Report On UBL
Introduction Uttara Bank Ltd (UBL) had been a nationalized bank in the name of Uttara Bank under the Bangladesh Bank order 1972, formerly known as the Eastern Banking Corporation Limited which was started functioning on and from 28.1.1965. Consequent upon the amendment of Bangladesh Bank Order 1972, the Uttara Bank was converted into Uttara Bank Limited was as a public limited company in the year 1983. The Uttara Bank Limited was incorporated as a banking company on 29.6.1983 and obtained business commencement certificate on 21.8.1983. The Bank floated its shares in the year 1984. It has 207 Branches all over Bangladesh through which it carries out all its banking activities. The Bank is listed in Dhaka Stock Exchange Ltd. and Chittagong Stock Exchange Ltd., as a public pouted company for trading of its shares. Uttara bank’s Corporate Office at the Motijhil. Its chairman is Mr. Azharul Islam and Vice Chairman is Mr. IftaKharul Islam. Mr. Shamsuddin Ahmed is the Managing Director. UBL conducts all types of commercial banking activities. The core business of the bank comprises of import, export, working capital finance and corporate finance. The bank is also rendering personal credit, services related to local and foreign remittances. The “Personal Credit” scheme of the bank, which is designed to help the fixed income group in raising standard of living is competitively priced and has been widely appreciated by the customers. The bank’s strategy is to gradually cover the total arena of banking.
MISSION To assist in bringing high quality service to our customers and to participate in the growth and expansion of our national economy. To set high standards of integrity and bring total satisfaction to our clients, shareholders and employees. To become the most sought after Bank in the country, rendering technology driven innovative services by our dedicated team of PROFESSIONALS. VISION
Uttara Bank’s vision is to have a poverty free Bangladesh in course of a generation in the new millennium, reflecting the national dream. Our vision is to build a society where human dignity and human rights receive the highest consideration along with reduction of poverty OBJECTIVES The objectives of UBL are to provide high quality service to its customers, to participate in the growth and expansion of our national economy, to set high standards of integrity, to bring total satisfaction to our clients, shareholders and employees, and to become the most sought after bank in the country, rendering technology driven innovative services by the dedicated team of professionals. Table UBL’s Objectives are reflected in the following areas UBL’s Objectives (Areas) Highly personalized service Customer-driven focus Total commitment to quality Outstanding products
Contribute in the economy Quality of human resources Commitment to its clients at each level
Source: Prospectus of Uttara Bank Limited, Year 2009. BOARD OF DIRECTORS OF UBL UBL formed with the Bank Company Act 1991, the rules and regulations issued by the Bangladesh Bank, the Company Act 1994, and the Securities and exchange Rules 1987 and other applicable laws and regulations in 1999.The first Board of Directors of the bank was constituted with 13 Directors. Since the Bank has floated its share for public subscriptions; two Directors have been elected from the public shareholder. The director’s list is following: Mr. Azharul Islam Mr. Iftekharul Islam Mr. Shah Habibul Haque Mr. Abul Barq Alvi Col. Engr. M. S. Kamal (Retd) Mr. Syed A. N. M. Wahed Mr. Sk. Amanullah Major General Prof. M. A. Mohaiemen (Retd) Dr. Md. Rezaul Karim Mazumder Lt. Col. Dewan Zahedur Rahman (Retd) Engr. Tofazzal Hossain Mr. Mohammed Farooq Mr. Muhammad Quamrul Ahsan Mr. Asif Rahman Mr. Shamsuddin Ahmed BRANCHES OF UTTARA BANK LIMITED
Chairman Vice Chairman Director Director Director Director Director Director Director Director Director Director Director Director Managing Director
Currently UBL has 207 branches. Corporate office is located in 90, Motijheel commercial area Dhaka-1000. Other branches of UBL are given below: Table Branches of Uttara Bank Limited Serial. No. Number of Branch 1. 20 2. 27 3. 18 4. 13 5. 8 6. 17 7. 19 8. 19 9. 16 10. 18 11. 12 12. 18 Source: Uttara Bank Limited, Year 2009
Region Dhaka Central Zone Dhaka North Zone Dhaka South Zone Narayangonj Zone Mymensingh Zone Comilla Zone Chittagong Zone Sylhet Zone Khulna Zone Barisal Zone Rajshahi Zone Bogra Zone
MANAGEMENT HIERARCHY Figure Overall Organ gram of UBL President & Managing Director Deputy Managing Director Senior Executive Vice President Executive Vice President Senior Vice President Vice President First Vice President First Assistant Vice President Senior Executive Officer Source: Annual report of Uttara Bank Limited, 2009.
(SEO) Executive Officer (EO) Senior Principle Officer (SPO) Senior Officer (SO) Management Trainee (MT) Officer Junior Officer (JO) Assistant Officer (AO) Banking Officer Trainee Officer Teller
Manager SPO
UBL can be broadly divided into two functional areas; a. Business b. Support
Sub Manager SO
Figure Organogram of the Branch Credit (3) Officer, AO,MT
Customer Service (2) AO & TO
GB & Accounts (2) Officer & TO
Cash in Charge SO
Teller TO
Receptionist
Teller TO
BUSINESS OF UTTARA BANK LIMITED The Business division can be divided into the following parts: Figure Business division of UBL Business
Corporate
Treasury
Institutiona l
Retail
Custodia n
Source: Uttara Bank’s confidential information, Year 2009. UBL is primarily corporate driven where the corporate banking division generates more than 40% of the total revenue and treasury contributing around 20%. The rest revenue comes from custodial services, retail banking and institutional banking. The respective branch managers are responsible for their performance and the operations of their unit. The managers agree upon the targets set mutually by them and the head of the department and this exercise has ample resemblance with the management practice known as MBO.
SUPPORT SERVICES OF UTTARA BANK LIMITED Figure Support Services of UBL
Support Central Operations
Legal and Compliance Risk management
IT Support
Marketing Department
Human resources
Source: Bank Uttara Bank’s confidential information, Year 2009 IT Support This department is instrumental in the running of all the computerized operations of the bank. Stealer has been developed and customized by ERA-InfoTech Ltd a joint venture IT Company set by ETA-InfoTech of Dubai, Uttara Bank and Ranks IT. The company also enjoys the technical support from ETA Info Tech, UAE. Human Resources The total manpower of the bank as on 31 st December, 2009 is 3,291, out of 2,123 is officers and 1,168 are the supporting staffs. Efforts have been made to rationalize the use of manpower by improving their efficiency and productivity. Risk Management: The risk management within the always calls for careful and responsible handing of the risks. Commercial banks are exposed to various risks. The management of Uttara Bank limited is fully cognizance to the importance of various risks involved in the banking business. Risk management is one of the critical factors in banking. Bangladesh Bank has identified 05(five) core risk of management of the Bank and has provided necessary guidelines for prevention therefore. The five core risks are: 1. 2. 3. 4. 5. 6.
Credit Risk Management. Asset Liability Management. Foreign Exchange Risk Management. Prevention of Money laundering. Internal Control and Compliance. Financial Highlights of the organization
(Figure in Million (Tk.) where applicable) Sl.No. Particulars 1 Gross Income
2009 7,396.5
2008 6,313.5
2007 5,020.2
2006 4,435.1
2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23
Gross Expenditure 4,882.6 Gross Profit 2,513.9 Pre-Tax Profit 2,188.9 Post-Tax Profit 1,105.2 Authorized Capital 3,200.0 Paid-up-Capital 1,597.3 Reserve Fund and Other Reserves 4,609.6 Shareholders Equity 6,206.9 Deposit 59,387.3 Advances (Gross) 39,451.4 Investment 22,502.5 Guarantee Business 1,633.5 Export Business 15,096.9 Import Business 29,129.3 Foreign Remittance 44,635.3 Fixed Assets 1,088.4 Total Assets 71,946.0 Classified Loans and Advances 2,842.0 Total Off Balance Sheet Exposures 8,560.5 Required Capital 3,688.2 Actual Capital 5,829.0 Required Provision against loans & 889.7 advances 23.a Provision Maintained 910.1 24 Required Provision against off 85.6 Balance sheet exposures 24.a Provision Maintained 101.7 25 Earning per Share (EPS) 69.19 26 Market Value per Share 1,450.25 27 Price Earning Ratio (Time) 20.96 28 Book Value per Share (NAV) 388.58 29 Advance Deposit Ratio 0.66:1 30 Total Adv. /Class. Advance (%) 7.20% 31 Total Adv. /Class. Advance (net)% 5.21% 32 Income from Equity (%) 17.80% 33 Income from Assets (%) 1.54% 34 Number of Shareholders 42,570 Source: Annual report of Uttara Bank Limited, 2009.
