: Cash section is include general banking activities. Cash section is very important for deposit mobilization. b. Cash Payment: General banking section close various kinds account and cash payment is made from this section. c. A/C Opening: In this section various kinds of account is opened. Those are Mudaraba A/c, Al-wadia Current A/c, Mudaraba sort notice deposit A/c Mudaraba terms deposit A/c, Installment terms deposit A/c, Hajj deposit A/c etc. d. Cheque Issue: General banking section issue chequebook. Chequebook is very important for money transaction. e. A/C Closing: Various type of A/cs are closed in this section f.
Money Remittance: Money remittance is very important for economic development and business activities. Money remittance is done by TT, DD, PO, IBCA, MT, OBC, LBC, and General banking section issue these instruments.
g. Clearing activities: In this section all clearing instrument send to Bangladesh Bank / Sonali Bank Clearing house and after completing clearing process clearing amount of are credit to concerned accounts. h. Deposit Mobilization: Deposit mobilization is the main function of general banking section. Actually all section are engaged in deposit mobilization but deposit mobilization procedure are done this section. i.
Bill Collection: AIBL collect bill on behalf on various institution or enterprise from their customers. For example electric bill, Telephone bill, Gas bill, Mobile bill etc.
j.
Investment Activities: Almighty creature said in his holy Quran that “Ahallahul baia and harramahu Riba” that means Allah permitted trading and forbidden interest” Islamic bank is a financial institution whose statutes rules and procedures expressly state its commitment to the principles of islamic shariah and to the banning of the receipts and payment of interest in on any of its operations. So Islami bank always avoids interest and emphasizes on profit business.
ii. Investment activities AIBL are discussed as below: •
Disabused financed to the business firms and persons: The most important function of an islami bank is disbursed finance to industries and business firm or persons.
•
Disbursed leased finance to various industries: Islami bank disbursed leased finance to various industries. Lease finance may be two types operating lease and financial lease.
•
Issue bank Guarantee: AIBL issue bank guarantee on behalf or its clients. In this way banks helps a business firm to run their business smoothly.
iii. Foreign exchange activities: Foreign exchange is another important department for banking service the functions of foreign exchange section are as below: •
L/C issue: A letter of credit is a conditional undertaking of payment, a letter by the importers bank to the exporter that the bills if drawn as per terms and conditions are strictly complied with will be honor on presentation. AIBL issue L/C on behalf of its clients and its very important for foreign exchange transaction.
•
Bill negotiation: AIBL issues export L/C and negotiate the export bill.
•
Foreign remittance: Foreign exchange deportment plays a vital role for foreign remittance. Foreign exchange department maintain various “Nostro” and “Vastro” A/c all over the world. Its keeps correspondence with foreign banks.
iv. Others activities: Banks play important role for development of a country. Others function of a bank are as below: •
Provide information to Bangladesh bank and others institution and that information is important for policy making.
•
To help the Bangladesh Bank and govt. for implementation fiscal and monitory policy.
•
Provide valuable information as well as opinion to its clients for their business firm.
•
Safe keeping peoples deposit.
•
Providing local facilities to safe keeping peoples valuable assets.
•
Providing S.M.S Banking
•
AIBL operating an English medium madras a.
Online general banking service of AIBL: The Bank has already started providing on-line general banking services to the clients through a network of all branches in the country using satellite based Communication links. AIBL is a member of the Society for Worldwide Interbank Financial Telecommunications (SWIFT). All of AIBL Authorized Dealer Branches have SWIFT connectivity. The Bank may introduce a few more products for client, such as:
SMS Banking
Tele Banking
Internet Banking etc.
To present the overall picture of the Bank to the Depositors, Shareholders, Investment Clients and Well wishers in home and abroad transparently bank has designed a web site as www.al-arafahbank.com
The International Trade of AIBL: International Trade is one of the major activities conducted by the Bank. At the end of 2008, the total amount of foreign trade (export, import and Remittance) was 41601.58 million taka showing a growth of 41.93%. The total export revenue of the bank was 9142.70 million taka in 2007, which has increased by 39.07% to 12714.91 million taka in 2008. Similarly the amount of import has increased from 1884.40 million taka of 2007 to 27042.72 million taka in 2008, experiencing a growth of 43.68%. During the previous year the amount of remittance through the bank was 1346.54 million taka, which grew to 1843.95 million taka in the current year.
