Growth and Diversification of Investments of EXIM Bank

Main purpose of this report is to analysis Growth and Diversification of Investments of EXIM Bank Limited. Other objectives are to know about the loan and advance or investment procedures of the EXIM bank and evaluate the investment process applied in the EXIM bank. This report also help to develop the concept of Banking system and Islamic banking system and it operations in Bangladesh. Finally draw SWOT analysis based on Growth and Diversification of Investments.

Introduction

Investment activities by the banks play an essential role in maintaining the smooth flow of financial instruments. For a developing economy like Bangladesh’s the investment activities by banks not only fulfill the need of capital of business, agro and social entrepreneurs but also drive the export-import activities in a proper pace. Investigating the investment activities of a real world bank is essential for a better conceptualization of the macroeconomic factors. This study on “an analysis of the growth and diversification of the investments of EXIM bank bangladesh” is an effort to understand the diverse investment activities by one of the finest locally operated banks of Bangladesh

EXIM Bank of Bangladesh Limited plays an important role to move the economic wheel of the country. Providing different sorts of credit and schemes like loan against imported merchandise (LIM), Trust Receipt, Bank Guarantee, Industrial Loan, SOD, Consumer Credit scheme, Executives Car Loan, House Finance is the main spring of the credit department.

Generally by the word BANK we can easily understand that the financial institution dealing with money .But there are different types of banks like central banks, commercial banks savings banks, investment banks, and co-operative banks etc. Banking system occupies an important place in a nation’s economy because of its intermediary role, it ensures allocation and re allocation of resources and keeps up the momentum of economic activities.

The report is prepared on the basis of three (03) months practical experience at EXIM Bank of Bangladesh Limited that helps a lot to learn about the practical situation of a financial institution and implement theoretical knowledge in to practical and realistic work environment.

Objectives of this report

The main objectives are:

1. To know about the loan and advance or investment procedures of the EXIM bank.
2. To aid and evaluate the investment process applied in the EXIM bank of Bangladesh ltd.
3. At last to relate theoretical knowledge with practical implications of several functions in the bank.
4. To make a bridge between the theories and practical procedures in a real life situation.

Methodology

Types of Study: This is an exploratory research.

Sources of Data: The data collection method of study consists of both of primary and secondary source. But majority of the information was collected from secondary sources.

Primary data:

1. Collection of data through personal interview with branches officials or executive.
2. Personal experience gained by visiting different desks during internship period.
3. EXIM bank’s own website.

Secondary data:

1. Procedure manual published by EXIM Bank Limited.
2. Files and documents of the branch.
3. Several booklets of EXIM Bank Limited.
4. Visit web site of EXIM Bank Limted.
5. Annual report published by EXIM Bank Limited.

BACKGROUND/ History of the Bank:

EXIM Bank of Bangladesh Limited was established in 1999 under the leadership of Late Mr. Shahjahan Kabir, founder chairman who had a long dream of floating a commercial bank which would contribute to the socio-economic development of our country. He had a long experience as a good banker. A group of highly qualified and successful entrepreneurs joined their hands with the founder chairman to materialize his dream. Indeed, all of them proved themselves in their respective business as most successful star with their endeavor, intelligence, hard working and talent entrepreneurship. Among them, Mr. Nazrul Islam Majumder became the honorable chairman. This bank starts functioning from 3rd August, 1999 with Mr. Alamgir Kabir, FCA as the advisor and Mr. Mohammad Liakotullah as the Managing Director. Both of them have long experience in the financial sector of our country. By their pragmatic decision and management directives in the operational activities, this bank has earned a secured and distinctive position in the banking industry in terms of performance, growth, and excellent management. The authorized capital and paid up capital of the bank are Tk. 1000.00 million and Tk 313.87 million respectively. The bank has migrated all of its conventional banking operation into Shariah based Islami banking since July/2004.

Vision of EXIM Bank Limited

The gist of our vision is ‘Together Towards Tomorrow’. EXIM Bank Limited believes in togetherness with its customers, in its march in the road to growth and progress with services. To achieve the desired goal, there will be pursuit of excellence at all stages with a climate of continuous improvement, because in EXIM Bank Limited, we believe the line of excellence is never ending.