4,007.9 2,305.6 2,098.1 1,138.5 1,600.0 798.6 2,890.2 3,688.8 50,817.0 37,141.3 11,188.3 1,826.9 15,039.6 31,146.9 36,073.2 1,065.4 58,444.3 2,633.8 8,806.9 3,420.5 4,048.4 684.8
3,554.0 1,466.2 1,143.7 409.5 1,000.0 399.3 2,054.2 2,453.5 43,586.4 28,477.4 14,455.8 1,474.4 14,784.5 25,407.9 29,575.3 1,014.0 52,860.3 3,530.9 8,830.5 2,617.8 2,746.7 727.1
3,153.2 1,281.9 866.8 248.8 1,000.0 199.7 1,885.8 2,085.4 39,360.2 25,163.9 9,264.5 1,564.1 18,133.9 22,630.7 28,728.1 942.1 45,217.0 3,783.9 7,428.5 2,083.0 2,273.0 790.6
792.8 88.1
826.4 44.2
907.4 N/A
101.7 142.56 3,393.75 23.81 437.88 0.73:1 7.09% 5.46% 30.86% 1.95% 27,228
44.2 102.56 4,854.75 47.34 573.73 0.65:1 12.40% 10.13% 16.69% 0.77% 12,467
N/A 124.59 2,312.25 18.56 957.66 0.64:1 15.04% 13.40% 11.93% 0.55% 5,390
PRODUCTS & SERVICE OF UTTARA BANK LIMITED PRODUCTS OFFERED BY UTTARA BANK LIMITED UBL has a wide range of product and services targeted to different customer segments. Every account is assigned an account manager who personally takes care of the customer and provides customized service and personal consultancy and troubleshooting regarding the services of the organization. In the following, a list of products and services of the bank is presented: Table Products Offered By UBL
Personal Banking Services Uttara Bank offers ATM Service ◊ Any Branch Banking ◊ Savings Account SMS Banking ◊ Current Account Bonus Savings Schemes ◊ Debit Card Personal Secured Credit ◊ Personal Installment Loan Palli Shawnirvor Prokolpo ◊ Evening Banking Kormo Shongsthan Prokolpo
Savings Account Current Account Debit Card Personal Installment Loan Traveler’s Cheques
Corporate banking Corporate Credit: Overdraft, Import and Export Finance, Payments Against Documents (PAD), Loan against Trust Receipt (LTR), Guarantees and Bonds, etc. Payments and Cash Management: Account Management Services, Countrywide Payments / Countrywide Collections, etc.
Customized Loans Loan Syndication Trade Services include Export Services, Import Services, Trade Express, Document Tracker etc. Personal Loan, Auto Loan Home Loan Electronic Banking: Cash Management Services and Trade Services
Security Services Locker Service Privacy Custodial Service Secure Transaction Source: Prospectus of Uttara Bank Limited, Year 2009. Product range of UBL includes as follows: Table Product Range of Uttara Bank Limited ◊ Savings ◊ Deposit ◊ Corporate ◊ Institutional ◊ Commercial ◊ Treasury
◊ Retail or retail banking services ◊ Custodial services ◊ Cash management ◊ Locker services and leasing priority banking
Source: Prospectus of Uttara Bank Limited, Year 2009. CORPORATE BANKING PRODUCTS Uttara Bank’s corporate banking arm provides a range of products and services that address the financing needs and transaction structuring requirements of large and mid-sized corporate customers. Services provided include loan syndication and asset sales, corporate advisory, trade finance and working capital and term financing. Working closely with the Bank’s trading professionals Corporate Banking also provides a range of foreign exchange, interest rate management and risk management products. WORKING CAPITAL FINANCE The term working capital means capital required by a business to carry out its day-to- day operations in particular to complete the operating cycle of the business. In the course of running a business, payments have to be made for raw materials, wages, manufacturing and other expenses. However, money on account of sale of goods or services is not immediately realized. It may take, three to six months depending upon the credit terms prevailing in the business. The business must have sufficient funds for this period. This amount is known as 'Working Capital" of the business. e.g. Cash credit, Overdraft, import and export finance, bills discounting, short term loans etc. SYNDICATED LOAN It is one of the principal products offered by the corporate banking division of the bank. In case of syndicated loan, a group of banks form a cartel and extend a large amount of loan to a firm for long term. The underlying idea is to minimize the risk associated with such loan since the performance of the loan depends on the single borrower. Syndicated loan diversify risks between the lenders and thus each lender is exposed to limited risk despite the loan amount being large. TRADE FINANCES The acquisition of Bank of Nova Scotia gave UBL new strength in its trade financing activities. Previously UBL was not facilitated with “SWIFT” which is very crucial in efficient modern banking correspondence. Now the Scotia Branch has correspondence with over 800 financial institutions worldwide. It is the first branch in UBL to have such facility. Scotia Branch provides L/C payment, L/C advising, negotiation, reimbursement, shipping guarantee, export bill collection services to its valued clients. Scotia Branch becomes UBL’s one of the strongest international banking arms, helping to serve their clients through its global network. CASH MANAGEMENT This service provides the clients with a full range of cash management products, collections, payments and liquidity products. The bank has invested heavily in the state of the art technology and processing capability specially suited towards mitigating such needs of the corporate clients.
PERSONAL LOAN To cater the urgent financial need of the service holder having limited income. Emergency expenses for own marriage of a service- holder or his dependents. Emergency expenses of urgent surgical operation/ medical treatment. Emergency educational expenses of the children for admission/purchase of books, examination fees etc. TREASURY PRODUCTS This division has a centralized trading room in Dhaka and designed to serve the following: a. FOREIGN EXCHANGE: Treasury division is linked up with the exchange rate information service provided by the International News Agency “Reuters”. Dealers working there provide advisory service from 10:00 am to late evening hour five days a week. The division includes various hedging techniques to offer better deal to its customers and protect itself from adverse of the adverse fluctuation in the exchange rates. Table The other products include the following Products Ready Contracts Forward contracts Cross currency contracts Information analysis Source: Prospectus of Uttara Bank Limited, Year 2009. b. MONEY MARKETS AND INVESTMENT: Treasury division is the local market leader in debt instruments that attempts to take advantage of the developments of the money market developments. The money market includes instruments like call money rate, T-bill, swaps etc. RETAIL/CONSUMER BANKING Retail Banking at UBL provides all types of clients with typical banking services such as, savings accounts, current accounts, call and short-term deposit accounts, fixed deposit accounts, time deposits, foreign currency accounts and secure locker services. UBL’s retail banking division is entrusted with the duty of operating the operations of the 31 branches in the country. The services and products of the department can be classified into two broad categories: asset products and liability products. FEATURES OF LIABILITY PRODUCTS The different types of deposits are given below: CURRENT ACCOUNT
A non-interest bearing account where the client deposits the money without have any intention to get any interest. There is no provision of minimum balance under this category of account. Initial deposit for opening this account is TK 2000. SAVINGS ACCOUNT Savings account is interest bearing, which can be divided into 2 parts. One is Bonus Savings and another is Normal Savings. In Bonus Savings a customer has to maintain at least Tk. 50,000 in the account at any point of time. Then the interest will be 7.50%. The interest is calculated at a daily basis. The interest comes to an effect in the account after every 3 months. If the deposit falls back Tk 50,000 for a particular time, then the interest will be calculated @7%. On the other hand, the interest rate for Normal Savings is 7% and the customer needs to open the account depositing at least Tk 15,000 at start. The basic deference between these two is that, the customer has to maintain Tk 50,000 at any point of time in the Bonus Savings whereas for Normal Savings, he/she can withdraw even if the deposit falls back Tk 50,000. Other Bangladesh Bank rules will be applied for withdrawal of money from the account and other transactional activities. SHORT TERM DEPOSIT STD is an interest bearing account where the interest is 6% and calculated in a daily basis. Minimum Deposit Should is 50, 00000. DOUBLE BENEFIT PLUS (DB+) DB+ is a 6yr or 9.5yr old scheme. Customers deposit doubles in 6 yrs and triples in 9.5 yr. Minimum initial deposit for the scheme is Tk 100,000 DEPOSIT PENSION SCHEME PLUS (DPS+) In this scheme the customer deposit monthly installments ranging from Tk 1,000 to Tk 5,000 and after 3 to 10 yrs receive a handsome amount of money. MONTHLY BENEFIT PLUS (MB+) MB+ is a 3-yrs/5-yrs scheme that lets you earn monthly benefit respectively of TK. 975, TK. 1000 (minimum initial deposit of Tk. 100000.) FIXED DEPOSIT Fixed deposit requires a minimum deposit of BDT 50000 for opening. The fund can be deposit for any maturity greater than 3 month while interest rate varies with the maturity date. Table Interest rate of UBL Tenor For 3 months period For 6 months period For 1 year period & above Source: Uttara Bank Limited, Year 2009.
