Report on Overall Banking of Dhaka Bank Limited

EXECUTIVE SUMMARY

Bangladesh is a developing country in banking sectors plays a vital role in the economic development of the country. Banking system of a country can well be said as a barometer of its economic prosperity. Well-developed banking system is indispensable for modern trade and commerce. Now-a-days, banks not only act as custodian of public money but also are indispensable as vital agent for maintenance of sound financial position of a country.

Dhaka Bank Limited is a leading commercial bank in Bangladesh. The main objective of the bank is to maintain the reputation and at the same time they have very simple application form, which is very simple to understand and as well as to fill the form. Besides, general banking activities the bank runs a successful brokerage house as a member of both Dhaka Stock Exchange Limited and Chittagong Stock Exchange Limited.

The study not only focuses on the activities of Dhaka Bank Limited, but also highlights the all management system of the bank. It also contains information about all credit proceedings in an easy and simple manner. The study also includes whether some models and tools proposed by various analysts those can help to reduce the non-performing loans to increase bank’s profitability.

The researcher conducted in-depth interview with various clients and officials of the banks to collect necessary information. The findings show that to satisfy the customers and retain them for long time. The study was conducted to know Dhaka Bank’s application of financial and non-financial information during the process of credit extension and the use of non-financial information by questionnaire.

The banking sector of Bangladesh is passing through a tremendous reform under the economic deregulation and opening up economy. Currently this sector is becoming extremely competitive with the arrival of multinational banks, technological infrastructure, effective credit management, higher performance level and utmost customer satisfaction. Dhaka Bank Limited follows the all policy and practices set by the management and the guideline set by the Bangladesh Bank. As a result, they are performing well in reducing the high classification rate and achieving the profit target of the bank.

 INTRODUCTION

Dhaka Bank Limited is one of the leading Private Sector Banks in Bangladesh offering full range of Personal, Corporate, International Trade, Foreign Exchange, Lease Finance and Capital Market Services. Dhaka Bank Limited is the preferred choice in Banking for Friendly and Personalized Services, cutting edge Technology, tailored solutions for Business needs, Global reach in Trade and Commerce and high yield on Investments, assuring Excellence in Banking Services.

1.1 ORIGIN OF THE REPORT

After my completion M.B.A (Masters in Business Administration) from Department of Marketing of University Bangladesh, I have been placed in Dhaka Bank Limited for my internship program which is a degree requirement for the MBA students. The primary goal of internship is to provide the job revelation and an opportunity to implement theoretical knowledge in real life situation with the changing eve of banking industry. I have decided to prepare my report on the Overall Banking of Dhaka Bank Limited. This report has been prepared on my practical experiences in Dhaka Bank Limited, B.B. Road Branch, Narayangonj.

1.2 BACKGROUND OF THE STUDY

The report concerns about the Overall Banking of Dhaka Bank Limited. Dhaka Bank Limited invested under the guidelines of the central bank framed for the banking system as a whole and for bank of individual sector. To achieve the objective of the study, it covers different products and services of Dhaka Bank Limited, their operating system and procedures of customer’s supervision.

1.3 OBJECTIVES OF THE STUDY

The main objective of the study is to know over all banking of Dhaka Bank Ltd. and to have an overall idea on how it operates in the competitive markets deliver with customer’s satisfaction and retain them. Besides this main objective there are some specific objectives.

General Objective

 The General Objective is to prepare & submit a report on the topic “ General Banking Activities of  Commercial Banks and Its Impact on Economic Development of Bangladesh: A Case study on Dhaka Bank Limited .”

Specific Objective

•  To know the facilities offered by the Dhaka Bank Limited to develop their customer’s satisfaction and retain them.
•   To familiarize rules and regulation provide by Bangladesh Bank.
•   To know about the marketing process and plan of Dhaka Bank Limited that attain it the premier financial institution.
•   To   be familiar with day to day functioning and services offered by a commercial   bank.
•   To make a bridge between the theories and practices on banking operations.
•   To analyze and evaluate performance of Dhaka Bank Limited.

  Identify the quality of services, quality of product, efficiency of employee, customer response towards DBL.

Every day banks are trying to innovate new process to attract clients. Now, since clients have more options to switch banks and to go for what they need, bank may loose clients due to this situation. Non-performing loans and advances create problems for both bank and borrower particularly when bank’s profitability is reduced due to classified loans. Customer retention is very important for any company or bank.

1.4 METHODOLOGY OF THE STUDY

 This study is not definite and it depends on the responses collected that is very much theoretical and varies from person to person situation and as well country to country. This study is mainly focused on Dhaka Bank Limited to perceive what tools Dhaka Bank Limited uses to evaluate its consumers.

 STUDY DESIGN

 The study is analytical in nature. It was conducted using both quantitative & qualitative instruments. Depth interviews as well as assessment of different historical data were used to analyze the performance of Dhaka Bank.

 DATA COLLECTION

 In order to make the Report more meaningful and presentable, two sources of data and information have been used widely. Those are:

 Primary data

 Secondary Data

Primary Sources:

 The primary sources include interviews with the customers.

• Practical work exposures from the different desks of the department of the branch covered.
• Relevant file study as provided by the officers concerned.
• Face to face conversation with the customers.
• On the job observation of the researcher.
• Personal interviews with the employees. Self-developed questionnaire has been used for interview.

Secondary Sources:

• Different manual and synopsis.
• Various books, articles, compilation etc.
• Annual Report of Dhaka Bank Limited
• Internal Publications of Dhaka Bank Limited
• The website of Dhaka Bank Limited (www.dhakabankltd.com)
• The website of Bangladesh Bank (www.bangladesh-bank.org)
• Articles published on magazines and newspapers
• Annual Reports of different banks
• Bangladesh Bank Reports and several websites
• Prior Research Reports

VARIABLES

Total assets (short & long term total) loan and advances, profit, total liabilities (short & long term), Deposit, Equity, EBIT, net Income, non performing Assets, Dividend, operating revenue & expenses;

 ORGANIZATION OF THE REPORT

This report has been prepared to fulfill partial requirement of the internship program under the Master of Business Administration program of Stamford University, Bangladesh. The report is on General Banking Activities of  Commercial Banks and Its Impact on Economic Development of Bangladesh: A Case study on Dhaka Bank Limited.

Review of Literature.

Secondary Data are must to conduct an efficient Research and to have a fruitful. I have used different types of Secondary Data in my Research. Sources of Secondary Data are:

• Banking Manual, Literature
• Official Sources
• Banks Own Record
• Website
• Bank act
• Annual Report of DBL
• Business Research Methods (Seventh Edition) : William G. Zikmund, Oklahoma University
• An Introduction to Research Methodes (First Edition) : M. Nurul Islam, Dhaka University
• Foreign Exchange and Risk Management : Syed Ashraf Ali (Revised Edition)

 1.5 LIMITATIONS

Banking contains a huge volume of operation and it is quite impossible to gain knowledge about all the activities during a research period. The major limitation of the study is accessibility of certain data. As per banking rules and regulations certain information is not disclosed to outsiders for safety purpose of the bank. Therefore, though the researcher is a permanent employee of the institution, is bound to undisclosed specific matters. The basic limitations faced in preparing this report on disclosure procedure of Dhaka Bank Limited are:

Being public limited company, the private commercial banks like Dhaka Bank Limited keep some information restricted like the actual amount of classified loans.

1. Financial Statements only portray the figures/numbers and their break down but do not clarify the justification in most of the time.
2. Interviewing of the officials on specific disclosure items sometimes was not fruitful because of generalized answers.
3. In the literature review, researcher has mentioned several methods and tools that can be used for credit risk analysis. As in our country a very few methods are being practiced by bank to do analysis of the credit risk. Therefore, the advantages or disadvantages of those tools application were unable to review in full extent.
4. In-depth interview with the classified clients were not possible.
5. The knowledge constraint of the researcher.
6. Our course on banking was based on theories. Sometimes it was difficult to relate all the practices of banking operation to the theories.
7. Bank’s policy of not disclosing some sensitive data and information for obvious reason posed an obstacle to the practical orientation that could be very much useful.
8. Non-availability of data and information that are more recent on different activities of DBL was a great difficulty to depict the actual and up-to-date business position of the bank.

CHAPTER 2

2.1 DETAIL OF THE INDUSTRY

Bangladesh Bank, the central bank as well as chief authority to regulate country’s monetary and financial system, was established in Dhaka as a body corporate vide the Bangladesh Bank Order, 1972 (P.O. No. 127 of 1972) with effect from 16th December, 1971. Bangladesh Bank started functioning with all capital and liabilities of the then Dhaka branch of State Bank of Pakistan. At present it has got 9 branches and those are located at Motijheel, Khulna, Sadarghat, Bogra, Chittagonj, Sylhet, Barisal, Rangpur and  Rajshahi in Bangladesh and total number of staffs stood at 7240 as on end  December 2009.   Core Functions
BB as the central bank of Bangladesh executes all the functions that a central bank traditionally performs as elsewhere in the world. The core functions of BB are briefly discussed as follows:

1. BB formulates and implements monetary policy aiming at stabilizing domestic monetary value and maintaining competitive external per value of taka for fostering growth and development of country’s productive resources in the best national interest.
2. BB formulates and implements intervention policies in the domestic money market and foreign exchange market. BB intervenes the money market with some policy instruments such as
   1. Open market operation (treasury bills/bonds, repo, reverse repo auctions)
   2. Variations in reserve ratios such as cash reserve requirements (CRR) and statutory liquidity ratio (SLR)
   3. Secondary trading
   4. Discounting rate/ bank rate and
   5. Moral suasion
3. BB monitors and supervises scheduled banks and non-bank financial instructions (NBFIs) that include off-site supervision and on-site supervision in order to enhance the safety, soundness, and stability of the banking system to ensure banking discipline, protect depositors’ interest and retain confidence in the banking system.
4. BB holds sole responsibility of the management of international reserve representing aggregate of BB’s holding of gold, foreign exchange SDR and reserve position in the IMF;
5. BB, as the central bank of Bangladesh reserves sole responsibility to issue bank note
6. BB performs as a clearing house for the scheduled banks to clear and settle inter-bank payment arising through drawing cheque, drafts, bills, etc to one another.
7. BB acts as a banker to the government;
8. BB functions as a lender of the last resort for the government as well as for the country’s scheduled banks;
9. BB acts as an advisor to the government;
10. BB directs the growth expediting programs for the national interest.

Additionally, BB’s functions include some other promotional activities such as development of new instruments, guidelines for money and financial market participants, providing training to the banks and NBFIs, monitoring and encouraging corporate social responsibilities (CSR) executed by banks and NBFIs and so on.

2.2 MAJOR COMPETITORS OF THE INDUSTRY

Bank Licensing
Bank Company Act, 1991, empowers BB to issue licenses to carry out banking business in Bangladesh. Pursuant to section 31 of the Act, before granting a license, BB needs to be satisfied that the following conditions are fulfilled:  “that the company is or will be in a position to pay its present or future depositors in full as their claims accrue;   that the affairs of the company are not being or are not likely to be conducted in a manner detrimental to the interest of its present and future depositors;   that, in the case of a company incorporated outside Bangladesh, the Government or law of the country in which it is incorporated Bangladesh as the Government or law of Bangladesh grants to banking companies incorporated outside Bangladesh and that the company complies with all applicable provisions of Bank Companies Act, 1991.”

Licenses may be cancelled if the bank fails to comply with above provisions or ceases to carry on banking business in Bangladesh.

Commercial Banks
The commercial banking system dominates the financial sector with limited role of Non-Bank Financial Institutions and the capital market. The Banking sector alone accounts for a substantial share of assets of the financial system. The banking system is dominated by the 4 State Owned Commercial Banks, which together controlle more than 30% of deposits and operates 3383 branches (50% of the total) as of June 30, 2008.

Specialized Banks
Out of the 5 specialized banks, 2(Bangladesh Krishi Bank and Rajshahi Krishi Unnayan Bank) were created to meet the credit need of the agricultural sector while the other two (Bangladesh Shilpa Bank(BSB) & Bangladesh Shilpa Rin Sangtha (BSRS) ) are for extending term loans to the industrial sector of Bangladesh.

Financial Institutions (FIs)
Twenty-nine financial institutions are now operating in Bangladesh. Of these institutions, 1(one) is govt. owned, 15 (fifteen) are local (private) and the other 13(thirteen) are established under joint venture with foreign participation. The total amount of loan & lease of these institutions is Tk.99,091.80 million as on 31 December, 2007. Bangladesh Bank has introduced a policy for loan & lease classification and provisioning for FIs from December 2000 on half-yearly basis. To enable the financial institutions to mobilize medium and long-term resources, Government of Bangladesh (GOB) signed a project loan with IDA, and a project known as “Financial Institutions Development Project (FIDP)“ has started its operation from February 2000. Bangladesh Bank is administering the project. The project has established “Credit, Bridge and Standby Facility (CBSF)“ to implement the financing program with a cost of US$ 57.00 million.

First Generation Banks (Established 1982-1988)

National Bank Limited, The City Bank Limited, United Commercial Bank Limited, AB Bank Limited, IFIC Bank Limited, Islami Bank Bangladesh Limited and Al-Baraka Bank Limited (the bank was later named as Oriental Bank Bangladesh Limited and presently it is ICB Islamic Bank Limited).

Second Generation Banks (Established 1992-1996)

Eastern Bank Limited, National Credit & Commerce Bank Limited, Prime Bank Limited, Southeast Bank Limited, Dhaka Bank Limited, Al Arafa Islami Bank Limited, Social Investment Bank Limited and Dutch-Bangla Bank Limited.

Third Generation Banks (Established 1996-2000)

Mercantile Bank Limited, Standard Bank Limited, One Bank Limited, EXIM Bank Limited, Premier Bank Limited, Mutual Trust Bank Limited, First Security Bank Limited, Bangladesh Commerce Bank Limited, Bank Asia Limited and The Trust Bank Limited.

Fourth Generation Banks (Established 2000-till now)

Shahjalal Bank Limited, Jamuna Bank Limited and BRAC Bank Limited.

2.3 GROWTH & DEVELOPMENT OF THIS INDUSTRY

The Jews in Jerusalem introduced a kind of banking in the form of money lending before the birth of Christ. The word ‘bank’ was probably derived from the word ‘bench’ as during ancient time Jews used to do money -lending business sitting on long benches.
First modern banking was introduced in 1668 in Stockholm as ‘Svingss Pis Bank’ which opened up a new era of banking activities throughout the European Mainland.
In the South Asian region, early banking system was introduced by the Afghan traders popularly known as Kabuliwallas. Muslim businessmen from Kabul, Afghanistan came to India and started money lending business in exchange of interest sometime in 1312 A.D. They were known as ‘Kabuliwallas’.

NUMBER AND TYPES OF BANKS
The number of banks in all now stands at 49 in Bangladesh. Out of the 49 banks, four are Nationalized Commercial Banks (NCBs), 28 local private commercial banks, 12 foreign banks and the rest five are Development Financial Institutions (DFIs).

Sonali Bank is the largest among the NCBs while Pubali is leading in the private ones. Among the 12 foreign banks, Standard Chartered has become the largest in the country. Besides the scheduled banks, Samabai (Cooperative) Bank, Ansar-VDP Bank, Karmasansthan (Employment) Bank and Grameen bank are functioning in the financial sector. The number of total branches of all scheduled banks is 6,038 as of June 2000. Of the branches, 39.95 per cent (2,412) are located in the urban areas and 60.05 per cent (3,626) in the rural areas. Of the branches NCBs hold 3,616, private commercial banks 1,214, foreign banks 31 and specialized banks 1,177.

Bangladesh Bank (BB) regulates and supervises the activities of all banks. The BB is now carrying out a reform program to ensure quality services by the banks.

BANGLADESH BANK
Bangladesh Bank (BB) has been working as the central bank since the country’s independence. Its prime jobs include issuing of currency, maintaining foreign exchange reserve and providing transaction facilities of all public monetary matters. BB is also Bangladesh Bank (BB) has been working as the central bank since the country’s independence. Its prime jobs include issuing of currency, maintaining foreign exchange reserve and providing transaction facilities of all public monetary matters. BB is also responsible for planning the government’s monetary policy and implementing it thereby.

 The BB has a governing body comprising of nine members with the Governor as its chief. Apart from the head office in Dhaka, it has nine more branches, of which two in Dhaka and one each in Chittagong, Rajshahi, Khulna, Bogra, Sylhet, Rangpur and Barisal.

SERVICES (Accounts, FDR, PDS, Deposit Scheme)

Current Account
Generally this sort of account opens for business purpose. Customers can withdraw money once or more against their deposit. No interest can be paid to the customers in this account. If the amount of deposit is below taka 1,000 on an average the bank has authority to cut taka 50 from each account as incidental charge after every six months. Against this account loan facility can be ensured. Usually one can open this account with taka 500. One can open this sort of account through cash or check/bill. All the banks follow almost the same rules for opening current account.

