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Performance Evaluation & Profitability Analysis of Shahjalal Islami Bank (SJIBL) Ltd.

Origin of the report: We the students of BBA are asked to complete internship program as an integral part of BBA program. After successful completion of the program period a student must submit the report on the assigned topic to the Supervisor and the department. Three (3) credit hours for this internship program are being reserved. This program’s duration is three months. I was assigned to Shahjalal Islami Bank Limited to complete the program. My respective Supervisor has given me the topic “Performance Evaluation and Profitability Analysis of Shahjalal Islami Bank Limited”. In connecting to this, HRD of SJIBL sent me to the Dhaka Main Branch and assigned to prepare this report. 1.2 Authorization of the Study The banking world has been undergoing rapid and fundamental changes. The speed of these changes has been maintained even after the global financial turmoil experienced during the past few years. It is well recognized that there is an urgent need for betterqualified management and better-trained staff in the dynamic global financial market. Bangladesh is no exception of this trend. Banking sector in Bangladesh is facing challenges from different angles though its prospect is bright in the future. To meet up the growing needs of skilled and eligible managerial manpower of different banks in the country, Dhaka University has initiated the BBA Program in Accounting & Information Systems under the Faculty of Business Studies. The objective of the BBA Program is to equip individuals to develop the specific skills and the breadth of judgment required of effective financial executives or bankers. Bank education is a practice-oriented education. Hence, the practical orientation in business or financial organization has been made an integral part of the BBA Degree requirement. For fulfilling this very requirement, I was sent to Shahjalal Islami Bank Limited. This report has been prepared on the basis of theoretical part of the various articles and


under the close supervision of my internal Guide Dr. Mohobbot Ali, Assistant Professor, Department of Accounting & Information Systems. 1.3 Objectives of the study The core objectives of the practical orientation program in banks are as follows: •

To gain practical knowledge in banking;

To know about the profile of Shahjalal Islami Bank Limited (SJIBL)

To get an overview of the private Banking in our country.

To compare the performance of the bank from different aspects.

To identify major strength and weakness of SJIBL in respect to other Banks

To assess and evaluate the growth trends on SJIBL among other Banks.

To know about profit structure of the bank.

To know about performance of the Bank from 2001 to 2007

To know about performance Compare to other Banks.

To know about trends of Performance Parameters •

To apply theoretical knowledge in the practical field.

To have exposure to the functions of general banking section.

To fulfill the requirement of BBA Program.

To gather knowledge about the functions and transactions of different departments of bank and check the compliance of practice with the theory.

To recommend ways and means to solve problems regarding Banking.

1.4 Scope of the Report Shahjalal Islami Bank Limited is one of the growing banks in Bangladesh. The scope of the study is Performance Evaluation and Profitability Analysis of the bank. The report covers the organizational structure, background, functions and the performance of the bank in different sections like General Banking, Investment Activities, Foreign Exchange Banking staring from the origin of the bank up to March of 2007. 1.5 Duration: The duration of the study was a very short span of time. It was three months long internship program (Starting from February 2007 to April 2007). It was very much


hard to complete a report as well as assigned tasks by the Bank. So I had to complete this study facing very much time pressure. 1.6 Areas of Operation: This report covers General Banking performance, Foreign Exchange Performance and the same in Investment Banking of Shahjalal Islami Bank Limited. Especially this report emphasizes on the Profitability Analysis of the bank. The report also covers the organizational structure, background, functions and the performance of the bank, compares those performances with the Traditional Banks Average and Islamic Shariah based Banks Average. 1.7 Methodology: To make the Report more meaningful and presentable, two sources of data and information have been used widely. Source of Data

PRIMARY DATA

SECONDARY DATA

Figure 1.1: Sources of data Both primary and secondary data sources were used to generate the report. 1.7.1 Primary: Interview, observation, and 3-month work experience with different divisional in charge and suggestions of many executives of the bank, relevant file study as provided by the officers concerned. 1.7.2 Secondary: Annual reports of SJIBL (2001-2006 and interim report up to March, 2007), Instruction circular of Head Office, Brochures of different Banks, News Paper & Magazine regarding Banking issues, Prospectus for IPO of shares Annual Report of ten banks other than SJIBL (2002-2006) and so on.


1.8 Limitations The major limitations of this study are: •

Sufficient records, publications were not available as per my requirement.

Information is not processed through computer.

Time and budget constraint.

Non-cooperative behavior of some officials of the bank.

3 months are very short time to prepare this type of comparative report.

Another limitation of this report is Bank’s policy of not disclosing some data and information for obvious reason, which could be very much useful.

2.1 Banking Heritage Shahjalal Islami Bank Limited (SJIBL) has six years long and relishing heritage. It is a second generation Bank which was incorporated as a public company limited by shares on the 1st day of April 2001 under the Company Act 1994 with the vision to stand out as a pioneer banking institution in Bangladesh and contribute significantly to the national economy. Privatization of Banking is an outcome of the delineate policy change in the Govt. of Bangladesh in the late 1970. The emergence of Shahjalal Islami Bank Limited (SJIBL) was at the injuncture of liberalization of global economic and Islamic activities, after the URUGUAY ROUND has been an important event in the financial sector of Bangladesh. The experience of the prosperous economics of Muslim countries, in particular of South Asia, has been the driving force and the strategic operational policy option of the bank. The company philosophy “A Bank with Shariah-Based on Banking” has been precisely an essence of the legend of success in the Muslim countries. Shahjalal Bank Limited is named after the name of Saint Hajrat Shahjalal who dedicated his life for the cause of peace in this world and hereafter and served the humanity. The primary objective of Shahjalal Islami Bank Ltd. (SJIBL) is to serve the people for attainment of their economic goal and success in life here and hereafter. Shahjalal Islami Bank stands not only for the material well being but also for the ethical development of its customers. The Government of Bangladesh has licensed


Shahjalal Islami Bank Limited as a Scheduled commercial bank in the private sector in pursuance of the policy of liberalization of banking and financial services and facilities in Bangladesh. In view of the above, the Bank within a period of 6 years of its operation achieved a remarkable success and met up capital adequacy requirement of Bangladesh Bank. The bank started with authorized capital of Tk.2,000,000,000 divided into 20,000,000 ordinary shares of Tk. 100 each. The bank commenced is operation through the “Dhaka Main Branch” at 58 Dilkusha C/A, Dhaka-1000 as interest free shariah based commercial bank in the 10th May 2001 with the permission of Bangladesh Bank with the name “Shahjalal Bank Limited (SBL)”. The name of the bank has been changed form “Shahjalal Bank Limited” to “Shahjalal Islami Bank Limited” on April 18, 2004 with the permission of Bangladesh Bank. The sponsors have subscribed and fully pain for 9,358,250 ordinary shares of Tk.100 each amounting to Tk. 935,825,000.

During this short span of time the Bank is successful in positioning itself as a progressive and dynamic financial institution in the country, though the bank has faced several risky periods, especially during 2003 to 2004 because of a foreign exchange dealing loss. In latter days the bank had been widely acclaimed by the business community, from small entrepreneurs to large traders and industrial conglomerates, including the top-rated corporate borrowers for its forward - looking business outlook and innovative financial solutions. Thus within this very short period of time it has been able to create an image and earn significant reputation in the country's banking sector as a Bank with Vision. Presently, it has 21 branches. SJIBL, overcoming the hazardous situation during 2004, now is growing fast as one of the leaders of the new generation banks in the private sector in respect of business and profitability as it is evident from the financial statements 6 years. The bank in early 2007 proposed to increase the paid up capital to Tk. 1,871,650,000 consisting of 18,716,500 ordinary shares of Tk.100 each by issuing 9,358,250 ordinary shares of Tk. 100 each by way of Initial Public Offering (IPO). And the proposal was brought into practice through IPO in February 2007. After issuing the primary shares the issue was placed in “N” category


2.2 Industry Analysis Bangladesh Banking Sector Keeping pace with the global changes in the sector, the banking sector of the country has been undergoing a remarkable change during the last couple of years. The Bank for International Settlement(BIS) has finalized the Basel-II Accord after issuing several consultative papers and impact studies and published the same under the title “International Convergence of Capital Measurements and Capital Standards� in June 2004 to be effective from 2006. Most of the developed and developing countries have drawn up the implementation plan. The neighboring countries have already chalked out the Basel Implementation Plan and started parallel run. Although the Basel Accord is not mandatory for the banks but international convergence and market forces will force the banks to adopt the same with in next couple of years. Bangladesh Bank has also formed a national committee to explore the various aspects of its implementation. Banking sector of Bangladesh consists of 48 banks, out of which, there are 4 NCBs, 5specialized banks, 09 foreign banks, 24 private sector commercial banks and remaining 06 private sector banks operating on Shariah principles. The NCBs occupy 39.80% and 37.13% of market share of Deposits and loans and advances respectively and others share the balance. CRISL expects a paradigm shift in the management pattern of the entire banking system on implementation of ensuring Basel Capital Accord. In the New Accord the risk emphasis has been expanded to credit and market risk and operational risk. In order to assess the risk, our neighboring countries like India and Pakistan have adopted standardized approach for Credit Risk and Basic Indicator Approach for operational risk which is considered to be easy for the banks at the initial stage. Under the Standardized Approach for Credit Risk, the banks will have to rate the clients by the external rating agencies for risk weight calculation based on rating while the bank will have to provide additional capital worth of 15% of the gross income for operational risk. The above would warrant the financial institution to invest more in IT infrastructure systems and Human resources. The business operation will be more sensitive to risk and capital and in this connection the supervisory oversight will be stronger. Under the above backdrop CRISL believes that the SJIBL management will devise its operational strategy. 2.3 Ownership Pattern


Currently SJIBL has 19 sponsor holders. Out of 19, only two are the representatives from two institutional shareholders. Among the sponsor shareholders, 12 board members holding 66.48% of the total outstanding shares as on 30th June 2006. Alhaj Md. Faruque is the individual shareholder, holding highest 8.52% of total outstanding shares. Nine shareholders are holding more than 5% of the total shares. 2.4 Company Vision, Missions, Goal, Objectives 2.4.1Vision of the Bank: To stand out as a pioneer banking institution in Bangladesh and contribute significantly to the national economy. 2.4.2 Missions of the Bank: •

High quality financial services with the help of the latest technology.

Fast and accurate customer service.

Balanced growth strategy.

High standard business ethics.

Steady return on shareholders’ equity.

Innovative banking at a competitive price.

Attract and retain quality human resource.

Firm commitment to the society and the growth of national economy.

2.4.3 Goal of the Bank: To do business with all ethical standards and in a complete transparent manner will continue. 2.4.4 Objectives: The objectives of SJIBL for 2007 are: •

To establish interest-free and welfare oriented banking system.

To help in poverty alleviation and employment generations.