Interest Rate 7.75% 8.50% 9.00%
SWIFT Swift is a Bank owned non-profit co-operative based in Belgium servicing the financial community worldwide. It ensures secure messaging having a global reach of 6,495 Banks and Financial Institutions in 178 countries, 24 hours a day. SWIFT global network carries an average 4 million message daily and estimated average value of payment messages is USD 2 trillion. Swift is a highly secured messaging network enables Banks to send and receive Fund Transfer, L/C related and other free format messages to and from any banks active in the network. Having SWIFT facility, Bank will be able to serve its customers more profitable by providing L/C, Payment and other messages efficiently and with utmost security. Especially it will be of great help for our clients dealing with Imports, Exports and Remittances etc. CREDIT FUNDAMENTALS TYPES OF CREDIT ACTIVITIES OF UTTARA BANK LIMITED Credit plays an important role in generating bank’s income. Commercial banks make credit or advances in different forms. All type of credit facilities can be broadly distinguished into two groups: Figure Type of credit facilities of UBL Credit
A. Funded Credit Cash Credit Over Draft (OD) Secured Over Draft (SOD) Term Loan Personal Credit (PC) Payment Against Documents Loan Against Trust Receipt Car Loan
B. Non Funded Credit Letter of Credit Guarantee FDBP LDBC FDBC
Source: Uttara Bank confidential information, Year 2009.
FUNDED CREDIT PERSONAL CREDIT (PC) This loan is designed for mitigation the demand for loan for personal reason. The loan is a convenient option to finance fund requirement for buying new household items, emergency needs, house renovation, office equipment etc. SECURED OVER DRAFT (SOD) When Overdrafts are allowed against securities they are called Secured Overdrafts. Overdrafts are generally granted to contractors & supplies for carrying on construction works and supply orders and to businessmen for expansion of their business. SOD is generally allowed against securities of Fixed & term deposits shares/debentures, PSP, Insurance Policy, real estates, etc: depending on the nature & purpose of advance. OVER DRAFT Overdraft facility is also a continuous loan arrangement on a customer’s current account permitting him to overdraw up to a certain approved limit for an agreed period. In another way we can say that, advances in the form of overdraft are allowed on a current account operated upon by cheques for a certain approved limit for an agreed period. CASH CREDIT CC is mainly given to meet day-to-day expenses. Under this arrangement borrowers can borrow any time within the agreed limit and can deposit money to adjust whenever he has surplus cash in hand. PAYMENT AGAINST DOCUMENTS (PAD) On receipt of import bills against the L/C from the Negotiating Bank, the Issuing Bank scrutinize the documents with the terms and conditions of the L/C and if it is found completely in order PAD loan is created in the name of the importer in order to reconcile the entries so debited by the Reimbursing Bank. LOAN AGAINST TRUST RECEIPT (LATR) LTR may be issued at the request of valued customers of the bank. After sanction of LTR, import bills are handed over to the importer who will clear the goods from the custom authorities. The goods will remain at the custody of the importer. LTR may be sanctioned for 90/180/360 days depending on the merit of the case and the importer should adjust the LTR a/c within the sanctioned period. The bank would like to focus this product on that section of the society who has made some reasonable progress in their profession and are in the threshold of a further step.
CAR LOAN In other words, senior government or semi-government officials, professionals like doctor, engineer, architects and accountant with some degree of track record, executive of large business house who have attained a reasonable degree of seniority and holding responsible position. Interest Rate will be 16% NON FUNDED CREDIT (NFC) LETTER OF CREDIT (L/C) A Letter of Credit (LC) is a non-funded credit line given by a bank to an importer to facilitate both foreign and inland business. This is a contingent liability which can be converted to a funded facility incase bank makes the payment on behalf of the importer. A Letter of Credit can be revocable or irrevocable, at sight, restricted or negotiable so on. BANK GUARANTEE (BG) BG gives a major potion of revenue for bank every year. Bank offers BG to reliable and valuable customer as per requirement. This is also a contingent liability for bank. FOREIGN DOCUMENTS BILLS PURCHASED (FDBP) This type of finance made out to purchase foreign clean bills such as foreign currency draft, cheque etc. The facility is generally allowed to a very well known client with good standing save in the case of encashment of Traveler's chares. LOCAL DOCUMENT BILLS COLLECTION (LDBC) This type of finance made out to purchase local clean bills such as both local and foreign currency draft, cheque etc. The facility is generally allowed to a very well known client with good standing save. FOREIGN DOCUMENT BILLS COLLECTION (FDBC) Similar to LDBC, here this is use for outside country bill collection. CREDIT DEPARTMENT DEPARTMENT: CREDIT • • • • •
Processing of Personal Credit (PC) proposals, documentation and disbursements. Processing of Customized Loan proposals, documentation and disbursements. Processing of Term Loan, documentation and disbursements. Processing of over draft proposals, documentation and disbursements. Monitoring recovery of installments regarding all types of advance.
Prepare and submit statements and returns relating to credit departments to all concerned agencies including Head Office and Bangladesh Bank.
CHALLENGES OF WORK UBL being a local private bank has very friendly and helpful working environment. Being an intern the most challenging work for me was to perform my daily job properly. I had to very sincere and alert while serving customer as any mistake done by me may could a great harm to the bank and its reputation. The working environment at Uttara Bank always provided me with challenge to improve my performance everyday. I was trained to interact with sophisticated customers, visit a project/site before giving an advance to follow bank’s producers accordingly.
ORGANOGRAM OF CREDIT DEPARTMENT Figure Organ gram of Credit Department President & Managing Director SEVP Operation
Head of Marketing
Relationship Mgt Team
SVP Credit
Risk Management Unit
Syndicated Fin Unit
Credit Administration Unit
Credit Officer
Credit Admin Officer
(Complain)
Recovery Unit
Recovery Officer
Credit Officer
Credit Admin Officer (Monitor)
Credit Officer
Credit Officer
Credit Admin Officer (Limit) Author)
Credit Officer
Source: Confidential information of Uttara Bank Limited, Year 2009. PROCEDURE FOR GIVING ADVANCES The General Advances Department of Siddeswari Branch of Uttara Bank Ltd. usually follows the below-mentioned procedures and steps for sanctioning any kind of advances as available with the branch: FIRST STEP
The prospective borrower has to apply to Siddeswari Branch for loan by filling up of a specific Loan Application form. A loan application to be considered, first and foremost, the applicant has to be a customer of the bank. This is part of the bank’s ‘Know Your Customer’ policy. The customer applies in the Bank’s own format stating type of facility required and amount of each. Also stated are: The type of security they are prepared to offer and the value of that security The purpose of the facility The source and manner of repayment Information about themselves such as legal form, date of establishment, authorized capital, address, basic details about their business, sister concerns, information about proprietors, partners and directors and their interest in the organization Details about credit facilities with other banks including nature of facility, limit, validity, present outstanding Current facilities with this bank The customer also provides some additional information at this stage such as: Balance sheet Income statement Cash flow statement Memorandum and articles of association (for companies) Certificate of incorporation (for companies) SECOND STEP After receiving the loan application form, Siddeswari Branch sends a letter to Bangladesh Bank for obtaining a report from there. This report is called CIB (Credit Information Bureau) Report. This report is essential for giving loans and advances. The purpose of this report is to being informed that whether the borrower has taken loan from any other bank or not if 'yes', then whether these loans are classified or not. THIRD STEP After receiving CIB report if the Bank thinks that the prospective borrower will be a good borrower, then the bank will scrutinize the documents. In this stage, the branch will analyze the information in order to come to a decision about whether it would be desirable for the bank to disburse the loan. Using the financial statements, a financial analysis is carried out using the bank’s own format which is done on MS Excel. This format was developed by the bank’s own personnel when operations started. This analysis procedure is called Financial Spreadsheet Analysis (FSS). In FSS, various figures from the financial statements, usually of the last three years are inputted into the spreadsheet, and various ratios are calculated. These ratios are weighted and grouped into two parts to come out with two different scores called Y-Score and Z-Score. It uses a combination of financial ratios to produce a rating which is an indication of a
company’s management ability and financial strength The Y-Score and Z-Score give an indication of whether the loan should be disbursed or not. The Z-Score is used for public ltd or government owned manufacturing companies. If the Z-Score is under 3 it means further investigations are warranted and if it is less than 1.81 it indicates inherent weakness is present. The Y-Score is used for all Borrowers. If under 12 it indicates that an unusual degree of risk is indicated and thus there should be heavy reliance on security. It is important to look at the trend in the ratios over the years. For example if the Y-Score is 15 in one year, 13 the next year and 12 the next year, this should be taken as a sign that the business’s performance is deteriorating and care should be taken about approving the loan to such an applicant. The ratios are not all that is analyzed. The Cash flow Statement is also carefully analyzed. What is looked for in the cash flow statement includes whether there is regular positive cash flow in the business, and what type of investments have been made by the business, and how often, and whether these support the type of information provided by the customer about his activities. FOURTH STEP Lending Risk Analysis (LRA) is a technique by which the risk of the credit is calculated. Experienced people of General Advance Department do this analysis. It is a ranking whose total score are 140. Among this score, 120 is for Total Business Risk and 20 for Total Security Risk. It is a four-scale rating. In case of business risk, if the score falls: Table Business risk of UBL In between 13-19, then Good risk In between 20-26, then Acceptable risk In between 27-34, then Marginal risk Over 34, then Poor risk Source: From interview with the officer of credit department of Uttara Bank Limited. In case of security risk, if the score fall: Table Security risk of UBL In between -20 to -15, then