Savings Bank Account
Usually customers open this sort of account at a low interest for only security. This is also an initiative to create people’s savings tendency. Generally, this account is to be opened at taka 100. Interest is to be paid in June and December after every six months. If money is withdrawn twice a week or more than taka 10,000 is withdrawn (if 25% more compared to total deposit) then interest is not paid. This account guarantees loan. Almost all the banks follow the same rules in the field of savings account, except foreign banks for varying deposit. On an average, all the banks give around six percent interest.

SPECIAL SERVICES
Some Banks render special services to the customers attracting other banks.

INTERNET BANKING
Customers need an Internet access service. As an Internet Banking customer, he will be given a specific user ID and a confident password. The customer can then view his account balances online. It is the industry-standard method used to protect communications over the Internet.
To ensure that customers’ personal data cannot be accessed by anyone but them, all reporting information has been secured using Version and Secure Sockets Layer (SSL).

HOME BANKING
Home banking frees customers of visiting branches and most transactions will be automated to enable them to check their account activities transfer fund and to open L/C sitting in their own desk with the help of a PC and a telephone.

ELECTRONIC BANKING SERVICES FOR WINDOWS (EBSW)
Electronic Banking Service for Windows (EBSW) provides a full range of reporting capabilities, and a comprehensive range of transaction initiation options.

The customers will be able to process all payments as well as initiate L/Cs and amendments, through EBSW. They will be able to view the balances of all accounts, whether with Standard Chartered or with any other banks using SWIFT. Additionally, transactions may be approved by remote authorization even if the approver is out of station.

AUTOMATED TELLER MACHINE (ATM)
Automated Teller Machine (ATM), a new concept in modern banking, has already been introduced to facilitate subscribers 24 hour cash access through a plastic card. The network of ATM installations will be adequately extended to enable customers to non-branch banking beyond banking.

TELE BANKING
Tele Banking allows customers to get access into their respective banking information 24 hours a day. Subscribers can update themselves by making a phone call. They can transfer any amount of deposit to other accounts irrespective of location either from home or office.

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.

MONETARY & CREDIT POLICY:

The monetary and credit policy for the financial year that ended in June, 2000 was formulated with the objective of full utilization of domestic resources and rapid economic growth through priorities for agriculture, industry, export, and expansion and strengthening of the private sector, at the same time keeping inflation within tolerable limits. A modern expansionary monetary and credit policy was adopted in order to make good the losses to agriculture, industry, and infrastructure by the devastating floods of 1998. After the flood the economy remained sluggish in the first quarter of 1999-2000 and the private sector demand for credit shrank. In view of this, the Annual Development Program (ADP) was expanded and development activities in the private sector were geared up. As a result, the public sector absorbed credit at an accelerated rate. Though credit to the private sector picked up towards the end of the year, the overall annual growth was smaller than programmed, although gross domestic credit expanded a little faster than projected. Money supply increased by 15.3% in 1999-2000 compared to the expansion of 8.6% in the preceding year.

NARROW MONEY:
Narrow Money increased by Tk. 2,631.90 crores or 15.3% to Tk.19881.30 crores in 1999-2000. Of the components of Narrow Money, currency outside banks went up by Tk.1489.40 crores or 17.2% to Tk.10176.00 crores, and demand deposits went up by Tk.1142.50 crores or 13.3% to Tk.9705.30 crores.

BROAD MONEY:
Broad Money increased by Tk.11735.70 crores or 18.6% to Tk. 74,762.40 crores in 1999-2000 compared to the increase of 12.8% in the preceding year. Of the components of Broad Money, Narrow Money increased by 15.3% and time deposits rose by 19.9% compared to the increase of 8.6% in Narrow Money and 14.5% in time deposits in the preceding year. The shares of currency outside banks, demand deposits and time deposits in Broad Money stood at 13.6%, 13.0%, and 73.4% respectively on 30th June, 2000 compared to 13.8%, 13.6% and 72.6% respectively on 30th June, 1999. Expansion of credit to the private sector, government sector (net), public sector, and other assets (net), along with a surplus in net foreign assets contributed to the expansion of Broad Money.

RESERVE MONEY:
Reserve Money increased by Tk.2321.80 crores or 15.7% to Tk.17064.50 crores in 1999-2000 compared to the increase of 8.3% during the preceding year. Of the components of Reserve Money, currency outside banks increased by Tk.1489.40 crores or 17.1% compared to the increase of Tk.533.30 crores or 6.5% during the preceding year. Scheduled banks balances with the Bangladesh Bank increased by Tk.770.90 crores or 15.3% in 1999-2000 compared to the increase of Tk.488.20 crores or 10.8% in the preceding year. Their cash in tills increased by Tk.61.50 crores or 6.0% as against the increase of Tk.103.60 crores or 11.2% in the preceding year. The increase in Bangladesh Bank’s credit to the government (net) by Tk.1,738.10 crores and net surplus in the foreign sector by Tk.1,262.40 crores played the main role in exerting expansionary influence on the Reserve Money. However the decline of Tk.333.60 crores and Tk.44.90 crores in the borrowings by the scheduled banks and other financial institutions respectively along with the fall of Tk.300.20 crores in other assets (net) partly offset the expansionary impact of those sectors.

DOMESTIC CREDIT:
Total domestic credit increased by Tk.8581.20 crores or 13.6% to Tk. 71,489.00 crores (including adjustment of bonds issued by the government) in 1999- 2000 as compared to the increase of Tk.7267.60 crores or 13.1% in the preceding year. Expansion of credit to the government, private, and public sectors to the extent of Tk.3524.30 crores (31.3%), Tk.4906.10 crores (10.7%), and Tk.150.80 crores (2.5%) respectively contributed to the expansion in total domestic credit in 1999-2000. Credit to the government and private sector had increased by 21.3% and 13.8% respectively, while credit to the public sector declined by 3.7% in the preceding year.

BANK CREDIT:
The outstanding level of bank credit (excluding foreign bills and inter-bank items) increased by Tk.5,123.30 crores or 10.3% to Tk.54,646.10 crores in 1999- 2000 as compared to the increase of 12.4% in the preceding year. Of the components of bank credit, advances increased by Tk.4892.70 crores or 10.3% and the bills purchased and discounted went up by Tk.230.60 crores or 11.3%.

BANK DEPOSITS:
Bank deposits (excluding inter-bank items) increased by Tk.11044.70 crores or 18.6% to Tk.70,278.70 crores in 1999-2000 compared to the increase of 14.2% in the preceding year. Of this increase , time deposits went up by Tk.9,103.80 crores or 19.9% to Tk.54,881.10 crores, government deposits by Tk.723.60 crores or 14.8% to Tk.5,615.20 crores and demand deposits by Tk. 1,142.50 crores or 13.3% to Tk.9,705.30 crores. On the other hand, restricted deposits increased by Tk.74.80 crores in 1999-2000.

CASH RESERVE REQUIREMENTS (CRR):
Statutory CRR with Bangladesh Bank was lowered for the scheduled banks to 4.0% of their liabilities (demand plus time deposits) (excluding inter-bank deposits) from 5% with effect from 1st October, 1999.

BANK RATE:
The Bank Rate was lowered from 8.0% to 7.0% on 29th August, 1999 and remained unchanged through 30th June, 2000.

2.4 THEORITICAL BACKGROUND

Dhaka bank Ltd. Is operating in service industry. It provides financial services to the clients. Its service product mix is suited for its successful operation.

A service is the action of doing something for someone or something. It is largely intangible (i.e. not material). A product is tangible (i.e. material) since you can touch it and own it. A service tends to be an experience that is consumed at the point where it is purchased, and cannot be owned since is quickly perishes. A person could go to a café one day and have excellent service, and then return the next day and have a poor experience. So often marketers talk about the nature of a service as:

Inseparable – from the point where it is consumed, and from the provider of the service. For example, you cannot take a live theatre performance home to consume it (a DVD of the same performance would be a product, not a service).

Intangible – and cannot have a real, physical presence as does a product. For example, motor insurance may have a certificate, but the financial service itself cannot be touched i.e. it is intangible.

Perishable – in that once it has occurred it cannot be repeated in exactly the same way. For example, once a 100 metres Olympic final has been run, there will be not other for 4 more years, and even then it will be staged in a different place with many different finalists.

 Variability– since the human involvement of service provision means that no two services will be completely identical. For example, returning to the same garage time and time again for a service on your car might see different levels of customer satisfaction, or speediness of work.

Right of ownership – is not taken to the service, since you merely experience it. For example, an engineer may service your air-conditioning, but you do not own the service, the engineer or his equipment. You cannot sell it on once it has been consumed, and do not take ownership of it.

 Western economies have seen deterioration in their traditional manufacturing industries, and a growth in their service economies. Therefore the marketing mix has seen an extension and adaptation into the extended marketing mix for services, also known as the 7P’s – physical evidence, process and people.

People are the most important element of any service or experience. Services tend to be produced and consumed at the same moment, and aspects of the customer experience are altered to meet the ‘individual needs’ of the person consuming it. Most of us can think of a situation where the personal service offered by individuals has made or tainted a tour, vacation or restaurant meal. Remember, people buy from people that they like, so the attitude, skills and appearance of all staff need to be first class. Here are some ways in which people add value to an experience, as part of the marketing mix – training, personal selling and customer service.

Training.

All customer facing personnel need to be trained and developed to maintain a high quality of personal service. Training should begin as soon as the individual starts working for an organization during an induction. The induction will involve the person in the organization’s culture for the first time, as well as briefing him or her on day-to-day policies and procedures. At this very early stage the training needs of the individual are identified. A training and development plan is constructed for the individual which sets out personal goals that can be linked into future appraisals. In practice most training is either ‘on-the-job’ or ‘off-the-job.’ On-the-job training involves training whilst the job is being performed e.g. training of bar staff. Off-the-job training sees learning taking place at a college, training centre or conference facility. Attention needs to be paid to Continuing Professional Development (CPD) where employees see their professional learning as a lifelong process of training and development.

Personal Selling

There are different kinds of salesperson. There is the product delivery salesperson. His or her main task is to deliver the product, and selling is of less importance e.g. fast food, or mail. The second type is the order taker, and these may be either ‘internal’ or ‘external.’ The internal sales person would take an order by telephone, e-mail or over a counter. The external sales person would be working in the field. In both cases little selling is done. The next sort of sales person is the missionary.

Here, as with those missionaries that promote faith, the salesperson builds goodwill with customers with the longer-term aim of generating orders. Again, actually closing the sale is not of great importance at this early stage. The forth type is the technical salesperson, e.g. a technical sales engineer. Their in-depth knowledge supports them as they advise customers on the best purchase for their needs. Finally, there are creative sellers. Creative sellers work to persuade buyers to give them an order. This is tough selling, and tends to o ffer the biggest incentives. The skill is identifying the needs of a customer and persuading them that they need to satisfy their previously unidentified need by giving an order.

Customer Service

Many products, services and experiences are supported by customer services teams. Customer services provided expertise (e.g. on the selection of financial services), technical support(e.g. offering advice on IT and software) and coordinate the customer interface (e.g. controlling service engineers, or communicating with a salesman). The disposition and attitude of such people is vitally important to a company. The way in which a complaint is handled can mean the difference between retaining or losing a customer, or improving or ruining a company’s reputation. Today, customer service can be face-to-face, over the telephone or using the Internet. People tend to buy from people that they like, and so effective customer service is vital. Customer services can add value by offering customers technical support and expertise and advice.

Process is another element of the extended marketing mix, or 7P’s.There are a number of perceptions of the concept of process within the business and marketing literature. Some see processes as a means to achieve an outcome, for example – to achieve a 30% market share a company implements a marketing planning process.

Another view is that marketing has a number of processes that integrate together to create an overall marketing process, for example – telemarketing and Internet marketing can be integrated. A further view is that marketing processes are used to control the marketing mix, i.e. processes that measure the achievement marketing objectives. All views are understandable, but not particularly customer focused.

For the purposes of the marketing mix, process is an element of service that sees the customer experiencing an organisation’s offering. It’s best viewed as something that your customer participates in at different points in time. Here are some examples to help your build a picture of marketing process, from the customer’s point of view.

Going on a cruise – from the moment that you arrive at the dockside, you are greeted; your baggage is taken to your room. You have two weeks of services from restaurants and evening entertainment, to casinos and shopping. Finally, you arrive at your destination, and your baggage is delivered to you. This is a highly focused marketing process.

Booking a flight on the Internet – the process begins with you visiting an airline’s website. You enter details of your flights and book them. Your ticket/booking reference arrive by e-mail or post. You catch your flight on time, and arrive refreshed at your destination. This is all part of the marketing process.

At each stage of the process, markets:

• Deliver value through all elements of the marketing mix. Process, physical evidence and people enhance services.
• Feedback can be taken and the mix can be altered.
• Customers are retained, and other serves or products are extended and marked to them.
• The process itself can be tailored to the needs of different individuals, experiencing a similar service at the same time.

Processes essentially have inputs, throughputs and outputs (or outcomes). Marketing adds value to each of the stages. Take a look at the lesson on value chain analysis to consider a series of processes at work.

Physical evidence is the material part of a service. Strictly speaking there are no physical attributes to a service, so a consumer tends to rely on material cues. There are many examples of physical evidence, including some of the following:

• Packaging.
• Internet/web pages.
• Paperwork (such as invoices, tickets and despatch notes).
• Brochures.
• Furnishings.
• Signage (such as those on aircraft and vehicles).
• Uniforms.
• Business cards.
• The building itself (such as prestigious offices or scenic headquarters).
• Mailboxes and many others . . . . . .

A sporting event is packed full of physical evidence. Your tickets have your team’s logos printed on them, and players are wearing uniforms. The stadium itself could be impressive and have an electrifying atmosphere. You travelled there and parked quickly nearby, and your seats are comfortable and close to restrooms and store. All you need now is for your team to win!

Some organizations depend heavily upon physical evidence as a means of marketing communications, for example tourism attractions and resorts (e.g. Disney World), parcel and mail services (e.g. UPS trucks), and large banks and insurance companies (e.g. Lloyds of London). Dhaka bank has its unique color in all outlets.

Chapter- 3: Organization Profile

3.1 HISTORY & ORIGIN OF DHAKA BANK LTD.

Dhaka Bank Limited was incorporated as a public limited company under the Companies Act 1994. The Bank started its commercial operation on July 05, 1995 with an Authorized Capital of Tk.1,000.00 million and Paid Up Capital of Tk.100.00 million. The present Paid Up Capital of the Bank is Tk.1,934,252,875 as on June 30, 2008. The total equity (capital and reserves) of the Bank as on June 30, 2008 stood at Tk.3,424,609,016. The Bank has 44 branches and 2 Offshore Banking Units across the country and a wide network of correspondents all over the world. The Bank has a plan to open more branches in the current fiscal year to expand the network. Dhaka Bank Limited offers the full range of banking and investment services for personal and corporate customers, backed by the latest technology and a team of highly motivated officers and staffs. In the effort to provide excellence in banking services, the Bank has launched online banking service, joined a countrywide-shared ATM network and has introduced a co-branded credit card. A process is also underway to provide e-business facility to the bank’s clientele through online and home banking solutions. Dhaka Bank Limited is the preferred choice in banking for friendly and personalized services, cutting edge technology, tailored solutions for business needs, global reach in trade and commerce and high yield on investments.

SLOGAN

“Excellence in Banking”

3.2 VISION

At Dhaka Bank, we draw our inspiration from the distant stars. Our team is committed to assure a standard that makes every banking transaction a pleasurable experience. Our endeavour is to offer you razor sharp sparkle through accuracy, reliability, timely delivery, cutting edge technology, and tailored solution for business needs, global reach in trade and commerce and high yield on your investments.

Our people, products and processes are aligned to meet the demand of our discerning customers. Our goal is to achieve a distinct foresight. Our prime objective is to deliver a true reflection of our vision- Excellence in Banking.

3.3 MISSION

To be the premier financial institution in the country providing high quality products and services backed by latest technology and a team of highly motivated personnel to deliver Excellence in Banking.

      VALUES

      Customer Focus

      Integrity

      Teamwork

      Respect to the Individual

      Quality

      Responsible Citizenship

 CREDIT RATINGS

Dhaka Bank Limited was rated by Credit Rating Information and Services Limited (CRISL) on the basis of audited Financial Statements as on December 31, 2008. The summary of the rating is as follows:

                        Status                                                 2008                                       2007

                        Long Term                              A+                                           A1

            Short Term                              ST-2                                        ST-2

CRISL has awarded “A+” (Pronounced as Single A Plus) rating in the Long Term and “ST-2” rating in the Short Term to Dhaka Bank Limited valid upto March 2010.Commercial Banks rated in this long-term category are adjudged to be strong banks, characterized by good financials, healthy and sustainable franchises, and a first rate operating environment. This level of rating indicates strong capacity for timely payment of financial commitments, with low likeliness to be adversely affected by foreseeable events.