To contribute in sustainable economic growth •

Periodic business review

Partnership with customers


Dynamics in work disposal

Utilization of available resources

Innovative banking & product improvement

Market focus

Security

Use of modern technology

Total service offer

Expansion & diversification of customer base

Human resources development & retention

Consolidation of result achieved

2.5 Commitment to clients Shahjalal Islami Bank Limited is a customer focused modern banking institution thriving fast in both earning & ability to stand out as a leading banking institution in Bangladesh. It delivers unparalleled financial services with the touch of our heart to retail, Small & Medium Scale Enterprises (SMEs), Corporate, Institutional, Governmental and individual clients through the outlets of branches across the country. Its’ business initiatives center on the emerging needs of the clients. The commitments to the clients are the following: Provide service with high degree of professionalism and use of most modern banking technology. Create life-long relationship based on mutual trust and respect. Responds to customer needs with speed and accuracy. Share the values and beliefs. Grow as our customers grow. Offer first-rated solutions of clients’ banking problems and issues. Provide products and services at competitive pricing. Ensure Safety and security of customers’ valuables in trust with us. 2.6 Core Values of SJIBL The Core Values of Shahjalal Islami Bank Limited are:


Integrity Respect Fairness Harmony Team Spirit Courtesy Commitment Service Excellence Insight and Spirit Enthusiasm for Work Business Ethics 2.7 Core Strengths of SJIBL Transparent and Quick Decision Making Efficient Team of Performers Satisfied Customers Internal Control Skilled Risk Management Diversification 2.8 Branch Network of SJIBL Branch Network is considered to be one of the most important requirements to have the low cost customers’ deposit which is considered to be a stable source of fund for banks. At present SJIBL operates its business through twenty one branches in different commercially important areas while four branches are operated at Sylhet and three branches are operated at Chittagong and the rest fourteen. During 2006 the SJIBL has been accorded permission for operating five new branches. Among the new branches 3 branches will be set up in Dhaka zone, while the balance two branches will be at Chittagong and Sylhet one in each district. 2.9 Organism of Shahjalal Islami Bank Ltd 2.9.1 Board of Directors: In SJIBL the board of directors has been conceived as the sources of all power headed by is chairman. It is legislative body of the band board cam delegate its power and authority to professionals, but cannot delegate, relinquish of avoid their


responsibilities. His board of directors of the bank consists of 13 members who are reputed business personalities and leading industrialists of the country.

Chairman Alhaz Sajjaul Jumma Vice Chairman Alhaj Tofazzal Hossain

Vice Chairman Alhaj Md. Salauddin Shahid

Directors Alhaj Anwar Hossain Khan

Rukun Uddin Khan

Alhaj Md. Faruk

Md. Masud,

Alhaj Md. Harun Miah

DIRECTORS DIRECTORS

Alhaj Md. Younus

Alhaj Md. Farook

Alhaj Md. Abdul Barek

Alhaj A.K. Azad Alhaj Abdul Halim

Alhaj Md. Solaiman


2.9.2 Management structure: The Management Structure of SJIBL is a hierarchy of organizational chain. The chain is maintained as under. In this hierarchy every officer is liable to his respective boss and each superior is to supervise is subordinates’ jobs. Managing Director

Deputy Managing Director

Senior Executive Vice President Executive Vice President

Senior Vice President Vice President First Vice President

Assistant Vice President

Senior Principal Officer

Principal Officer

Executive Officer

Senior Officer

Junior Officer

Trainee Junior Officer


2.10 Management Practices 2.10.1 Operational Environment: Shahjalal Islami Bank Limited is a growing banking institution of the country. It integrates the latest technology into every facet of its operations. Its relentless effort to maximize shareholders’ wealth continued in 2006 amid a state of stiff competition, more comprehensive regulatory environment and ever increasing customer expectations. Yet the company completed another successful year. In the year 2006, it focused on increase of fee based income, diversification of revenue earnings through a wide range of financial products and services. It made an operating profit of Tk.845.069 million (EBIT) and thus posted a growth of 68.40% over the last year. It made significant progress in enhancing profitability of the bank compared to that of last year. Though the bank suffered a huge loss in 2003 & 2004, the quality and timely availability of management information have improved significantly. These, combined with sharp monitoring practices, enabled the Bank to manage the business better and identify any problem area sooner than later. 2.10.2 Capital Management: Shahjalal Islami Bank is a fast growing Bank. Its commitment to maximize returns on their investment continues. Accordingly its capital management framework helps optimize the capital by ensuring the (1) Best composition of capital in relation to business growth and (2) Judicious use of capital through a mix of investment options. The Authorized Capital of the Bank is Tk.2000 million. It’s paid up Capital and Reserve reached Tk. 1,871.650 million as on February 28, 2007. 2.11 Corporate Governance: Governance in Financial institutions is considered to be the agent of effective and profitable business operation. The Corporate governance establishes trust among the interested

parties,

provides

information

for

the

stakeholders,

establishes

professionalism, builds capacity to operate business efficiently and create a congenial working environment, which is inevitable to face the challenges of the present competitive business environment. Corporate governance in SJIBL may be delineated as follows:


Its corporate responsibility is about working to support sound decision making process and an appreciation for those fundamentals that create, protect and enhance long term value for shareholders. It helps bank to stay focused on sustainable corporate practices. Thus it can move forward to its goal of a culture of performance and responsibility. 2.11.1 Board: The Board of SJIBL is constituted with 12 directors, which is in line with the requirement of Bangladesh Bank. The Board is actively controlling overall business of the bank. During 2006 & 2005, the Board conducted 05 and 11 meetings respectively. In order to observe the business of the bank more closely the bank board formed two Board Based Board committees namely, Executive committee (EC)and Audit Committee. These two boards are headed by two different Directors for better corporate management. 2.11.2 Audit Committee: The Board has formed a three member audit committee as per Circular of Bangladesh Bank headed by Alhaj Anwer Hossain Khan, a director of the bank having qualification of Masters in Commerce. He Committee members have good exposure in the banking business and operation., he Committee conducted 06 and 18 meetings during 2006 and 2005 respectively against the minimum three to four meetings as set by Bangladesh Bank. 2.11.3 Delegation of Power: As per guidelines of Bangladesh Bank, the bank is at the minimal stage of the delegation of power. Under the present delegation, the band has provided all administrative power to the management and some financial power to the Managing Director.

In order o arrange functioning of the bank, the Board delegated its

Investment (loan) approving power to the Executive committee, which is headed by a Director other than the Chairman of the Board of Directors. 2.11.4 Management: SJIBL has completed five years of its operation to pursue the mission “To expand Islamic Banking through welfare oriented banking system, ensure equity and justice


in economic activates, extend financial assistance to poorer section of the people and achieve balanced growth; & equitable development�. For smooth functioning of the activities the bank has formulated a new organism. The management team of SJIBL is headed by the Managing Director Mr. M. Kamaluddin Chowdhury. 2.11.5 Management Committee: The Bank has formed several committees namely MANCOM (Management Committee) etc. Asset Liability Committee (ALCO), Investment Committee etc for its smooth functioning. The above Committees have been formed recently and yet start functioning appropriately. 2.11.6 Human Resources Policy: In a financial sector services industry, the success is dependent on its quality of techno-human resources. The bank has recruited the top management having well exposure to the sector. Although the sector is now absorbing substantial number of young post-graduate professionals with comparatively food compensation packages with the objectives of giving appropriate training, a large number of private commercial banks are dependent in less number of experienced banking processionals at the top tier. The SJIBL follows a structured service rules and average compensation packages. The bank launched benefits for the employees like contributory provident fund etc as the long-term benefits. The bank has recruited 11 professionals at the mid-tier and 43 officers at the lower level in of 2006. The bank provides Training facilities to its new and existing staff through its training arrangement at head office premise on schedule and need basis at each year. Moreover, the bank has been sending its officers to BIBM and Bangladesh Bank for training and participating in various workshops on diverse banking issues on need basis. 2.11.7 Shariah Compliance: Shariah Council of the SJIBL plays an important role in connection with the compliance and implementation of Islamic Shariah principles in every sphere of the bank’s operation. It consists of seven members including five Fakihs (Eminent Shariah Juries), Board Chairman and Managing Director; the council is headed by


Janab Moulana Ubaidul Haq, Khaib of Baitul Mukkaram, the national mosque. During 2006 and 2005, the council conducted 02 and 04 meetings respectively. 2.12 Banking Ethics

Operational efficiency and professional integrity are inseparable and its principles of doing business are deeply anchored in its core values of integrity, fairness, harmony, commitment and high standard of business ethics. These values guide us to do not only the right thing but also the right way. It does business with full transparency after observing all ethical standards and aim at achieving sustainable growth. 2.13 Internal Control and Compliance Shahjalal Islami Bank always keeps it in mind the importance of compliance. For this purpose, it constantly reflects its awareness of those requirements. Though these actions it observes all laws and regulations and uphold moral standard in its business practice. Though its compliance functions, it seeks to ensure that internal operating procedures are in accordance with the legal and regulatory requirements that are applicable in banking business. It’s Internal Control and Compliance Division monitors operating procedure, work flows, risk management, risk control and internal control system. The objectives of auditing are to detect and prevent lapses and irregularities and to restore accuracy. The ethical principles associated with it are the following: Independence Integrity Professional excellence Confidentiality Professional attitude Maintenance of standard 2.14 Information policy Shahjalal Islami bank pursues a clear-cut policy about information management in the bank. It reports to the shareholders, the regulatory authorities and the public in an open, transparent and timely manner concerning its corporate performance and progress about achievement of goals. Bank holds dialogue with its customers, shareholders based on mutual respect and trust. Annual and half yearly reports are widely circulated. Its website www.shahjalalbank.com.bd media release and Annual


General Meeting is instruments which are used for flow of information from the bank. As a listed company, it is committed to timely disclosure and compliance of corporate information. 2.15 Social Responsibility It is guided by a profound sense of responsibility to the society and to the environment in which it operates. Bank finances in projects which are environment friendly and generate employment opportunities. It has founded ‘Shahjalal Islami Bank Foundation’ to undertake social work. The foundation is making positive contributions in the following areas of social work: To provide homestead to homeless people. Self employment support to poor people by way of providing Rickshaw, Rickshaw Van, Sewing Machine, cash for poultry and livestock etc. Cash assistance to poor people for poverty reduction. Donations to poor but meritorious students to prosecute learning. Donations to destitute people to enable them to lead a better life. Donations to orphans and estranged women to eke out living. Cash assistance to insolvent fathers to arrange marriage of their marriageable daughters. Income generating device or cash assistance to destitute women for subsistence. Assistance for rehabilitation of disabled poor people in the society. Assistance for rehabilitation of mentally retarded poor people. Humanitarian aid in natural disasters. 2.16

Nature of Business of SJIBL

The bank in carrying out commercial, corporate, investment and retail banking relates services as follows: •

Corporate Finance

Correspondence Banking

Documentary Credits

Foreign Exchange

Guarantees


Syndicated Finance

Other related Business

2.17 Principal Products/Services: Shahjalal Islami Bank Limited launched following financial products and services for its valued clients: •

Millionaire Scheme

Double Benefit Scheme

Triple Benefit Scheme

Monthly Benefit Scheme

Monthly Savings Scheme

Hajj Scheme

Cash Waqfo1 Scheme

Household Durable Purchase Scheme

Woman Entrepreneur Investment Scheme

Scheme for financial Assistance to shop owners

Small Entrepreneur Investment Program

Medium Entrepreneur Investment Program

Housing Investment Scheme

2.18 Discussion on some Products & Services of SJIBL 2.18.1 Double Benefit Scheme Attractive savings plan under Double Benefit Scheme (DBS) of SJIBL is recently introduced. Objective: Double Benefit Scheme can make one’s dream of doubling his/her money within just 6 years. Some Attractive Features of DBS: 1

Meaning to let any property to use in the service of the poor or in the development of Islam.