Good risk
In between -14 to 0, then
Acceptable risk
In between 0 to 10, then Over 10, then
Marginal risk Poor risk
Source: From interview with the officer of credit department of Uttara Bank Limited. In LRA bankers analyze eight risks such as 1. Supplies risk and sells risk 2. Industry risk 3. Performance risk 4. Resilience risk 5. Management competence risk 6. Management integrity risk 7. Company risk and Security control risk 8. Security risk
FIFTH STEP Fifth step is processing stage and in this stage, the Bank will prepare a proposal. Branch incumbent (L/O) has the discretionary power to sanction loan (SOD) up to Tk.50 Lac against financial obligations by informing Corporate Office. But in that case, the Branch Manager has to give attention to the following matters: prepare a proposal for the Head of Credit and Operations (with his recommendation) for his consideration and approval giving information such as the type of credit facility being considered, security, conditions applicable, reporting requirements, purpose, other banks giving loan to the applicant, source of repayment, environmental considerations, financial performance of the customer, risks and mitigating factors and recommendation of the branch manager. Each of the above factors is examined in more detail below. Type of Credit Facility Being Considered This section will give details on: Figure Type of Credit Facility Credit Facility
Current Loans Outstanding
Present Authorizations Limits
Total Credits proposed
Details of Interest Rate Spreads, Commission, Fees and Margin
Source: Annual report of Bank Asia Limited, Year 2009. Security Being Taken From Credit This section details the various types of security to be taken from the customer. Conditions of Credit This section will state various conditions that have to be met before the loan will be allowed which are referred to as ‘conditions precedent’. They generally state the various types of documentation that have to be provided by the borrower before availing of the loan such as a resolution of the Board of Directors and specific security documents of specific value such as DP Note, Letter of Continuity, Corporate Letter of Guarantee, etc. Also stated are the general conditions which have to be met by the borrower in order to avail of the loan which are more or less standardized for all customers, but one or two conditions may be waived depending upon the relationship with customers and their creditworthiness. The general conditions are stated below: Facilities to be availed for specified purpose only
Any material and adverse conditions will immediately cause acceleration of all payments to the Bank The credit facilities are granted under and subject to the conditions and limitations set out and specified by the Bangladesh Bank and other regulatory authorities in Bangladesh Inter company borrowing and lending should not take place without the prior approval of the Bank No mergers and acquisitions to take place without the prior approval of the Bank All Government levies, excise duties, etc. on the facilities will be paid by the Borrower. In addition all legal and other fees, costs and expenses incurred in connection with the facility and securities as referred to herein, are for the account of the Borrower and shall be paid by the Borrower on demand. Reporting Requirement This section states various reports that the customer is required to submit to the Bank on a periodic basis such as quarterly statement of inventory and aged receivables, audited financial statements (and where appropriate a consolidated group position). It also details what the disbursing branch should review/do on a periodic basis such as inspect stocks, review borrower’s financials, obtain annual CIB report on the Borrower and obtain large loan approval for credit facilities in excess of 15% of the bank’s paid up capital. Purchase (Adequacy of) Facilities This section gives information on why the applicant is asking for the particular facilities, the type of credit it is and maximum validity. Banking Relationship This section gives information on the various banks that have given credit facilities to that particular customer, the type of facilities given by each, the amount outstanding from each, and the tenor and repayment dates of each. Source of Repayment Here, information on the primary, secondary and tertiary sources of repayment of the loans is given. An example: Primary: Operational cash flow from operations of the Company Secondary: Operational cash flow from other Group Companies Tertiary: Sale Proceeds of the Companies self-liquidating short term assets Assessment of Securities Here, comments are made about the securities to be taken eg. First Registered over all existing and future current assets of the Borrower on the basis with other lenders with the Register of Joint Stock Companies, RJSC; Notice of the charges filed with RJSC to be verified independently by a search report.
Environmental Consideration What is stated here is whether the proposed project for which loan is required poses any threats to the environment or not. General Financial Comments Comments are made on the profitability and Balance Sheets of the business, specifically on sales, gross profit margins and why the profitability is changing, the inventory turnover days, the receivables turnover days, the tangible net worth, leverage, etc. Specific ratios are given with a comment about acceptability of ratios. Critical ratios mentioned include current ratio, quick ratio, asset ratio and debt service coverage ratio. Future Prospects Scope for future profitability and business plans are mentioned briefly. Critical Risk and Mitigating Factors Various risks to the applicant’s business are analyzed here and how the company plans to tackle those risks is also mentioned. Examples of risk analyzed are competition and devaluation risk. Recommendation Whether credit should be given or not is mentioned here with reasons. Examples of reasons include experienced management, growth and profitability potential of business, repayment track record and past earnings from the applicant. Total Credit (OD) To the Connection Shows total debits and credits into the account of the applicant in the past. CREDIT DISBURSEMENT & MONITORING OF UBL CREDIT DISBURSEMENT After verifying all the documents, the branch disburses the loan to the borrower. The loan officer disburses the loan to the borrower’s loan account. A “Loan Repayment Schedule” is also prepared by the branch and is given to borrower. FIRST STEP After the disbursement of the loan the bank follows the borrower in the following manner • Constant supervision. • Working Capital assessment. • Stock report. • Break Even analysis
•
Rescheduling of repayment.
SECOND STEP The loans are repaid in installment. This installment is according to bank directives. Some loans are repaid all at a time. If any loan is not repaid then notices are served to the customer. Sometimes legal actions are also taken for recover the loan. CREDIT PLANNING AT DIFFERENT LEVEL Credit Planning implies estimating first the total lend able resources that are likely to be available within the given period and then allocating the same amongst various alternative uses in conformity with the national plan and priorities. Necessity of credit planning in context Demand for Credit is much more than its supply Providing credit at right person at right time at right quantity Getting maximum output as a result of credit allocation Ensuring the best alternative investment opportunities Achieving declared objectives such as providing credit to priority sectors Methodology of preparing Credit Budgets at Bank’s Different level At Branch Level: Determination of the requirements of incremental creditable funds. Allocation of the said funds to different sectors and client groups during the budget period. Analysis of the command area. Adherence to the policy guidelines of the Corporate Office and the supplementary policy guidelines of the Regional Office. At Regional Level: Analysis and settlement of the branch credit plan in a branch managers meeting and in a democratic way. Transmission of the Regional Credit plan to the Corporate Office At Bangladesh Bank Level: Adherence to the policy guidelines of the Central Bank regarding development of credits. Correction of the regional as well as sectored imbalances if any Settlement of the credit plans of the concerned bank for the budget year. THE PROCEDURE FOR CREDIT CLASSIFICATION &
PROVISIONING
For Classification purposes credits have been categorized under four heads. These are: Figure 6-1: Credit classification of UBL
Credit
Continuous
Short term Agriculture Demand Fixed Term
Source: Credit Manuals of Uttara Bank Limited, Year 2009. Continuous Credit The credit, which has no particular repayment schedule, but contains date of expiry, credit limit etc. will be termed as continuous credit e.g. CC, OD etc. Demand Credit The credit, which is considered repayable, only after the banks claim it will be termed as Demand Credit. If contingent or any other liability is converted to Compulsory Credit or Forced Credit then it will be termed as Demand Credit. Fixed Term Credit The Credit, which is repayable within a particular period of time as per repayment schedule, will be termed as Fixed Credit. Short Term Agriculture and Micro Credit Those credit which are enlisted, as short tem credit under the annual agricultural credit program of the Bangladesh Bank will be termed as agro Credit. It will also include credit extended to agriculture sector and repayable with in a period nit exceeding 12 months. The short-tem Micro-Credit will be that which will not exceed an amount of taka 10,000 and will be repayable within a period not exceeding 12 months. Basis for Credit Classification A) OBJECTIVE CRITERIA Any agricultural credit will be tuned into irregular credit just after it is not repaid/ rescheduled within the prescribed time period. If the aforesaid credit lies irregular for three months and above but below six months then the credit will be classified as Sub-Standard, if it lies irregular for 6 months and more but less than 12 months then the credit will be classified as bad credit.