3.4 FUNCTIONAL DEPARTMENTALIZATION AT HEAD OFFICE

The Managing Director, ex-officio Director of the Board, is the Chief Executive Officer (CEO) of the Bank. Next in the organizational hierarchy is the Deputy Managing Director. There are three Deputy Managing Directors in Dhaka Bank Limited. Deputy Managing Director (RM) is engaged with risk management. He monitors credit activities, which includes sanctioning of credit facilities and monitoring after financing. Deputy Managing Director (BB) is engaged with business banking works, which includes selection of new prospective borrowers for the bank. Another Deputy Managing Director (Operations) is engaged with operational activities, such as selection of premises for new branches, shifting of branches to new potential places as and when required etc. Groups/Divisions at Head Office report either directly to the Managing Director or through the Deputy Managing Directors.

Credit Division

Credit Division scrutinizes credit proposals of all the branches and then getting recommendation of Management Credit Committee (MCC) submits it to the Executive Committee (EC) of the Board of Directors meeting for approval. They also monitor the loans and advances whether they are regular or stuck up.

Credit Department exists in all the branches. This department receives request for credit facilities from the clients. Then they take some necessary actions to justify the request, such as they collect reports from Credit Information Bureau (CIB) of Bangladesh Bank, collect TIN and VAT certificate of the client, Trade License, membership certificate of related association etc. Then they estimate Credit Risk Grading (CRG) Score Analysis to judge the creditworthiness of the client analyzing at least three years audited Financial Statements of the client. After having all related information and discussing with the branch manager the Credit Department analyzes whether the proposed facility falls in the delegation of the branch manager. Otherwise the Credit Department then forwards the credit proposals to the Head Office, Credit Division for approval.

After receiving the request for credit facilities from the branches the Head Office, Credit Division then scrutinize the proposals and match interest rate with the cost of fund provided by the Finance and Accounts Division. Then they rearrange the rates, if necessary, and submit it before the Management Credit Committee. The Management Credit Committee (MCC) is represented by the Managing Director, Deputy Managing Directors and Head of Credit Risks & Credit Operations. If the proposed facility falls under the delegation of Management Credit Committee then Sanction Letter is issued by the respective units of Credit Risk after getting approval of the Management Credit Committee.

Otherwise the Management Credit Committee recommends the proposal for submission before the Executive Committee for final approval. Executive Committee comprises of 6 (six) members of the Board of Directors, the Managing Director, the Deputy Managing Directors and the Company Secretary. The meeting held once a week. The Committee discusses the proposals of all the branches and decides whether to approve the proposed facilities or not. If yes then the Credit Risk issues Sanction Letter to the branches with necessary corrections in rates, if any, stipulating terms and conditions regarding the credit facilities.The branches then make an offer letter with the rates fixed by the Head Office, Credit Risk. The customer accepts the offer, putting signature on the offer letter. After customer’s acceptances the credit facilities are disbursed.

Financial Institution Division (FID)

This division deals with international trade that is import, export and foreign remittance. To deal with foreign currency Bank has to take prior permission from Bangladesh Bank.

International trade is an important constituent of the business portfolio of the Bank. Dhaka Bank Limited offers a full array trade finance services, namely, issuing, advising and confirmation of documentary credit, arranging forward exchange cover, pre-shipment and post-shipment finance, negotiation and purchase of export bills, discounting of bills of exchange, collection of bills etc.

Finance and Accounts Division

Finance & Accounts Division is concerned with finding and using funds to carry out the marketing plan. They are responsible for all sorts of payments. They prepare the all sorts of report for management including cost of fund, Profit and Loss account, Balance Sheet, Cash Flow statement, Budget and other relevant reports.

Operations Divisions

Operations Division is responsible for all kinds of procurement and logistics support. They purchase all sorts of product that are needed by various divisions and branches. Firstly the divisions requisitioned the necessary products in a prescribed format in every month. When the Divisional Head of Operations approves it, they purchased the product as per requirement. The division is also responsible for choosing the suitable site for opening new branches and other operational activities.

Human Resources Division

This Division deals with human resources management that is recruitment of new employees, placement of them, promotion, transfer and all other benefits that are entitled by the employees.

Dhaka Bank Limited is expanding its operation day by day, so it is in need of efficient human resources to smoothly run its operation. This efficient force is recruited by Human Resources Division through different types of tests and interviews.

Grading is another task that is accomplished by this Division, with the help of Branch Managers and Divisional Heads. All the Branch Managers and the Divisional Heads along with the concerned employee prepare the Appraisal Forms as prescribed by the Human Resources Division and send it back to the Human Resources Division with a recommended grading. This grading system motivates employees to be more efficient and sincere in their respective job.

Corporate Finance and Syndication

This unit was set up with a mandate to arrange financing for medium to large scale projects through syndications, consortium financing and ‘club deals’. The unit not only was able to break ground in this segment but it also successfully completed the first ever aircraft financing deal that was arranged through local financial institutions. The demand for this service is expected to rise further due to growing and large demand for industrial financing in line with the overall economic development. The Corporate Finance and Syndication Unit are now well equipped to meet the challenges of highly competitive industry by creating a market niche through acquisition of in-depth financial management techniques and development of human resources.

Capital Market Services

Lease Finance, Hire Purchase & Capital market operation besides investment in treasury bills & Prize Bonds constitute the investment basket of Dhaka Bank Limited. Dhaka Bank Limited is member of the Dhaka Stock Exchange Ltd. and Chittagong Stock Exchange Ltd. The investment portfolio made up of Government Securities & Shares and Debentures of different listed companies stood at TK.2,046 million this year indexing a 4.91% increase over TK.1,950 million in the previous year. Now the Capital Market Services has opened other four wings at Uttara, Dhanmondi, Motijheel and Chittagong for giving trading facilities to its clients.

Personal Banking Division

Personal Banking Division (PB) with the aim to address modern banking needs of the bank launched Dhaka Bank credit card, personal loan, car loan & vacation loan etc. In the meantime, the bank takes the honor to have client base of approximately 6,000. Moreover restructuring the existing products & services & introducing new products, particularly electronic banking products like Dhaka Bank ATM Card & the automated Tele Banking service from selected branches was highly appreciated by the bank customers.

Year 2007 was particularly a year of growth & challenge for retail business of the bank. The Bank diversified its portfolio & concentrate on offering tailor made products e.g. personal credit, Vacation Loan & Car Loan. The bank customer reach had been extended through establishing a large field sales & service channel for expanded customer reach. With all these efforts, Dhaka Bank Limited was able to create a strong brand in just a year in the market, which is portrayed in the amount of loan disbursement & quality of asset. Yet, as another-addition to the bank commitment Excellence in Banking, the division went on building strategic tie ups with different organizations & conducted different promotional programs. These programs were highly appreciated in the market.

The division focusing to develop & introduce new products & services through extensive market research to meet every facet of modern banking needs.

3.5 ORGANIZATIONAL CHART

 BOARD OF DIRECTORS

The Board of Directors: The Board of Directors delegates power to the Executive Committee for approving credit facilities to the client as recommended by the branch and Management Credit Committee. The Board monitors the activity of the Executive Committee and the Management of the Bank. The Board of Directors sits in meeting once in every month. The Board is the highest authority to approve any credit facilities for which power is not delegated.

List of the Board of Directors of Dhaka Bank Limited (DBL) as follows:

Table 2:1: List of the Board of Directors of Dhaka Bank Limited (DBL)

 MANAGEMENT HIERARCHY

4.1 DATA ANALYSIS

 PRODUCTS & CUSTOMER SERVICES IN DHAKA BANK LIMITED

Like some other Banks Dhaka Bank Limited (DBL) has also some Services that it provides its Potential Customers. The Services of the Bank for its Customers are:

• Corporate Banking Services:

• Floating of Public Issues
• Loan Syndication

• Personal Banking Services:

• Deposit Accounts

–      Current Account

–      Savings Account

–      Short Term Deposit Account

–      Fixed Deposit Account

–      Excel Account

• Foreign Exchange Transactions
• Consumer Credit Scheme
• E-Cash 24 Hour Banking
• Phone Banking
• Branch Banking
• Dhaka Bank Credit Card
• Secured Overdraft
• Personal Loan
• Car Loan
• Safe Deposit Lockers
• Private Foreign Currency Accounts
• Utility Bill Payments

•  International Trade & Foreign Exchange
•  Lease Financing
•  Capital Market Services

 INNOVATION IN BANKING (DHAKA BANK LIMITED) 2 YEARS

Car Loan: As part of establishing a personal banking franchise of Dhaka Bank Limited, the bank has successfully launched Car Loan Scheme. The product is term financing facilities to individuals to aid them in their pursuit of have a car of their dream. The facility becomes affordable to the clients as the repayment is done through fixed installments commonly known as EMI (Equated Monthly Installment) across the facility period. Depending on the size and purpose of the loan, the number of installments varies from 12 to 60 months. In case of brand new cars the loan tenure will be maximum 72 months. One can bought his car with the money provided by Dhaka Bank Limited through its Car Loan Scheme.

Personal Loan: As part of establishing a personal banking franchise of Dhaka Bank Limited, the bank has successfully launched Personal Loan. The product is a term financing facility to individuals to aid them in their purchases of consumer durables or services. The facility becomes affordable to the clients as the repayment is done through fixed installments commonly known as EMI (Equated Monthly Installment) across the facility period. Depending on the size and purpose of the loan, the number of installments varies from 12 to 60 months. The highest amount of loans disbursed through the scheme is Tk.5,00,000.00. Personal Loan scheme of Dhaka Bank Limited is a very popular scheme for individuals especially for the service-oriented people of limited income.

Vacation Loan: Dhaka Bank Limited has successfully launched Vacation Loan. The product is a term financing facility to individuals to aid them in their pursuit of spending a vacation in the country or abroad. The facility becomes affordable to the clients as the repayment is done through fixed installments commonly known as EMI (Equated Monthly Installment) across the facility period. Depending on the size and purpose of the loan, the number of installments varies from 12 to 48 months.

Deposit Pension Scheme (DPS): Dhaka Bank Limited is well poised to be the leading Personal Banking business amongst the local private commercial banks. Bank’s conscious efforts in brand building, introducing and supporting new packaged products, developing Personal Banking organization along with non-traditional delivery channels have resulted in good brand awareness amongst its chosen target markets.

Installment based savings schemes are a major category of saving instruments amongst mid to upper middle-income urban population. DPS is an installment based savings scheme (Deposit Pension Scheme) of Dhaka Bank Limited for individual clients.

ATM: Through extensive ATM network supported by state of the art technology Dhaka Bank Limited provides ATM service 24 hours a day 7 days a week. In the word of the Bank, “We never sleep to serve you.”

Lockers: One can use the locker facility of Dhaka Bank Limited and thus have the option of covering his/her valuables against any unfortunate incident. The Bank offers security to its locker service as afforded to the Bank’s own property at a very competitive price. The Bank would be at peoples service from Saturday through Thursday from 9:00 am to 4:00 pm. Lockers are available at Gulshan, Banani, Dhanmondi, Uttara, CDA Avenue & Cox’s Bazar Branch. The Bank provides locker facilities at the branch to keep valuables safe and secure. With high standard lockers installed for security, the Bank becomes to avail this facility in a secure and homely atmosphere.

Special Deposit Scheme: The Bank has launched Special Deposit Scheme for it customers through Personal Banking wing. Through this scheme one can earn monthly interest depositing Tk.1,00,000.00 or its multiples for 3 years.

Moving the Wheels of Progress: Many wheels revive together to run a total system and so does the banking activities of Dhaka Bank Limited. The Bank has been consistently moving the service wheels like corporate banking, syndication of funds, capital market services and personal banking to support national economy.

Different Business Different Needs: Business needs differ, so do the solution of Dhaka Bank Limited. The Bank provides Project Finance, Import and Export Finance, Corporate Finance and Loan Syndication, Working Capital Finance, Lease Finance, SME Finance, Treasury Services, Remittance, Retail Banking, Opening of LCs, Issuance of Guarantees.

Online Islamic Banking On All Branches: Dhaka Bank Limited is offering Islamic Shariah banking service through online now. Al-Wadia Current Account, Mudaraba Savings and Fixed Deposit Account and also investment within shariah are included in this service. One can easily get the Islamic banking services through any branches of Dhaka Bank Limited.

Dhaka Bank Platinum, Gold & Silver Savings Accounts: Dhaka Bank is committed to deliver better service to our distinguished customers. Customers are our first priority and driving force. Introducing new products and developing the quality of the existing products are the strategies adopted by the Bank to serve the customers. We are always committed to sustain the commitment “Excellence in Banking”.

PRICING INFORMATION

Dhaka Bank Limited (DBL) occurs in different products and as well as different rate of interest as follows:

i)              Term Loans which were approved without any reference rate or there is no indication that bank will review the interest rate each year.

ii)             All working capital loans (PAD/LTR/LIM/Pledge/Hypo/OD), which were created before April 21, 2009.

iii)            Syndication Loans

iv)           Lease Finance

v)            Any Forced Loan

vi)           Transport Loans

vii)          Islamic Banking Products

viii)         NBFI Loans

ix)           Advance Against Cash Incentives

x)            Loan Against Shares/Securities

xi)           Equity Finance

xii)          Classified Loans (SS/DF/BL)

Re-fixation of Interest Rate as under-

i)              Savings account @5.50%

ii)             STD account upto Tk.5.00 crore @4.50% and above Tk.5.00 crore @5.00%

iii)            All Current / CC accounts @13%

iv)           All Term Loan which are revolving i.e. having floating interest rate. (For Term Loan tagged with Treasury Bond, T/Bill or review dates will only be reviewed with changes in the reference rate) @13%

v)            LTR, PAD, Short Term Loan, Revolving Short Term Loans, LIM, Pledge, SOD (FO), OD (Others), [DBP/FDBP and any other Short Term Loan to finance working capital @ 13%.

vi)           All Real Estate loan for house building purpose @ 13%.

vii)          Commodity including essential commodity financing (LTR/Pledge/LIM/STL) @13%

However, considering the present market scenario of DBL Pool rates with effect from May 01, 2009.

 CORPORATE GOVERNANCE

Corporate Governance represents the system by which business corporations are directed and controlled. The Corporate Governance structure specifies the distribution of rights and responsibilities among different participants in the corporation, such as, the Board, Managers, Shareholders and other Stakeholders and spells out the rules and procedures for making decisions on corporate affairs. By doing this it also provides the structure through which the company objectives are set and the means of attaining those objectives and monitoring performance.

Other than Regulatory Authorities, parties to Corporate Governance are Board of Directors, Executive Committee of the Board of Directors, Audit Committee of the Board of Directors, Management Credit Committee, Asset Liability Committee, Management Committee, etc.

The objective of the Management structures headed by the Board of Directors of Dhaka Bank Limited and led by the Chairman are to deliver sustainable value to shareholders. Implementation of the strategy set by the Board is delegated to the Branch Management and Unit Management under the leadership of Managing Director. The Board sets the strategy and approves the annual operating plans presented by the Management for achievement of the strategic objectives. The Board of Directors meets regularly and Directors receive information between meetings about the activities of the Committees and developments in the Bank’s business. All Directors have full and timely access to all relevant information and may take independent professional advice if necessary. The Bank has taken the following measures to implement Corporate Governance as instructed by Bangladesh Bank and the Securities and Exchange Commission.

 CORPORATE SOCIAL RESPONSIBILITY

Dhaka Bank is committed to corporate social responsibilities towards the community. The Bank allocates 2% of pre-tax profit for CSR practices each year. Last year, the Bank has taken numerous initiatives towards social welfare and community improvements, which includes donation of Tk20.00 Million to Kidney Foundation Hospital to install state of the art Dialysis Unit to mitigate the sufferings of the poor women and children of the country. The Bank provided Tk1.2 Million to Center for Women & Child Health (CWCH) and donated Tk1.2 Million to BIRDEM as a gesture of humanitarian consideration for the dialysis treatment of the financially needy kidney patients. In 2008 Dhaka Bank Limited associated with Bangladesh Hockey Federation as Partners in Progress for development of Hockey and donated Tk 2.5 Million to Bangladesh Hockey Federation.