Account can be opened any time of the month.

Deposit of TK. 10000.00 or its multiple will be doubled in 6 years.

The scheme is admissible for any individual (single or jointly) or institution.

Multiple accounts can be opened in single name.

Flexibility allows to people and institutions of different income bracket to get advantage of the scheme.

Deposit is covered by insurance. For accidental death during the tenure of the scheme, Bank will pay Double of the deposited amount to the nominee(s) immediately.

Credit Facility: Credit/Investment facility of maximum 80% on deposited amount will be available in case of necessity. 2.18.2 Monthly Savings Scheme

Objective: One’s dreams may turn really through Shahjalal Islami Bank's "Monthly Savings Scheme" SJIBL offers "Monthly Savings Scheme" to the general customers with an attractive savings plan. With this scheme one can save on a monthly basis and this will ultimately grow into a large amount of money. The scheme helps you to plan your future in a better way. The gradual growth in the deposit assures increased benefit and peace on mind. Some Features: •

Any person of 18years age can open account

Installment size: Tk. 100, 200, 500 and then multiple up to Tk. 50,000.00

Installment term: 5 year 8 years, 10 years.

Maximum profit rate is11.20%.


2.18.3 Monthly Income Scheme

Objective Customer’s carefully built up savings is as important to the as it is to him/her. Shahjalal Islami Bank gives the first priority to the valued customers. The has introduced "Monthly income Scheme" for the customers which will generate a regular monthly income to meet their various needs. What are the benefits? •

An attractive monthly fixed income.

Maximum profit rate is up to 12.00 % per year.

The scheme helps in the family budgetary process.

It is flexible and will suit people in various income brackets.

It helps parents with monthly education & other expenses.

It assists trusts and Foundation that award monthly scholarships/stipends to students.

Retirement benefit of service holders will yield regular monthly income.

Wage earners can invest their money with comfort

2.18.4 Triple Benefit Scheme: Under this scheme the bank provides the customers to triple their money. The customers have to make a fixed deposit for nine and half years, and after that time he/she will get the triple amount than he has deposited at the present time. In this case the maximum benefit rate is 11.62%. 2.18.5 Millionaire Project: This is the project that the people desire best. In this project the account holder will be a millionaire with in 25, 20,15 or 12 years. This is an exiting product of SJIBL. And the product received a great customer response. The installment policies are: Duration 12 Years

Monthly Installment Tk. 3330

Return after the Duration Tk 1,000,000


15 Years 20 Years 25 Years

Tk. 2170 Tk. 1110 Tk. 600

Tk. 1,000,000 Tk. 1,000,000 Tk. 1,000,000

2.18.6 Hajj2 Deposit Scheme: This scheme is beneficial for the people who in tend to go to hajj. This is really a monthly deposit scheme. This scheme can produce maximum benefit of 11.50% per year on the deposited amount. 2.19 Major Investment Projects

Major investment projects of the bank are: (1) Small Business Investment Project: To finance the small Entrepreneurs this project is introduced. Maximum investment in this project is 1 million taka. (2) Small Entrepreneurs Finance Scheme: To finance the SME sector. The maximum investment limit is 5.00 million taka. (3) Medium Entrepreneurs Finance Scheme : To finance the SME sector. The maximum investment limit is 2.50 crore taka. (4) Housing Scheme: To help the limited incoming people for their housing.

2.20 Merchant Banking Operation Merchant Banking is a new product of SJIBL .The division is poised to start the fullfledged Merchant Banking activities which include the following: •

Issue Management

Underwriting

Portfolio Management

3.1 Market Share3

SJIBL’s market share of deposits and investments are small. The banking industry of Bangladesh had a deposits of Tk. 1,440.16 billion (excluding inter-bank and 2 3

A religious activity of Muslim Ummah Meaning The proportion of the total market that the bank is able to serve.


Government deposits) and loans and advance consisting of 4 NCBs, 5 specialized banks 10 foreign banks, 24 private commercial banks and 6 Islamic banks.. SJIBL’s customer deposits stood at Tk. 10.81 billion and TK. 6.92 billion in YE 2005 and YE 2004 respectively. The investments (loans & advances) of SJIBL stood at Tk. 10.59 billion and TK. 7.15 billion respectively during the same period. As on 31st December2006 SJIBL’s customer deposits stood at TK. 14.23 billion and TK.12.80 billion. SJIBL held only 0.75% of total market deposits and 0.81% of total market investment (loan & advances) on 31st December 2005. However, the growth rate of SJIBL is much higher than that of the overall market growth mainly due to small base effect. The SJIBL’s customer deposits were increased by 56.33% compared to industry growth of 16.56% and PCBs growth of 20.00% in YE 2005 over previous year. During the same year, the investments (loans and advances) of SJIBL were increased by 48.14% compared to industry growth of 19.08% and PCBs growth of 30.00% in YE 2005. As a third generation bank in the private sector with an age of only 5 years, the SJIBL has been growing rapidly though the size of the bank is still small considering its market deposits and investments(loans & advances). 3.2 Operating Efficiency SJIBL’s operating efficiency is satisfactory. This satisfactory operating efficiency can be evaluated by Net Investment Income Margin (NIIM), operating income, operating expenses, cost-to-income ratio and yield per 100 Taka staff cost. Bank’s NIIM shows noteworthy improvement during the last couple of years. The NIIM of the bank stood at 4.59% (annualized) on 31st December2006 while the same was 3.83% in YE 2005 (Peer average 2.96%) 1.38% in YE 2004 and 3.23% in YE 2003. SJIBL’s operating income shows an increasing trend over the years. Its’ operating income stood at TK.1,056.52 million (annualized) as on 31st December2006 compared to TK. 677.12 million in YE 2005, TK.215.74 million in YE 2004 and TK. 182.54 million in YE 2003. The bank’s Efficiency Ratio (Cost to Income) has improved significantly. As on 31st December2006, bank’s total income stood at TK. 1,056.52 million (annualized) compared to TK. 677.12 million in YE 2005 while its total operating expenditures stood at TK. 212.61 million (annualized) and TK. 175.28 million during the same


period. Its cost to income ratio stood at 20.12%, 25.89%, 65.31% and 86.74% as on 30th June2006, in YE 2005, YE 2004 and YE 2003 respectively against its peer average of 33.09% in YE 2005. Bank’s Yield per Tk. 100 staff cost shows notable growth in operating income. It stood at Tk. 875(annualized) as on 31st December2006 against TK. 666 in YE 2005, TK. 140 in YE 2004 and TK. 44 in YE 2003. In terms of costs, personnel expenses were increased to TK. 96.49 million (annualized) in 2006 compared to TK. 75.30 million in YE 2005 representing 28.14% growth. Similarly, other operating expenses were increased to TK. 116.12 million (annualized) in 2006 from TK. 99.98 million in YE 2005.The bank’s personnel expense to average assets ratio stood at 0.61%, 0.62%, 0.66%, 1.08% and 1.63%in 2006, YE 2005, YE 2004, YE 2003 and YE 2002 respectively against peer average of 0.84% in YE2005. Its operating expenses to total average assets has decreased to 1.34% (annualized) in 2006compared to 1.45% in YE 2005 and 1.74% in YE 2004. Over the investment income grabs the larger portion in the total income pie of the SJIBL followed by fee income in 2006. Its share of net investment income has increased to 61.64% in 2006 compared to 60.07% in YE 2005 and 42.93% in YE 2004respectively. The share of fee income has declined to 31.87% in 2006 compared to 32.70% in YE 2005and 43.58% in YE 2004 respectively. The bank’s share of other income stood at 6.49%, 7.23% and13.49% in 2006, YE 2005 and YE 2004 respectively.

3.3 Capitals and Reserve 3.3.1 Capital position up to 2006: The Authorized Capital of the Bank remained unchanged at TK.2000.00 million as on February 2007. The paid up capital of the Bank rose by TK.1871.65 million as on January 2007 by issuing ordinary shares thorough IPO. The Bank could raise the capital and reserve from TK. 741.696 million in 2005 to TK.2187.288 million in February 2007.


The Capital and Reserve position of the Bank as on 31 ST December, 2006 is appended as follows: a) Core Capital (Tier-1Capital)

Taka in million

Paid up capital

935.825

Statutory Reserve

189.508

Retained Earnings / Loss

(164.691)

Total Core Capital

960.642 Chart: 1 Trend of Equit & Reserve

1000 900 800

Volume (Tk. in million)

700 600 960.642

500 400 300 200 100

741.696

207.261 207.261 253.482 253.482 268.407

0 2001

2001

2002

2003

2004

2005

2006

Time Horizon Equit & Reserve

Source: Annual Report 2001-2006 3.3.2 Capital Structure in February 2007 The Capital Structure of Shajalal Islami Bank Limited before and after IPO 4 was as under: 1

Capital Structure Prior to IPO

Issued, subscribed and paid up capital

9,35,825,000

2) IPO a)Initial Public Offer (Non-Residential Bangladeshi)

93,582,500

b) Initial Public Offer(Mutual Fund)

93,582,500

c) Initial Public Offer

7,48,660,000

4

Source: Prospectus for IPO


Total Capital after IPO

1,871,650,000

3.4 Deposits 3.4.1 Growth of Deposit: The deposit products have been diversified to suit wide range of customers. The accumulated total deposits of the Bank were TK.18090.645 million as on December 31, 2006 as against TK.12, 204.622 million as on December 31, 2005 registering an increase of 48.23%. The budget of the bank is to raise the amount of total deposit to 27,850 million taka by the end of 2007 of which the proportionate budgeted growth up to the February of 2007 is to rise the deposit to 53.95% i.e. 19,359.361 million taka while the actual deposit collection was over performing and actual deposit collection by the end of February of 2007 was 19,601.553 million taka. The present strategy is to increase the deposit base through maintaining competitive interest rates and having low cost of founds that would ensure a better spread with the lending rate.