When demand credit is left un-recovered for 3 months an above but less than 6 months form the date of the credit is clamed or from the date of compulsory credit creation, then the credit will be classified as Sub –Standard, it is i.e. irregular for 6 months and More but less than 12 months then it will be Doubtful and if it remains un-recovered for more than 12 months and above then it will be classified as Bad credit. In case of fixed term Credit if any installment is left un-recovered with in the scheduled date, the amount falling due on account of Un-recovered installment will be classified as “Overdue Installment”. i) Fixed Term Credit which is repayable within a maximum period of 5 years in that case If the amount of Overdue Installment equals or exceeds the amount repayable with in 6 months then such credit will be classified as Sub-Standard. If the amount of Overdue Installment equals or exceeds the amount repayable within 12 months then such credit will classified as doubtful. If the amount of Overdue Installment equals or exceeds the amount repayable within 18 months than such credit will be classified as ‘Bad Credit” (ii) Fixed Term Credit, which is, repay able after 5 years in that case If the amount of Overdue Installment equals or exceeds the amount repayable within 12 months then such credit will be classified as Sub-Standard. If the amount of Overdue Installment equals or exceeds the amount repayable within 18 months then such credit will classified as doubtful. If the amount of Overdue Installment equals or exceeds the amount repayable within 24 months than such credit will be classified as ‘Bad Credit” Clarification– If any Fixed Term Credit is repayable in monthly installment then the amount of recoverable installment will be equal to the sum of 6 installments (monthly). Similarly, in case of quarterly repayable installment total amount repayable within 6 months will be equal to the amount of the total of two quarterly installments. (i) Short Term Agriculture and Micro-credit will be termed as irregular credit if it is not recovered within the scheduled date as per the contract of the credit. After exceeding 12 months as irregular credit it will be classified as substandard, after exceeding 36 months it will be doubtful and after exceeding 60 months it will be bad. (ii) Qualitative Judgment– Whether any conditions credit or Demand Credit or fixed term credit are classifiable or not on the Treated as final classification and before any subsequent inspection is conducted by Bangladesh Bank the credit will not attain any merit of declassification. Accounting Procedure of Interest of Classified Loan Credit basis of objective criterion but if there is any doubt or uncertainty as regards their recovery then the credit will be classified on the Qualitative Judgment. If the recovery of the credit becomes uncertain resulting from change of circumstances under which credit was extended or the borrower sustains loss of capital or the value of the security
decreases or any adverse situation arises then the credit will be classified on the basis of Qualitative Judgment. Besides, if the credit is extended without any logical basis or the credit is rescheduled frequently or the rules of rescheduling are violated or the trends of exceeding credit limit is observed frequently or a suit is field for recovery of the credit or the credit is extended without the approval of the competent authority, then the credit will be classified on the basis of Qualitative Judgment. However, the credit once classified by inspection team of Bangladesh Bank team will be If any credit of advance is classified as Unclassified, Substandard, Doubtful, the interest will be imposed on the credit account but such interest will not be transferred to the Income Account. Total interest imposed in Substandard or Doubtful account will be kept in Interest Suspense. If any credit or advance is classified as Bad and Loss, imposition of interest on that account will be suspended forthwith. If any suit is required to be filed for recovery of such credit, the suit will be filed on the total amount of principal including interest calculated up to the period before the suit if filed. Such interest will be kept on interest suspense account. If any classified credit or any part thereof is recovered i.e. actual deposit on account of recovery is made in the credit account, the Recovery of non-imposed as well as imposed interest will be made first from such deposit. Then original credit will be adjusted. Reservation of Provision In case of classified credit of Continuous, Demand and fixed Term Credit the bank will keep provision for reserve at the following scale Table Provision for reserve of UBL Type of Classification Rate of provision Unclassified 1% Substandard 20% Doubtful 50% Bad Debt 100% Source: From interview with the in- charge of credit department of Uttara Bank Limited. After adjustment of Interest Suspense and value of Eligible Securities from outstanding balance of classified credit the reservation of provisions will be kept on the calculated balance. General provisions will also be kept at a rate of 1% on unclassified credits. Eligible Securities as stated above will include the following Securities– In terms of the above Principals / guidelines the bank will conduct the activities of credit classification on quarterly basis. The detailed information containing Classification,
Provisioning and Interest Suspense Account will required to be submitted to Bangladesh Bank within 30 days from the date of reference. After adjustment of Interest Suspense and value of Eligible Securities from outstanding balance of classified credit the reservation of provisions will be kept on the calculated balance. General provisions will also be kept at a rate of 1% on unclassified loans. PERFORMANCE EVALUATION OF UBL DEPOSIT GENERATION A strong deposit is necessary for a bank to succeed in the market place. Being the youngest bank, UBL has the sound deposit base comparatively other third generation private banks. Its deposit base has grown enormously after acquisition of Scotia and MCB operations. In the following, I am presenting a table showing the deposit generation performance of the bank in last three years: Table Last four years deposit generation performance of UBL Year Amount (ml) Growth 18500.07 11% 2006 2007 2008 2009
2009
2008
2007
2006
25289.35 30004.08 34130.12
14.06% 19% 22%
22% 34130.12 19% 30004.08
Growth Amount (ml)
14.06% 25289.35 11% 18500.07
Source: From interview with the in- charge of general banking Department of Uttara Bank Limited ADVANCES AND LOANS The bank continued to expand and explore new areas of operation and extend credit facilities to various sectors of the country. During, the same period, Bangladesh has entered into new floating exchange rate regime and this has enhanced the operations of treasury to a great extend. Additionally, advising and confirmation of documentary credit, forward cover, pre-
shipment and post-shipment finance, negotiation and purchase of export bills has expanded significantly. In the following table, data presented to this regard: Table: Last four years advances and loans performance of UBL Year 2006
Amount (ml) 17869.84
Growth 13.87%
2007 2008
22255.63
22.86%
28456.94 33560.29
28% 36.43%
2009
10000
36.43%
0
22.86%
2006
13.87%
22255.63 17869.84
2007
28%
2008
33560.29 28456.94
2009
20000
Amount (ml)
30000
40000
Growth
Source: From interview with the in- charge of credit department of Uttara Bank Limited, The astounding growth in the advance and loan is due to the amalgamation of Nova Scotia and MCB with UBL. It is stated that the bank acquired almost 2500 deposit accounts and 1600 asset and loans account from. AMALYSIS OF BALANCE SHEET COMPONENTS An Introduction Balance sheet is more than collection of figures that express the overall gamut of an organization. The health of an organization on a particular day can be known from this statement of condition and this will also provide a summated effect of the performance of the bank in a given year (Balance sheet figures are affected by operations of the bank). Moreover, the notes and comments to the statements of figures give us hint regarding the
future operation and performance of the bank that are subject to the overall macro economic scenario of the country and delineation of the bank strategy with respect to those development in the environment. This performance evaluation part begins with an analysis of the components of the balance of the Uttara Bank and their respective composition, growth, historical trend. Diversity etc as made available to the public and regulatory authority through annual reports. Balance Sheet or the Report of Condition depicts the condition of asset, liability and the stockholders’ equity on a specified date. Given the basic balance sheet equation which stands as Asset = Liabilities + Stockholders’ Equity, the balance sheet equation for any commercial bank can be broadly written as per the following using the broad components of the balance sheet: C + S/STA +I + L + F/MA = D + NDB + SE Where the breakdown of the asset components stands as: Table Breakdown of the asset components Components C
Analysis of Asset Components Cash at vault and deposits held at Bangladesh bank and other depository institutions at home and abroad (includes both home and foreign currency denominated cash) S/STA Government and private interest-bearing securities purchased in the open market and money market advances such as call money lending I Long term investment in government and other private securities F/MA Fixed and miscellaneous assets Source: Confidential information of Uttara Bank Limited, Year 2009. Breakdown of the liabilities and equity components stands as: Table 6-5: Breakdown of the liabilities and equity components Components D NDB SE
Analysis of Liabilities and Equity Components Multiple types of deposits Non deposit borrowings from other banks and financial institutions Stockholders’ equity comprising of retained earnings, scheduled reserves at BB and other miscellaneous types of reserves. Source: Confidential information of Uttara Bank Limited, Year 2009. DISSECTION OF ASSET ACCOUNT Cash Account Touted to be the primary reserve of any bank, cash account includes all those accumulations that are maintained as a part of the regulatory reserve requirement as per BB stipulation. All scheduled banks are required to maintain (in vault, other banks or in correspondent banks) 20% of the deposit generated by the bank as liquidity reserves of the bank. The objective of