2.5 Growth of the Bank (Figure in Core): Particulars
2000
2001
2002
2003
2004
2005
2006
2007
2008
Authorized Capital
1000.00
1000.00
1000.00
1000.00
1000.00
1000.00
1000.00
2500.00
2500.00
Paid up
253.00
253.00
253.00
253.00
506.00
586.96
677.94
854.20
1153.18
Reserve fund
46.86
73.07
117.63
155.43
231.89
488.96
542.22
835.98
1091.95
Share holders equity
299.86
326.07
370.63
408.43
737.89
957.26
1220.16
1690.18
2037.50
Deposit
6415.79
7307.59
7879.18
7163.00
8643.27
10108.28
11643.66
16775.33
23009.13
Investment
3793.71
3728.41
5079.21
6403.60
7571.54
8150.16
11474.41
17423.19
22906.37
Import
5555.51
5979.90
5559.27
5162.51
7698.29
9337.49
12631.60
18821.40
27042.72
Export
2304.21
3313.20
2524.63
1894.77
3075.52
3639.34
4932.90
9142.70
12714.91
Total Income
534.76
752.19
800.35
835.42
987.68
1120.85
1452.68
2172.48
2955.61
Total Expenditure
464.30
598.45
678.84
671.48
681.34
771.96
904.48
1202.71
2199.43
Profit before Tax and
70.47
67.00
39.48
163.94
306.34
348.89
548.20
969.77
756.18
31.70
30.15
19.53
50.71
127.06
154.76
262.90
470.02
347.31
Tax
24.66
23.45
13.82
57.76
103.96
157.00
215.10
385.45
235.53
Total Assets
7746.04
8584.95
9253.77
8759.33
10886.82
12874.61
15336.89
21368.16
30182.32
Fixed Assets
50.35
52.44
58.54
114.83
126.23
195.17
208.00
215.10
334.48
Earning Share
18.10
17.21
10.14
31.24
25.11
26.36
38.78
55.02
30.12
Dividend
12%
12%
7.5%
20%
Bonus 16%
Bonus 15.15%
Bonus 26%
Bonus 35%
Bonus 20%
Number of
6319
5849
5778
5557
5584
5379
5402
4487
12013
Capital
Provision
Profit after Tax and Provision
per
Shareholder s
Number of
664
674
659
670
685
803
771
912
1033
35
37
40
40
40
40
41
46
46
Employees Number of Branches
2.6 Capital Position of Al-Arafah Islami Bank Ltd (AIBL): Corporate Information' 2008 Date of Registration Opening ceremony Authorized Capital Paid up capital Local Partnership of Capital Equity Number of branches Deposit Investment Number of manpower Number of shareholder
18 June 1995 27 September, 1995 2500.00 Million 1153.18 Million 100 % 2037.50 Million 47 23009.13 Million 22906.37 Million 1033 12013
2.7 Performance of Al-Arafah Islami Bank Ltd (AIBL): For measuring the performance of Al-Arafah Islami Bank Ltd of this branch I wanted the financial statement of the Gulshan branch. But Gulshan branch authority is disagree to provide me it financial statement of their Gulshan branch. They provide me the annual report and financial statement all over the branch of the country (Aggregate branch financial
statement). So I analysis financial Statement of Al-Arafah Islami Bank Ltd, not only the Branch.