The Bank also sponsored –

      Dhaka Bank Victory Day Hockey Tournament

      Dhaka Bank Shaheed Dibash Hockey Tournament

      Dhaka Bank Independence Day Hockey Tornament

      1^st Dhaka Bank Cup Golf Tournament

      Dhaka Bank 22^nd Bangladesh International Junior Tennis Championships

      National Hockey Team in Asia Cup

      National Hockey Team in Nehru Cup

      Dhaka Bank Premier Cricket League at Rangpur

In 2008 Dhaka Bank was award

• Certificate of Merit from ICAB

• Best Bank Award
• CSR Award

 BRIEF PROFILE OF DHAKA BANK LIMITED

Table 2.3: Brief profile of Dhaka Bank Limited

 OBJECTIVES OF DHAKA BANK LIMITED

The main objectives of Dhaka Bank Limited are as follows:

a)    To establish, maintain, carry on, transact, undertake and conduct all types of banking, financial, investment and trust business of in Bangladesh and abroad.

b)    To form, establish and organize any bank, company, institutions or organization either singly and/or in joint collaboration of partnership with any individual company, financial institution, bank, organization or any government and or government agency for the purpose of carrying on banking, financial investment and trust business and/or any other business as provided hereafter.

c)    To carry on any business relating to Wage Earner Scheme as may be allowed by Bangladesh Bank from time to time including maintaining of foreign currency accounts and any other matter related there to.

d)    To contract or negotiate all kinds of loan and/or assistance, private or public from any source, local or foreign, and to take all such steps as may be required to be complete such deals.

e)    To form, organize assets, participate or aid in forming, promoting or organizing any company, bank, syndicate, consortium institute or any holding and subsidiary company in Bangladesh or abroad for the purpose of undertaking any banking financial investment and trust business.

f)     To take part in the formation, management, supervision or control of business or operations of any company or undertaking and for that purpose to render technical, managerial and administrative services and act as administrator, manager and secretary.

g)    To purpose, or otherwise acquire, undertake, the whole or any part of or any interest in the business, goodwill, property, contract, agreement, right, private assets and liabilities of any other company bank corporation, partnership, body person or persons carrying on, or having ceased to carry on, any business which the company is authorized to carry on such terms and may be deemed expedient.

h)    To encourage sponsor and facilitate participation of private capital in financial industrial or commercial investment, share and securities and in particular by providing finance in the form of long, medium or short term loans or share participation by way of subscription to the promoter shares, or underwriting supports or bridge finance loans and/or by any manner.

i)      To amalgamate or reconstruct or recognize with any commercial bank, or body corporate or association in cooperation with any person, commercial bank or association.

j)      To establish and open offices and branches to carry on all or any of the above business abroad and within the country provided prior permission is obtained from the Bangladesh Bank.

k)    To establish provident fund, gratuity, pension, and other fund for the welfare and benefit of the employees and staffs, former or present and any matter related thereon.

l)      To act as official liquidator and receiver.

m)  To receive, borrow or raise money on deposit, loan or otherwise upon such terms as the Dhaka Bank may approve and to give guarantee and indemnity in respect of any debt or contract.

n)    To appoint officials, staff, experts, advisers, consultants, auditors, Legal advisers and provide for their suitable remunerations.

• o)    To advance, deposit or lend money to or with such persons or bodies, corporate, unincorporated, statutory, govt. and/or its agencies on such terms as the Dhaka Bank may approve.

OPERATING AND FINANCIAL PERFORMANCE

The highlights of the operating and financial performance of Dhaka Bank Limited are given below:

(Fig in million Tk.)

Table 2.4: Summary of Financial Performance

CREDIT MANAGEMENT OF DHAKA BANK LIMITED

CREDIT PLANNING

Credit planning implies efficient utilization of scarce (loanable) fund to generate earning for the bank. Constituents of credit planning are: forecasting of loanable fund likely to be available in a particular period of time and allocation of the same amongst alternative avenues in a prudent way. Credit planning has got a serious importance because:

Loanable fund comes out of deposit mobilized from the people. So safety of people’s money should be ensured carefully. Unplanned lending may create harm in two ways; firstly, excess lending may create liquidity crisis for the bank. Secondly, too much conservative lending may make the loanable fund idle. Idle but cost-bearing fund again incurs operating cost for the bank. Excess liquidity led by unplanned inadequate lending push the profitability to decline. Planned credit helps to maintain conformity with the national priority. Unplanned credit may upset the total economic stability from macro point of view either by making inflation or deflation.

PORTFOLIO MANAGEMENT

Portfolio Management implies the deployment of loan able fund among alternative opportunities through proper allocation. The objective of portfolio management of credit is the best and efficient management of loan to ensure profitability. Designing the size and pattern of loan portfolio with accuracy is a tough job. Even then, a prudent loan portfolio management can be done by careful consideration of the factors mentioned in the following:

• Bank’s Capital position
• Deposit mix (Tenure of deposit)
• Credit environment
• Influence for monetary and fiscal policies
• Credit needs of the respective commanding area
• Ability & experience of the bank personnel to handle the loan portfolio

In designing a loan portfolio, three things are considered; first, the type of customers the bank wants to serve. Second, involvement of risks with various kinds of loans, and finally, the relative profitability of various kinds of loans.

With each and every coin of loan, there is an involvement of risk. So the quantum of risk should be spread over the various types of loan through diversification. Diversification of credit can be made by extending credit to different sectors, to different geographical area, to different line of product or business and allocating the loanable fund into different type of credit.

Again the concentration of credit into a particular sector or area, product or business is also observed carefully. If credit is already been concentrated to a particular streamline mentioned earlier, that is tried be avoided.

Finally, the type & tenure of deposit is analyzed carefully in determining the loan portfolio of the bank. How much quantum of fund will be earmarked for long term lending and how much for short term depends to a large extent on the deposit structure.

 PRELIMINARY SCREENING OF A CREDIT PROPOSA

Screening means critical diagnosis of a credit proposal at the very initial stage. It should be made carefully just after the proposal comes to the bank. At the time of screening of a credit proposal the preliminary screening be done on the following premises:

• Quality of management and the entrepreneurial background of the sponsors
• Equity strength i.e., the own capital positions
• Position of assets & properties
• Line of business, it’s future prospects and the existing position of the respective industry
• Required technology, machinery, equipment and their availability
• Location, whether the infrastructural facilities are available
• Potential contribution to the overall economic development of the country
• Security proposed to be given and the genuinity of the title of documents

Analyzing the above matters, it is to be convinced that the credit proposal satisfies all the key elements of a sound lending policy such as:

• Safety of fund
• Security (easy marketability of the property given as security)
• Liquidity (the tenure of the loan)
• Profitability
• Diversity
• National interest

 SELECTION OF BORROWER

Selection of borrower is a very significant part of a credit decision. The borrower should be diagnosed prudently. Degree of risk has an inverse relationship with the selection of borrower. Selection of right borrower reduces the risk of non-repayment of the loan. To the contrary, degree of risk of non-repayment increases with the selection of wrong borrower. In our country, the huge volume of non-performing loan is mainly the result of failure in selecting right borrower. So, if it is found that, line of business is prospective and profitable but the potential borrower is not right one, the proposal should not be entertained. There are some parameters for selection of a borrower. Some ‘C’s commonly expresses the parameters. And thus the criteria for selection of a borrower are popularly known as 5 C’s such as:

        i.        Character: Market reputation, morality, family background, and promptness in repayment

      ii.        Capacity:   Ability to manage the business, ability to employ the fund in the right way, ability to overcome unforeseen problems

     iii.        Capital:      Equity strength, assets & properties

     iv.        Collateral:  The easy marketability of the properly given as security

      v.        Condition: Over all business condition

If the borrower’s found satisfactory in terms of all C’s only then it is suggested to entertain the borrower.

APPRAISAL OF A PROJECT

Project is an investment activity from which benefit is expected to be generated over a period of time. Appraisal of project implies the critical analysis of a project from various angles. It is a comprehensive study to see whether the project is commercially profitable, economically viable and socially desirable. An appraisal covers the feasibility study of the following aspects:

1. Technical aspect
2. Marketing aspect
3. Financial aspect
4. Managerial aspect
5. Socio-economic aspect

 Technical Aspect

In this part, the factors those are more or less technical in nature are examined. Examination of the technical factors enables to know whether the project is technically feasible. The Points of observation in this area are:

1. Location or site of the project
2. Availability of infrastructural facilities such as: roads & transport, school, college etc.
3. Availability of raw materials
4. Availability of utilities such as: electricity, gas water etc.
5. Availability of required machinery
6. Climatic position in the project area
7. Availability of required labor
8. Nearness of market for the product
9. Political factors such as Government Patronage, industrial policy of the Government
10. Proximity to complementary projects

Marketing Aspect

Marketing aspect is the most significant aspect. Whether a project will be able to generate profit depends largely upon the market position. The market demand for the product of the project is analyzed in this part of appraisal. The following assessments are made under marketing feasibility test:

1. Past & present demand for the product
2. Past & present supply of the product
3. Expected future demand for the product
4. Demand and supply gap

Existence and impact of complementary goods and the distribution channel or marketing mechanism is critically analyzed in this part of project appraisal.

 Managerial Aspect

This is another important aspect of the appraisal. Managerial feasibility refers to the assessment of ability of management personnel in managing a project efficiently.

The management personnel should have:

1. Technical skill to use knowledge, method and Techniques (acquired from experience, education and training) to perform the job.
2. Human skill to maintain interpersonal relationship within or outside the organization.
3. Conceptual skill to understand the complexities in overall organization.

 Socio-Economic Aspect

The observation of this aspect is to see whether the project is socially desirable. How much contribution will be made by the project to the GDP and how many numbers of employment will be generated by the project should be ascertained.

PRICING OF LOAN

Pricing of loan is a great important element in banking business. Because through pricing, bank usually create margin/profit. So it is determined carefully. In pricing, four components are to be calculated prudently otherwise pricing of that loan may create a definite loss for the bank. The components are:

1. Interest Expense or Cost of Fund: The interest to be given to the depositor and to central banks for borrowing fund
2. Administrative Cost
3. Cost of Capital: Return expected by the investors for their capital invested in the bank
4. Risk Premium

Addition to the first three elements provides the “Prime Rate” beyond which a bank can never go for lending.

Magnitude of the risk premium creates margin for the bank. The rate of risk premium may vary from person to person and even from sector to sector depending upon the value or importance of the client and the prospective priority of the sector. Once upon a time, it was dictated by the Central Bank but now days, in compliance with the open market operation this power has been delegated to the enlisted commercial banks.

CREDIT SCORING SYSTEM

Credit scoring system is a modern approach for assessing the creditworthiness of a potential borrower. Credit scoring system helps to produce a rating, which provides an indication of a company’s management ability and financial strength. Lending Risk Analysis (LRA) & Financial Spread Sheet (FSS) were used as the tools for scoring a credit. Now, banks use Credit Risk Grading (CRG) for scoring a credit following advice of Bangladesh Bank.

By preparing LRA, the degree of risk associated with the credit proposal was determined. By preparing FSS, two scores termed as ‘Y’ score and ‘Z’ score were derived using financial ratios to make an inference about the firm. Now LRA is replaced by CRG.

Credit Risk Grading (CRG) is an important tool for credit risk management as it helps the Banks & Financial Institutions to understand various dimensions of risk involved in different credit transactions. The aggregation of such grading across the borrowers, activities and the lines of business can provide better assessment of the quality of credit portfolio of a bank or a branch. The credit risk grading system is vital to take decisions both at the pre-sanction stage as well as post-sanction stage. Following Bangladesh Bank’s guideline like other banks Dhaka Bank Limited uses CRG to follow the credit scoring system.

DOCUMENTATION OF LOANS & ADVANCES

Immediate after sanctioning of loan, documentation is to be made properly before disbursement of loan. Documentation formalities are commonly known as completion of ‘Charge Documents’ in the banking world. Types of documents signed by the clients vary depending upon the nature of loans and advances given. Some common documents are listed below:

1. Demand Promissory (DP) Note
2. Letter Arrangement
3. Letter of Agreement
4. Letter of continuity (in case of continuous loan)
5. Letter of pledge (in case of Pledge)
6. Letter of Hypothecation (in case of Hypothecation)
7. Letter of Undertaking
8. Letter of Debit Authority
9. Letter of Installment (in case of Term Loan / Short Term Loan to be paid in installment)
10. Letter of Guarantee (Personal Guarantee)

CREATION OF CHARGES OVER SECURITIES

As a safety measure, bank creates charges over the securities against the risk of non-repayment of loan. Here, the most common modes of charge creation are defined below in a very brief from:

Pledge

According to the section 172 of the Contract Act 1872, when a borrower surrenders his business goods to the banker’s custody as the security of loan given by the bank then it is called pledge. The pledged goods remain with the possession and control of the bank and the client draw the goods in case of need with the permission of the bank by repaying adequate amount of loan. Bank usually permits drawing power (DP) to the borrower to draw the goods from its custody after checking the stock report. In case of default, bank deserves the right to realize the loan by selling the pledged goods. Bank create this charge based upon the letter of pledge which has been taken form the borrower before disbursement.

Hypothecation

When loan is given to the borrower against hypothecated possession of goods then it is called Hypothecation. The physical possession & control remains with the borrower’s custody. Bank creates charge over the hypothecated goods in case of default. For creation of this charge bank takes the letter of hypothecation from the borrower.

SUPERVISION, MONITORING & RECOVERY OF CREDIT

Recovery of loan ensures the recycling of fund. Non-recycling of fund leads a bank or financial institution to become stagnant. So, recovery of loans and advances is a must. But the scenario of loan recovery is undoubtedly poor and inefficient in our financial system. Willful non-repayment of loan has become a culture in our country. This is mainly because of inadequate, inefficient and even absence of supervision & monitoring system.

Recovery can be ensured or at least making close supervision and monitoring can increase rate of recovery. Supervision should be started from the starting point of a credit proposal. Supervision can be done in two stages:

Pre Finance Stage Supervision

In this stage, supervision should be made –

•  To select the right borrower i.e., credit worthiness of the borrower should be considered first
•   To be sure about the business prospect
•   To see whether any misstatement made by the borrower etc.

Post Finance Stage Supervision

Post finance stage supervision is sometimes synonymous to the monitoring. Monitoring is a continuous process of overseeing the borrower, his business, his trend in repaying the loan. In this stage, supervision and monitoring should be made-

  To see whether the borrower draws the sanctioned credit regularly

  To see whether the loans are being properly & fully utilized

  To see whether the borrower repays the loan regularly

  To see whether the any significant change happens in the management of the borrower

 To see whether the borrower maintains close contact with bank regularly

  To see whether the any significant change happens in the borrower’s business plan

  To make the borrower aware about the timely repayment of loan

  To take necessary steps in case of need

Supervision & monitoring helps to develop a cooperative attitude between the borrower and the Bank. Moreover, close supervision & monitoring make the borrower loyal to the Bank and thus, supervision & monitoring ensure the recovery of loan.

CREDIT SANCTIONING SYSTEM

 Introduction

There is no hard and fast procedure of managing credit, yet is should follow the instructions of the Bangladesh Bank, Central Bank of Bangladesh and the Circular of Head Office from time to tome. The first step of credit proceedings is the request for credit from the clients. Then scrutinizing and collection of information from primary and secondary sources take place. Credit appraisal and evaluation is the most important part of credit management. On the basis of evaluation approval is given by the higher-authority with certain conditions to be fulfilled. The sanctioning authority does sanction of credit. After fulfilling the conditions, the credit is disbursed. Credit monitoring and reviewing start at the time of disbursement. Necessary steps are taken to minimize the risks and increase the return of the Bank. Delegation of Business Power is important in credit sanctioning. Four-tire level is maintained in case of large amount of credit sanctioning. Credit Risk Grading (CRG) is also prepared in case of credit above Tk.1.00 crore.

The process can be shown as the figure below:

Requests for Credit from the Client

Bank provides credit facilities to the people/organizations that are creditworthy to the bank. Creditworthiness depends on the credibility, financial capability and feasibility of the project and management ability of the credits to earn profit. When bank is satisfied with all these then the client is provided with the requested credit. At this point it should be mentioned that the client has to go through an interview where his credit potentiality is justified through critical observations. When credit officer is satisfied with the customer he is asked to submit an application and / or to fill up a form with specific details.

Credit Application

Completeness of information can best be obtained by requesting the applicant to fill out a comprehensive application. Psychological attitudes towards the seriousness of credit obligations are improved when the application is rather formal and complete.

When the customer fills in the application, it is well for the interviewer to look over the form and to provide supplemental information, which will assure completion of the blanks not filled in, or which probes more deeply into the questionable areas. It is well to provide space on the form for the recording of more information after the customer has left. Points in favor of having the applicant fill out the form are that fewer skilled credit personnel are necessary and that more customers can be accommodated in the same space.

Signature and Contract

It is regarded as good credit practice to have the applicant’s sign in the application. Some credit departments add words above the signature, which make the application a rather formal written contract. The clause may be a testimony that the information is given for the purpose of obtaining credit and that the facts are complete and correct. The clause may also be recite the terms and be drawn as contract between creditor and debtor.

Scrutinizing and Collection of Information

In case of clients who have previous record of taking credit facilities, then the existing records are examined to see whether the client has a good record of payments in time. Otherwise, information is to be collected through direct inquiry.