such regulatory stipulation is to enable bank to honor all the cheques/draft/pay order drawn on the bank as a part of daily operation. Besides, this cash amount provides a cushion to the banks to meet unexpected loan request by the customers. This cash reserve is considered to be the “first line of defense” to the banks and banks try to keep the said reserve as minimal as possible since the yield on such reserve is minuscule due to the idle nature of the fund. At UBL, this cash reserve has been maintained both in local and foreign currency and in local as well as foreign banks. A study of the last three years (2005, 2006, and 2007) shows that foreign currency denominated cash of UBL ranged between 12%-24% of the total cash reserve. The bank has maintained current account inside Bangladesh in Agrani Bank, National Bank and Commercial Bank Limited to mitigate the liquidity demand of cash. It also has foreign currency current account outside Bangladesh in Arab Bangladesh Bank, India, The Bank of Tokyo-Mitshubishi, India & Japan, AMEX, USA, Bank of Nova Scotia, USA & Canada, HSBC, USA & Australia and Habib Bank, Pakistan. Relevant to state that such foreign currency denominated cash can be a significant source of exchange rate exposure unless hedged with financial contracts. The situation is of significant consideration as Bangladesh goes into dirty float exchange rate regime where exchange rates are expected to be much more volatile and thus rendering good proportion of cash and near cash reserve exposed. Money Market Lending Money market lending is considered to be the “second line of defense” as it constitutes alternative liquidity source of cash fund for the bank. Banks have historically relied on call money market lending and purchase of very short maturity treasury bills to manage this secondary cash reserve. Given the small and less diverse nature of Bangladeshi money market, the bank traditionally relies mostly on treasury securities. Among these money market instruments, call money market appears to be most profitable with call money rate soaring staggeringly mostly during religious festivals, pre-budget trading sessions. Despite being profitable, yields on such call money have been extremely volatile, as banks are yet to develop an efficient forecasting model to address the volatility. Moreover, during the period of stringent regulatory contraction of credit, banks often in bank Bangladesh have found the rate dipping down since banks are obliged to maintain the high level of liquidity. In general, average yield on call market landings is between 9.3%-13.5% (Daily Star Business Seminar Discussions, 10th August 2006). As revealed by the financial statements, we observe gradual increment of call money lending of the UBL. For example: At 2005, total call money lending was BDT 464m where as in 2006 such lending stood at BDT 990m. In Bangladesh, another source of money market lending is the government treasury bills, which are of the maturities: 7 days, 15 days, 28 days, 91 days, 182 days, 365 days and 2 year. Like most other less developed countries, selling of treasury securities constitutes cardinal open market operations, a monetary policy aimed at controlling the inflation and interest rate through manipulating the demand and supply of money in the economy. Bangladesh government has historically used treasury bills to control inflation and finance budgetary deficit. In the following, a glimpse of investment operation of bank is presented:
Graph Last four years Investment (Lt/St) of UBL 4500 4000 3500 3000 Call money
2500
T-bills
2000
Other
1500 1000 500 0 2006
2007
2008
2009
Source: Confidential information of Uttara Bank Limited, Year 2009. Investment (Long Term) Investment refers to the long-term investment of the bank where the tenor of the investment is 1 year or more. Such investment at UBL is mostly directed to longer maturity T-bills, longterm loans to the government and purchase of shares of Central Depository Bangladesh Limited. Unlike many other commercial banks of the country who underwrite IPO’s of the public limited companies in syndication with leasing firms, investment Banks and financial institutions, UBL has restrained from such practice and has opted for purchase of shares at the Central Depository Limited, a central bank sponsored fund aimed at providing funds to the banks who are in need of liquid fund and short term loans. Over the last three years, I have observed that such investment of the bank in Central Depository has remained stable at BDT 2 m to 3m.Average investment in 1 year maturity T-bill was BDT 990 m and 1251 m in 2005 and 2006 respectively whereas investments in 1 year T-bill was BDT 1429 m in 2007 Loans and Advances Loans and advances are one of the core products of any bank and banks exist to act as a conduit to channel fund to those who are in deficit of fund from those who have surplus fund. Like any other commercial bank, loans and advances constitute the major portion of the total asset of the bank. As per the statements of the bank, such loan and advances form almost 68% of the total asset of the bank and over the last two years such loans have remained around 72% of the total asset. The significant growth in loan and advance portfolio is due to tremendous increase in operations of retail banking. Retail banking division of UBL has performed extraordinarily well over the last three years in terms of developing new asset products, which have performed better than those of its competitors. Additionally, UBL has formulated and signed lucrative loan agreements with large corporate firms of the country. In short, UBL has penetrated hard not only to execute loan and advances
agreements with the corporate but also dug hard ground to secure the affluent corporate employees as their retail banking clients. The concerted effort of the corporate and retail banking has auger well for UBL to further penetrate the existing market of the customers. According to the statements, 27% of the total loans and advances are in trading financing and 26.29% is concentrated in RMG and textile sector. Fixed and Miscellaneous Assets Bank assets also include the net (adjusted for depreciation) value of bank buildings and equipment, investment in subsidiary firms, prepaid insurance, long term lease and rental agreements with land owners and vendors, fixtures and security gadgets, private transportation facilities, ATM machines and facilities etc. Although such fixed and miscellaneous assets constitute small part of the bank, yet in case of UBL, it has been around 8% on average for the last three years, with the exception of 2004 when such asset proportion jumped to 13% of the total asset of the bank. The reason behind such this is the start of ATM services, which currently stands at 26. Moreover, considering the increased threat to its operations in wake of bomb blast around the country, the bank has carried out significant overhauling of its bank security by employing expensive security equipment at the branch level to thwart possible subversive activities. DISSECTION OF LIABILITY ACCOUNT Deposit The principal liability of the bank is its deposits representing the financial claims held by businesses, households and governments against the bank. In the event a bank’s liquidation, the proceeds of the asset of the bank must be used to pay off the claims of the depositors. The increment in deposit to asset ratio in recent years can be attributed to the merger of Scotia and MCB with UBL. The merger contributed around 3100 of Scotia and MCB accounts to be absorbed into UBL. Since UBL is expected to grow in stature in Bangladesh, it is highly that number of deposit accounts at UBL will increase. However, we can expect the deposit to asset ratio to rise since Bangladesh Bank stipulates that DA ratio can be 80% maximum for any commercial bank. Among the all deposit accounts, savings and fixed deposits constituted almost 7008m, 10431m and 13471m of the total deposit in 2005, 2006 and 2007 respectively while current account accounted for 10.12% of the portfolio on an average. The notable part of the deposit portfolio of UBL in recent years is the rising proportion of current account portfolio. Such increment is highly salutary for the bank since fund on current account does not cost the bank any interest expense to be paid. Stockholders Equity Since banks operate with public fund, it is expected that banks will have higher financial leverages compared to other organizations. At UBL, stockholders’ equity has been around 4.44%-7.06% of total asset over the last three years. Although in recent years UBL has raised the Equity to Asset ratio to 10% for certain problematic banks and there has been consistent pressure from the regulatory authority to raise the paid up capital to at least 10% of the asset for most private sector banks, the statements of accounts suggest that UBL has managed to retain its highly leveraged position through.
Effective management of classified and bad debt (PCBs with higher bad debt and classified loan has been brought under the purview of these BB regulations. At UBL, bad debt and relevant provision was 1.11%, 1.33% and 3.25% of total assets during the last three years). As the statements suggest that equity multiplier for UBL has been around 14-23 times, which indicates its ability to convert any asset turnover into higher return on equity, the bottom line figure for any business organizations. The important thing to notice is the amount of retained earnings of the bank. As per the data, the plowback ratio for the last three years was 59%, 100% and 100% for the year 2005, 2006 and 2007 respectively. LOAN RECOVERY INTRODUCTION Loan defaulting is a bad culture. The loan defaulters are enemy of a country. Every bank has a Loan Recovery Section where legal steps are taken to recover the Bad loans. After completed Loan Classification, bank takes the steps for legal actions.
LOAN RECOVERY BY UTTARA BANK LTD. Uttara Bank Ltd. Has Loan Recovery Section. In Siddeswari Branch loan recovery section does the following activities: • • • • • •
After preparing Loan Classification, bank can identify what loan account will be going to Substandard, Doubtful or Bad/Loss. Send a normal official letter to the account holder. If no response, send final letter to the account holder. If no response, send a legal notice. If no response, take legal steps for suit. Uttara Bank Ltd. Is working to recover the bad loans with the help of experienced lawyers and also as per instructions of Bangladesh Bank.
VARIOUS STEPS OF PRESENT GOVERNMENT The present Govt. has taken various steps to recover the bad loan. To recover the bad loan, Govt. should make modern and applicable rules and regulation. CONCLUSION All scheduled banks should works to recover the Bad Loans. For this proper monitoring and management efficiency are needed. Banks and Govt. should works combined to recover the bad loans.
PERFORMANCE ANALYSIS PRODUCT UBL’s last four years total deposit collection is give below: Table: Last three years total deposit collection Year 2009 2008 2007 Total Deposit 59,387.3M 50,817M 43,586.4M Source: Uttara Bank confidential information, Year 2008.
