Introduction:
Bangladesh Shilpa Bank (BSB) established under the Bangladesh Shilpa Bank Order 1972 (Presidential Order No. 129 of 1972) on 31 October 1972, to provide credit facilities and equity support to industrial enterprises in Bangladesh. It is the prime development financing institution (DFI) in the country for extending financial assistance for industrialisation. Initially, the authorised capital of the bank was Tk 1,000 million in 1972 and the paid up capital was then Tk 750 million, which was subscribed by the government of the People’s Republic of Bangladesh. Later, the authorised and paid up capital was enhanced. In 2000, the authorised capital was Tk 2,000 million divided into 2 million shares of Tk 1,000 each. Tk 1,320 million (66%) was subscribed and paid up by the government while the rest were left for subscription by Bangladeshi nationals or by financial institutions at home and abroad.
Bangladesh Shilpa Bank
The bank created a reserve fund of Tk 7 million in its first year of operations. In 1999-2000, the total reserve fund and other reserves of the bank stood at Tk 392.36 million. In 1982, the bank created a special equity fund titled ‘Quasi Equity’ by converting the 3rd, 5th, 6th and 8th UK credits received by it immediately after independence in 1971. The prime objective of the bank is to accelerate industrial growth in the country by financing industries, by providing advisory services in setting up new projects, and by assisting in balancing, modernisation, replacement and expansion (BMRE) of existing industrial units.
The Bank provides long and medium-term loans both in local and foreign currencies, guarantees repayment of loans raised by investors from other sources, and provides equity support by way of outright purchase of shares and by underwriting the public issue of shares. It also extends short-term bridge financing and working capital loans on a limited scale. BSB provides free technical advice in respect of plant and machinery, product and process, raw materials, market for products, and other related aspects to prospective entrepreneurs. It prepares project profiles for private entrepreneurs. All industrial projects either in the public sector or in the private sector are eligible for financial assistance from the bank. It follows a policy of diversifying its lending portfolio for widespread geographical dispersal of industrial enterprises, especially in less-developed areas of the country. With the view to bringing more dynamism and diversity in its activities, BSB started full-fledged commercial banking in 1993-94. This enables bank-financed projects to obtain commercial banking services including working capital loans, import of raw materials, etc.
On 31 December 2000, the total deposits of the bank were Tk 725.67 million comprising deposits received from banks (Tk 154.67 million), current account (Tk 72.24 million), bills payable (Tk 3.34 million), savings bank accounts (Tk 130.54 million), fixed deposits (Tk 267.01 million), and other deposits (Tk 97.87 million). Rates of interests offered by BSB on different deposit accounts varied between 7.75% and 9.75%, depending upon the duration of deposits. Lending rates of the bank varied between 10% and 18%. Up to end 1999, the bank financed a total of 1,573 industrial projects. The amount loaned to them was Tk 27,342 million. Total loans and advances of the bank (after provision for bad and doubtful debts) were Tk 7,136.26 million in 1999-2000. The distribution of the loans and advances by types were cash credit (Tk 1,121.96 million), long-term loans (Tk 19,242.87 million), overdraft (Tk 140.73 million), bridge loan (Tk 282.11 million), and staff loans (Tk 533.89 million). At the end of 2000, the cumulative amount of the bank’s non-performing stuck-up loans stood at Tk 14,195.30 million, and were classified duly as substandard, doubtful, and bad, under the loans classification rules of bangladesh bank.
Shilpa Bank borrowed an amount of Tk 8,604.48 million during 1999-2000 from various internal and external sources. This includes F C Borrowing Accounts (Tk 360.32 million), BSCIC (Tk 3.94 million), Saudi Grant (Tk 11.80 million), KFW Counterpart Fund (Tk 165.93 million), Long-term loan from Bangladesh Bank (Tk 6405.57 million), KFW Loan (Tk 15.38 million), Danish Credit Counterpart Fund (Tk 7.49 million), and overdue installment interest and exchange risk A/C (Tk 1,634.04 million).
The foreign exchange business handled by Shilpa Bank in 1997-98 was Tk 479 million, but dropped to Tk 25 million in the next year. This business covers export servicing, import financing, and remittance facilities. In 2001, the bank had correspondent relationships with 35 foreign banks and other financial institutions. In June 2000, the BSB investments other than lending stood at Tk 1289.54 million and its investment portfolio comprised short and long term treasury bills and bonds, prize bonds, shares and debentures and equity investments in industrial units. Total assets of the bank were valued at Tk 24,002.90 million in June 2000.
The bank demonstrated a deteriorating trend in profitability since 1994. The cumulative loss of the bank stood at Tk 3,285.60 million in 2000. The main reason for losses is the huge amount of non-performing stuck-up loans for which the bank has to maintain large amount of provision from its profit each year. Borrowed funds constitute a major source of the bank’s lending assets and posting of accrued interest in interest suspense account has lowered its net interest income.