Direct Inquiry

Direct inquiry one of the common methods of obtaining information to verify facts presented on the application during the interview of an applicant for an initial credit transaction. A careful distinction is made between obtaining credit information directly from sources having such facts and between buying somewhat similar credit data in the form of prepared reports from the credit reporting bureaus and agencies. To collect direct information credit officers visit the clients to see the viability of the information provided by the client. Information regarding the existing and the prospective client are also obtained from the Credit Information Bureau (CIB) of Bangladesh Bank to see the existing borrowing records of the client.

 In-file Ledger Fact:

In-file ledger facts are one of the most important sources of information available to credit committee whether to accept or reject a larger amount of credit from an established credit customer. From the in-file records, credit analysts have at their disposal the experience of the concern with the customer. They know the customer’s payment habits, the complaints registered, the collection efforts, if needed to keep the customer in line with the established terms.

Credit Appraising & Presentation of Proposal for Approval

When credit officer is satisfied with the creditworthiness, financial capability, management ability and feasibility of the project through credit appraisal of clients, the client can hope for credit from the bank. Credit appraisal is done through ‘credit appraisal form’. Ratio analysis is give importance in case of project finance. But most of the medium quality loans are given on the basis of financial capability of repaying and creditworthiness of the client. Credit Risk Grading (CRG) is done in a prescribed form in case of large amount of loan, above Tk.1.00 crore.

Credit officer prepares a credit proposal in a prescribed ‘Format’ (Annexure B). Credit officer measures the risk associated with the credit facility. No credit proposal can be put for approval unless there has been a complete written analysis. It is absolute responsibility of the proposing Officer to ensure that all necessary documentation have been collected before the facility request is sent to the sanctioning authority.

 Approval of Credit by Higher Authority

Branch Credit Committee: Branch credit committee headed by the Branch Manager, is the first authority of credit approval. The branch manager has an approved delegation for sanctioning credit facilities depends on his/her designation. In the Branch Credit Committee other members are selected by the manager in consultation with Head Office. If the proposed credit facility exceeded the delegation of branch manager then the proposal sent to Head Office with a recommendation for approval.

The Management Credit Committee (MCC): Management Credit Committee (MCC) is a committee in Head Office. The Committee is headed by the Managing Director of the Bank. The other members of the committee are the Deputy Managing Directors and Head of Credit Risk & Credit Operations. The Credit Risk Managers present the credit proposals obtained from the branches, before the Management Credit Committee. The Committee sits in a meeting twice a week for reviewing the credit proposals of the branches. Management Credit Committee in accordance with the authority established and delegated by the Executive Committee of the Board of Directors:

• Reviewing, analyzing and approving extension of credit in accordance with authority established and delegated by the Executive Committee of the Board of Directors.
• Evaluate the quality of tending staff in the bank & take appropriate steps to improve upon.
• Recommending credit proposals to the Executive Committee of the Board of Directors which are beyond the delegated authority.
• Ensuring that all elements of Credit application i.e. Forms, Analysis of statements and other papers have been obtained and are in order.
• Confirming that the transaction is consistent with existing loan policy of the Bank and Bangladesh Bank guidelines & if not the Committee may prepare a recommendation form an exception to or change in policy for consideration by the Executive Committee of the Board of Directors.

If the proposed credit facilities fall under the delegation of Management Credit Committee (MCC), then the Credit Officer of the respective unit prepares credit recommendation for MCC. After signing by the Head of Credit Risk, Deputy Managing Director (Risk) and Managing Director, sanction advices are issued to the respective branch mentioning the approval terms and conditions. When the proposed credit facilities cross the delegated limit of MCC, the MCC recommends the proposal to the Executive Committee of the Board of Directors.

The Executive Committee: The Executive Committee of the Board of Directors is the approving authority of credit facilities as delegated by the Board of Directors. The Committee is headed by a Director nominated by the Board of Directors. The other members are also represented by the nominated directors of the Board, the Managing Director, the Deputy Managing Directors and the Company Secretary. The Executive Committee sits in a meeting once a week for approving the credit proposals recommended by the Management Credit Committee. The main duty of the Committee is supervising and implementation of the directives of the Board of Directors and reviewing the recommended credit proposals by the Management Credit Committee. The Executive Committee also monitors the credit proposals approved by the Management Credit Committee. The Executive Committee is empowered by the Board of Directors for extending any amount of credit not exceeding the limit directed by the Bangladesh Bank relating to the capital of the Bank. As per Bangladesh Bank’s directive the approved credit limit (funded and non-funded) under one obligor can not exceed 50% of Bank’s capital for the 100% export oriented concerns while 35% in case of other concerns, provided the funded facilities should not exceed 15% of Bank’s capital in both the cases.

SANCTION OF CREDIT

Most important step of providing credit facility is the sanctioning of credit. Because sanctioning authority will be held responsible for any discrepancy. In this step all the documentation is completed and the customer is sent an advice letter for the credit facility along with all the terms and conditions.

Norms maintained in sanctioning of credits are described below:

• Credit will be sanctioned and disbursed strictly in terms of the approved Credit Operating Manual of the Bank and Head Office Circulars issued from time to time.
• All norms informed through the Circulars of Credit Division in particular and all other relevant circulars in general, which are to be followed meticulously while exercising power.
• Credits will be subject of Bangladesh Bank restriction.
• The party to whom credit will be allowed should be as far as possible within the command area i.e. Area of operation of the Branch. Deviations, if any are to be explicitly explained in the proposal.
• No Sanctioning Officer can sanction any credit to any of his/her near relations and to any firm/company where his/her relations have financial interest. Such cases should be sent to the Head Office.
• All Sanctioning Officers maintain a Sanction Register for recording serially all the credits sanctioned by him/her. Sanctioning Officer will accountable for non-recovery due to his injudicious decision.
• All approval of credit facilities must be conveyed under dual signature. Ideally both the signatories must have the required lending authority. If, however, two lending officers of the required lending are not available, one of the signatories must have the required authority.

DISBURSEMENT OF CREDIT

Disbursement of credits presupposes observance of all norms and procedures, which are conveyed through different Circulars of Head Office, issued from time to time.

CREDIT ADMINISTRATIONS AND FILE MAINTENANCE

Credit File Maintenance: The credit file for each facility shall contain all information necessary to facilitate ready monitoring of that facility. It should contain a thorough history of the customer relationship to help credit officer to track any problem, assist a newly assigned credit officer in understanding the customer and make the lending process transparent. Primary items in Credit File include:

• Credit application and Credit approval notes/analysis. Evidence of credit approval and data upon which approval was granted together with any comments, if appropriate.
• Copy of sanction and loan agreement. A checklist along with copies of all legal & banking documents obtained/to be obtained. Details and six-monthly updated information of all related facilities to the name customer.
• All supporting data such as financial statements and analysis, references, credit investigation results, CIB & other Banks’ reports and notes of all discussions with the borrower and other relevant parties with paper clipping.
• Correspondences, call reports, site visit reports, stock reports etc. Each credit file shall be maintained in a secured location and where access restricted to authorize personnel’s only. Copies of the information may be kept where regular access is required.

CREDIT MONITORING AND REVIEWING

It is the responsibility of the Manager to monitor the over all profile and risk aspect of the credit portfolio in accordance with the criteria set down in the Bank Credit Policy. Such monitoring shall be evidenced from the comments of the Manager in monthly Call/Visit Report and be kept in the Credit File with a copy to the Head Office.

This Review shall be formally performed at intervals prescribed by Head Office but it is the responsibility of the Manger to ensure at all times that the credit portfolio meets the standard set forth by the Bank.

Periodic review and follow-up should aim at ensuring:

1. Terms of approval have been maintained.
2. Conduct (turnover, regularity of repayment etc.) of the borrowing accounts during the period under the review has been satisfactory or as expected.
3. Continuing value of the collateral is adequate.
4. There are no adverse trends in market, economic and political conditions which may endanger the reliability of the facility.
5. Business reciprocity offered and received is commensurate with the facilities allowed.
6. Earning from the account is cost effective (i.e. adequate to meet business cost of funds and leave sufficient margin for adequate risk reward, overheads and profits).
7. Borrowers’ business is being satisfactorily conducted as reflected through a review and analysis of the financial and operating statements.

Assessment of Group Exposure

If facilities of any customer group are booked in a number of locations, an officer designated by Head Office shall be responsible for the management of the Bank’s global exposure to that customer group. Any development in the customer’s which may effect the management of the facility and in particular the credit rating assigned to the customer, shall be documented and advised by the designated officer to the concerned Branch and to the Head Office, Credit Division.

Product wise loan of Dhaka Bank Limited as of December 31, 2008:

(Fig in crore Tk.)

Table 3.1: Loan Portfolio (product wise) of Dhaka Bank Limited

The above table and figure represent that the bank has disbursed largest part of loans and advances as Term Loan (30%), which provides more interest base income. Besides the loans there are guarantee businesses like Letter of Credits, Bank Guarantee etc. that provide fee base income for the bank.

Sector wise loan disbursement of Dhaka Bank Limited as of December 31, 2008:

(Fig in crore Tk.)

Table 3.2: Loan Portfolio (sector wise) of Dhaka Bank Limited

The above table and the following figure show that the agricultural sector gets the lowest priority with 0.06% and the Garments sector gets the highest priority with 23.01% share of total loans and advances of the bank.

The following table and figure show that the highest portion of total disbursed loans is for trade financing occupying 36.19% and the second priority purpose is to establish industry occupying 24.32%.

Purpose wise loan disbursement of Dhaka Bank Limited as of September 30, 2008:

(Fig in crore Tk.)

Table 3.3: Loan Portfolio (purpose wise) of Dhaka Bank Limited

General Norms for Monitoring Credit Facilities

The Branches will submit a monthly statement of the credits allowed under the discretionary powers of the Manager to the Head Office irrespective whether the same are outstanding or not on the date of return.

PERSONAL BANIKNG OF DHAKA BANK LIMITED

 DBL PERSONAL BANIKNG

           In the middle of private sector banks, Dhaka Bank Limited has already made its mark in the personal banking segment. Personal banking program offers a comprehensive range of products and services matching the need of every discerning customer. Transactional accounts, savings schemes of loan facilities from Dhaka bank provide a rare blend of convenience and unparalleled service quality to the customers. The bank is committed to bringing the present and prospective customer the best. And that is in line with the bank’s promise to the customer- Excellence in Banking.

TYPES OF PERSONAL BANKING

            Dhaka Bank Limited introduced its personal banking division in 2003. It was done in response to the market demand for a complete range of modern banking products and services, restructuring the existing products and services and introducing new products. Personal banking division mainly provides two types of products and services. These are: –

1. Retail Deposit Products
2.  Retail Loan Products
3. 4.1 Choose the Right Key

Dhaka Bank Saving Bundle Product is the first of its kind in Bangladesh. A unique blend of all flexibilities of a current account and provision high interest on daily balance and monthly interest paid savings account in three schemes, namely-

• Dhaka Bank Silver Account
• Dhaka Bank Gold Account
• Dhaka Bank Platinum Account

Dhaka Bank Savings Bundle product is another landmark to our commitment – Excellence in Banking

Key Features:

Account Opening Balance: You have to deposit taka 30,000/ for Silver Account taka 50,000/ for Gold Account and taka 1,00,000/ for platinum Account.
High Interest on Daily Balance: You will get high Interest on daily balance, 7% in Silver account 7.5% in Gold account and 8.5%.
Interest Calculation & Payment: Interest will be calculated on daily balance and paid at the end of the month.

Interest Forfeited: If the day end balance falls below minimum balance i.e. taka 30.000/- in Silver Account, taka 50,000/- in Gold Account & taka 1,00,000/- in Platinum Account, you will lose your interest on that day and if your monthly withdrawal is above 4 in Silver account, 8 in Gold account & 12 in Platinum Account then you will lose your interest on that month.

Other Benefits: Customer will get the following benefits for opening any of the above account

• Lifetime annual fee Free ATM card
• Lifetime annual fee Free Credit Card
• 0.5% less interest on Retail Loan
• Free Cheque Book i.e. 50 leaves in Silver Account, 100 leaves in Gold account & 150 leaves in Platinum Account.
• Free SMS & Internet Banking

Who Can Apply: If you are a Salaried Individuals& Professionals having a minimum monthly income of taka 30,000/- can open a Silver Account with any branch of Dhaka Bank.

If you are a Salaried Individuals Professionals & Entrepreneurs having a minimum monthly income of taka 75,000/- can open a Gold Account with any branch of Dhaka Bank.

If you are a Salaried Individuals Professionals & Entrepreneurs having a minimum monthly income of taka 1,50,000/- can open a Platinum Account with any branch of Dhaka Bank.

You can also open the account jointly.

Required Documentation: To open the account you have to submit national ID or Passport as photo ID with your recent 2 copy PP size color photo and a PP size color photo of nominee. Besides this, you have to submit the following if you want to get the Credit Card.

• Salary Certificate for salaried individuals
• Last Six months Bank Statement
• TIN certificate

Yearly Fee: An annual fee will be charge at the time of account opening day and the amount is taka 2500/- for Silver account taka 3500/- for Gold account & taka 5000/- for Platinum account .

How To Open the Account: If you are a Salaried Individuals or Professionals or entrepreneurs and all you have as mentioned you can open an account with any Branch of Dhaka Bank.

 DEPOSIT DOUBLE

Deposit Double is a time specified deposit scheme for individual clients where the deposited money will be doubled in 6 years. The key differentiators of the product will be:

1. Amount of deposit – The minimum deposit will be BDT 50,000.00 (either singly or jointly). The client will have the option of depositing any amount in multiples of BDT 10,000 subject to a maximum of Tk 20,00,000 in a single name and Tk 35,00,000 in joint name.
2. Tenure of the scheme – The tenure of the scheme will be 6 years.
3. Premature encashment – If any client chooses to withdraw the deposit before the tenure, then s/he will only be entitled to prevailing interest rate on savings account in addition to the initial deposit. However, withdrawal of the deposited amount before one year will not earn any interest to the depositor(s).
4. OD Facility against Deposit – Clients will have the option of taking advance upto 90% of the initial deposited amount. The lending rate will be tied up with the interest rate offered on the deposit.

4.2 Deposit Pension Scheme

1. Amount of monthly deposit – The scheme offers the clients the flexibility of tailoring the amount of monthly deposit based on his monthly cash flow position. The minimum monthly deposit will be BDT 500.00 The client will have the option of depositing any amount in multiples of BDT 500.00 subject to a maximum of Tk 20,000.
2. Flexible tenor of the scheme- The client has flexibility of deciding on the tenor of the scheme in-terms of number of months. However, the minimum tenor would be 48 months and the maximum would be 144 months.
3. Flexibility to open any number of DPS Account- A client can open maximum five DPS accounts in client’s name, in his/her spouse’s name or in the name of his/her children or in joint names with any of his/her family members.
4. Bonus point – if the client continues the scheme up-to maturity then at maturity, the client will be awarded a bonus 1% on the total deposit amount. However, to qualify for the bonus point, client may default in paying maximum 2 installments within the tenure of the DPS.
5. Premature encashment – if any client closes the deposit account before one year, s/he will not be entitled to any interest. Account running more than a year will be eligible for the prevailing interest offered in the savings account.
6. Late payment fee – Clients failing to deposit any installment will pay 5% late payment fee on the deposit installment amount as late payment fee, which will be realized at the time of depositing the next deposit Installment.
7. Payment through Account – Clients will have to open an Account with Dhaka Bank Limited and a standing instruction will be executed for auto-debit to effect the monthly installment.
8. OD Facility against DPS – Clients will have the option of taking advance upto 90% of the deposited amount at the time of application. However, to be eligible for the OD facility, the account must be at least 2 years old or the minimum ticket size of the advance will be Tk 20,000.00.

Restrictions and Client Eligibility

• Any Bangladeshi Citizen attaining 18 years of age will be eligible to avail this product by opening an account in any of the branches of DBL. Branch will ensure compliance with account opening formalities.
• A minor operated by the legal guardian may also open the account.
• The tenor and the deposit amount agreed by the applicant and accepted by the Bank at the time of opening the account cannot be changed afterwards.

Closure Of Account
The account will immediately cease to operate in case of the following:

• Death of the account holder.
• Failure to pay 5 consecutive installment

Settlement Of The Account
DOCUMENTATION – In order to open the account, the account holder will execute the following documentation:

• Fulfilling Account opening formalities
• Filling up the DPS Application form
• 2 copy Pass port size Photograph of the applicant
• 1 copy passport size photograph of the nominee attested by the applicant

4.3 Income Unlimited

The management of Dhaka Bank Limited is pleased to launch Special Deposit Scheme, a new liability product on May 04, 2005.