2006 39,258.6M
Graph: Last four years Total Deposit of UBL 60000 50000 40000 30000 20000 10000 0 2006
2007
2008
2009
Source: Uttara Bank confidential information, Year 2009 The Bank’s principal source of fund was deposits. The Bank’s deposit stood at Tk 59, 387.3 million as on 31st December, 2009 compared to Tk 50,817.0 million in 2008, thus recording 16.87 percent growth. Cooperative interest rates, attractive deposit products, deposit mobilization efforts of the Bank and confidence reposed by the customers in the Bank contributed to the notable growth in deposit. The Bank evolved a number of attractive Deposit Schemes to cater to the requirement of small and medium savers. This improved not only quantum of deposit but also brought about qualitative changes in deposit structure. Graph: Sector Wise Loan & Advance-2009
Bills & Purchased Discounted
Others
Special Programme Agriculture Housing Industrial Le nding
Commercial Le nding
Lease Financing
Source: Uttara Bank Annual Report, Year 2009. The Bank continues to disburse loan under many special credit scheme in the name of commercial lending 48%, lease financing 1%, industrial lending 15%, housing 1%, Agriculture 1%, special programmed 11%, bills purchased & discounted 8%, others 15% in December 2009. RATIO ANALYSIS Ratio analysis is a unique way to evaluate a bank’s performance and certain ratios can effectively determine the performance of a bank objectively. In this part of performance evaluation, I have calculated some ratios to analyze the performance of the bank in the last three years. The ratios are: LIQUIDITY RATIO UBL’s current ratio has climb up in the year 2008and started to increased in the next year 2009.But in 2008, borrowing amount increase too much, which proves banks inefficiency. Potential reservoir of cash was 0.72, which was more or less stable except in year 2008. Table: Last four years current ratio and potential reservoir of cash of UBL 2006 2007 2008 2009 Current Ratio 5.94 7.45 4.24 6.25 Potential Reservoir of Cash 0.81 0.84 0.72 0.70 Source: Annual reports of Uttara Bank Limited, Year 2006, 2007, 2008 & 2009. LEVERAGE RATIO Debt ratio was .96 in 2006 but frequently decreased in 2007, 2008 and 2009. Debt Equity Ratio was increased in 2006 and frequently decreases in 2007, 2008 and 2009 TIE Ratio was decreased in 2006 and frequently increases in 2007, 2008 and 2009. Table: Last four years leverage ratio of UBL 2006
2007
2008
0.96 0.95 0.94 Debt Ratio = Total Debt / Total Asset Debt Equity Ratio = Long Term Debt / Total Equity 15.97 9.93 9.28 TIE Ratio = EBIT / Interest 0.39 0.46 0.50 Source: Annual reports of Uttara Bank Limited, Year 2006, 2007, 2008 & 2009
2009 0.93 9.03 0.52
ASSET MANAGEMENT RATIO During the year 2007 & 2008, their Fixed Asset Turnover Ratio decreased consistently. Total turn over ratio increased in 2007 and decreased in 2008.
Table Last four years fixed asset turnover & total turnover ratio of UBL 2006 2007 2008 2009 4.03 3.57 1.92 1.90 Fixed Asset Turnover Ratio Total Turnover Ratio 0.11 0.12 0.10 0.08 Source: Annual reports of Uttara Bank Limited, Year 2006, 2007, 2008 and 2009. DEPOSIT RATIO UBL’s performance in short term deposits and long-term deposits were quite satisfactory which is reflected quite strongly in short-term and long-term deposit ratio. While other bank was struggling to get deposits during those all those three years, because of their good market image, their deposits ratio has increased. Table: Last four years deposit ratio of UBL 2006 2007 2008 2009 Short-term Deposit Ratio 0.14 0.15 0.18 0.22 Long-term Deposit Ratio 0.00 0.00 0.00 0.00 Source: Annual reports of Uttara Bank Limited, Year 2006, 2007, 2008 and 2009. PROFITABILITY RATIO Net Interest Margin (NIM) Table Last four years NIM of UBL
Net Interest margin
2006 8.4%
2007 8.3%
2008 7.2%
2009 6.1%
Source: Annual reports of Uttara Bank Limited, Year 2006, 2007, 2008 and 2009. From the ratio, it is evident that NIM is declining. The reason of it may be increased competition in the banking industry that has raised the cost of deposit fund. On the other hand, interest rate on loan and advances has been on the decline due to central bank pressure to do so to boost trade. Earnings Spread Table Last four years ES of UBL
Earnings Spread
2006
2007
2008
2009
7.2%
7.9%
4.1%
5.6%
Source: Annual reports of Uttara Bank Limited, Year 2006, 2007, 2008 and 2009.
Despite rising trend in 2006 and 2007, bank failed to sustain the ES in 2008 the cause of which is heightened competition and may be the sudden increase in non- earning asset in 2008 worth BDT 443m. Return on Assets Table Last four years ROA of UBL 2006 2007 2008 ROA 2.58% 3.17% 3.55% Source: Annual reports of Uttara Bank Limited, Year 2006, 2007 and 2008.
2009 3.13
Similar to ES, bank’s ROA declined after a sudden increase in 2007.The reason may be the earlier mentioned cause of new investment worth BDT 443M in non-operating assets. Return on Equity Table Last four years ROE of UBL 2006
2007
2008
2009
ROE
24.26%
24.86%
23.76
30.44%
Source: Annual reports of Uttara Bank Limited, Year 2006, 2007 and 2008. After good increment in 2006, the ratio has declined in 2007due to the factors such as nonability of the bank to boost operating revenue warranted by incremental investment in fixed assets. Net Operating Margin (NOM) Table Last four years net operating margin of UBL Net operating margin
2006 0.50%
2007 1.2%
2008 1.6%
2009 2.0%
Source: Annual reports of Uttara Bank Limited, Year 2006, 2007, 2008 and 2009 The raising ratio manifests that how well management and staffs have been able to keep the growth of revenues ahead of rising costs. It is actually the combination of net interest margin and non-interest margin. Graph Last four years trend analysis of ratios of UBL 35.00% 30.00% 25.00% 20.00% 15.00% 10.00% 5.00% 0.00% NOM
ES 2006
ROA 2007
ROE 2008
NIM 2009
Source: Annual reports of Uttara Bank Limited, Year 2006, 2007 and 2008. In the following a trend analysis of ratios is presented using smooth line diagram. The figure shows that the bank failed to keep on the good performance of 2005 in later years due the factors, which are mostly discussed, in earlier part of the paper in individual ratio-by-ratio basis. Whether UB can reverse the trend and realize higher asset utilization and thus incremental ROE is a matter of future investigation.
Total Assets The increase in asset was mainly driven by significant growth of customer deposits. The growth of deposits was used for funding in loans & advances and holding of securities for SLR. As of 31st December 2008 total asset of Bank stood at Tk 53,371 million with an increase of 23.10 percent as against 2007. The increase of asset is determined by investments, loans and advances and money at call and short notice. Deposit
The Bank’s principal source of fund was deposits. The Bank’s deposit stood at Tk 42,435 million as on 31st December 2008 compared to Tk 30,004 million in 2007, thus recording 16.87 percent growth competitive interest rates, attractive deposit products, deposit mobilization efforts of the Bank and confidence reposed by the customers in the Bank contributed to the notable growth in deposit. The Bank evolved a number of attractive deposit schemes to cater to the requirement of small and medium servers. This improved not only the quantum of deposits but also brought about qualitative changes in deposit structure. Loan and Advances The Bank implemented the system of credit risk assessment and lending procedures by strict separation of responsibilities among risk assessments, lending decisions and monitoring functions to improve the quality and soundness of loan portfolio. Foreign Trade Business During the last five years, the foreign trade financing of the Bank has witnessed steady growth. The Bank’s 38 Authorized Dealer branches are well equipped with highly trained professionals to handle varied needs of import and export based clients. Operating Profit and profit after tax The operational profit of the Bank during 2008 was Tk 2,305.6 million as against Tk 2,008.9 million in 2007, thus the rate of growth was 9.03 percent. The Bank was able to earn gross income of Tk 7,396.5 million during the year 2008 whereas the expenditure was Tk 4,882.6 million. Net profit of the Bank after tax stood at Tk 1,105.2 million in 2008 as against Tk 1,138.5 million of the previous year. Number of Employees The total manpower of the bank as on 31 st December, 2009 is 3,291, out of which 2,123 are officers and 1,168 are the supporting staffs. Efforts have been made to rationalize the use of manpower by improving their efficiency and productivity. Number of Branches Uttara Bank Limited has one of the most wide spread distribution networks amongst private Banks in the country. In 2009 the Bank further expanded its operational network by opening four new branches. At present the bank is operating its all types of business activities with 211 branches in prime location of country. SWOT ANALYSIS Figure 7-1: SWOT analysis of UBL
Strength
Opportunity Weakness
Threat
Source: Overall information of Uttara Bank Limited, Year 2009. The SWOT analysis comprises of the organization’s internal strength and weaknesses and external opportunities and threats. SWOT analysis gives an organization insight of what they can do in future and how they can compete with their existing competitors. This tool is very important to identify the current position of the organization relative to others, who are playing in the same field and also used in the strategic analysis of the organization. TRENGTHS UBL provides its customers excellent and consistent quality in every service. It is of highest priority that customer is totally satisfied UBL draws its strength from the adaptability and dynamism it possesses. It has quickly adapted to world class standard in terms of banking services i.e. SWIFT service, ATM service etc. UBL is a financially sound company backed by the enormous resource base of the mother company RANGS group. As a result customers feel comfortable in dealing with the company. The Chairman and the Directors of the bank are highly qualified and experienced in different field. They are also well known in home and abroad. WEAKNESS UBL has fewer branches than its competitors. Such as UBL have only 31 branches including Scotia and MCB whereas Uttara Bank Limited has 207 branches and 12 regional offices. Cold conflict among the Officials hampers the work. UBL has rigorous credit screening policy and sometimes-over defensive. This approach may lead it to lose opportunist business ventures UBL is more hierarchy-driven compared to other private banks. Despite restructuring, the organization doesn’t yet to achieve flat-management structure. OPPORTUNITY The population of Bangladesh is continuously increasing at a rate of 7.3% per annum. The country’s growing population is gradually and increasingly learning to adaptation of consumer finance. As the bulk of our population is middle class, different types of products have very large and easily pregnable market. The activity in the secondary financial market has direct impact on the primary financial market. Investment is a national socio- economic activity and such activity in the national economy controls the bank.