2.8 Organizational structure of Al-Arafah Islami Bank Ltd (AIBL): Managing Director (MD)
Deputy Managing Director (DMD)
Executive Vice President (EVP)
Senior Vice President (SVP)
Vice President (VP) Asst Vice President (AVP)
Senior Principal Officer (SPO)
Principal Officer (PO)
Senior Officer (SO)
Officer
Junior Officer (JO)
Asst. Officer (AO)
Messenger Gun Guard (MCG)
Board of Directors: Board of Directors Al-Hajj Md. Anower Hossain
Designation Chairman
Al-Hajj Mir Ahmed Sowdager
Vice Chairman
Al-hajj Md.Haroon-ar-Rashid Khan
Director
Al- Hajj Ahmed Ali Al-hajj Nazmul Ahsan Khan
Director Director
Al-Hajj Abdul Malek Mollah Al-Hajj Hafez Md. Enayetullah
Director
Al-Hajj Kazi Md. Mofizur Rahman Al-Hajj badiur Rahman Al-Hajj Abdul Muktadir Al-Hajj Ahamedul Hoque Al-Hajj Abdus Samad Al-Hajj Kh. Mesbah Uddin Ahmed M.A. Samad Sheikh
Director Director Director Director Director Director Director Ex-Officio Director
Chapter Three Topics analysis & Description (Loan Function)
3.1 Legal Framework for Loan Recovery: After being classified, if the borrower is unable to adjust the loan then the bank can take the following legal actions by filing suit: 1. Filing certificate cases under Public Demand Recovery Act -1913; 2. Filing money suit cases under Aretha Rin Adalat-1990; 3. Filing Bankruptcy cases under Bankruptcy Act- 1997; 4. Filing cases under Negotiable. Instrument Act-1881 section 138 to 141 for insufficient fund (In case of term loan).
3.2 Loan Classification: Loan classification is a process by which the risk or loss potential associated with the loan accounts of a bank on a particular date is identified and quantified to measure accurately the level of reserves to be maintained by the bank to provide for the probable toss on account those risky loan.
Like other banks, all types of loans of AL-ARAFAH-ISLAMI BANK LTD following four scales: •
Unclassified: Repayment is regular.
•
Substandard: Repayment is stopped or irregular but has reasonable prospect of improvement.
•
Doubtful debt: Unlikely to be repaid but special collection efforts may result in partial recovery.
•
Bad/Loss: Very little chance of recovery.
3.3 Loan classification: Classificatio n
15t phase
2nd phase
3rd phase
4th phase
5th phase
status
Length of
Length of
Length of
Length of
Length of
overdue
overdue
overdue
overdue
overdue
Less than 12
Less than 9
Less than 9
Less than 6
Less than 3
Months
Months
Months
Months
Months
12 months
9 months or
9 months or
6 months or
3 months or
Or more but
More but
More but
More but
More but
Less than 36
Less than 24
Less than 24
Less than 12
Less than 6
Months
Months
Months
Months
Months
36 months
24 months
24 months
12 months
6 months or
Or more but
Or more but
Or more but
Or more but
More but
Less than 48
Less than 36
Less than 36
Less than 24
Less than 12
Months
Months
Months
Months
Months
48 month or
36 month or
36 month or
24 month or
12 month or
More
More
More
More
More
Unclassified
Substandar d
Doubtful
Bad/loss
Sources: CIB report and personal observation.
3.4 Loan against Trust Receipts (LTR):
Advance against a Trust Receipt obtained from the Customers are allowed to only first class tested parties when the documents covering an import shipment or other goods pledged to the Bank as security are given without payment. However, for such advances prior permission/sanction from Head Office must be obtained.
The customer holds the goods or their sale-proceeds in trust for the Bank, till such time, the loan allowed against the Trust Receipts is fully paid off.
The Trust Receipt is a document that creates the Banker’s lien on the goods and practically amounts to hypothecation of the proceeds of sale in discharge of the lien.
3.5 Loan against Imported Merchandise (LIM): Advance (Loan) against the security of merchandise imported through the Bank may be allowed either on pledge or hypothecation of goods, retaining margin prescribed on their Landed Cost, depending on their categories and Credit Restriction imposed by the Bangladesh Bank. Bank shall also obtain a letter of undertaking and indemnity from the parties, before getting the goods cleared through LIM Account.
3.6 Loan General (LG): Advances allowed to individual against financial obligation (i.e. Lien on FDR/PSP/BSP/insurance policy/Share etc. This type of loan may or may not be continuous credit. This type of loan is given for projects, or purchasing machinery.
3.7 Categories of loan: All loan and advances will be grouped into four categories for the purpose of classification, namely: 1. Continuous loan 2. Demand loan
3. Fixed term loan 4. Short- term agricultural and micro credit
Continuous Loan The loan accounts in which transactions may be made within certain limit and have an expiry date for full adjustment will be treated continuous loans. Examples are: CC, OD etc.
Demand loan The loans that become repayable on demand by the bank will be treated as demand loans. If any contingent or any other liabilities are turned to forced loans (i.e. without any prior approval as regular loan) those too will be treated as demand land. Such as: Forced LIM, PAD, FBP, and IBP etc.