• Product Name
  Special Deposit Scheme
• Product Features

• Opening an account
  Clients must have or open a savings account through which initial deposit will be collected. The monthly interest accrued on the deposit will be disbursed to the client through this savings/current account.
• Deposit mode
  The depositor(s) will have the option of making the initial deposit to the new / existing savings account in cash or through an account payee cheque.
• Interest payout mode
  Interest payout mode should be transfer to savings account.
• Interest Payout Frequency
  Interest Payout Frequency should be monthly.
• Renewal / Redemption Instruction
  Maturity / Renewal Instruction should only be “Renew principal and redeem interest” or Redeem interest & principal
• Closure of Account
  The account will immediately cease to operate in case of death of the depositor
• Settlement of Account
  The account will be settled in line with the instructions laid down in the account opening forms in case of death of the accountholder.
• Premature encashment
  If any client chooses to withdraw the deposit before the tenure, then s/he will only be entitled to prevailing interest rate on savings account in addition to the initial deposit. However, withdrawal of the deposited amount before one year will not earn any interest to the depositor(s). Amount already paid to the clients monthly along with the tax should be adjusted accordingly.
• Settlement of pre-mature encashment

• OD Facility against Deposit
  Clients will have the option of taking advance upto 90% of the deposited amount at the time of application. The prevailing lending rate will be effected against the advance.
• Documentation
  In order to open the account, the account holder will execute the following documentation:
  • Fulfilling Account opening formalities
  • Filling up the SDS Application form
  • 1 copy Passport size Photograph of the applicant
  • 1 copy passport size photograph of the nominee attested by the applicant
• Restrictions and Client Eligibility
  • Any Bangladeshi Citizen attaining 18 years of age will be eligible to avail this product by opening an account in any of the branches of DBL. Branch will ensure compliance with account opening formalities.
  • A minor operated by the legal guardian may also open the account.
  • The deposited amount and the tenure agreed by the applicant and accepted by the Bank at the time of opening the account cannot be changed afterwards

 EXCEL ACCOUNT

Excel Account has been tailored in the manner of having both asset and liability characteristics blended into a single product for salaried individuals employed in any institution. On virtue of this product, prospective clients receive a credit interest based on the credit balance available in the account. The clients will also be required to pay the bank OD interest if the balance of the account becomes overdraft.

What is the maximum tenure for availing this facility?
The tenure of the account will be for 3 years maximum, having renewal facility for every year until the client resigns from the institution.

Is there an OD Facility against the Excel Account?
OD facility is a pre-embedded feature of the Excel Account. An OD limit is given to the account up to the amount of the salary of the individual employed at the institution.

What is the offered Interest Rate?
For a credit balance this facility provides an interest rate of 4.5% p.a. based on the daily balance of the account. If in the case, the account is utilized for an OD limit, the debit balance will be subject to a debit interest rate of 16% p.a.

What other features are available with the Excel Account?
At current, the Excel account is featured with ATM Facilities. Very soon, Dhaka Bank Ltd. will be offering Debit Card facility with Excel Account.

Pre-requisites for availing the Excel Account:

• The institution to which the individual is employed must have salary account maintained with the bank.
• The institution must have a corporate guarantee maintained with the bank.

Govt. Charges:
The account is subject to taxes and other Govt. levies during the tenure of the deposit.

SALARY ACCOUNT

Dhaka Bank has launched a special package of savings account for employees belonging to institutions with which Dhaka Bank has a corporate agreement. With this package salaried employees of these institutions enjoy interest on a daily balance. The key features of the Salary Account are:

• Interest to be calculated on a daily balance basis
• No Periodic Service Charge
• ATM Card Facility
• Credit Card Facility
• On-line Banking Facility
• Internet & SMS Banking Facility

 GIFT CHEQUE

Dhaka Bank has recently refurbished its Gift Cheque. The features of the gift cheque are as follows:

• Can be encashed at any branch even if the encashing branch is not the issuing branch of the instrument.
• Interest will be applicable only if the instrument is encashed after three months from the date of issue in the following manner:
  1. No Interest if encashed before three months from the date of issue.
  2. 6% if encashed after three months and before twelve months from the date of issue.
  3. 7.25% if encashed after twelve months from the date of issue.
• The gift cheque may be encashed using either of the two modes, (a) cash or (b) Fund Transfer. Encashment of gift cheque is not allowed over clearing.
• No service charge is applicable
• Dhaka Bank Limited issues gift cheques in three denominations of Tk.100, Tk.500 and Tk.1000

 RETAIL LOAN PRODUCTS

4.4 Personal Loan

                     PERSONAL LOAN

As part of establishing a Retail Banking franchise of Dhaka Bank Limited, the bank has successfully launched Personal Loan. The product is a term financing facility to individuals to aid them in their purchases of consumer durables or services. The facility becomes affordable to the clients as the repayment is done through fixed installment s commonly known as EMI (equated monthly installment) across the facility period. Depending on the size and purpose of the loan, the number of installments varies from 12 to 48 months.

The target market for personal loan will mainly comprise of following category –

1. Salaried employees of institutions in the Dhaka, Chittagong and Sylhet markets.
2. Professionals who are self employed and have at-least 3 years of independent practice in the area of profession.
3. Businessmen who are permanent residents of Dhaka, Chittagong and Sylhet metropolis with at least 3 years of continued operation in the line of business.

Restrictions and client eligibility

1. Loans are restricted to Bangladeshi nationals falling in the categories mentioned below The minimum age for any borrower will be 25 years and the maximum age 52 years with a minimum verified Gross Family Monthly Income of BDT 10,000.

4.5 Car Loan

 CAR LOAN

Car Loan is a term financing facility to individuals to aid them in their pursuit of have a car of their dream. The facility becomes affordable to the clients as the repayment is done through fixed installment s commonly known as EMI (equal monthly installment) across the facility period. Depending on the size and purpose of the loan, the number of installments varies from 12 to 60 months. In case of brand new cars the loan tenure will be maximum 72 months.

Targeted market
The target market for personal loan will mainly comprise of following category

1. Salaried employees of institutions in cities where Dhaka Bank Operates.
2. Professionals who are self employed and have at-least 3 years of independent practice in the area of profession.
3. Businessmen who are permanent residents of Dhaka, Chittagong, Sylhet metropolis and where Dhaka Bank Operates with at least 3 years of continued operation in the line of business.

Restrictions and client eligibility

1. Loans are restricted to Bangladeshi nationals falling in the categories mentioned below. The minimum age for any borrower is 25 years and the maximum age is 52 years with a minimum verified Gross Family Monthly Income of BDT 45,000.

4.6 Vacation Loan

 VACATION LOAN

Like the Car Loan, Vacation Loan of Dhaka Bank Limited is a term financing facility to individuals to aid them in their pursuit of spending a vacation in the country or abroad. The facility becomes affordable to the clients as the repayment is done through fixed installment s commonly known as EMI (equal monthly installment) across the facility period. Depending on the size and purpose of the loan, the number of installments varies from 12 to 48 months.

Targeted Market
The target market for personal loan mainly comprises of the following categories –

1. Salaried employees of institutions in the Dhaka, Chittagong , Sylhet markets and where Dhaka Bank operates.
2. Professionals who are self employed and have at-least 3 years of independent practice in the area of profession.
3. Businessmen who are permanent residents of cities where Dhaka Bank operates with at least 3 years of continued operation in the line of business.

Restrictions and client eligibility
Loans are restricted to Bangladeshi nationals falling in the categories mentioned below The minimum age for any borrower will be 25 years and the maximum age 52 years with a minimum verified Gross Family Monthly Income of BDT 10,000.

4.7 Home Loan

HOME LOAN

The product is a term financing facility to individuals to aid them in their purchases of apartment or house or construction of house. The facility will become affordable to the clients as the repayment is done through fixed installment as commonly known as EMI (equal monthly installment) across the facility period. Depending on the size of the loan, the maximum period of the loan would be 180 months (15 years).

Targeted Market
The target market for Home Loan will be mainly focused in Dhaka and Chittagong . However, strong recommendation from branches operating in other areas will also be facilitated with the major concentration on the following category –

• Salaried employees of institutions with minimum 3 years continuous service
• Self-employed Professionals who are self employed and have at-least 5 years of independent practice in the area of profession. (Example: Doctors, Dentists, Engineers, Chartered Accountants, Architects who are members of their professional institutes.)
• Businessmen who are permanent residents of Dhaka, Narayangonj, Chittagong and Sylhet with at least 5 years of continued operation in the line of business.

Restrictions and client eligibility

1. Loans are restricted to Bangladeshi nationals falling in the categories mentioned below: The minimum age for any borrower will be 21 years with a maximum age 50 years (at the time of application). The minimum verified Gross Family Monthly Income of the applicant should be BDT 40,000.00.
   The family income will include only the income of the applicant and spouse.
2. The maximum permitted Equal Monthly Installment (EMI) paid by the borrower should be no more than the 33% of the Family Monthly Disposable Income (FMDI) of the borrower per month.
3. In calculating FMDI, we propose to use the following industry standard formula:
   Proven income of obligor PLUS proven income of spouse (if the spouse is working) LESS current monthly loan obligations (if any), other monthly fixed obligations (rent, children’s education, monthly food expenses, etc).

4. The maximum loan tenor for different amount of loan is proposed to be as following

5. * The tenor will be decided at the discretion of the management.

                                           4.8 Any Purpose Loan

 ANY PURPOSE LOAN

Its time to do a few things you really wanted to.

Introducing “Any Purpose Loan” from Dhaka Bank Limited. Now you can get loan up to Tk. 500,000* to spend it any way you choose to. Just walk into any of our branches and walk out loaded.

SME

INTEREST & EXPERIENCE IN SME FINANCING – DHAKA BANK LIMITED

Since inception, the Dhaka Bank has held socio-economic development in high esteem and was among the first to recognize the potentials of SMEs.

Dhaka Bank’s Involvement:
Recognizing the SME segment’s value additions and employment generation capabilities quite early, the Bank has pioneered SME financing in Bangladesh in 2003, focusing on stimulating the manufacturing sector and actively promoting trading and service businesses.

Story of a successful Branch in SME Financing:
The Bank started branch operations at Belkuchi Sirajgonj in April 2003. Prior to the Bank’s intervention, the weaving community did not have the financial strength to stock their products till “Eid ul Fitr” when the annual sale takes place. Traders were taking advantage to the situation by buying up entire productions at low prices and liquidating stocks just before “Eid”. With financial services from Dhaka Bank Limited, the weavers have converted to power looms, significantly increased profitability and reduced the involvement of middlemen.

We are now working on institutionalizing the learnings and applying them in other areas across Bangladesh, particularly in textiles, light engineering and other manufacturing clusters. Already we have identified several clusters and are working on improving access to finance within these clusters.

Experience & Learnings

In our opinion, the single largest problem of the lower end of the SME sector is that they are unable to fully understand their needs. Even if these needs are understood, they are seldom met with the right product mix.

Small business owners are unable to provide banks with required information of the right type and quality. This has created a gap between the borrower and the banks and has served to limit the outreach of SME financial products.

In order to overcome this obstacle, Dhaka Bank SME Unit provides comprehensive support to prospective clients in evaluating their business and preparing the required documents in acceptable formats.

In this regard, the Dhaka Bank SME Unit has been working in close collaboration with the USAID, the SouthAsia Enterprise Development Facility (SEDF) an International Finance Corporation (IFC) managed multidonor facility and the World Bank.

Dhaka bank has recently been provided technical assistance by the World Bank and is also working with other development agencies and donors for continuous improvements in the products and services Dhaka bank offer.

OTHER BANKING IN DBL

GLOBAL TRADE SERVICES

Global Trade Services (GTS), Head Office consists of two units- Financial Institutions or FI and Remittance Unit.

A. Financial Institutions

FI arranges correspondent banking network, credit lines and other facilities required for 15 Authorized Dealer (AD) branches and one Offshore Banking unit of DBL. With a vast network (320+) of correspondents throughout the globe, Dhaka Bank Limited is one of the banks in Bangladesh enjoying credit line facility from International Finance Corporation (IFC) under it’s Global Trade Finance Facilitation Program (GTFP) for conformation of the L/Cs issued by itself. Dhaka Bank Ltd. provides the following services:

• Import Letter of credits
• Export Letter of credits, negotiation & documentary collection
• Local guarantees against counter guarantees

B. Remittance

Dhaka Bank Limited started providing remittance services through it’s local & foreign correspondents in 2004. Dhaka Bank Ltd. has 44 branches and 3 Kiosks in Bangladesh posing a total of 47 branches. Dhaka Bank is also working with two NGOs namely PAGE DEVELOPMENT CENTRE (Comilla based with 60 branches) and PADAKEEP MANABIK UNNOYAN KENDRA (a National NGO with 150 branches). DBL has extended its horizon to a total of 300 branches altogether and is not limited to only banking affairs in the urban area but also related with the social activities (e.g. agro loan) in the rural Bangladesh.

DBL deals with the following Exchange Houses & Bank:

Table 5.1: DBL Deals with Exchange House & Bank

CORPORATE BANKING

Providing a tailored solution is the essence of our Corporate Banking services. Dhaka Bank recognizes that corporate customers’ needs vary from one to another and a customized solution is critical for the success of their business.

Dhaka Bank offers a full range of tailored advisory, financing and operational services to its corporate client groups combining trade, treasury, investment and transactional banking activities in one package.

Whether it is a project finance, term loan, import or export deal, a working capital requirement or a forward cover for a foreign currency transaction, our Corporate Banking Managers will offer you the right solution. You will find top-class skills and in-depth knowledge of market trends in our corporate Banking specialists, speedy approvals and efficient processing fully satisfying your requirements – altogether a rewarding experience. Our experience in handling Corporate Banking business covers a wide span of businesses and industries. You can leverage on our expertise in the following sectors particularly:

– Telecom, Media and Technology
– Textile, Ready Made Garments
– Edible Oil, Consumer and Diversified Industries
– Shipping, Ship Breaking, Steel and Engineering
– Energy, Chemicals and Pharmaceuticals
– Cement and Construction
– Financial Institutions

Floating of Public Issues

The Bank assists companies to underwrite public issues. Dhaka Bank has successfully participated in a number of issues.

LOAN SYNDICATION

DBL participation in a number of loan syndication arrangements involving foreign investment has been highly acclaimed. The projects we have handled as the lead arranger or co-arranger with other banks and financial institutions include production and export oriented ventures in power generation, cement production, food processing and a large undertaking in leisure and amusement.

Dhaka bank endeavor on a continuous basis to meet your requirements efficiently by rendering a tailored package of financial services. You can depend on DBL.

 FINANCE & ADVISORY SERVICES

Given the needs of its large and varied base of corporate clients Dhaka Bank will be positioning itself to provide investment banking advisory services. These could cover a whole spectrum of activities such as Guidance on means of raising finance from the local Stock markets, Mergers and Acquisitions, Valuations, Reconstructions of Distressed companies and other expert knowledge based advice. By this means Dhaka Bank hopes to play the role of strategic counselor to blue-chip Bangladesh companies and then move from the level of advice to possible implementation of solutions to complex financing problems that may arise from time to time. This would be an extra service that would complement the normal financing activities that Dhaka Bank already offers to corporate business houses.

SECURITIZATION OF ASSETS

A powerful and effective means of generating funds for a certain category of institutions, Securitization of Assets is still in its infancy in The need however for such a service is great and there is a lot of support from multilateral financial institutions, such as the World Bank and the Asian Development Bank, for such activities to be developed further in this country.

Dhaka Bank intends to take up this challenge and play a significant role in ensuring that Securitization of Assets becomes a normal part of the range of financial instruments available for organizations who can count on a steady, but piecemeal, flow of revenue and want to translate this stream into cash resources with which to carry out further lending activities to new customers. Some practical issues still need to be settled such as those concerning pricing, or the legal framework, but it is expected that, as Dhaka Bank and other institutions pursue more such securitization activities these will be resolved.

SYNDICATION OF FUNDS

There has been a surge in the number of syndication deals closed in the last few years. 2004 was an exceptionally good year for syndicated deals for the local commercial banks also for the foreign banks. The total number of syndications in 2004 exceeded 10 totaling over Tk. 10 billion. This rise in the number of syndications can be primarily attributed to the prudential lending guidelines of the Bangladesh Bank. A commercial bank may provide funded facilities up to a maximum of 25% of its equity. Due to this reason, projects with sizeable costs need to approach more than one bank for their debt requirements and therefore the demand for syndications exist. Credit risk diversification has led many international companies to introduce credit derivatives that are actively being traded. Securitzation of assets is one such credit risk derivative that allows financial institutions to diversify their portfolios.

At Dhaka Bank Limited, the Syndications and Structured Finance unit was setup on October 30, 2004. This unit successfully closed two syndicated deals in the first and second quarters of 2004. The Syndications and Structured Finance team as a business unit soon followed up by closing another deal totaling Tk 2.10 billion for a large local corporate. The year (2004) being the first full year of operation for the team ended on a high note as we were able to close three syndicated deals as the Lead Bank, two deals as the Co-Arranger and several other deals as a participant.