MISSION of the Bank

Our vision and mission are stated in the following:

• To be the finest bank in the banking arena of Bangladesh under the Shariah Guidelines. To maintain Corporate and business ethics.
• To become a trusted depository of customers’ money and their financial advisor.
• To make our stock superior and rewarding to the customers/share holders.
• To display team spirit and professionalism.
• To have a Sound Capital Base.
• To provide high quality financial services in export and import trade.
• To provide excellent quality Customer services.

CORPORATE CULRURE

This bank is one of the most disciplined Banks with a distinctive corporate culture. Here we believe in shared meaning, shared understanding and shared sense making. Our people can see and understand events, activities, objects and situation in a distinctive way. They mould their manners and etiquette, character individually to suit the purpose of the Bank and the needs of the customers who are of paramount importance to us. The people in the Bank see themselves as a tight knit team/family that believes in working together for growth. The corporate culture we belong has not been imposed; it has rather been achieved through our corporate conduct.

SOCIAL COMMITMENT

The purpose of our banking business is, obviously, to earn profit, but the promoters and the equity holders are aware of their commitment to the society to which they belong. A chunk of the profit is kept aside and/or spent for socio-economic development through trustee and in patronization of art, culture and sports of the country. We want to make a substantive contribution to the society where we operate, to the extent of our separable resources.

BANKING WITH SHARIAH PRINCIPLES

Export Import Bank of Bangladesh Limited is the 1st bank in Bangladesh who has converted all of its operations of conventional banking into Shariah-based banking since July 2004. We offer banking services for Muslims and non-Muslims alike allowing our customers choice and flexibility in their savings and investments. Our products are approved by our Shariah Board comprising of veteran Muslim scholars of our country who are expert in all matters of Islamic finance.The process by which Noriba’s investments are designed and executed allows the Bank to offer a combination of Sharia compliance and capital markets expertise.  Noriba is committed to the strict adherence to the requirements of the Sharia as a result of the Bank’s sole focus on Sharia-compliant investments and the full supervision of its financial products and transactions by the Noriba Sharia Board. Noriba experts specifically design each of the Bank’s investment vehicles with the approval of the Noriba Sharia Board. Once the given product or transaction has been arranged, the Noriba Sharia Board carefully screens it for compliance before giving final approval for its implementation. This control mechanism guarantees that all aspects of Noriba’s final products and banking transactions are in adherence with the guidelines of the Sharia

Investment Products (Services) of the Exim Bank:

1. Murabaha post import/LIM
2. Murahaba(CCP)
3. Bai Muazzal
4. Bai Muazzal (Work order)
5. Bai Muazzal (PC)
6. Izara Bill Baia (LG/HP)
7. Izara Bill Baia(HB)
8. TR (MIB/MURA/MPI)

An overview of EXIM Bank Limited

Export Import Bank of Bangladesh Limited (EXIM Bank), one of the leading private commercial banks, is promoted by a group of renowned Bangladeshi entrepreneurs, and commenced its banking operation on 3rd August 1999. Within an operative period as short as eleven years, the bank has arrived at a strong financial and business position by expanding its market share compared to its contemporaries and to some extent to the 2^nd even first generation banks of private sector. In addition, the bank has also made a significant contribution to the national economy under prudent leadership and untiring support of the member of the Board of Directors, who are leading business personalities and reputed industrialists of the country. Now the EXIM Bank Ltd has the72 branches in the Bangladesh and 15 branches in outside of the Bangladesh. By the grace of Almighty Allah, the Bank has started its operation as full-fledged Islamic Bank based on Shariah through conversion from conventional interest based banking system with effect from 1st July 2004 with the approval of Bangladesh Bank. It is our great pleasure that everybody gladly accepted the conversion with appreciation. It is a breakthrough in the history of Islamic Banking, because all other Islamic Banks of Bangladesh are found Shariah based since inception i.e. at the time of their incorporation. We have also experienced some traditional Banks having a few branches based on Shariah. But we perhaps, first time introduce total conversion of a conventional Bank in to a full-fledged Islamic Bank in the World. It is noted here that a learned Shariah Council, consisting of 12 members who are prominent ulema, reputed bankers and eminent economists of the country, has been formed to guide, monitor and supervise the banking activities complying Shariah principle since inception of its Islamic banking branches and thereafter transformation of its operation from traditional to fully Shariah based Islamic banking system. Professor Moulana Mohammad Salah Uddin is the Chairman of the council. Total 08(Eight) meetings of the council were held during the period.