Fixed term loan The loans, which are repayable within a specific time period under a specific repayment schedule, will be treated as fixed term loans.
3.8 Rescheduling Procedures: a) On the application of loan rescheduling the bank inspects reason of the loan default. If it is clear that the borrower has spent the money in another way instead of the assigned investment than such application will not be considered. In this case legal action is taken. b) The position of liabilities of borrowers to other bank is to be considered c) The bank will analyze the cash flow statement audited Balance sheet, Income statement and other financial statements. d) If necessary, the bank will inspect the business of the borrower to ensure that he will be able to repay the rescheduled loan. Hereby it is important to mention that the Rehabilitation Department is not rescheduling the due loan no more since 1990. And for that reason there is no specific formula for rescheduling the loans. Now the main duty of the department is to recover the loan by negotiating with the borrower.
3.9 Rescheduling of Term Loan:
a) A term loan may be rescheduled if 15% of expired installment or 10% of total due which ever is lower is paid in cash at first. b) A term is considerable to be rescheduled for the second time if 30% of expired installment or 20% of total due which ever is lower is paid in cash. c) To reschedule term for the third time or more 50% of expired installment or 30% of due which ever is lower must be paid in cash.
3.10 Loan Recovered: Loan Recovered is a crucial index to measure the success of a lending organization. Like previous year, this year too, the Bank strengthened its recovery drive for realizing loan and dues from its borrowers and significant success was achieved. Total recovery target loans during financial year 2003-04 was Tk. 1500 million against which actual cash recovery was Tk. 1124.20 million constituting 75% of the target.
Sector wise Loan Of 2009 agri,fish,& foresty(1.48%) industry(26.72%) constr94.71%) water&sanatary(02% 1.48% 26.72% 4.71% 0.02%
Trns.&commu(3.21% ) storage(0.4%) Trade(62.09%) miscellaneous(1.73%) 3.21% 0.40% 62.09% 1.73%
Sector wise Loan
agri,fish,& foresty(1.48%) industry(26.72%)
constr94.71%)
water&sanatary(02 %
Trns.&commu(3.21 %) storage(0.4%)
Trade(62.09%)
3.11 Mortgage: Equitable mortgage: a. Certificate from purposive authority that the concerned property is situated within pervasive area; b. Original title deed of property; c. Memorandum of title deed of property; d. Registered irrevocable power of attorney duly drafted by bank's lawyer and executed by the owner of the property; e. Latest CS, RS, SA, parch a together with latest receipt showing payment of land, tax WASA, gases, electric, bills etc;. f.
Bias-deeds /parch showing chain of transfer of title
g. Non-encumbrance certificate by Engineer and branch manager. Forced sale value is acceptable; h. Lawyer's certificate regarding genuineness of title on the property of the mortgage and stating in clear term weather the property can be accepted as security against advances to be allowed;
i. Letter of guarantee of the owner of the owner of the property in case of third party property;
3.12 Legal mortgage: Mortgage deed duly drafted by bank's legal advisor and registered with competent authority duly stamped. 1
Original title deed of property;
2
Letter of guaranty in case of 3 rd party's property;
3
Latest CS, RS, SA, parch land revenue tax payment, gases WASA electric bill payment;
4
Receipt, bias /chain deeds site map duly approved plan in case of building;
5
Non encumbrance certificate for last 12 years;
6
Valuation certificate (by engineer and branch manager forced sale value to be considered;
7
Lawyer's certificate regarding valid title of the property and acceptability of the property as security in clear terms .No vague opinion should be accepted.
8
Letter stating relation of the owner of the property with the borrower (in case of 3 rd party property) (in case of rural property HOMESTEAD up to one standard bight not acceptable) .
3.13 Shareholder equity: Paid up capital =
429000000
Proposed bonus share =
--
Statutory Reserve =
149672451
Surplus in profit and loss account =
228468158
Total =
807140609
So, Debt ratio = =
16056624606 807140609 198.93:1
Al-Arafah Islami Bank Ltd external liabilities are very high. When owner contribute Tk. 1 then external liabilities insure by Tk. 198.93. We know Bank doing business by using other people fund. So successful of Bank depend on the efficient utilization of this debt. 2.
owner fund Net worth total asset = Total asset
Ratio =
307140609 16863765215 =
0.05: 1
Net worth total asset ratio is 0.05: 1 that means if owner claims Tk. 0.05 then creditors claim Tk. 1 in fixed asset.