Volume (Taka in Million)

Chart 3.2 Growth Trend of Diposit 20000 15000 10000 5000 0 2001

2002

2003

2004

2005

2006

Time Horizon Core

Bank Diposit

Total Depos it

Source: Annual Report 2001-2006 and Summery of Performance Report on 31.12.2007

3.4.2 Deposit Mix: The Deposit mix means combination of different types of deposit in the same chart. SJIBL collects different types of deposits from individual and organizational clientele and also from other banks. The deposit mix at the end of 2006 was as:

Chart 3.3


5

Deposit Mix Al-Wadiah Current Deposit & Other Accounts Bills Payable Mudaraba Savings Deposits Mudaraba Term Deposits Other Short Notice Deposits Mudaraba Scheme Deposits Deposit from Other Banks

5% 24%

9%

1% 6%

3% 52%

Source: Annual Report 2001-2006 and Summery of Performance Report on 31.12.2007

From Chart 3.2 it is clear that there is a negative correlation of Bank deposit flow with core deposit flow, with the growth of time the core deposit is increasing while the reverse situation exists for the bank deposit, though the total deposit is increasing. Chart 3.3 says that the major portion of the banks deposit comes from term deposit. 3.5 Loans and Advances In 2006 and early 2007 Shahjalal Islami Bank Limited registered phenomenal growth in the credit portfolio. Because of visionary policy of the Bank management, loans and advances had increased by 46.51% than that of the previous year. The loans and advances of the Bank stood at TK.15, 515.788 million as on December 31, 2006 as against TK.10, 590.271 million in the previous year. The growth as achieved has been possible due to support and patronage of the customers. The Bank’s policy for the year was to expand the credit portfolio in the export oriented industries and the result of this policy is well reflected in the export business of the Bank (registering around 79.22% growth i.e. TK.4,987.030 million as compared to TK.6,294.906 million of the previous year). The budget of the bank is to raise the amount of total investment to 24350 million taka by the end of 2007 of which the proportionate budgeted growth up to the February of 2007 is to rise the amount to 56.94% i.e. 16664.236 million taka while the actual deposit collection was over performing and actual deposit collection

5

To know more about the graph please see Appendix A-3 & A-30


by the end of February of 2007 was 15549.475 million taka. And the budget for the first two months of 2007 was achieved up to 93.31%. The credit portfolio of the bank is well diversified having a balanced mix covering a wide spectrum of business and industries including readymade garments, textiles and spinning, telecommunication, pharmaceuticals, steel & engineering, ship scraping, cement, edible oil, real estate, education, transport etc. The Bank also expanded its financing to the small enterprise& consumers under consumers credit schemes for acquiring various household items. Moreover, in order to help the poor segment of people of the society, the Bank extended its financial assistance to NGOs for onward finance to the poor people. The Bank has implemented the CRM policy as per guidelines of the Central Bank and segregated the Loan Approval Department from Credit Marketing Department. We have separate units at Credit Division of Head Office for handling Garments Industry, Syndication Loans, Project Financing, Loan to Small Enterprise& Consumers etc. to ensure due diligence and expedite the decision making process. 3.5.1 Sector-wise Classification of Investment: SJIBL makes a well mix of investment horizon. It invests in almost all profitable sectors. To make well diversified mix of investment and to reduce risk it is necessary. The sector wise classification of investment is given as bellow: Chart 3.4 Inve stme nt Mix - 2006 2%

16%

31% 11% 3% 2%

3% 5% 11%

3% 3%

10%

A griculure & Fishing Garments

Cotton & Textile Cement

Pharmacuticals & Chemicals Transport Non-Banking Financ ial Institution

Real estate Inf ormaion Technology Steel & Engineering

Paper & Paper Products

Others

Source: Annual Report 2006


From the analysis it is revealed that the bank invests the greatest percentage of its investment to miscellaneous sectors like Personal, car home appliances etc loans, in 2006 it was 3963.044 million which was 31% of total investment. And the second largest amount goes to the cotton & textile sector; in 2006 it was 2026.725 million which 16% of total investment was. 3.5.2 Investment other than loans and advances: The investment portfolio of the bank during the year 2006 was Tk.1105.236 million against Tk.579.179 million in the previous year registering a growth of 52.04%. The portfolio of investment included Government Treasury Bills & securities, Moradabad, Bai-muajjal, Bills purchased & discounted etc. The bank has always given importance on investment of Funds in high yield areas simultaneously maintaining Statutory Liquidity Recruitments (SLR) as fixed by Bangladesh Bank. Chart 3.5 Investment Other Than Loans And Advances 14229.75

15000 Volume (Taka 10000 in million) 5000

600

0

1319.724

Govt. Murabaha, Bills Securiies Bai-MuajjalPurchaded etc. and Discounted Sector of Investment

6

Source: Annual Report 2006 3.5.3 Growth in Investment-2001-2007: The investment of the bank in different sectors is making a great way to the success of the bank’s goals. The accumulated total investment of the Bank was TK.15515.788 million as on December 31, 2006 as against TK.10590.271 million as on December 31, 2005 registering an increase of 46.51%. The budget of the bank is to raise the amount of total investment to 24350 million taka by the end of 2007 of which the proportionate budgeted growth up to the February of 2007 is to rise the amount to 56.94% i.e. 16664.236 million taka while the actual deposit collection was over performing and actual deposit collection by the end of February of 2007 was 6

To know more about the graph please see Appendix A-5


15549.475 million taka. And the budget for the first two months of 2007 was achieved up to 93.31%. The present strategy is to increase the investment base through maintaining competitive interest rates and having low cost of founds that would ensure a better spread with the lending rate. The flow investment of the bank over the period was as follows: Chart 3.6 Trend of Investment 15515.788

16000 14000 12000 Volum e (Taka in Million)

10590.271

10000

7156.578

8000 6000 4000 2000 0

4319.111 1999.971 216.555 2001 2002 2003 2004 2005 2006 Tim e Horizon Investment

7

Source: Annual Report 2001-2006 and Summery of Performance Report on 31.12.2007

3.5.4 Investment to core deposit ratio: The investment to core deposit ratio represents how much of the core deposits were invested to earn by the bank. The ratio of the bank was fluctuating over time. In recent times, it is seen that, the ratio was declining. It happened for lack of proper investment opportunities and rise in banks’ lending rate. The trend of the ratio is as follows:

Chart 3.7

7

To know more about the graph please see Appendix A-6 & A-30


Investment to Core Deposit Ratio

Ratio (%)

120.00% 103.49% 97.96% 95.75%93.74% 88.39%

100.00% 80.00% 60.00%

Core Deposit Ratio 41.79%

40.00% 20.00% 0.00%

2001 2002 2003 2004 2005 2006

Time Horizon 8

Source: Annual Report 2001-2006 & Prospectus for IPO

The investment to core Deposit Ratio is fluctuating over time. In 2001 it was 41.79% and in the immediate next year it raised up to 95.75%. After that the fluctuation continued still now. 3.6 Number of Accounts The number of clientele of the bank is increasing day by day with the expansion of the bank’s services and operation. The number of bank account was as under: 3.6.1 No. of Deposit Accounts: The No. of deposit Accounts of the bank increased overtime. The trend for the same is shown in chart 3.8 Chart 3.8 Trend of Deposit Accounts

100000

92977

80000 Volum e of Accounts

54775

60000 40000 20000

1929

8820

0 31.12.2001

17801

28071

31.12.2003

31.12.2005

Time Horizon No of Accounts

8

To know more about the graph please see Appendix A-7 & A-30


Source: Annual Report 2001-2006 and Summery of Performance Report on 31.12.2007

The deposit products have been diversified to suit wide range of customers. The total deposits account of the Bank was 92977 as on December 31, 2006 as against 54775 as on December 31, 2005 registering an increase of 69.74%. The budget of the bank is to raise the amount of total deposit accounts to 165000 by the end of 2007 of which the proportionate budgeted growth up to the March of 2007 is to rise the accounts to 77.46% i.e. 107382 while the actual deposit collection was over performing and actual deposit account opened by the end of March of 2007 was 1, 06,138. 3.6.2 Investment Accounts: The bank with the span of time is increasing over time. As it increased its investment horizon the investment account also increased. A chart showing the change is as under: Chart 3.09 No. of Accounts 8000 6000 Volume 4000 2000 0

7870 4471 105 2001

1108

5889

2387

2003

2005

Time Horizon No. of Accounts

Source: Annual Report 2001-2006 and Summery of Performance Report on 31.12.2007

The investment schemes have been diversified to suit wide range of sectors. The total investment accounts of the Bank was 7870 as on December 31, 2006 as against 5889 as on December 31, 2005 registering an increase of 33.64%. The budget of the bank is to raise the amount of total investment accounts to 14000 by the end of 2007 of which the proportionate budgeted growth up to the March of 2007 is to rise the accounts to


77.89% i.e. 9096 while the actual investment was over performing and actual deposit account opened by the end of March of 2007 was 8558. 3.6.3 L/C Account: L/C Account is one of the most important instrument profit making activities of a bank by dealing in foreign exchange for the customers. And it helps the bank a great much to reach its goals. The deposit account volume of SJIBL on 31.12.2006 was 5,613 which was 25.18% more than that in previous year. It reached at the amount of 1,446 in March 2007. The trend was as: Chart: 3.10

Trend of L/C Account Openning

Volume

6000 4398

4000

5613

2965

2000 0

4484

0 2001

1265 2002

2003

2004

2005

2006

Time Horizon No. of L/C Account 9

Source: Annual Report 2001-2006 and Summery of Performance Report on 31.12.2007

3.6.4 Export Bill: Export Bill is one of the most important instrument profit making activities of a bank by dealing in foreign exchange for the customers. And it helps the bank a great much to reach its goals. The deposit account volume of SJIBL on 31.12.2006 was 2099 which was 49.54% more than that in previous year. It reached at the amount of 1,734 in March 2007. The trend was as: Chart-3.11

9

To know more about the graph please see Appendix A-10 & A-30


Trend of Export Bill

Volume

8000 6336

6000 4000

3525

2000 0

0

551

4237

Export Bill

1511

2001 2002 2003 2004 2005 2006 Time Horizon 10

Source: Annual Report 2001-2006 and Summery of Performance Report on 31.12.2007

3.7 Profit paid on deposit

The bank pays a very significant amount of profit on deposit. The amount paid in this regard by the bank was as under. Chart 3.9

Profit Paid on Deposit

1000 800 Volume 600 (Taka in 400 million) 200 0

860.233 590.375

2005

2006

Time Horizon Profit

11

Source: Annual Report 2005-2006 In 2005 the bank paid profit of tk. 860.233 on deposit which wasTk. 590.375 million of profit on deposit in 2006. The total profit paid on deposit by SJIBL decreased by 31.37%. 3.8 Investment Profit Receipts Bank receives a large amount from the investment profit, which is the main mean of the banks’ income. SJIBL’s receipts, in the recent periods were as under:

10 11

To know more about the graph please see Appendix A-11 & A-30 To know more about the graph please see Appendx A-12


Chart 3.11

Volume (Taka in million)

Profit Received from Investment Accounts 1344.498

1500 1000 500 0

860.774

2005

2006 Time Horizon Profit

12

Source: Annual Report 2005-2006 3.9 Classified Investment up to 28 February 2007 Classified investment means the investments those are neither repaid within the specified loan term nor became due for such a period so that those can treated collectible. Chart 3.12 Trend of Classified Loan 60 50 40 % of loan 30 20 10 0

52.473 30.42 18.77518.766 0

0

2001 2002 2003 2004 2005 2006 Time Horizon Classified Loan 13

Source: Summery of Performance Report on 31.12.2007 3.10 Asset Liability Management

The Asset Liability Committee (ALCO) at Head Office routinely analyzes and closely monitors the Balance Sheet gap of the bank on monthly basis. The Asset Liability Management (ALM) Desk of Treasury Department prepares monthly ALCO paper as 12 13

To know more about the graph please see Appendix A-13 & A-30 To know more about the graph please see Appendix A-14 & A-30


per the guidelines provided by the Focus Committee formed by Bangladesh Bank. Emergency ALCO meetings are also arranged to address any crisis situation as & when it appears. During the year 2005, both the local and foreign currency markets were very volatile. The committee prudently monitored interest rate risk, liquidity risk, and exchange rate risk and maturity gap of assets and liabilities of the bank during the year. By doing so, the bank was able to maximize its profitability and maintain enough liquidity both in Local Currency and in Foreign Currency. The committee also monitored its policy of strict compliance of CRR (Cash Reserve Requirement) and SLR (Statutory Liquidity Requirement) with Bangladesh Bank. The Asset Liability Management (ALM) Manual of the Bank is approved by the Board of Directors. The Board of Directors of the Bank periodically reviews the overall Asset Liability Management of the bank. Chart 3.13 Trend of Total Assets & Liabilities

Volume (Taka in Million)

18000 16000 14000 12000 10000 8000 6000 4000 2000 0

2001

2002

2003

2004

2005

2006

Time Horizon Total Asset

Total Outside Liability

Source: Annual Report 2001-2006

The Asset and Liability position is growing over time. Both of these have significant implication on the success of the bank. And as found in the case of SJIBL the trend is sound enough. 3.11 Treasury Operations


In 2005, SJIBL’s Treasury Department encountered a number of challenges and overcame successfully. Throughout the year, treasury environment in the banking sector witnessed gradual changes. New market dynamics and products were introduced. New market dynamics and products were introduced. New risks in Treasure operations also emerged. For obvious reasons, the Treasure Department of the Bank constantly reviewed the various risks associated with the prevalent market dynamism. In the competitive market practices, our Dealers (both Foreign Exchange and Money Market) played their positive role and honed their capabilities in the following areas of importance: (i)

Strengthening MIS

(ii)

Installation of different in-house software supporting Data Base of Treasury Department.