Investment Services of EXIM Bank Limited

Banks play a great role in collecting and generating investment as a powerful component of the money and capital market. Types of loans are granted by the commercial banks. Followings are the general types of investment activities. The investment portfolio of EXIM bank comprises of diversified areas with all nationally identified thirst sectors/areas of business and industry. The main investment businesses are focused on the following sectors/areas:

Types of Investment Facilities:

• Izara Bill Baia (general): for a definite period and generally repayable under installments.
• Izara Bill Baia(HB): Allowed for the construction of house, usually paid by monthly installments. This investment is allowed only when other business consideration from the borrower is available.
• Izara Bill Baia(staff HB): Allowed to the EXIM Bank employees.
• Other investment to staff: investments allowed to staffs other than the house finance.
• Bai- Muazzal: Allowed to fulfill the trading, wholesale or working capital requirement purpose. It is a continuous investment.
• Murabaha: Another trading investment against pledge of goods as primary security.
• Izara Bill Baia (HP): Installment investment inclusive of the repayment of principal and profit for adjustment of investment within specified time period.
• Izara Bill Baia (LF): One of the most convenient investment policy for purchasing capital machinery and equipment where clients are opportune to have an exclusive right to use an asse usually for an agreed time period against payment of rent.it is a term financing repayable by installments.
• Bai- Muazzal (general/ FO): Allows the borrower against financial obligations (lien on insurance policy, share etc.)
• Bai- Muazzal: (export): Allowed for purchasing foreign currency for payment against L/Cs where the exports do not materialize before the date of import payment. This is an investment for temporary period which is also known as export finance and falls under the category ofcommercial lending.
• Bai- Muazzal (WO): Allowed against assignment of work order of execution of contractual work. Generally it allowed for a definite period and specific purpose.
• Murabaha Import Bills (MPI): Payments made by the bank against lodgment of shipping documents and release of goods imported through L/Cs taking effective control over the goods. This is a post import temporary finance.
• Murabaha Post Import (MIB): An interim investment allowed for retirement of shipping from the customs authority for the release of imported goods.
• Trust Receipt (TP): Another temporary post-import finance allowed for the release of shipping documents and imported goods under L/C which are then handed over to the importer under trust with the arrangement that sale proceeds should be deposited to liquidate the investments within a given period.
• IBP: Payments made through the purchase of inland bills/ cheques to meet the urgent requirement of the customer. Temporary finance adjustable to the proceeds of bills/cheques purchased for collection.
• Musharaka Pre Shipment (ECC): Financial accommodation allowed to the exporter which much be liquidated out of export proceeds within 180 days.
• Musharaka Pre Shipment (P.C.): Investment allowed to the exporter for processing or packing of goods to be exported. This pre-shipment investment must be adjusted from proceeds of the relevant exports within 180 days under the category “Investment on Export”.
• FDBP: Payment made to a customer through purchase/ negotiation of a foreign documentary bill.
• LDBP: Payment made against documents representing sale of goods to the local export oriented industries that are deemed as exports and which are denominated in local currency or foreign currency. This temporary liability is adjustable from proceeds of the bill.
• FBP: Payment made to the customer through purchase of foreign currency cheques/drafts. This temporary liability is adjustable from proceeds of the cheques/drafts.

Investment policies and guidelines are maintained by EXIM Bank Limited

The study of a borrower is a study of his character, capacity and capital often known as the three “c” with a view to consider his credit worthiness and eligibility for a bank investment. Sometimes the words respectability or business moralities are used for character. Respectability does not mean that the borrower should be a title holder or the head of an institution. These points certainly deserve consideration but respectability is more akin to honesty in business dealings. Capacity means the ability 6o employ the funds profitability and repay the investment according to the terms and conditions of the sanction. The capacity of the customer has to determined and for the purpose enquiries will be necessary to find out his qualifications and experience in the borrowers own capital. If he has sufficient capital of his own to invest in the business besides the investment applied for he will be considered a more suitable investment customer than one working entirely or mostly with borrowed money.