3.14 Operation profit: The bank earned operating profit of Tk. 1,729.83 million during the year 2009. The pre-tax profit of the bank during the year 2008 was Tk 1,528.10 million & thus the bank attained positive growth of 13.20% in respect of operating profit. The provision for income tax for the year amounted to Tk. 730.25 million & divisible profit available for appropriation amounted to Tk. 860.44 million.
Dec-00
Dec-01
Dec-02
Dec-03
Dec-04
Dec-05
Dec-06
Dec-07
Dec-08
Dec-09
67
39.48
163.94
306.34
348.89
548.2
969.77
756.18
1528.1
1729.83
Operating Profit (In million Taka)
3.15 Profitability Ratio 1.
Net profit ratio
=
Net Pr ofit ×100 Turnover
=
363309239 ×100 704809337
=
51.6%
Profit caring capacity of Al-Arafah Islami Bank Ltd is very high that 51.6 percent of total turnover. Higher earning profit defines that management are high efficient in using borrowing capital. 2.
Return on capital employment ratio =
Net profit before taxes ×100 Employed Capital Employed capital= Total assets minus current liabilities. = 16863765215 – 2520156179 = 14343609036 Return on capital employment ratio
363309239 ×100 = 14343609036 = 2.5%
Al-Arafah Islami Bank Ltd earns very poor profit against it total employed capital.
Period 01 (One) Month 03 (Three) Months
Provisional rate of profit 9% Below 5 crore Above 5 crore Above 10 Crore
10.50% 06 (Six) Months 11% 12 (Twelve) Months 11.50% 24 (Twenty four) 11.75% Months 36 (Thirty six) Months
12.00%
11.00%
11.50%
3.16 Dividend: The bank has been paying dividend every year since 1998 just after conversion of a public limited company. The board of Directors of the bank is pleased to recommend 30% stock dividend in year 2009. Table of historical dividend payment percentage are as follows:
Dec-00
Dec-01
Dec-02
Dec-03
Dec-04
Dec-05
Dec-06
Dec-07
Dec-08
Dec-09
12
7.5
20
16
15.5
26
35
20
30
30
Dividend % (In million Taka)
12
30
Dec-00
7.5
Dec-01
20
Dec-02 30
16
Dec-03 Dec-04 Dec-05
15.5 20
Dec-06 Dec-07
26 35
Dec-08 Dec-09
3.17 Capital Adequacy & Reserve Fund: According to BRPD circular the bank will have to maintain Tk. 4,000.00 million capital & statutory Reserve by August 2011.In compliance with the new provision, the bank has raised its capital & Reserve from Tk. 3,049.34 million in the year 2008 to Tk. 4,065.96 million in 2009 by declaring 30% stock dividend out of the profit of the year 2009. The paid up capital of the bank has stood at Tk. 1,798.95 million at 31st December 2009.
The total reserve fund has stood at Tk. 1,223.18 million in the current year against Tk. 905.33 million at 31st December 2008. In this account the bank experienced a growth of 37.90%.The Bangladesh bank has fixed the ratio of capital adequacy against risk-weighted assets at 10% or Tk. 2000 million whichever is higher. The capital adequacy ratio of the bank as on 31.12.2009 is appended below.