ISLAMIC BANKING

Dhaka Bank Limited offers Shariah based Islamic Banking Services to its clients. The bank opened its First Islamic Banking Branch on July 02,2003 at Motijheel Commercial Area, Dhaka. The second Islamic Banking branch of the bank commenced its operation at Agrabad Commercial Area, Chittagong on May 22, 2004.Dhaka Bank Limited is a provider of on line banking services and any of its client may avail Islamic Banking services through any of the branches of the bank across the country.

Dhaka Bank Islamic Banking Branches offer fully Shariah based, Interest free, Profit-Loss Sharing Banking Services. Dhaka Bank Shariah Council is closely monitoring its activities. Besides, Dhaka Bank is an active member of Islamic Banking Consultative Forum, Dhaka and Central Shariah Board of Bangladesh. There are valued clients may have the following accounts with the Islamic Banking Branches

01.Al-Wadeeah Current Account.
02.Mudaraba Savings Account.
03.Mudaraba Term Deposit Account.
04.Mudaraba Special Notice Account.
05.Mudaraba Hajj Savings Account.
06.Mudaraba Pension Scheme Account.
07.Mudaraba Special Deposit Scheme Account.
08.Mudaraba Foreign Currency Deposit Account.

Dhaka Bank Limited Islamic Banking Branches offer the following products

01.Mudaraba Purchase Order.
02.Bai Muazzal Industrial.
03.Bai Muazzal Others.
04.Mudaraba Post Import Trust Receipt.
05.Mudaraba Term Financing Industrial.
06.Mudaraba Term Financing Others.
07.Sirkatul Milk.
08.Ijara Transport.
09.Ijara Machinery & Equipment.
10.Quard.

CASH OPERATIONS OF DBL

The major cash operations & management of a branch in Dhaka Bank Ltd. May consist of the following functions:

Cash deposit

Cash withdrawal

Inter branch cash remittance

Cash remittance to & from Bangladesh bank

End of day cash balancing

The above functions along with some other day-to-day financial & non-financial transactions have been elaborated below.

1.1                Cash Deposit:  To deposit cash in the account of any customer of any type of account bank provide a deposit slip with rubber stamp seal and signature of cash officer.

1.2                Cash Withdrawal: cash withdrawal to place a Cheque over the bank counter which made by account holder

1.3                Inter Branch Cash Remittance: To remit any amount to another branch,

1.4                Cash Remittance To & From Bangladesh Bank: When cash surplus every branch of Dhaka Bank Ltd. Remit cash to their mother branch then mother branch remit the cash to Bangladesh on the other hand when cash shortage of any branch mother branch remit cash to its depending branch in such case mother branch sometimes shortage cash they bring cash from Bangladesh branch.

End of Day Cash Balancing: All the customer’s transactions are finished then every branch of Dhaka Bank Ltd. Are following some step to close their cash and lock cash safely to the vault room in bank before leaving the bank premises.

GENERAL BANKING OF DBL

1.1 Account Opening: To open any account the officer’s of DBL must make sure that the customer information for which the account is to be opened has been added in the system before. Therefore, to open any account for a new customer, the users will first require entering all information in the system.

Types of Account

Current Account

Individual

Proprietorship

Partnership

Limited company

            Public limited company

            Private limited company

Savings Account

Short Term Deposit (STD) Account

Accounts Status:      To modify the account status of any account, that is, if required, branch users may block the account of a customer in the some manner like Block the account, No debit allow, Freeze the account etc.

Account Operating Instruction:           To add any account operating instructions to opened of any customer may be jointly or singly operate the account.

Cheque book Issue:    To issue a cheque book against any account of a client for withdrawal cash on demand of account holder.

Customer Signature & Photo Linkage:           To enquiry signature for payment cash it’s needed to attached the signature and photo with the account display.

Fund Transfer: To transfer funds one account to another of any customer on the customers demand. Sometimes customer request to hold the fund to make no payment.

Balance Inquiry: Balance inquiry of any account when customers want to know his/her account status.

Payment Order: Against customers requirement DBL issue pay order or bankers cheque

ONLINE BANKING OF DBL

What is online banking?

If you’re like most people, you’ve heard a lot about online banking but probably haven’t tried it yourself. You still pay your bills by mail and deposit checks at your bank branch, much the way your parents did. You might shop online for a loan, life insurance or a home mortgage, but when it comes time to commit, you feel more comfortable working with your banker or an agent you know and trust.

Online banking isn’t out to change your money habits. Instead, it uses today’s computer technology to give you the option of bypassing the time-consuming, paper-based aspects of traditional banking in order to manage your finances more quickly and efficiently.

Origin of online banking
the advent of the Internet and the popularity of personal computers presented both an opportunity and a challenge for the banking industry.

For years, financial institutions have used powerful computer networks to automate millions of daily transactions; today, often the only paper record is the customer’s receipt at the point of sale. Now that its customers are connected to the Internet via personal computers, banks envision similar economic advantages by adapting those same internal electronic processes to home use.

Banks view online banking as a powerful “value added” tool to attract and retain new customers while helping to eliminate costly paper handling and teller interactions in an increasingly competitive banking environment.

Brick-to-click banks
today, most large national banks, many regional banks and even smaller banks and credit unions offer some form of online banking, variously known as PC banking, home banking, electronic banking or Internet banking. Those that do are sometimes referred to as “brick-to-click” banks, both to distinguish them from brick-and-mortar banks that have yet to offer online banking, as well as from online or “virtual” banks that have no physical branches or tellers whatsoever.

The challenge for the banking industry has been to design this new service channel in such a way that its customers will readily learn to use and trust it. After all, banks have spent generations earning our trust; they aren’t about to risk that on a Web site that is frustrating, confusing or less than secure.

Most of the large banks now offer fully secure, fully functional online banking for free or for a small fee. Some smaller banks offer limited access or functionality; for instance, you may be able to view your account balance and history but not initiate transactions online. As more banks succeed online and more customers use their sites, fully functional online banking likely will become as commonplace as automated teller machines.

Virtual banks
If you don’t mind foregoing the teller window, lobby cookie and kindly bank president, a “virtual” or e-bank, such as Virtual Bank or Giant Bank, may save you very real money. Virtual banks are banks without bricks; from the customer’s perspective, they exist entirely on the Internet, where they offer pretty much the same range of services and adhere to the same federal regulations as your corner bank.

Virtual banks pass the money they save on overhead like buildings and tellers along to you in the form of higher yields, lower fees and more generous account thresholds.

The major disadvantage of virtual banks revolves around ATMs. Because they have no ATM machines, virtual banks typically charge the same surcharge that your brick-and-mortar bank would if you used another bank’s automated teller. Likewise, many virtual banks won’t accept deposits via ATM; you’ll have to either deposit the check by mail or transfer money from another account.

Advantages of online banking

• Convenience: Unlike your corner bank, online banking sites never close; they’re available 24 hours a day, seven days a week and they’re only a mouse click away.
• Ubiquity: If you’re out of state or even out of the country when a money problem arises, you can log on instantly to your online bank and take care of business, 24/7.
• Transaction speed: Online bank sites generally execute and confirm transactions at or quicker than ATM processing speeds.
• Efficiency: You can access and manage all of your bank accounts, including IRAs, CDs, even securities, from one secure site.
• Effectiveness: Many online banking sites now offer sophisticated tools, including account aggregation, stock quotes, rate alerts and portfolio managing programs to help you manage all of your assets more effectively. Most are also compatible with money managing programs such as Quicken and Microsoft Money.

Disadvantages of online banking

• Start-up may take time: In order to register for your bank’s online program, you will probably have to provide ID and sign a form at a bank branch. If you and your spouse wish to view and manage your assets together online, one of you may have to sign a durable power of attorney before the bank will display all of your holdings together.
• Learning curve: Banking sites can be difficult to navigate at first. Plan to invest some time and/or read the tutorials in order to become comfortable in your virtual lobby.
• Bank site changes: Even the largest banks periodically upgrade their online programs, adding new features in unfamiliar places. In some cases, you may have to re-enter account information.
• The trust thing: For many people, the biggest hurdle to online banking is learning to trust it. Did my transaction go through? Did I push the transfer button once or twice? Best bet: always print the transaction receipt and keep it with your bank records until it shows up on your personal site and/or your bank statement.

Benefits of banking online

Whether your bank is a traditional brick and mortar institution or a Web-only bank with no brick and mortar branches, online banking lets you connect to your bank through the Internet and do things such as view your accounts, transfer money between accounts, view images of canceled checks, print copies of those checks and pay bills online. You’ll find that it’s common for online banking sites to be compatible with money managing programs such as Quicken and Microsoft Money.

Many banks make it easier to manage your checking account by allowing you set up e-mail alerts so you can be notified when checks clear or when your balance slips below a certain level. There is also a detailed listing of your canceled checks.

If you’d like to eliminate paper checks from your life, you’ll find that a growing number of companies allow you to make automatic payments through your online banking account.

Getting set up for online bill pay

Getting started is easy. The bank’s Web site will walk you through the steps of registering the bills you want to pay and the accounts you want to use to pay them. You’ll only have to enter the information once. You can always make changes and add or subtract bills.

If a monthly bill is for the same amount each month, you might want to schedule a recurring payment. If the amount varies from month to month you can pay the bill each month on a “one time” basis.

Set your schedule

Once you have registered the accounts you wish to pay online, the next step is to schedule payments. Your creditors receive your online payment in one of two ways: electronic payment or check. If the company is set up to accept electronic payments, your payment is automatically debited from your account and deposited electronically into their account. If the company can’t accept electronic payments, your bank issues a check based on your online payment instructions.

Most bill payment sites include a payment activity page that lists all of your payments and their status — scheduled, pending or processed.

Be aware that companies sometimes change the billing address or your account number without warning. It’s important to check your statement each month to verify those details as well as your transactions.

Security
you’ll have a user name and password to access your online account. Just as with any information used to access any other financial account, you should keep these codes secret. Your bank will tell you what to look for — usually an icon of a locked padlock — to ensure you’re accessing your account over a secure line.

You should also beware of a scam called phasing where crooks send out e-mails that might look exactly like e-mails from your bank. These e-mails often claim that some account or personal information is needed.

You’re asked to click on a link and fill in the information. As a hard-and-fast rule, never click on a link in an e-mail and then divulge account information. Call your bank — don’t use a phone number supplied in the e-mail — and ask if the e-mail is legitimate.

Whether you bank online or prefer the old fashioned way, you receive a statement every month that details transactions and account status. In the next section, you’ll see why you should take time each month to carefully review your statement.

What is foreign exchange?

People ordinarily perceive ‘foreign exchange’ as foreign money. When we talk of foreign exchange or foreign currency what readily comes to mind is American dollar which literally rules the world. American dollar, often referred to as ‘green back’, is commonly accepted around the world on account of preeminence of the USA in the world economy. Then we have also another relatively new currency – the euro that serves as the common currency of some of the strong economies of the world belonging to the European Union (EU). It is steadily growing in strength and is poised to emerge as a very important reserve and transaction currency of the world.

Definition of foreign exchange

 The tm ‘foreign exchange’ is used in a broader sense. It can simply be defined as a ‘process of conversion of one currency into another’. There are also more formal definitions, chiefly from British writers. A well known British author of some popular books on foreign exchange, Dr. Paul Einzig defines foreign exchange as ‘a system or process of conversion of one national currency into another and of transferring money from one country to another’.

Forms of foreign exchange

Foreign exchange assumes different forms depending on how its owners- the banks, corporations and individuals- want to preserve it, put it into use or transfer it to third party. A part from physical manifestation of foreign exchange in the form of bank notes and coins foreign exchange includes the following:

            . deposits, credits and balances payable in a foreign currency,

            . drafts, travellers’ cheques, letters of credit, bills of exchange or its local    variation hundi, expressed or drawn in local currency (Bangladesh Taka, for instance) but payable in a foreign currency;

. drafts, travelers’ cheques, letters of credit or bills of exchanges drown by banks, institutions or persons from abroad, but payable in local currency.

 Table 6.1 Types of foreign exchange in Bangladesh

LETTER OF CREDIT

Commercial letters of credit have been used for centuries to facilitate payment in international trade. Their use will continue to increase as the global economy evolves.

Letters of credit used in international transactions are governed by the International Chamber of Commerce Uniform Customs and Practice for Documentary Credits. The general provisions and definitions of the International Chamber of Commerce are binding on all parties. Domestic collections in the United States are governed by the Uniform Commercial Code.

A commercial letter of credit is a contractual agreement between a bank, known as the issuing bank, on behalf of one of its customers, authorizing another bank, known as the advising or confirming bank, to make payment to the beneficiary. The issuing bank, on the request of its customer, opens the letter of credit. The issuing bank makes a commitment to honor drawings made under the credit. The beneficiary is normally the provider of goods and/or services. Essentially, the issuing bank replaces the bank’s customer as the payee.

 Elements of a Letter of Credit

• A payment undertaking given by a bank (issuing bank)
• On behalf of a buyer (applicant)
• To pay a seller (beneficiary) for a given amount of money
• On presentation of specified documents representing the supply of goods
• Within specified time limits
• Documents must conform to terms and conditions set out in the letter of credit
• Documents to be presented at a specified place

Beneficiar

The beneficiary is entitled to payment as long as he can provide the documentary evidence required by the letter of credit. The letter of credit is a distinct and separate transaction from the contract on which it is based. All parties deal in documents and not in goods. The issuing bank is not liable for performance of the underlying contract between the customer and beneficiary. The issuing bank’s obligation to the buyer, is to examine all documents to insure that they meet all the terms and conditions of the credit. Upon requesting demand for payment the beneficiary warrants that all conditions of the agreement have been complied with. If the beneficiary (seller) conforms to the letter of credit, the seller must be paid by the bank.

 Issuing Ban

The issuing bank’s liability to pay and to be reimbursed from its customer becomes absolute upon the completion of the terms and conditions of the letter of credit. Under the provisions of the Uniform Customs and Practice for Documentary Credits, the bank is given a reasonable amount of time after receipt of the documents to honor the draft.

The issuing banks’ role is to provide a guarantee to the seller that if compliant documents are presented, the bank will pay the seller the amount due and to examine the documents, and only pay if these documents comply with the terms and conditions set out in the letter of credit.

Typically the documents requested will include a commercial invoice, a transport document such as a bill of lading or airway bill and an insurance document; but there are many others. Letters of credit deal in documents, not goods.

Advising Ban

An advising bank, usually a foreign correspondent bank of the issuing bank will advise the beneficiary. Generally, the beneficiary would want to use a local bank to insure that the letter of credit is valid. In addition, the advising bank would be responsible for sending the documents to the issuing bank. The advising bank has no other obligation under the letter of credit. If the issuing bank does not pay the beneficiary, the advising bank is not obligated to pay.

 Confirming Ban

The correspondent bank may confirm the letter of credit for the beneficiary. At the request of the issuing bank, the correspondent obligates itself to insure payment under the letter of credit. The confirming bank would not confirm the credit until it evaluated the country and bank where the letter of credit originates. The confirming bank is usually the advising bank.

 Letter of Credit Characteristics

 Negotiability

Letters of credit are usually negotiable. The issuing bank is obligated to pay not only the beneficiary, but also any bank nominated by the beneficiary. Negotiable instruments are passed freely from one party to another almost in the same way as money. To be negotiable, the letter of credit must include an unconditional promise to pay, on demand or at a definite time. The nominated bank becomes a holder in due course. As a holder in due course, the holder takes the letter of credit for value, in good faith, without notice of any claims against it. A holder in due course is treated favorably under the UCC.

The transaction is considered a straight negotiation if the issuing bank’s payment obligation extends only to the beneficiary of the credit. If a letter of credit is a straight negotiation it is referenced on its face by “we engage with you” or “available with ourselves”. Under these conditions the promise does not pass to a purchaser of the draft as a holder in due course.

 Revocabilit

Letters of credit may be either revocable or irrevocable. A revocable letter of credit may be revoked or modified for any reason, at any time by the issuing bank without notification. A revocable letter of credit cannot be confirmed. If a correspondent bank is engaged in a transaction that involves a revocable letter of credit, it serves as the advising bank.

Once the documents have been presented and meet the terms and conditions in the letter of credit, and the draft is honored, the letter of credit cannot be revoked. The revocable letter of credit is not a commonly used instrument. It is generally used to provide guidelines for shipment. If a letter of credit is revocable it would be referenced on its face.

The irrevocable letter of credit may not be revoked or amended without the agreement of the issuing bank, the confirming bank, and the beneficiary. An irrevocable letter of credit from the issuing bank insures the beneficiary that if the required documents are presented and the terms and conditions are complied with, payment will be made. If a letter of credit is irrevocable it is referenced on its face.