Bangladesh has a huge consumer base for maintaining several accounts. So UBL has the opportunity to keep these customers by reducing its current fees and charges and positioning attractively in middle class segment. THREAT In today’s economy, Depression of global economy always adversely attacked to our national economy. Political unrest and terrorism has adversely effected in our economy. Increased competition by different Local banks is also a threat to UBL. At present in private sector Prime Bank, Dutch Bangla Bank, EXIM Bank, BRAC Bank, Southeast Bank, Mercantile Bank, Social Investment Bank, Islamic Bank are also doing very well with competition among them. Furthermore, SCB, HSBC and CITI Corp are posing significant threats to UBL regarding retail and business banking respectively. FINDINGS MAJOR FINDINGS Uttara Bank’s credit mission is to actively participate in the growth and expansion of our national economy by providing credit to viable borrowers, efficiently delivered and competitively priced. The following general policy guidelines govern the implementation of the business strategy of Uttara Bank with respect to credit risk. Uttara Bank makes loan only to reputable clients who are involved in legitimate business activities and whose income and wealth are derived from legitimate sources. Uttara Bank encourages lending to socially desirable, nationally important and financially viable sectors and will not lend to unproductive purpose or socially undesired projects. At all times a policy of “Know your customer” is foremost in the credit application process. Uttara Bank extends credit in its discretion, only to qualified borrowers where the amount and intended purpose or use of proceeds are clear and legitimate and where the amount and use is reasonable in the context of what is known about the particular client and the intended use or purpose. Uttara Bank requires that borrowers have a source of repayment established at the inception of the credit, and that any exception must be specifically addressed in the approval of credit. Uttara Bank discourages the client with relatively low or no funds of their own i.e. high financial leverage ratio tend to face liquidity problems, with adverse repercussions on their ability to service their obligations. Uttara Bank does not engage in “name lending” based only on the general reputation of the borrower. There are cases however, where certain financial information about private clients is highly confidential and may not be disseminated. Such situations are addressed individually at the discretion of management. Uttara Bank engages primarily in the extension of credit in Bangladesh Taka or in the same currency as the collateral.
Uttara Bank does not extend any credit facility against cheque or pledge of goods. Uttara Bank unsecured lending practices favor extensions of credit for short term, selfliquidating transactions. Uttara Bank may consider term loans with maturities up to five years or longer. The Board of Directors approves such loans. The management revises the term of loan portfolio periodically. Uttara Bank extends venture capital to start up business or to businesses, which are entirely dependent on new technologies, but is considered with extreme caution and also secured by first class or other acceptable collateral. Uttara Bank does not extend credit where it does not have the industry knowledge or highly specialized skills needed to properly evaluate the proposal. Uttara Bank extends credit facilities to the area in which the branch located and the size & ability of its staff to supervise and monitor the same also is considered. Overdraft lines should have an annual cleanup period unless there is evidence of credit to the accounts annually two times the average credit. Loans secured by cash or readily marketable securities may be renewed at the discretion of the approving officers; however, interest may not be capitalized. Sometimes clients open their accounts for loans if they are not granted for the loan then they immediately wants to close their account which is very troubling to the staffs, but this type of clients are few. PROBLEMS Officers of the Uttara Bank Limited don’t explain all categories of loan which are new to general people. Because this is time consuming for them for this reason general peoples don’t get interest to deal with them. Uttara Bank Limited provide very insignificant amount of house building finance to its employees and charging high interest rate compare to other bank. They have broken down their organizational hierarchy into several posts compare to other private banks, which can discourage employees. According to their policy, a saving account holder must keep a minimum balance of 2000 tk in their account but the clients of rural branches like Tarail, Malkhanagar and Ashulia are impossible to keep always 2000 deposits in their account. They are charging interest more than 18% to its credit card holder but other private bank like Brac Bank is offering with tiny rate. The Website of the Uttara Bank don’t give any appeal to its prospects customer because the site don’t make update and insufficient of information about the products and services.
In rural areas, Uttara Bank does not provide the proper credit facilities to alginate the poverty and also increase the self-relevance. It has not enough manpower to strengthen its performance. Through, UBL follows the online banking, but online banking services of UBL is not so much satisfactory. The present stellar software that is quite inadequate in providing speedy services both to the customer and internal uses of the bank. RECOMMENDATIONS Uttara Bank Limited is undoubtedly a successful bank. But there are some limitations regarding credit policies. Policy guidelines have been established and will continue to be developed from time to time taking into consideration economic makeup and market requirement. If the limitations can be removed it will become more successful than at present. So we would like to recommend as follows removing its limitations: •
At first all the officers of the Uttara Bank should explain all categories of loan, which are new to general people so that they get interest to deal with them.
• •
Uttara Bank should strictly follow credit manuals provided by the Bangladesh Bank. The Uttara Bank should provide total credit money at once to the clients so that they can exploit money properly.
•
It should support large amount of house building finance to its employees consider price appreciation of land and Apartment. Uttara Bank has to charge 5-6% interest rate for the employee loan.
•
To fulfill the vision of “mass banking” this Uttara Bank should grant credit portfolio to new entrepreneurs, young businessman and also to new small companies.
•
In rural areas, Uttara Bank should provide the credit facilities to alginate the poverty and also increase the self relevance. It will act as a promotion policy.
•
Political & other kinds of pressure for sanctioning loans & establishing project proposal should be removed.
• •
It should have a coordination cell for sharing information among various institutions. It should increase more manpower to strengthen its performance.
•
Though, UBL follows the online banking, but there is a limitation in the amount that can be transacted. This deprives the customers to enjoy the true benefits of the real time online banking services.
•
This limitation should be eliminated to enable the customers enjoy the benefits of real time online banking services.
•
It is evident from the analysis that UBL follows a high concentration of deposits. In this regards, it is suggested that the bank should establish a back up fund for meeting upcoming large deposit due.
•
As there are service limitations in the present stellar software that is quite inadequate in providing speedy services both to the customer and internal uses of the bank. Therefore, the concerned authorities should consider upgrading the Stellar system with more advanced banking software.
•
For expanding the network geographically, the Uttara Bank should open up new branches in strategically important places.
•
If Uttara Bank Limited accepts the recommendations cited above it will be able to establish itself as one of the renowned bank in Bangladesh.
CONCLUSION Uttara Bank Limited is a new generation Bank in the private banking scenario of Bangladesh with a promise to fulfill every possible customer need with high efficiency and satisfaction. Its team of dedicated professionals is committed to provide an unparalleled service by using the latest technology to make bankable proposals harvest maximum benefits for the customers, the shareholders and the society at large. It has a lucrative structural set up and business location. The assets position of Uttara Bank Limited is quite satisfactory. It has requisite strength and opportunity to sustain. It is committed to provide high quality financial services/products to contribute to the growth of G.D.P. of the country through stimulating trade and commerce, accelerating the pace of industrialization, boosting up export, creating employment opportunity for the educated youth, poverty alleviation, raising standard of living of limited income group and over all sustainable socio-economic development of the country. In achieving the aforesaid objectives of the Bank, Credit Operation of the Bank is of paramount importance as the greatest share of total revenue of the Bank is generated from it, maximum risk is centered in it and even the very existence of Bank depends on prudent management of its credit portfolio. The failure of a Commercial Bank is usually associated with the problem in credit portfolio and is less often the result of shrinkage in the value of other assets. As such credit portfolio not only features in the assets structure of the Bank, it is critically important to the success of the Uttara Bank Limited also. Since its establishment it is rendering its services with qualified and knowledgeable staff. The environment of Uttara Bank Limited is very modernized and friendly. The staffs are specialized in their respective fields. Each of them works on their own and there is supervision from the top. The motivation of the staff, I believe comes from the very sense of responsibility. Each member is individually responsible for his or her work. The main philosophy of Uttara Bank Limited is to diminish interest and charge or pay fixed interest on loans or deposits and at the same time establish an egalitarian society based on the principle of social justice and equity. Now-a-days Uttara Bank Limited emerges as a well-known bank in our banking sector. BIBLIOGRAPHY A text book on Bankers Advances Author: L.R. Chowdhury Web site -----------Goggles, www.uttarabank-bd.com Basic Business Communication ( Lasikar / Flately) Exclusive Economics weekly ( Banking) Contemporary Business Communication ( Lois E. Boone, David L. Kurtz)
Banglapedia Encyclopedia Annual report 2006 – 2009 ,Uttara Bank Limited Bangladesh Bureau of Statistics A text book on Foreign exchange Transaction by L.R. Chowdhury Credit Rating Information and Services Limited. Retrieved May 15, 2009 from
CRISL Official www.crislbd.org/
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