Dec-05
Dec-06
Dec-07
Dec-08
Dec-09
15336.89
21368.16
30182.32
37177.22
48515.79
Total Assets (In million Taka)
3.18 Deposits: The total deposit of the deposit of the bank was Tk. 38,355.50 million at 31 st December 2009 as against Tk.29,690.12 million at 31 st December 2008 recording a growth of 29.19% of which Tk. 518.00 million was bank deposit and Tk.37,837.50 million was general deposit. The present strategy is to increase the deposit base though maintaining competitive profit rates and having low cost of funds to ensure a
better spread with an average return on investment. The mix deposit of the bank on December 31,2009 was as follows: Dec-05
Dec-06
Dec-07
Dec-08
Dec-09
11643.7
16775.3
23009.1
29690.12
38355.5
Deposit Growth (In million Taka)
3.19 Investment: The investment of the bank has stood at Tk. 36,134.08 million as on 31 st December 2009 as against Tk. 27,742.57% million in previous year showing an increase by 30.25%. The investment portfolio of the bank is well diversified and covers a broad spectrum of businesses and industries including readymade garments, textile, edible oil, ship scraping, steel & engineering, chemicals, pharmaceuticals, cement, telecommunication, construction, health care, real estate, education, transport & investment under consumer schemes. We have geared up efforts to improve the recovery rate of disbursed investment & also taken adequate measure measures for converting the classified investment into performing assets. As a result classified investment of the bank could be kept at a low level far below the national average. It is 1.68% in our bank as on 31 st December 2009. The gives top-most priority to the creation of quality assets and does appropriate risk grading while approving commercial trade and project investment to different clients.
Dec-05
Dec-06
Dec-07
Dec-08
Dec-09
11474.4
17423.2
22906.4
27742.57
36134.08
Investment Growth (In million Taka)
3.20 Income: Investment income: The investment income was Tk. 4,004.54 million during the year 2009 which registered a growth of 15.86% over the previous year. Investment income is 75.48% of the total income of Tk. 5,305.63 million. Income from other than investment: The bank has earned Tk. 1,301.10 million from sources other than income, locker rent etc. In the current year which is 24.52% of the total income. It indicates 38.89% growth over the year 2008. Dec-05
Dec-06
Dec-07
Dec-08
Dec-09
12631.6
18821.4
27042.7
32685.1
34074.8
4932.9
9142.7
12714.9
20176.6
23546.1
Total Income & Expenditure (In million Taka)
3.21 Bank Guarantee: Bank Guarantee is a confirmation of payment on behalf of the client. That means if the customer fail to operate his contractual tasks in that case bank will provide guarantee to the auctioneer. Before giving any guarantee to customers it take security (land, building, financial instrument etc) from the customers. In that case bank divided a year in quarter and .50% profit is charged in each quarter. We know three months makes a quarter, so in that case if the client
are able to paid the money within three month and exceed only one day, in that case he has to pay profit on two quarter. If the auctioneer claims that money, the bank will pay it, and will create a loan account for the customer. For that reason become liable to pay the money. So, bank guarantee is a contingent liability.
Bank guarantee may be three types. These are: 1) Bid bond: When a party wins a tender, he has showed his solvency for doing the work. So in that case bank provides that guarantee to procure the task.
2) Mobilization (advance payment): If the client can show his eligibility to do the task he has to go the field & in that case he must show the security to the auctioneer which is also provided by the bank.
3) Performance security: After getting the task he has to go to the field work and in that case he must show the security to the auctioneer which is also provided by the bank.
3.22 MY OBSERVATIONS: A. The volume of operational activities of this department is very high, but number of employees is adequate. As for example in one desk an officer in-charged for A/e opening, DD, TT, PO operating as well as cheque receiving. Though he is skilled enough to do those job but very often it creates bothering situation for customer B. The computer removes the token system. It is very much appreciable, but the computer operator or programmer should be conversant with the system for quick and better quality services to the customers. C. Account opening procedures are very" much relaxed. The officer or introducer of the account holder should follow rules and formalities for opening the account. D. In case of account opening, Letter of thanks is not sent to the introducer though it is a formality to be maintained by the bank. In busy day, it sometimes impossible for the officer to check every signature on cheque with specimen signature card as to ensure prompt service. The officer in charge some E. The costly Time and Saving Deposit occupy maximum portion of total deposit. F. Therefore, cost of fund is increased which decreased its profit level. G. The bank does not have strong online computer facility, which could improve the service quality. H. There is a rule to deposit at least an amount of money in case of opening an account. However, it is not strictly followed. Sometimes more money is asked from a new customer that who discourage him to open an account in the bank. I think the amount should be fixed at a level that is not altered from customer to customer.
4.1 Problems faced by Al-Arafah Islami Bank Ltd: From my observation and discussion with the relevant employees of the branch, I discus the following problems faced by the branch. Although most of the problems are long -term in nature, Some required immediate attention for betterment of the organization.