In order to get a complete picture of the borrower’s credit worthiness, enquiries will have to be made about his business, trade experience assets and liabilities, etc. from various sources. His account with the bank or other banks will throw light on his personal habits and business dealings. His financial statement and income tax return will have to be seen. Probably an interview with him will be necessary to elucidate or supplement the information that may have been collected. There are hardly any credit agencies in Bangladesh which assist banks in Bangladesh information is usually brief and sketchy and does not give sufficient information that could be of much practical use. It would appear that bank could be in a better position to serve the business community and themselves, if they evolve a system by which detailed credit reports on customers are communicated to each other.

Status Reports

Status reports on borrowers are sometimes called credit reports, financial reports, bankers, opinion or confidential reports. All these terms carry more or less the same meaning. A ststus report is an assessment of the borrower’s character, capacity, and capital from the point of view of a banker.

Sources

Banks get information on borrowers through various sources enumerated below:

1. Loan application.
2. Reports through friends or rivals mostly from the borrower’ trade or business.
3. Mode of living.
4. Borrowers account with the bank or statement of accounts with other banks.
5. Statement of assets and liabilities. In the case of companies, their balance sheets profit and loss account for, say, three years, records of the register of companies etc.
6. Income tax statements.
7. Wealth tax statements.
8. Sales tax return.
9. Trade and other reports in the press.
10. Reports about actions and decrees in govt gazettes.
11. Registration, revenue and or municipal records.
12. Other bankers and branches of the bank.
13. Operations by a customer on his safe custody account or locker.
14. Bangladesh bank credit information bureau.
15. Personal contact including personal interview.

Points to be covered in an interview

The main points that will be covered in an interview with the borrower are:

1. His business
2. His capital with particular reference to his working capital
3. His experience in the line
4. Working results
5. Amount of the advance and period
6. Purpose of the advance
7. Source of repayment
8. Terms of repayment
9. Security offered
10. Type of charge available

Investment Pricing of the Exim Bank

Profit on various investment categories will depend on the level of risk and type of security offered. It should be kept in mind that rate of profit is the reflection of risk in the transaction.

The higher is the risk, the higher is the rate of profit.

Profit may be reviewed at least once in 06 (six) months and more often when appropriate. Fixed profit should be discouraged’ preferably all rates should vary with cost of funds fluctuation based on a spread for profit.

Effective yield can be enhanced to the extent borrowers are required to maintain deposit to support borrowing activities. Commitment fee and service charges should further improve yield where possible. All pricing of loans should however have relevance with the market condition and be approved by the Executive committee/ Managing director from time to time.

Investment facility parameters

Bank is not ordinarily go for any investment facilities for long term basis. Short term investment facilities shall be for 3 months to 12 months. Medium term investment shall be 12 months to 36 months. Long term investment shall be more than 36 months.

Size:

1. Maximum 50% (Funded & not-Funded) of total capital of the bank.
2. Maximum 25% (Funded) Facility to total capital of the bank.

Security:

All assets (Bai-Muazzal 85 Murabaha) must be covered under proper insurance risk with enlisted insurance companies. Insurance coverage obtained outside enlisted insurance companies is discouraged. For valuation of securities following guidelines to be followed:

Valuation of collateral security

The branches are meticulously followed following instructions:

The property should be physically inspected and verified jointly by 2 bank officers, one of who should be the branch manager of the 2^nd officer. A valuation certificate mentioning market value and forced sale value should be prepared in the designated from supplied to the branches and to be jointly signed by above mentioned 2 inspecting officers of the bank. The forced sale value of the collateral security will have to be 1.5 times higher than the facility / facilities allowed unless specifically waived by the approving authority giving full justification.

1. “A site plan” and “Map” along with 3r size distinct photographs of the mortgaged property covering full exposure from angles mentioning detailed particulars on the back to the photographs duly authenticated by the authorized officer (s) on the obtained by the branches.
2. It should be ensured that the collateral is in the physical possession of the mortgagors (s) and the mortgagor (s)/ owner(s) has/have valid title over it.