(iii)

Up gradation of Dealers (both FX& MM) skill and efficiency through participation in different training programs.

(iv)

Controlling different Risk Factors appropriately in the Treasury Operation of the Bank.

Our Treasury Department has always been considered as an important window for income generation for the Bank. We generated an income of TK.251.17 million out of Foreign Exchange and Money Market transactions in the year. Thereby, an earning growth of 14.44% has been achieved over that of the previous year. 3.12 International Trade 3.12.1 Foreign Correspondents: The correspondent14 banking relationship that the Bank established stood at 178 outlets with globally reputed banks covering 77 countries as on 31 st December 2006. Of these, 44 new relationships were established during the year 2006. 3.12.2 Export & Import Business of the bank: International Trade is one of the focused sectors of bank. In the year 2006, the volume of import increased to TK.18684.403 million from TK.13113.937 million of the 14

Like as agents


previous year showing a growth of 42.48%. The volume of export showed a phenomenal growth of 79.22% reaching TK.11281.936 million from TK.6294.906 million of the previous year. This is the result of its policy to give added focus on export business. The other comparisons in regard to the import and export business are shown in chart 3.14. Chart 3.14 Import & Export Business of SJBL 20000 15000 Volume (Taka 10000 in Million) 5000 0 31.12.2001

31.12.2003

31.12.2005

28.02.2007

Tim e Horizon

Exort

Import

15

Source: Annual Report 2001-2006 and Summery of Performance Report on 31.12.2007

3.12.3 Foreign Remittances: Inflow of Foreign Remittance into the country drew utmost attention during the year 2006 and it played a pivotal role in procuring Foreign Exchange for the bank. The bank received inward Foreign Remittance amounting to Tk.3534.618 million during the year 2005 registering a spectacular growth of 412.44% over previous year’s figure

Volume (Taka in million)

of Tk.689.763 million. Chart-3.15 Foreign Remittance Flow 4000

3534.618

3500 3000 2500 2000 1500 1000

689.763

500 0

0.2 2001

1 2002

15 2003

66.5 2004

2005

Time Remittance Horizon

2006

16

Source: Annual Report 2001-2006 and Summery of Performance Report on 31.12.2007 15 16

To know more about the graph please see Appendix A-16 & A-30 To know more about the graph please see AppendixA-17 & A-30


3.12.4 Loss on foreign dealings: The Bank incurred loss of Tk.88.42 crore in foreign exchange dealing business accounted for in the year 2004, which has since been recovered out of profit earned by the Bank thereafter. 3.13 Guarantee Business The Bank issued guarantees amounting to total TK. 523.717 million during the year 2005, compared to TK. 375.937 million recorded in the previous year registering a growth of more than 71%. The guarantees were issued in favor of different Govt. authorities, Ministries, Autonomous

Bodies, Corporation and Multinational

companies etc. on behalf of the valued clients of the bank against proper securities. 3.14 Syndicated Finance Some times one single bank can’t finance one amount. Then the crises are met up by syndicated finance. In the end of the last March the bank had 196.69 million of taka invested in such type of finance.

3.15 Performance in Risk Management 3.15.1 Core Risks Management: The Bangladesh Bank formulated Core Risks Management Guidelines based on best practices in the industry and advised the banks for implementation. The compliance status of the above guidelines indifferent aspects of the operation of the Shahjalal Islami Bank Limited is delineated below:

3.15.2 Internal control & compliances: Internal Control and Compliance is one of the vital elements of five core risk areas of Bangladesh Bank. As per the guidelines of Bangladesh Bank, the bank has recently improved organizational structure and written policy manual to comply with BB best practice for effective internal control system although bank has yet scope for development in organogram. Presently, bank ensures its internal control and compliance through its Audit and Compliance Division and MANCOM


(Management Committee). MANCOM conducted06 and 17 meetings in 2006 and YE 2005 respectively. Internal Inspection team has audited 06 and 16branches out of its 16 during 2006 and 2005 respectively. The team places the highlights of lapses of serious nature to management and took up the issue with the concerned branches for early regularization of such irregularities with the instructions that no further recurrence of such lapses happen in future. 3.15.3 Investment Risk Management: Risk is inherent in all aspects of a commercial operation; however for banks and financial institutions, Investment (loans) risk is a critical factor that requires to be managed efficiently. The bank has the scope to revise the existing bank’s Investment Risk Management Manual to comply with the Bangladesh Bank’s CRM guidelines. The bank has already introduced risk grading system, a regulatory requirement which is replaced by Lending Risk Analysis (LRA). In investment (credit) approval process of the SJIBL, the branch investment committee makes initial screening of investment proposals and forward with necessary recommendations along with the documents to Investment Division (ID) in Head Office. The ID appraises the proposals and forwards to the Deputy Managing Director (DMD), who after his scrutiny forwards to the Managing Director (MD) along with his observations. The MD takes decisions on the proposals, if investment amount falls within his delegated power. If it exceeds his limit, the proposal is forwarded to the Executive Committee for approval. 3.15.4 Foreign Exchange Risk Management: The financial institutions’ performance is directly related to Foreign Exchange Market. Foreign Exchange Risk arises mainly from forward and future options. SJIBL has experienced loss of Tk. 884.22 million in foreign exchange dealing business in YE 2004 which is considered to be the greatest set back in its short length of operation. Presently bank’s International Division is involved only for collection and payment settlement. To ensure effective Foreign Exchange Risk Management, the bank has wide scope in establishing organizational structure and formulating Manual as per Guidelines of Bangladesh Bank. Bank maintains various nostro accounts in order to conduct operations in different currencies including BDT. The senior management of the bank set limits for handling nostro accounts transactions that


include time &amount limits. Up to 30th June, 2006 the bank does not have any unreconciled entry which exceeds 3months. As per guidelines of Bangladesh Bank the foreign exchange business should be audited internally to review the key control issues such as various limits, compliance requirements and statutory management. The bank’s total foreign exchange business is directly monitored and controlled by the Deputy Managing Director and Managing Director. 3.15.5 Asset Liability Risk Management: The Asset Liability Management Committee (ALCO) that is formed with ten members headed by Managing Director conducted 06 and 20 meetings during 2006 and 2005 respectively. The key agenda of the meetings were Liquidity risk related to the balance sheet, maintaining CRR & SLR, Economic Outlook & Market Status and Rate of profit changing. For managing properly Balance Sheet risk, the bank has developed a Manual of the Asset Liability Management but which has yet scope to comply the guidelines of Bangladesh Bank. In absence of treasury department, bank handles all the issues of fund management through Financial Administration Division. 3.15.6 Balance Sheet Gap The assets liabilities maturity structure of the SJIBL as on 31st December2006 shows minimum Gap under different maturity framework. The bank has short-term assets of TK. 12,336.83 million against short-term liabilities of TK. 12,262.49 million having surplus of TK. 74.34 million. However, in 3 months to one year category bank has slight Gap between assets and liabilities. In this category, bank has assets of TK.5,660.40 million against liabilities of TK. 7,499.37 million representing deficit of TK. 1,838.97 million. In midterm category, the bank has assets of Tk. 3,340.74 million against liabilities of Tk. 2,278.02 million, representing surplus of assets of Tk. 1,062.72 million. In more than 5 years category the liabilities was99.78% of assets. 3.15.7 Anti-Money Laundering Management: As per Anti-Money Laundering Act 2002 Bangladesh Bank issued guidelines that each bank and Financial Institution must develop, administer and maintain an Anti-


Money Laundering policy that ensures and monitors compliance with the Act. The bank ensures its Money Laundering Risk management through Central Compliance Unit (CCU) at Head Office level. As per guidelines of Bangladesh Bank, the bank has formulated an Anti-Money Laundering Compliance policy. 3.15.8 Operating result and profit The Bank earned an operating profit of Tk.845.069 million during the year before making any provision for Bad and Doubtful Debt, taxes etc. including general provision on classified loans and advances. The pre-tax profit of the Bank during the year 2005 was Tk.501.837 million and thus the Bank attained a growth of 68.4% in operating profit. The provision for income tax for the year amounted to Tk.180.513 million and divisible profit available for appropriation amounted to Tk.664.556 million.

3.16 Divided Board of Directors of SJIBL is pleased to recommend 12.5% stock dividend out of the profit in 2002. The Bank has an accumulated loss of Tk 164,691,412 as on 30 June 2006. As per BRPD Circular Letter No. 18 dated 20.10.2002 and Section 22 of The Bank Company Act, 1991 the Bank will not be able to declare dividend till the accumulated loss is fully adjusted. 3.17 Information Technology Operation in the Bank

The use of MIS at SJIBL is at primary stage. The bank is yet to introduce modern banking services like ATM facilities, tele-banking, and Internet banking services. Presently, it has been using PCBANK2000banking software, featured with branch banking which is not capable of offering modern solutions that a modern bank needs. A number of stand-alone computers are used by the bank’s professionals to generate reports required by Bangladesh Bank as well as by the management. The SJIBL has SWIFT and LAN facilities. The bank is going to start immediately VISA Electron Card Service with ATM and SMS banking. 3.18 Asset Quality


The overall asset quality of the bank is good compared to both Industry and its peer. SJIBL’s total assets stood at Tk. 17,387.78 million on 31st December2006 of which only 5.53% is financed by shareholders’ fund,81.85% is financed by customer deposits and remaining 12.62% is financed by others liabilities. Its total asset was increased by 20.39% in 2006 over previous year’s position while it was 48.25% in YE 2005. 3.18.1 Non-performing Investment (NPI): The bank’s NPI position has declined to TK. 16.90 million as on 31st December2006 from TK. 52.47 million in YE 2005. In terms of percentage, the Gross NPI ratio has reduced to 0.13% in

2006 from 0.50% in YE2005. The reasons behind this

improvement of NPI position were the recovery and rescheduling of investments. During 2006, bank has recovered TK. 4.15 million and rescheduled TK. 31.42 million which ultimately improve the position of NPI. The same peer average ratio was 2.19% in YE 2005. 3.18.2 Sectoral exposure: The SJIBL’s Investment portfolio is well diversified. The management sets privilege sectors every year assessing economic outlook and profitability. It has disbursed 68.10% of Investment for working capital finance and 31.90% Investment for term financing in