Foreign Exchange Department: • • • • • • • •
Lack of manpower in Foreign Exchange Department especially in export division of Gulshan Branch is a big problem. The manpower of that section is not sufficient for prompt service. As Al-Arafah Islami Bank Ltd is not a foreign bank, it can not attract as much as clients for Foreign Trade. Because client prefer Global bank for foreign transaction. Lack of promotional initiatives to expand the Foreign Exchange business. From the previous years it has been observing that frequently the currency of taka is devaluating and dollar currency is going very high. And devaluation of taka is hampering import business and other sectors too. Government new regulations like as L/C margin reduce the Foreign Exchange transaction. Strict controlling of Central Bank in foreign currency endorsement is a major problem. Employees of that department should have fluency in their tasks, so that customer does not feel boring. Most of the customers of the bank ask for more quickly service especially quick, accurate service and good behavior from bankers as they think a private bank should provide such quality sufficiently. It has been found that inappropriate and slow work process often compels the customers to compare the bank with government bank, which is not a good indication for the reputation of the bank.
4.2 Analysis: •
AIBL profit earning capacity is not satisfactory.
•
Its marketing strategy is not well designed.
•
Existing Human Resources are not sufficient for AIBL. They have to recruit more skilled employees.
•
Number of Branches are not satisfactory, AIBL have to give more emphasize on increasing number of Branches.
•
The whole activities of AIBL is not computerized, still there exist manual record keeping system.
•
Insufficient training program for the employees.
•
Slower in modernization comparing with its competitors.
•
The working environment in any branch is not congenial & appropriate. The working desk provides sound pollution. It looks like a hall room.
•
The modern technology is not used in the recruitment and selection process. The backdated methods are using for selection till today.
•
Salary structure of AIBL is satisfactory comparing with other Islamic Banks, the pension policy and the payment of pension to the employees are very fair and transparent.
•
The transfer and promotion process is fair but the promotion is not faster.
•
Loan facilities are very attractive to the employees of AIBL.
•
Most of the policies are backdated. Only the authority amends the policy but preserve the old policy.
•
There is no policy to build up harmonious relationship among the employees. The employees cannot protest the injustice of the authority because the pure trade union is absent there.
•
The record keeping system is also backdated, not followed computerized system properly
•
Security system of many branches is not sufficient.
4.3 SWOT Analysis: Not surprisingly, in the competitive arena of marketing era SWOT analysis is a must based on Product, Price, Place and Promotion of a financial institute like private bank. From the SWOT analysis we can figure out ongoing scenario of the bank. So to have a better view of the present banking practices of Al-Arafah Islami Bank Ltd.
Internal Factors Strength
External Factors Weakness
Opportunity
Threats
In SWOT analysis two factors act as prime movers Internal factors which are prevailing inside the concern which include Strength and weakness. On the other hand another factor is external factors which act as opportunity and threat.
Strength: Usage of faster PC Bank software. Membership with SWIFT. Good banker-customer relationship. Online banking system.
Islami Shariah based Banking system. Energetic as well as smart work force. Competitive Profit provider comparing with other Islamic Bank. Strong Financial Position. Efficient administration
Weakness: Reluctance to ad campaign. Existing manual vouchers. Lack of consumer credit scheme. Manpower is not sufficient. Marketing policy is not well setup. Limited number of branches in its network. Officers have limited experience and not enough trained Many inexpert and laggard assistant officers. The bank has no ATM service Insufficient number of deposit Scheme and loan.
Opportunity: Huge business area. Introducing consumer credit scheme. Growth of sales volume. Introducing branch banking through online. Develop relations and correspondence with foreign banks. More concentrated Banking based on Islamic Shariah. Few Competitors practicing Islamic Banking.
Threats: Competitors have more attractive deposit schemes. Bangladesh Bank has no well established Islami Banking Rules.
Different classic services of other banks. Entrance of new private commercial banks. Young, energetic, dynamic, talent and smart work force of competitors. Govt. imposes high rate of taxes and VAT. Political unrest and Economic recession. Illegal business operation by the some clients.