Risk grading

To choose the best profit earning investment portfolios, EXIM Bank has an 8 storied risk grading system. This grading allows the bank to define the risk profile of the borrower’s to ensure that accounts management, structure and pricing are commensurate with the risk involved. All the investment risks are determined with the help of a risk grade score card designed by the bank.

Performance of a branch on average:

According to the collected data, the overall performance of a branch is described through the above stated graph. In 2010, income was Tk.14,33,000 and expenditure Tk. 12,05,000 and the end of the year a branch earned profit Tk.2, 28,000.In 2011,income and expenditure both are increased but the profit was increased double Tk.4, 70,000 than 2010.The client response also increased in investment and deposit from 2010 to 2011.

Investment Operation at a Branch on average:

As per the gathered information, a branch on average provided various type of investment for their client. But from the above chart we see that, it more focus on Bai-Muajjal (CC) and EXIM (Kishan). As it is a rural branch so, EXIM (Kishan) investment is more popular and at the end of 2010, total investment amounted to Tk. 06, 75,000 compared to the Tk. 10, 45,000 in 2011 than other investment.

Investment activities at a branch on average:

From the above chart we see that the investment activities of a branch on average in last two years. In the year 2010, branch disbursed Tk.50, 09,000 and the end of the year investment department recovered 45, 65,000 but outstanding is more due to include of (previous year outstanding + current year Disbursement – current year recovery). This situation occurred when a client take a investment from this branch and he cannot payment his full amount in the end of the year but the beginning of new year that client take another investment from this branch. For this situation outstanding is increased from 2010 to 2011.

Depository Activities at a Branch on average:

The above mentioned figure depicts, a branch on average had a very good position at maintaining their various deposit accounts due to better profit rate. From 2010 to 2011 fixed deposit and deposit under scheme increased rapidly than others. It means that, the branches are now receiving more deposit from their customers than that of any preceding years.

Financial Highlights:

These below mentioned graphs are prepared by the statistics collected from the financial statements of the EXIM Bank of different years (2007-2011) to get a clear overview on

The data analysis reflects a clear view of the growing trend in the profit earnings assets of the respected bank. The assets increased from 28743 million taka on year 2007to 69006 million taka on the year 2011.

According to the financial statement information both the volume of deposit and general investment or loan services in monetary terms have achieved a tremendous growth from the year 2007 to 2011

Credit Rating:

The credit rating of EXIM Bank also indicates a good investment operation.

SWOT analysis of investment activities

The SWOT analysis comprises of the organization’s internal strength and weaknesses and external opportunities and threats. SWOT analysis gives an organization an 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.

Strength:

• Banking Experience of 12 years provides EXIM Bank Ltd the strength of being one of the market leaders in the sector as the long-term success of a bank heavily depends on its reputation while dealing with every sensitive commodity like money.
• EXIM Bank Ltd focus strongly on remittance business and with that aim they opened rural branches where remittance business concentrates.61
• Modes of Investment in EXIM Bank Ltd. – Procedure, problem and recommendation
• In Bangladesh EXIM Bank Ltd. has wide range of customer base and is operating efficiently in this country.
• EXIM Bank Ltd has a bulk of qualified, experienced and dedicated human resources.
• Strong network throughout the country
• Installation and use of highly sophisticated system enables the Bank to have on time communication with all branches.
• All the branches are computerized
• Having goodwill in the banking sector

Weakness:

• EXIM Bank Ltd has fewer branches than their competitors. Such as EXIM Bank Ltd have only 62 branches whereas Uttara Bank Limited has 205 branches and 12regional
• EXIM Bank Ltd provided  ATM facility to the customers but customer are not satisfied with their facilities
• Some lengthy papers work and documentation for investment
• Lesser investment products in comparison to other Islamic bank

Opportunity:

Modes of Investment in EXIM Bank Ltd. – Procedure, problem and recommendation

• . In order to reduce the business risk, EXIM Bank of Bangladesh Limited has to expand their business portfolio. The management can consider options of starting merchant banking or diversify into leasing and insurance sector.
• EXIM Bank Ltd is now focusing on lending to SME and Retail sector. The bank is not only providing investment but also decided to popularize the SME sector by participating in various trade shows organized in the country.
• Government full support to banking sector will facilitate the long-term vision of EXIM Bank Ltd.
• Prospect of divers banking product and branch network
• This has a chance to inaugarate E banking System.
• Local demand oriented deposit and investment product.
• Prospect of SMEs and Agro based investment.
• Experienced top and mid level management. (Not Clear Enough).
• Large number of people earning foreign exchange within and outside the country (RMG sector and NRBs)

 Threat:

• Increased competition with existing and upcoming banking business is also another threat to EXIM Bank Ltd.
• The central bank exercises strict control over all banking activities in local banks like EXIM Bank Ltd. Sometimes these restrictions impose barriers in the normal operations and policies of the bank
• The default risks of all terms of loan have to be minimizing in order to sustain in the financial market. EXIM Bank of Bangladesh Limited has to remain vigilant about this problem so that proactive strategies are taken to minimize this problem if not elimination.
• Competitors can easily copy the product offering of EXIM Bank Ltd. Therefore the bank is in continuous of product innovation to gain temporary advantage over its rivals.
• Cost of client satisfaction as well as banks performance.

Problems Identified:

1. According to some clients opinion introducer is one of the problems to open an account. If a person who is new as a client wants to open account, it is a problem for him/her to arrange an introducer of SB or CD Account;
2. Although EXIM Bank is a shariah based Islami Bank but they does not follow the Islamic principal fully.
3. IT section is weak and sometimes it is hanged, as a result they employee face problem at the time of their work.
4. Job rotation is not done in EXIM Bank and one person is performing same task regularly.
5. Account opening form is not clear to the client, as a result client face problem to fill up the form.
6. There is no computer in cash section to verify the cheque in Shimrail Branch.
7. Training is not continuously done in General Banking Division in EXIM Bank.

Recommendations:

It has focused on enhancing the long-term sustainability of the bank, building value for the shareholders, employees and the wider community. Its activities are driven by ethical business practices and a sense of responsibilities to all stakeholders.

From the observation and analysis the following recommendation can be drown. The immediate action plan that EXIM bank can put into motion can be outlined as under:

1. As the clients are not in favor of introducing system, if it is possible the rule of introducing to open an account should be changed. Because many peoples are facing problem to arrange an introducer in the time of opening accounts.
2. The bank should introduce VISA card facilities to provide better services to the customers for their various purposes in home and abroad.
3. For more efficient and faster Investment Activities the lower level employees, who prepare the Investment documents, should be more trained and made well informed of all the rules and regulation regarding Investment activities. BIBM Training program or regular training by EXIM Bank Ltd should be introduced.
4. EXIM Bank should maintain Data Base Management System for transferring data to the head office.
5. Account opening form should be clear & concise to the client.
6. EXIM Bank should perform their activities on the basis Islamic principles.
7. To inspired the employees management should implement job rotation, as a result the employee can get the impression of new task.
8. Management should take some steps to protect the problem in IT sector.

Conclusion:

From the practical implementation of customer dealing procedure during the whole period of practical orientation in EXIM Bank Limited, I have reached a firm and concrete conclusion in a very confident way. I believe that my realization will be in harmony with most of the banking scholar. Performance of EXIM Bank Limited during the last six years has proved that with strong desire and will power one achieve whatever target he may have. Almost all the leading banks in our country have various extra facilities in offer for the customers in comparison with EXIM Bank Limited but the bank has succeeded in achieving more customer than many other competitors. This has been Possible only because of strong customer relation and excellent customer service. Success in the banking business largely depends on effective lending. Less the amount of loan losses . The more the income from Credit operations the more will be the profit of the Bank and here lays the success of Credit Financing. Though there are some drawbacks in implementing Credit facilities in EXIM Bank Limited as per manual, it can be overcome through involvement of more financial expert in the decision making process and utilizing the tools to judge integrity of the customers. Finally it can be argued that though the results achieved so far are not satisfactory, Credit Financing is a modern scientific technique for enhancing EXIM Bank’s strength and there lies the opportunities to make it more effective in the future for their own benefit.