2006. Textile sector grabs the largest portion(21.37%) in the total

Investment (loans and advances) portfolio followed by leasing sector (13.94%).While analyzing the Investment (loans & advances) portfolio of the bank it appeared that the bank has the maximum NPL in garment sector. The NPL in garment sector stood at TK. 13.30 million (78.70% of total classified investment) followed by trade finance stood at TK. 2.00 million (11.83% of total classified investment). The SJIBL has planned to increase its exposure in Textile, Consumer scheme; small &medium investment, Export, Import sector etc. and to reduce its concentration on cement sector. 3.18.3 Investment Loss Reserve: The SJIBL provides for its investment loss provisions as per the guidelines of Bangladesh Bank. The bank has an investment loss provision of Tk. 143.29 million


against required provision of Tk. 140.89 million, representing a surplus of Tk. 2.40 million as on 31st December2006. 3.18.4 Large Investments and Director’s Investments: SJIBL’s total number of large investment as per definition of Bangladesh Bank stood at 52 and the total amount was TK. 9,272.98 million in 2006 which was the 48.22% of total investment (funded and non-funded). In the large investments exposure, funded amount is stood at TK. 5,984.49 million representing 46.75% of total Investment (loans and advances). The bank has been experiencing a minimum level of investment exposure to Directors and their related parties. The SJIBL disbursement to directors and their related parties has decreased to Tk. 18.76 million in

2006

compared to TK. 32.20 million in YE 2005. The total facility was funded amount and backed by property. No Director and their related parties were found in the defaulting lists as on 31st December2006. 3.18.5 Rescheduled Loan: SJIBL follows Bangladesh Bank’s guidelines regarding rescheduling of investment (loans and advances).During the half year of 2006, total rescheduled amount was TK. 127.96 million concentrated on 07accounts while this was nil in YE 2005. The performance of rescheduling investments is satisfactory. Recovery during the half year of 2006 was TK. 6.33 million.

3.18.6 off Balance Sheet (OBS) Exposure: In absence of documented guideline the bank is handling the OBS exposure in a systematic way. The SJIBL’s OBS exposure is average compared to its peer. As on 31st December2006, total contingent liabilities accounts for 26.99% of total footings (assets with contra) and 36.98% of total assets. A 80.38% of the bank’s contingent liabilities are made up of irrevocable commitments extended to credits as on 30th June2006. Letter of Guarantee contributed 5.60% of the bank’s total off-balance sheet assets during the same period. In terms of risk weighting, Off-Balance Sheet (OBS)


assets reportedly formed 31.58% of the bank’s total risk-weighted assets up to 31st December2006. 3.18.7 Non-funded business: During 2006, bank’s non-funded business position is average. The export business stood at Tk. 4,910million as on 31st December2006 from TK. 6,295 million in YE 2005 and TK. 4,240 million in YE 2004. The import business has also declined to Tk. 9,039 million in 2006 compared to Tk. 13,114 million in YE2005 and TK. 10,017 million in YE 2004. On the other hand, the remittances increased to TK. 1,714million in 2006 compared to TK. 690 million in YE 2005 and TK. 67 million in YE 2004. 3.19. Funding and Liquidity

The total deposit of the bank has increased by 23.30% in 2006 compared to the position of YE 2005.The SJIBL depends on both customer deposits and inter-bank deposits for funding. The dependence on customer deposits increased to 94.57% in 2006 compared to 88.58% in YE 2005 while dependence on inter-bank has decreased to 5.43% in 2006 compared to 11.42% in YE 2005. Bank’s liquidity position is comfortable. Bank’s liquid asset ratio stood at 26.42%, 25.16%, 21.99% and22.17% in 2006, YE 2005, YE 2004 and YE 2003 respectively. The liquidity position of the bank has improved over the period. Bank’s investment to deposit ratio stood at 89.83% in 2006 while this was97.77% in YE 2005 and 103.14% in YE 2004 which indicates this ratio is in line with the guideline of BB. The SJIBL showed the highest dependence on profit rate sensitive of term deposits for funds like all other3rd generation banks. Share of term deposits decreased to 54.20% in 2006 as compared to 56.09% in YE 2005. The dependence on savings deposits which is considered as most stable sources of fund is lower among its peer. Moreover, the contribution of savings deposit decreased to 6.53% in 2006 as compared to 8.52% in YE 2005. The bank’s exposure to large deposits (Tk. 100.00 million and above) is acceptable. SJIBL’s large deposits(Tk. 100.00 million and above) stood at TK. 1.40 billion concentrated on 08 accounts in 2006compared to TK. 1.55 billion in YE 2005 and


Tk. 2.45 billion in YE 2004. The share of large deposits in total deposits has decreased to 12.95% in 2006 compared to 13.61% in YE 2005. The SJIBL’s sources of fund are expensive compared to both industry and its peer. The total cost of fund of the bank has increased to 10.14% in 2006 compared to 9.76% in YE 2005. In the total cost of fund, cost of deposit and borrowing is 8.66% and remaining 1.48% is other overhead expense. 3.20 Research & Development (R&H) and Training SJIBL gives utmost importance for the development of the human resources with the vision to build up quality manpower with professional expertise and skills. The bank, therefore, accords priority considerations to training and development for achieving the cherished mission to sustained growth and profitability. In implementation of the human resources development strategy, the Bank established its own Training Institute at the 4th floor of the Head Office with a view to building up professionals with technical, human and conceptual skills. During the year 2006, Shahjalal Islami Bank Training Institute arranged considerable number training courses, seminars and workshop, namely 1) 5 Foundation Training Courses (covering General Banking, Credit Management, Foreign Trade etc.) with around 100 participants. 2) 5 Anti-Money Laundering workshops with around 100 participants. 3) Asset Liability Management Training course with 25 participants. 4) Workshop on SWIFT Operation with 19 participants and 5) Workshop on Orientation of Shahjalal Islami Bank Visa Credit Card with 30 participants. The objectives of designing all training programs are to enrich and update the theoretical knowledge base of the employees so that in the practical field the acquired knowledge can be utilized to improve upon the skills and efficiency of the employees for raising employee productivity and generating the best possible outputs/client’s services. 3.21 Internal Control and Compliance


Internal Control and Compliance deals with the monitoring, compliance and audit & inspection functions of the bank. It is one of the five core risks in banking industry. SJIBL has taken various measures as per guidelines of Bangladesh Bank to mitigate the risk of Internal Control and Compliance and intensified the tasks of audit & inspection and control mechanism for safe, sound and disciplined Banking Operations as well as for maintaining quality of assets. 3.22 Twenty four (24) Hours SWIFT On-line Connectivity The bank established 24 hour SWIFT on-line connectivity via Service Bureau mechanism in 2005. Since installation of SWIFT in the bank 2000, it is a hall-mark achievement for the bank since Shahjalal Islami Bank is the first bank in Bangladesh to ensure 24 hour uninterrupted SWIFT connectivity. 3.23 Islamic Banking SJIBL provides both traditional & Islamic Banking services to the customer in compliance of the provisions of the Companies Act 1991, Bangladesh Bank’s directives and the principles of Islamic Shariah. The bank has 21 Branches as on March 31, 2007. Out of them, 05 branches are designed Islamic Banking Branches. The modus operandi of Islamic Banking is substantially different from that of traditional banking. The Bank is maintaining a separate set of accounts for Islamic Banking branches based on Islamic Shariah principles. All activities of Islamic Banking Branches are conducted on interest-free basis. Investment is made through different modes and investment income is shared with the Mudraba depositors on an agreed ratio ensuring a reasonably fair rate of return on their deposits based on Islamic Shariah. 3.24 Shahjalal Islami Bank at a Glance The Key indicator ratios indicates the financial performance of any organization. The most recent available key financial indicators and ratios are shown here: SL# 1 2 3

KEY INDICATORS & RATIOS Core Deposit Investment Percentage of borrowing to total fund Capital Adequacy a) Required Capital b) Capital Maintained

31.03.2007 76.40% 6.86% 1189000000 2364939843


4 5 6 7 8 9 10 11 12

c) Capital Surplus/ (shortfall) d) Percentage of Capital maintained as against 9% if Risk weighted Assets Operating Efficiency Ratio Net Income Margin Net Income Ratio Earning Per Share (in Taka) Return on Equity Return on Paid up Capital Return on Assets (Profit after tax) Net Assets (in Tk) Value Per Share 1. Net Asset Value Method (in Tk.) 2. Earning Base Value Method (in Tk)

1175939843 17.92% 76.40% 3.82% 24.81% 14.92 12.77% 29.85% 1.09% 21872881.82 116.86 125.27

3.25 Overall discussion on the performance of SJIBL SJIBL is a moderately new institution in the banking sector of Blangladesh. The bank faced a loss in 2003 and 2004. For that case the bank’s growth fluctuated at that time to a sharp negative point. A credit rating agency of Bangladesh, CRISL, rated Shahjalal Islami Bank Limited as BBB- (pronounced as triple B minus) in the long term and ST-3 rating in the short term on the basis of financials and other information upto 30th November 2005.The ratings were based on some good fundamentals such as good asset quality, profitability, cost efficiency, satisfactory business growth etc moderated by the weaknesses of the bank in certain areas such as capital shortfall, negative retained earnings, poor IT infrastructure, unstructured risk management etc. But in 2006 CRISL upgrades SJIBL to BBB+ (Pronounced as triple B plus) rating BBB-’ rating in the long term and reaffirms ST-3 rating in the short term. This two notch up gradation has been done on the basis of bank’s visible improvement in some of the areas such as good profitability, cost efficiency, good asset quality and satisfactory business growth. However, negative retained earnings, poor IT infrastructure and moderate risk management still continuing as the weaknesses of the bank. Financial Institutions rated in this category are adjudged to offer moderate degree of safety for timely repayment of financial obligations. This level of rating indicates that a bank is under-performing in some areas. However, these entities are considered to have the capability to overcome the above-mentioned limitations. The short term rating indicates good certainty of timely payment. Liquidity factors and


bank fundamentals are sound. Although ongoing funding needs enlargement of total financing requirements, SJIBL’s access to capital and financial markets is good to mitigate the financing need. Risk factors are small. 4.1 Capital Structure The capital structure should be exclaimed from the viewpoint of its impact on the value of the firm. It can be legitimately expected that if the capital structure decision affects the total value of the firm, a firm should select such a financing-mix as will maximize the shareholders’ wealth. Capital structure or combination of debt and equity that leads to the maximum value of the firm. According to the Oxford Dictionary, “The balance between the assets and liabilities of a company, the nature of its assets, and the composition of its borrowings. The assets may be fixed (tangible or intangible) or current (stock, debtors, or creditor); the borrowings may be long or short term, fixed or floating, secured or unsecured. Ideally the assets and liabilities should be matched”. Major components of Capital Structure include retained earnings, provision for dividend and paid up capital. Table showing the capital structure of SJIBL (6 years)17

Tk. In million

Particulars Paid up

2001 935.825

2002 935.825

2003 935.825

2004 935.825

2005 935.825

2006 935.825

31.03.2007 1871.650

capital Retained

1.218

.347

.347

(466.165)