4.4 Acronyms: BGMEA BB BL CC CCI & E C&F CIB CRF EPB ERC EXP Form IBCA IBCT IBDA ID IMP Form IRC LIM LTR MBM OBC PAD SOD SWIFT
TIN
Bangladesh Garments Manufacturers & Exporters Association Bangladesh Bank Bill of Lading Cash Credit Chief Comptroller of Import & Export Clearing & Forwarding Credit Information Bureau Clean Report Findings Export Promotion Bureau Export Registration Certificate Export Form Inter Branch Credit Advice Inter branch Credit Transaction Inter Branch Debit Advice International Division Import Form Import Registration Certificate Loan Against Imported Merchandise Loan Against Trust Receipt Masters in Bank Management Outward Bills for Collection Payment Against Document Secured Overdraft
Society for Worldwide Inter bank Financial Telecommunication Tax Identification Number
5.1 Recommendation: • • • • • • • • • • • • • • • • • • •
AIBL should concentrate in increasing its profit earning capacity. It should develop effective marketing strategy to attract new customers. Raising the capital, statutory reserve and increase the investment. The number of branches should be increased Expand and diversify customer base. Upgrade Online Banking. Bank should introduce independent ‘Marketing Department’ Personal relationship should be build with the customers. Customers are the heart of the organization. They should provide more space in the office and if possible they should have some entertainment facility. Few branches are not under online banking system, so all the branches should confirm on line banking system. Ensure stable dividend. Ensure high level customer service. The Bank should follow Islami Sharia strictly in every of its operation. Bank should introduce ATM system. Should introduce one-stop service centre. Bank should introduce consumer credit scheme. Bank should increase their office space and take more care in interior decoration. Some new investment schemes are to be introduced for socio-economic development and welfare of the distressed humanity. Finally the Bank should has the vision to automate its all operations and functionalities and should be committed to achieve the goal to be a lead Bank in the country both in service and in technical aspect and to fulfill the requirements of mass people.
6.1 Conclusion:
Today the banking service is very competitive. From the practical materialization of customer dealing procedure during the whole period of my practical orientation in AL-ARAFAH-ISLAMI Bank limited I have reached a firm and concrete conclusion in a very confident way. I believe that my realization will be in harmony with most of the banking thinkers. It is quite evident that to build up an effective and efficient banking system to the highest desire level, computerized transaction is must. AL-ARAFAH-ISLAMI Bank Ltd. is a new generation Bank. It is committed to provide high quality financial services/products to contribute to the growth of G.D.P of the country through stimulating trade and commerce, accelerating the pace of industrialization, boosting up export, creating employment opportunity for the educated youth, poverty alleviation, raising standard of living of limited income group and overall sustainable socio-economic development of the country. The is not so far when it will be in a position to overcome the existing constraints and it may be expected that by establishing a network over the country and by increasing resources this bank will be able to play a considerable role in the portfolio of development of financing. Success in the banking business largely depends on effective lending. Less the amount of loan losses, the more the income will be from credit operations. The more the income from credit operations the more will be the profit of the AL-ARAFAH-ISLAMI Bank Ltd. and here lays the success of credit financing. It can be argued that though the results achieved so far are not satisfactory, credit financing is a modern scientific technique for enhancing AL-ARAFAH-ISLAMI Bank’s strength and there lies the opportunities to make it more effective in the future for our own benefit. From the learning and experience point of view I can say that I really enjoyed my internship at AL-ARAFAH-ISLAMI Bank Ltd. from the very first day. I am confident that this 03 months internship program at AL-ARAFAH-ISLAMI Bank Ltd. will definitely help me to realize my further carrier in the job market.
APPENDICES AL-ARAFAH-ISLAMI Bank Ltd For the period 06-09
6.2 Bibliography http://banglapedia.search.com.bd/HT/T_0234.htm •
http://www.secbd.org/Full%20Prospectus%20of%20Trust%20Bank%20Limited.pdf
•
http://en.wikipedia.org/wiki/List_of_Banks_in_Bangladesh
•
http://investing.businessweek.com/research/stocks/private/snapshot.asp? privcapId=31030707
•
http://www.highbeam.com/doc/1P1-83729256.html
•
Annual Report of AL-ARAFAH ISLAMI Bank Limited (2007)
•
Several Booklets from AL-ARAFAH ISLAMI Bank.
•
Several Newsletter s from AL-ARAFAH ISLAMI Bank.
•
Credit Operational Manual of AL-ARAFA H ISLAMI Bank Limited.
•
‘SHARIAH MANUEL’ published by Al-Arafah Islami Bank Limited.