The management of the bank is vested in a 9-member board of directors, including the chairman and the managing director appointed by the government. However, there is a provision that non-government shareholders of the bank shall elect 4 directors from amongst themselves. But till now, there is no private subscription in the bank’s capital, and all directors are appointed by the government. The managing director is the chief executive officer. The bank has 16 branches. The total number of employees in the bank is 997. The head office of the bank is at dhaka and it has 3 zonal offices, one each at chittagong, rajshahi and khulna. It has six divisions and 23 departments.
The Shareholders of Bangladesh Shilpa Bank
We have audited the accompanying Balance Sheet of Bangladesh Shilpa Bank as of 30 June, 2004 and the related Profit and Loss Account, Cash Flow Statement, Statement of Changes in Equity, Statement of Liquidity and notes to the financial statements for the year then ended. These financial statements are the responsibility of the management of the Bank. Our responsibility is to express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with Bangladesh Standards on Auditing. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatements. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management as well as evaluating the overall financial statements presentation. We believe that our audit provides a reasonable basis for our opinion.
Our audit revealed the following:
i) BSB had made an investment of Tk. 10,000,000 in 100,000 Ordinary Shares @ Tk. 100 each of M/s. Sreepur Textile Mills Ltd. during the year 1993-94. But BSB did not receive any return on such investment till date. The market value of shares of the company has come down to Tk. 12.50 per share (on 28 October 2004). The bank has in turn lost Tk. 8,750,000 (100,000 x Tk. 100- Tk. 12.50) on this investment. But necessary provision has not been made in the accounts.
ii) In line with the requirement of Bangladesh Accounting Standard (BAS)-10; events after the Balance Sheet date necessary provision has not been made against classified loan account and classified equity investment held with M/s. Sreepur Textile Mills Ltd. As per Order of the Honourable 6th District Judge Court the said loanee was treated as unclassified till 30-06-04. But subsequently the order was suspended by the court on 27-09-04. As a result, the total loan of Tk. 29,776,738 should be provided for in the accounts for the period ended 30 June 2004.
iii) Specific provision amounting to Tk. 4,401,871 due to diminution of market value of Shares of various companies has not been made in the accounts.
iv) Provision has not been made against interest accrued on debenture amounting to Tk. 58,000,508 and these amounts appeared to us not realizable.
v) As per BSB book of accounts balance with Bangladesh Bank held by DCBO (Dhaka Commercial Branch Office) as on 30-06-04 amounted to Tk. 68,151,173. Bangladesh Bank confirmed a balance of Tk. 78,431,006. The difference of Tk. 10,279,833 remained unrecognized till the date of our audit.
vi) Other assets of the Bank include Inter Office Adjustment Account Tk. 104,233,782 as on 30-06-04. The said amount could not be reconciled by the bank till the date of our audit. As a result, we could not confirm inter office adjustment account.
vii) Fixed assets include a number of damaged items for which no accounting adjustment has been made regarding deletion of such item from the books of accounts.
viii) Requirement of Section 35 of the Bank Company Act 1991 in respect of transfer of unclaimed amount to inoperative accounts to Bangladesh Bank were not complied with.
In our opinion, if the adjustments relating to (i), (ii) and (iv) are reflected in the accompanying financial statements, the net profit shown in the profit and loss account will be reduced by Tk.100,919,117. Except for the above, the financial statements give a true and fair view of the financial position of the Bank as of 30 June, 2004 and of the results of its operations and its cash flows for the year then ended and comply with the Bank Companies Act 1991, the rules and regulations issued by Bangladesh Bank and the Security Exchange Rules 1987 and the other applicable laws and regulations.
We, except for the matters as mentioned above further report that:
(i) we have obtained all the information and explanations which to the best of our knowledge and belief were necessary for the purpose of our audit and made due verification thereof;
(ii) in our opinion, proper books of accounts as required by law have been kept by the Bank so far as it appeared from our examination of those books and proper returns adequate for the purpose of our audit have been received from branches not visited by us;
(iii) the Bank’s Balance Sheet and Profit and Loss Account dealt with by the report are in agreement with the books of accounts and returns;
(iv) The financial statements have been drawn-up in conformity with the Bank Company Act, 1991 and in accordance with the applicable rules and regulations issued by the Bangladesh Bank;
(v) adequate provision has been made for advances which are, in our opinion, doubtful of recovery;
(vi) the records and statements submitted by the branches have been properly maintained and consolidated in the financial statements;
(vii) the financial statements conform to the prescribed standards set in the accounting regulations issued by the Bangladesh Bank;
(viii) the information and explanations required by us have been received and found satisfactory;
(ix) we were not aware of any other matters which are required to be brought to the notice of the shareholders.