(303.745)

(164.691)

--

earnings Source: Annual Report 2001-2006 4.2 Profit structure Different variables of this component include operating profit (gross & net profit), gross profit per employee and net profit per employee. 4.2.1 Operating profit: The bank has earned 7.378 million taka in 2001 as operating profit and 845.69 million taka in 2006 as operating profit. The growth rate of operating profit in 2006 is 68.42%. 17

Components of Capital Structure are articulated form the financial statement (Appendix 31)


Chart: 4.1

Percentage (%)

Trend Growth In Operating Profit 400.00% 300.00% 200.00% 100.00% 0.00%

309.14%294.41% 112.39% 98.46% 0.00% 2001 2002

2003

2004

68.40% 2005

2006

Time Horizon Growth 18

Source: Annual Report 2001-2006 and Summery of Performance Report as on 31.03.2007

The bank’s growth in operating profit was growing up to 2004. But after that though the volume of operating is growing but the proportional percentage of growth is declining day by day. The expected growth in this regard is 77% i.e.1500 million taka. Up to March 2007 the proportional budget was 300 million taka and the actual achievement was 203.017 million Taka, which was 67.67% achievemt of the three months proportional budget of the year. 4.2.2 Net profit after taxation The bank has earned 218.945 million taka in 2006 and 218.945 million taka in 2005.The growth rate in 2005 is 27%. Chart 4.2

18

To Study more on Changes in operating profit Please see Appendix A 18 & A 30


Growth Trend of Net profit 2500.00% 1944.23%

1500.00%

Growh

1000.00% 500.00%

-154.08%

-14.34%

31 .1 2. 20 06

0.00% 31 .1 2. 20 05

-100.00% 31 .1 2. 20 04

-500.00%

0.00% 31 .1 2. 20 03

31 .1 2. 20 01

0.00%

31 .1 2. 20 02

Percenage Value

2000.00%

Tim e Horizon

Source: Annual Report 2001-2006 and Summery of Performance Report as on 31.03.2007

The net profit after tax of the bank is highly fluctuating one. In the second year of its life it went up by a large leap. But due to the operating losses in 2004 19 and other causes there is a big fluctuation. From this table and graph we can observe that the total net profit increased for first two years then it began falling. In the base year 2001 net profit was 2.261 million taka and in the year 2002 net profit increased to taka 46.22 million. The growth rate was 1944.23% which was due to prudent lending and optimum management of funds. But in the year 2003 net profit decreased much sharply than the previous year 2002. In the year 2003 net profit after tax became zero, on the other hand in the year 2002 net profit was 46.22 million taka which growth rate is –100%. It indicates that the bank was in felt in a high risk position in the question of its existence. In the just following year 2004 the foreign exchange dealing loss put the bank in a more risky position. But in recent years the bank is trying to recover the position gradually. 4.3 Profitability The term profitability is measured by profits after expenses.

19

The loss occurred out of foreign exchange dealings


According to Oxford Dictionary, “The capacity or potential of a project or an organization to make a profit. Measures of profitability include return on assets, return on equity and net profit and earnings per share.� 4.3.1 Return on Assets (ROA): Return of Assets refers to the comparison between the Return and total asset. It is measured to know how much return is earned by utilizing the assets of the enterprise. The return on assets of SJIBL was. 2.52% in 2006 and in 2001 it is .14%.

Trend of ROA changes

Percentage

4.00% 2.00%

0.14%

2.52%

1.76%

1.26% 0.00%

0.00% -2.00%

31.12.2001 31.12.2002 31.12.2003 31.12.2004 31.12.2005 31.12.2006

ROA

-4.00% -4.85%

-6.00%

Time Horizon 20

Source: Annual Report 2001-2007

The loss occurred in 2004 made a negative ROA too. But it is seen that in recent years the situation is changing because more profit in recent years is making increased ROA. 4.3.2 Return on Equity (ROE) Return of Equity refers to the comparison between the Return and general shareholders equity. It is measured to know how much return is earned by utilizing the capital employed in the business. The return on equity of SJIBL in the year 2006 was 45.58% but in the year 2001 it was 1.09%. The return on equity in 2006 is much greater than that of year 2001. Changes of net ROE (Six years) 20

To know more about ROA Please see Appendix A-20


100.00%

34.46%45.58%

-200.00%

.2 0 0 6

.2 0 0 5

ROE

3 1 .1 2

3 1. 1 2

.2 0 0 4

0.00%

3 1 .1 2

-150.00%

3 1 .1 2

-50.00% -100.00%

3 1 .1 2

.2 0 0 1

0.00%

18.23%

.2 0 0 3

1.09%

.2 0 0 2

50.00%

3 1 .1 2

Percentage

Trend of ROE Changes

-176.07%

Time Horizon 21

Source: Annual Report 2001-2006 & Prospectus for IPO

From this graph we can observe that the ROE increased for first two years then it began falling. In the base year 2001 ROE was 1.09% and in the year 2002 ROE increased to 10.23% growth rate was 1944.23% which was due to prudent lending and optimum management of funds. But in the year 2003 ROE decreased much sharply than the previous year 2002. In the year 2003 ROE became zero. It indicates that the bank was in felt in a high risk position in the question of its existence. In the just following year 2004 the foreign exchange dealing loss put the bank in a more risky position. But in recent years the bank is trying to recover the position gradually and ROE is so increasing positively. 4.2.3 Earning Per Share

Volume Income per Share

Trend of EPS 100 0 -100

1.76 31.12.2001

22.55 31.12.2002

33.63

0 31.12.2003

31.12.2004

-200

31.12.2005

46.79 31.12.2006

-204.91

-300 Time Horizon EPS

22

Source: Annual Report 2001-2006 & Prospectus for IPO

21 22

To know more about Changes of ROE Please see Appendix A-21 To know more about Changes of EPS Please see Appendix A-22


In the year 2006 earning per share of SJIBL is 46.79 taka and the growth rate is -2.32%. And in the year 1996 it was only 3.98 taka. But in the next year 1997 it was 40.65 taka per share and the growth rate was 921.34% and it is growing up to 2001 then it is reducing up to last year. It express that the performance of SJIBL about earning per share is not satisfactory after the year 2001.

4.4 Management Soundness Management soundness includes total expenditure to total income. 4.4.1 Total expenditure to total income

Percentage

Trend Management Soundness 100.00% 80.00% 60.00% 40.00% 20.00% 0.00%

86.74% 65.31% 45.86% 25.89% 20.12%

80.08%

2001

2002

2003

2004

2005

2006

Time Horizon Management Soundness

23

Source: Annual Report 2001-2006 & Prospectus for IPO

The total expenditure to total income of SJIBL is 20.12% in the year 2006 and in the year 2001 it was 80.08%. The percentage of total expenditure to total income in 2006 is less than the previous year 2005. And the management soundness trend is fluctuating overtime.

4.5 Profitability Ratios The profitability ratios of SJIBL are as under: Table4.1: Profitability Ratios Particulars Operating Income Profit (%) Net Income Ratio (%) Return on Asset (%) Return on Equity Earning per Share (Taka) Source: Prospectus for IPO

23

2001 8.72 2.68 .14 1.09 1.76

2002 29.97 14.6 1.26 18.23 22.55

2003 4.52 0.00 0.00 0.00 -

2004 -96.18 -56.16 -4.85 -176.07 -204.91

To know more about Changes of Management Soundness Please see Appendix A-23

2005 30.95 15.76 1.76 34.46 33.63

2006 36.72 19.05 2.52 45.58 46.79


4.6 SWOT Analysis SWOT Analysis of SJIBL Strength Transparent

and

Quick

Decision

Weakness Retail banking participation is less

Making Efficient Team of Performers

SJIBL does not emphasis SME loan management

Satisfied Customers Internal Control

Tele banking through call center process has yet to be re-established/introduced.

Skilled Risk Management Diversification

Internet banking has not being introduced yet. •

There is no individual own ATM Machine of SJIBL

MIS is at primary stage

Weak in shariah compliance

Opportunity There is much scope to concentrate in export

• Moderate risk management system Threat Because of the intense competition, most of

oriented industrial sector.

the competitor banks of SJIBL are coming up

There are opportunities for improving IT

with new service line.

sector of the bank including on-line banking

The competitor banks of SJIBL have more

services as more efficiently related to other

geographical coverage than SJIBL.

banks.

Retail banking as well as SME can be geared up. There are much scope to launch lucrative

As a second generation bank its authorised capital was less than third generation bank

Market pressure for the SLR

Market pressure for dollar crisis

schemes for the people those can attract them banking with SJIBL. •

SJIBL can be focused more through advertisement in different medias

Basel-II compliance to tap advantages from RM system.

4.7 Review of Financial Performance and profitability


The Financial performance and profitability of SJIBL is satisfactory compared to its peer and industry during 2006. The financial performances are measured in terms of its profit after provision and tax, Return on Average Asset (ROAA) and Return on Average Equity (ROAE). The bank’s profit after provision and tax reached at. 437.89 million (Annualized) on 31st December, 2006 compared to TK. 256.59 million in YE 2005 which indicates considerable growth (71.25%). The reason behind this significant growth is the surge in net investment income. In view of above, the key performance indicators of the bank24 show tremendous growth performance in business operation. Bank’s return on average assets (ROAA) reached at 5.02% (annualized) on 31st December, 2006 compared to 3.86% in YE 2005 and (10.54%) in YE 2004 while the peer average of same was 2.85% in YE 2005. Similarly, the return on average equity (ROAE) of the bank reached at 51.45% (annualized) on 31st December2006 compared to 50.80% in YE 2005 respectively against the peer average of 24.17% in YE 2005. For proper evaluation of any type of organization we are to compare that particular organization to other competitive organizations of the same industry. For evaluating performance of SJIBL I have taken nine other banks for comparative analysis. These are:

List of Sample Banks Name of the Bank Traditional Banks 1. Bank Asia (BA) FY 2002-2006 2. Mutual Trust Bank Ltd. (MTBL) FY 2002-2006 3. National Bank Ltd. (NBL) FY 2002-2006 4. National Credit and Commerce Bank Ltd. (NCCBL) FY 2002-2006 5. One Bank Ltd (OBL) FY 2002-2006 6. Standard Bank Ltd. (SBL) FY 2002-2006 7. South East Bank Ltd. (SJIBL) FY 2002-2006 Islamic shariah based banks 8. Islami Bank Bangladesh Ltd. (IBBL) 9. Al-Arafah Islami Bank Ltd. (AL-AIBL)

FY 2002-2006 FY 2002-2006

SJIBL

FY 2002-2006

24

This ratios are shown in 3.24


Profitability Comparison in Different Aspects Shahjalal Islami Bank Ltd. is an Islamic Shariah Based Bank. The profitability of the bank may not go along with other traditional banks. Here the banks are divided into two segments. Traditional Banks and Islamic Shariah Based Banks. Sample has been taken from both of the two segments. And the average of the segments has been compared to the same variables of SJIBL. To compare this I have included Return on assets, Return on equity, Net profit, Earning per share as separate variable.

5.1 Return on Assets % (ROA) Chart 5.1

Trend Comparison of ROA

3.00% 2.00% ROA (%)

1.00%

2.01% 1.50% 1.26%

0.00% -1.00%

2.28%

2.00%

1.47%

1.97% 1.76% 1.41%

1.09%

2.52% 2.33% 1.60%

0.00% 2002

2003

2004

2005

2006

-2.00% -3.00% -4.00% -4.85%

-5.00% -6.00% Time Horizon

Traditional Banks-Average

Islamic shariah based banks-Average

SJIBL

Source: Annual Report 2001-2006

graph above depicts that in the earlier period SJIBL’s ROA was near about that of other banks. But during 2003 it began drastic falling. In 2004 the fall was more dangerous and it came down up to -4.85 caused by a heavy loss. But within one year the bank was able to recover the situation. And the trend of changes in ROA began increasing. Within 2005 it came up to a positive figure and after the growth trend remained positive still now.

5.2 Return on Equity % (ROE) Chart 5.2

25

To view the details of ROA of different banks please see Appendix A-24


Comparative Trend of ROE

ROE (%) 100.00%

Traditional BanksAverage

50.00% 0.00% -50.00%

2002

2003

2004

2005

2006

-100.00%

Islamic shariah based Banks-Average SJIBL

-150.00% -200.00%

Time Horizon

Source: Annual Report 2001-2006

After analyzing the table and graph above it was revealed that in the year 2002 SJIBL’s ROA, as a new bank, was Competitive with other banks. But during 2003 it began Sharpe falling and became zero. In 2004 the fall was more drastic and it came down as low as

-176.07% that was mare than 10 and 13 times lower than

Traditional Bank average and Islamic Shariah Based Bank Average, respectively. But within one year the bank was able to recover the situation. And the trend of changes in ROA began increasing. Within 2005 it came up to a positive figure and after the growth trend remained positive though steadily.

5.3 Net Profit

26

To view the details of ROA of different banks please see Appendix A-25


Volume (Taka in Million)

Chart 5.3

Comparative Trend of Net Profit

1000.00 800.00

797.92 638.28

600.00 400.00 200.00 0.00 -200.00

361.75 222.68

151.73 46.22

2002

282.59 273.09

173.14

561.43

376.57

255.588

218.945

0

2003

2004

-400.00

2005

2006

-472.573

-600.00 Time Horizon

Traditional Banks-Average

Islamic shariah based banks-Average

SJIBL

Source: Annual Report 2001-2006

Above is chart showing the net profit changes over the time of five years with comparison with other than Islamic Shariah Based Banks and Islamic Shariah Based Banks. In the year 2002 SJIBL’s Net profit, as a new bank, was Competitive with other banks. But during 2003 it began Sharpe falling and became zero. In 2004 the fall was more drastic and caused a heavy loss that was near about two times lower than both Traditional Bank average and Islamic Shariah Based Bank Average. But within one year the bank was able to recover the situation. And the trend of changes in ROA began increasing. As we see the form the trend figure that both the Traditional Banks Average and Islamic Shariah based banks average are moving in almost same way with little standard deviation in the question of net profit. But SJIBL could not move alike the industry because of the heavy loss caused in 2004. It’s also a truth that within 2005 SJIBL came up to a positive figure and still now it is going on producing a steady growth in net profit, though much lower with the other banks.

5.4 Earnings Per Share Chart 5.4

27

To view the details of Net Profit of different banks please see Appendix A-26


Comparative Trend of EPS Volume (Taka per Share)

591.55

600.00 500.00

518.905 464.71

453.195

400.00 300.00

229.595

200.00 100.00 0.00

37.0922.55 25.75 0

31.7933.63 41.6646.79

29.76

-100.00 -200.00

-204.91

-300.00 220

2003

2004

2005

2006

Time Horizon Traditional Banks-Avarage

Islamic shariah based banks-Avarage

SJIBL

28

Source: Annual Report 2001-2006

Earnings per Share (EPS) of SHIBL was in the lowest position in comparison to the Traditional Bank Average and Islamic Shariah Based Banks Average in the earlier period. In 2003 it became zero and in 2004 there was a loss of 204.91 per share. But within one year the bank was able to recover the situation to a little extent. And the trend of changes in EPS began increasing. Within 2005 it came up to a positive figure and after the growth trend remained positive still now. In 2005 the EPS of SJIBL became higher than that of Traditional Banks Average though much lower than that of Islamic Shariah Based Banks Average.

5.5 Capital Adequacy Ratio % (CAR) Chart 5.5

28

To view the details of EPS of different banks please see Appendix A-27


Comperative Analysis of Capital Adequacy Ratio 14.00% 12.00% 10.00% 8.00% ROE (%) 6.00% 4.00% 2.00% 0.00% 2002

2003

2004

2005

2006

Time Hirizon Traditional Banks-Avarage

Islamic shariah based banks-Avarage

SJIBL 29

Source: Annual Report 2001-2006

The capital supply of SJIBL was moderately available in comparison to other banks. In other cases of comparison SJIBL suffered much. But the capital adequacy ratio didn’t suffered that much. The CAR was lower than the Traditional Banks Average and Islamic Shariah Based Banks Average. It’s true too that the CAR began to fall slightly from 2005 and the situation continued to 2006.

6.1 Findings To analysis the report I’ve got some findings. This are•

High quality customer services through the integration of the latest and tested banking technology and products are its tool to achieve success.

Customer is the first priority of the bank.

SJIBL is trying hard to evolve into a life-brand touching every aspect of customers’ life by providing a spectrum of services.

SJIBL uses the modern technology.

Commercial credit is increasing than previous year.

Balance with other banks like Sonali Bank, the balance is increasing than previous. In 2005 total balance is Tk. 805.206 million and in the year 200 it was Tk. 1023.131 million.

29

To view the details of Capital Adequacy of different banks please see Appendix A-28


In the year 2005 there is no fixed deposits with other banks.

In the year 2005 fixed deposits with financial institution is decreasing.

The banks recruitment process is so lengthy and costly.

Financial Borrowing from other Banks, Financial Institutions and agent decreased in 2006 to Tk. 945 million form Tk.1125 million in 2005.

The doubtful loan decreased by .26% in 2006 which was .26% in 2005 and became .00% in 2006.

The bad debt decreased by .02% in 2006 which was .15% in 2005 and became. 13% in 2006.

There is little delegation of power.

The risk Management system is moderate.

SJIBL has improved internal control system.

6.2 Recommendations Current strategy of the bank is contributing to the global as well as the national market trend. It may be appreciated as a procreative response to the market. However considering the analysis and discussion in the earlier chapters, SJIBL can do any one or all of the followings, for the further success. 1. SJIBL may appoint a change catalyst to stimulate the profitability of the bank with proper planning and controlling of the functional level. 2. Financial policies, import policies, product mix, promotional mix can be rearranged. 3. SJIBL can expand their locker services in other branches. 4. It can expand their ATM services. 5. SJIBL can allocate their loans and advances in agricultural sector. 6. Banking is a service-oriented marketing. It business profit depends on its service quality. That’s why the authority always should be aware about their service quality. 7. A philosophy of working for the clients intended of working for the boss must be introduced. 8. The bank should introduce more and promotional activities.


9. As soon as possible the bank should launch more branches in Dhaka city as well as in other cities of the country.

6.3 Conclusion The management of SJIBL confident that with their market leading capability, high standard of customer service and loyal employees, they shall continue to successfully grows their business and increase profit. SJIBL continues to accelerate its business growth through existing and new relationships. Its’ business units will function within the confines of policies and procedures which are consistent with its underlying values and principals as a leading banking institution. The global market is a competitive market. In our country the banking sector is growing up swiftly. So every bank faces the competitive market. In this competitive market SJIBL has done better to earn profit in the banking sector. SJIBL has established in 2001 and it has passed six years in banking business. Except the year 2003 and 2004 it has earned profit and the profit has increased steadily year to year. In 2004 it faced a total net loss due to the foreign exchange dealing loss that in that year. In the year 2001 net profit was Tk. 2.26 million and in the year 2006 net profit was Tk. 218.945 million and thus the bank achieved great jump within this six years. The increasing rate of profit in 2006 from the year 2005 was -14.34%. To explain this point, the net profit in 2006 was a positive figure but as it covered the loss of previous year the increase in the growth of net profit became a negative figure. Shahjalal Islami Bank Limited is a premier banking institution of the country. It integrates the latest technology into every facet of its operations. Its relentless effort to maximize Shareholders wealth continued in 2005 amid a state of stiff competition, more comprehensive regulatory environment and ever increasing customer expectations. Yet the company completed another successful year. In the year 2005, it focused on increase of fee based income, diversification of revenue earnings through a wide range of financial products and services.

Bibliography 1. Annual Report of SJIBL 2001 to 2006 and Interim report upto March 2007. 2. Oxford Business Dictionary, 2002, third edition, page-410, oxford university press, New Delhi.


3. Website of SJIBL (www.shahjalalbank.com.bd) 6. Bhattacharjee, D. Saha, S. Kumar, “An Evaluation of Performance of NCB’s in Bangladesh”, Bank Parikrama, Vol-XIV, March & June 1989, nos 1 & 2, page-3 7. Swamy, M. R. and Vasudevan, S. V., A Text Book of Banking, S. Chand and Company, New Delhi, 1985 8. Ahmed, F. and Jamsheduzzaman, K. M., “Mobilization of Savings by Nationalized Commercial Banks in Bangladesh”, journal of the Instititute of Bankers, VoL.-(June), 1978 9. Sorab Uddin, M. S. Saha, B. And Choudhury, T. A., “Growth and Structure of the banking Sector in Bangladesh” Bank Parikrama, Vol.-X, Nos. 1, 2, 3 & 4, 1985. 10. Bhattacharjee, D. “Productivity Measurement in the Nationalized Commercial Banks of Bangladesh: A Multinational Analysis”, Dhaka University Studies, Vol.-XI, 1990. 11. Annual Reports of Different Banks: Name of the Bank 1. Bank Asia (BA) FY 2002-2006 2. Mutual Trust Bank Ltd. (MTBL) FY 2002-2006 3. National Bank Ltd. (NBL) FY 2002-2006 4. National Credit and Commerce Bank Ltd. (NCCBL) FY 2002-2006 5. One Bank Ltd (OBL) FY 2002-2006 6. Standard Bank Ltd. (SBL) FY 2002-2006 7. South East Bank Ltd. (SEBL) FY 2002-2006 8. Islami Bank Bangladesh Ltd. (IBBL) 9. Al-Arafah Islami Bank Ltd. (AL-AIBL)

FY 2002-2006 FY 2002-2006

Acronyms a. SJIBL= Southeast Bank Limited b. BBA= Bachelor of Business Administration c. SME= Small & Medium Scale Enterprises d. ISO= International Standard Order e. ATM= Automatic Teller Machine f. FDR= Fixed Deposit Receipt


g. NGO= Non Government Organization h. ALM= Asset Liability Management i. CRR= Cash Reserve Requirement j. SLR= Statutory Liquidity Requirement k. ROE= Return on equity l. ROA= Return on assets m. CAR= Capital Adequacy Ratio n. AROA= Average Return on Assets o. AROE= Average Return on Equity p. MANCOM =Management Committee q. ALCO=Asset Liability Committee r. EC=Executive committee s. NCB= National Commercial Bank t. YE= Year u. IPO= Initial Public Offering.


Performance Evaluation & Profitability Analysis of Shahjalal Islami Bank (SJIBL) Ltd