Transfer and Assignment

The beneficiary has the right to transfer or assign the right to draw, under a credit only when the credit states that it is transferable or assignable. Credits governed by the Uniform Commercial Code (Domestic) maybe transferred an unlimited number of times. Under the Uniform Customs Practice for Documentary Credits (International) the credit may be transferred only once. However, even if the credit specifies that it is nontransferable or nonassignable, the beneficiary may transfer their rights prior to performance of conditions of the credit.

Sight and Time Drafts

All letters of credit require the beneficiary to present a draft and specified documents in order to receive payment. A draft is a written order by which the party creating it, orders another party to pay money to a third party. A draft is also called a bill of exchange.

There are two types of drafts: sight and time. A sight draft is payable as soon as it is presented for payment. The bank is allowed a reasonable time to review the documents before making payment.

A time draft is not payable until the lapse of a particular time period stated on the draft. The bank is required to accept the draft as soon as the documents comply with credit terms. The issuing bank has a reasonable time to examine those documents. The issuing bank is obligated to accept drafts and pay them at maturity.

 Standby Letter of Credit

The standby letter of credit serves a different function than the commercial letter of credit. The commercial letter of credit is the primary payment mechanism for a transaction. The standby letter of credit serves as a secondary payment mechanism. A bank will issue a standby letter of credit on behalf of a customer to provide assurances of his ability to perform under the terms of a contract between the beneficiaries. The parties involved with the transaction do not expect that the letter of credit will ever be drawn upon.

The standby letter of credit assures the beneficiary of the performance of the customer’s obligation. The beneficiary is able to draw under the credit by presenting a draft, copies of invoices, with evidence that the customer has not performed its obligation. The bank is obligated to make payment if the documents presented comply with the terms of the letter of credit.

Standby letters of credit are issued by banks to stand behind monetary obligations, to insure the refund of advance payment, to support performance and bid obligations, and to insure the completion of a sales contract. The credit has an expiration date.

The standby letter of credit is often used to guarantee performance or to strengthen the credit worthiness of a customer. In the above example, the letter of credit is issued by the bank and held by the supplier. The customer is provided open account terms. If payments are made in accordance with the suppliers’ terms, the letter of credit would not be drawn on. The seller pursues the customer for payment directly. If the customer is unable to pay, the seller presents a draft and copies of invoices to the bank for payment.

The domestic standby letter of credit is governed by the Uniform Commercial Code. Under these provisions, the bank is given until the close of the third banking day after receipt of the documents to honor the draft.

Procedures for Using the Too

The following procedures include a flow of events that follow the decision to use a Commercial Letter of Credit. Procedures required to execute a Standby Letter of Credit are less rigorous. The standby credit is a domestic transaction. It does not require a correspondent bank (advising or confirming). The documentation requirements are also less tedious.

Step-by-step process:

• Buyer and seller agree to conduct business. The seller wants a letter of credit to guarantee payment.
• Buyer applies to his bank for a letter of credit in favor of the seller.
• Buyer’s bank approves the credit risk of the buyer, issues and forwards the credit to its correspondent bank (advising or confirming). The correspondent bank is usually located in the same geographical location as the seller (beneficiary).
• Advising bank will authenticate the credit and forward the original credit to the seller (beneficiary).
• Seller (beneficiary) ships the goods, then verifies and develops the documentary requirements to support the letter of credit. Documentary requirements may vary greatly depending on the perceived risk involved in dealing with a particular company.
• Seller presents the required documents to the advising or confirming bank to be processed for payment.
• Advising or confirming bank examines the documents for compliance with the terms and conditions of the letter of credit.
• If the documents are correct, the advising or confirming bank will claim the funds by:
  • Debiting the account of the issuing bank.
  • Waiting until the issuing bank remits, after receiving the documents.
  • Reimburse on another bank as required in the credit.
• Advising or confirming bank will forward the documents to the issuing bank.
• Issuing bank will examine the documents for compliance. If they are in order, the issuing bank will debit the buyer’s account.
• Issuing bank then forwards the documents to the buyer.

Standard Forms of Documentatio

When making payment for product on behalf of its customer, the issuing bank must verify that all documents and drafts conform precisely to the terms and conditions of the letter of credit. Although the credit can require an array of documents, the most common documents that must accompany the draft include:

Commercial Invoice

The billing for the goods and services. It includes a description of merchandise, price, FOB origin, and name and address of buyer and seller. The buyer and seller information must correspond exactly to the description in the letter of credit. Unless the letter of credit specifically states otherwise, a generic description of the merchandise is usually acceptable in the other accompanying documents.

Bill of Lading

A document evidencing the receipt of goods for shipment and issued by a freight carrier engaged in the business of forwarding or transporting goods. The documents evidence control of goods. They also serve as a receipt for the merchandise shipped and as evidence of the carrier’s obligation to transport the goods to their proper destination.

 Warranty of Title

A warranty given by a seller to a buyer of goods that states that the title being conveyed is good and that the transfer is rightful. This is a method of certifying clear title to product transfer. It is generally issued to the purchaser and issuing bank expressing an agreement to indemnify and hold both parties harmless.

 Letter of Indemnity

Specifically indemnifies the purchaser against a certain stated circumstance. Indemnification is generally used to guaranty that shipping documents will be provided in good order when available.

Common Defects in Documentation

About half of all drawings presented contain discrepancies. A discrepancy is an irregularity in the documents that causes them to be in non-compliance to the letter of credit. Requirements set forth in the letter of credit cannot be waived or altered by the issuing bank without the express consent of the customer. The beneficiary should prepare and examine all documents carefully before presentation to the paying bank to avoid any delay in receipt of payment. Commonly found discrepancies between the letter of credit and supporting documents include:

• Letter of Credit has expired prior to presentation of draft.
• Bill of Lading evidences delivery prior to or after the date range stated in the credit.
• Stale dated documents.
• Changes included in the invoice not authorized in the credit.
• Inconsistent description of goods.
• Insurance document errors.
• Invoice amount not equal to draft amount.
• Ports of loading and destination not as specified in the credit.
• Description of merchandise is not as stated in credit.
• A document required by the credit is not presented.
• Documents are inconsistent as to general information such as volume, quality, etc.
• Names of documents not exact as described in the credit. Beneficiary information must be exact.
• Invoice or statement is not signed as stipulated in the letter of credit.

When a discrepancy is detected by the negotiating bank, a correction to the document may be allowed if it can be done quickly while remaining in the control of the bank. If time is not a factor, the exporter should request that the negotiating bank return the documents for corrections.

If there is not enough time to make corrections, the exporter should request that the negotiating bank send the documents to the issuing bank on an approval basis or notify the issuing bank by wire, outline the discrepancies, and request authority to pay. Payment cannot be made until all parties have agreed to jointly waive the discrepancy.

Tips for Exporters

• Communicate with your customers in detail before they apply for letters of credit.
• Consider whether a confirmed letter of credit is needed.
• Ask for a copy of the application to be fax to you, so you can check for terms or conditions that may cause you problems in compliance.
• Upon first advice of the letter of credit, check that all its terms and conditions can be complied with within the prescribed time limits.
• Many presentations of documents run into problems with time-limits. You must be aware of at least three time constraints – the expiration date of the credit, the latest shipping date and the maximum time allowed between dispatch and presentation.
• If the letter of credit calls for documents supplied by third parties, make reasonable allowance for the time this may take to complete.
• After dispatch of the goods, check all the documents both against the terms of the credit and against each other for internal consistency.

 Summar

The use of the letters of credit as a tool to reduce risk has grown substantially over the past decade. Letters of credit accomplish their purpose by substituting the credit of the bank for that of the customer, for the purpose of facilitating trade.

The credit professional should be familiar with two types of letters of credit: commercial and standby. Commercial letters of credit are used primarily to facilitate foreign trade. The commercial letter of credit is the primary payment mechanism for a transaction.

The standby letter of credit serves a different function. The standby letter of credit serves as a secondary payment mechanism. The bank will issue the credit on behalf of a customer to provide assurances of his ability to perform under the terms of a contract.

Upon receipt of the letter of credit, the credit professional should review all items carefully to insure that what is expected of the seller is fully understood and that he can comply with all the terms and conditions.

SWOT ANALYSIS OF DBL

4.2 INTERPRETATION

Any kind of credit must involve some sort of risks. Credit is one of the most important sources of income of Dhaka Bank Ltd. So DBL has some risk relating to credit. The major credit risks of DBL as well as in Bangladesh identified by our research are as follows:-

1. Analysis of financial Statement.
2. Valuation of collateral security.
3. Legal Advice.
4. Lack of proper supervision of credit & business of the borrower.

Analysis of Financial Statements :-

Analysis of financial statement of the borrowers is one of the most important risk of Dhaka Bank Ltd. & as well as all over banking sector of Bangladesh. Most of the borrower of our country does not prepare their financial statement properly. Most of the borrower does not know what is financial statement. Most of them use katcha register to maintain their accounts. Those who prepare the financial statements, they do not follow the proper system. They do not supply the actual or true financial data of their business entity. Most of them have some wrong concept about financial statement. They feel shy to show the real picture of their financial position. For the above reasons those financial statements do not show the true picture their business entity. So the credit officers do not able to prepare the exact financial analysis of their borrowers. This is not only the problem of United Commercial Bank Ltd, but also the problem of allover banking sector of Bangladesh.

Valuation of Collateral Security :-

The another major credit risk of Dhaka Bank Ltd. is the proper valuation of collateral securities. DBL does not have it’s own engineers to evaluate the collateral securities of it’s borrowers. DBL & it’s branches have to depend on the enlisted surveyor firms to do these jobs. Sometimes the enlisted firms do not prepare the valuation of collateral security properly. In some cases it may causes over valuation or under valuation of collateral securities. It also may occur a very big risk.

Legal Advice:-

Another major credit risk of Dhaka Bank Ltd. is lack of own legal advisor. DBL & it’s branches do not have sufficient legal advisor.  They have to depend on their enlisted legal advisors to evaluate the paper & documents, legal opinion & documentation of their loans & advances. Some times the enlisted legal advisors dot prepare the legal opinion properly & do not show the lack of papers of the collateral securities. It may causes very big problem.

Lack of Proper Supervision of Credit & the Business of the Borrowers: –

Lack of proper off-site supervision of loans & advances & the business of their borrowers is another most important credit risk of Dhaka Bank Ltd. In most cases the officers of the branches of DBL do not able to maintain proper close supervision of their loans & advances due to shortage of manpower. So some times the loans & advances become bad due to this problem

• To overcome the risk relating to financial risk analysis, Dhaka Bank Ltd. Can organize some campaign & promotional activities to make known how about financial statement They can also force their borrowers to make proper & exact financial statement every year. They can do physical inquiry about the financial statement of their borrowers. They also can compare the financial statement of a borrower with the Bank account statement of the same borrower. They can also called the katcha registers & other account books of the borrower.

• Dhaka Bank Ltd. should appoint some qualified engineer to make the valuation of collateral securities of it’s borrowers. They can open an independent department at their Head Office to give the engineering related support to all of it’s branches. The own engineering department will be more accountable, sincere, & efficient to prepare proper valuation of collateral security.

• Dhaka Bank Ltd. has a legal division at it’s Head Office. But the division does not have much manpower. The can appoint some experienced lawyer to give available legal supports, to it’s branches such as legal opinion, documentation, checking of the relevant papers relating to collateral security. By appointing qualified lawyers the legal division of DBL can play very effective & efficient role to minimize the credit risk of DBL. Own lawyer team will be more loyal to the organization.

• Dhaka Bank Ltd. should engage at least one officer per branch to supervise their borrowers closely. The officers will observe the trend of the borrower’s business quarterly, half yearly, or yearly & can give important suggestion to the borrower to run their business properly. It may help DBL to minimize the rate of bad loans & also may help to become any loan & advance classified.

There are some problems regarding proper implementation of Credit Risk Grading Manual in Dhaka Bank Ltd. as well as allover Bangladesh. The problems are discussed as follows :-

1.             Unavailability of true financial statement :-

          Financial statement is one of the most important tool of CRG. It carries 50 marks in CRG. But in our country most of the business entity does not prepare the financial statement of their business. Most of them do not know what is financial statement. They use kattcha register to maintain their accounts. Some of them who prepare financial statements, they do not prepare those financial statements properly. Those financial statements do not show the true picture of their business entity. So the officers of DBL as well as other banks of Bangladesh could not able to do proper analysis of the financial statements of their borrowers. It creates a very big problem to proper implementation of  the credit risk grading manual in DBL & as well as in Bangladesh.

2.              Lack of the proper training of the Officers: –

          Credit Risk Grading Manual is the most recent implemented credit risk analysis system in DBL & as well as Bangladesh. Most of the officers do not have the clear concept about Credit Risk Grading Manual. So they have to face a lot of problems to use this system. Most of them dot have proper training about CRG. So they fill shy to use CRG. This also creates a big problem to proper implementation of CRG.

 3.             Unavailability of related information: –

          Some information about the borrower & his/her business are essential to prepare CRG. But that information are not available to the bank due to some reason. Collection of those information regarding CRG creates another big problem to proper implementation of Credit Risk grading Manual in DBL & as well as Bangladesh.

 4.             Less interest of the Borrowers: –

          The another big problem of proper implementation of Credit Risk Grading Manual in DBL & as well as Bangladesh is the lack of interest of the borrowers about financial statement as well as CRG. The borrowers do not have any seriousness about CRG.

Some Suggestions to overcome those problems

• The Government of Bangladesh & Bangladesh Bank can take effective measures to solve the problems relating to financial statement. They can make some laws, which may ensure the preparation of true financial statements by the business entities of Bangladesh.
• The management of Dhaka Bank Ltd. & other Banks can take effective measures by arranging training program about Credit Risk Grading Manual.
• The management of the bank should ensure the collection of other information of the borrower & his/her business entity related to CRG before sanction of any kinds of loans & advances. They also can take effective measures to collect other CRG related information of their existing borrowers.
• Bangladesh Bank & all commercial Banks can organize some campaign & promotional activities to make interest to the business entities of Bangladesh about CRG.

 Influences on Economy

 The regional and domestic economic scenario influence performance of banks and financial institutions to a great extent. Due to currency debacle of south – East Asian countries in 2000 and its contagious effect world economy experienced a declined growth rate of production and trade, Asian countries also witnessed a decline in respective foreign exchange reserve and foreign direct investment because of thee currency crisis. As such the over all decline in world demand affects Bangladesh economy. Globalization, market economy and Internet have put the overall banking sector into a big challenge.

 Natural calamities like flood, drought, cyclone etc. and man – made calamities like hart, strike, and road block eye also significantly influence the local market. These also influence as a result banking sector. Despite all these odds, United Commercial Bank Limited has put up a very satisfactory effect on the economy of Bangladesh.

 4.3 summery of findings

 General Findings on Dhaka Bank Limited

1.   One of the major sources of income of Dhaka Bank Limited is the collection of interest income from its loans and advances. But it is surprising that a good portion of this loans and advanced are become classified after a certain period.  As a result, these problem loans affect four different ways in the profitability of Bank.  First, Dhaka Bank Limited has to keep Tk.188.08 crore as specific provision against total loans and advances of the Bank disbursed up to September 2008 from its net operating profit, which contribute to decrease the profit. Among the provision amount Tk.65.33 crore has been kept against unclassified loans and advances, Tk.92.87 crore against classified loans and advances and Tk.29.88 crore against off balance sheet items. Second, as per Bangladesh Bank requirement Dhaka Bank Limited has to keep Tk.117.04 crore as statuary reserve which does not or even give no any interest (as per Section 24 of Bank Companies Act 1991, 20% of pre tax profit has to be transferred to Statutory Reserve Account). Third, the bank has to pay interest for the funds borrowed as deposits or any other ways. As a result the interest expanse increases thus net interest margin decreases. Finally, for the increasing trend of Classified Loan, bank has to raise its default rate to minimize the credit riskness. Raise in default rate immediately reflects in the lending interest rate of Dhaka Bank Limited.
2.   Borrowers take loans from Dhaka Bank Limited for various purposes but in some cases never pay back the loan properly. For the recovery of those bad loans bank evaluates financial status of the client and goes for legal proceedings.  But in Bangladesh legal procedures are lengthy and time consuming. As a result bank takes every initiative to settle a defaulter outstanding outside the court. However, for small loan recovery the process becomes very costly and unprofitable for the bank.
3.   From the sector wise portfolio, in year 2008 (up to September) Dhaka Bank Limited has invested 29.77% of its total loans and advances in Garments, Textiles and Spinning industry. The sector gets the highest priority. Trading business gets the second priority with 20.17% of total loans and advances. But the bank invested only 0.06% of its total loans and advances in the Agricultural sector.
4.   It is found that, steel products, ship breaking, chemical & plastic products, edible oil, leather, jute, brick & ceramics, RMG, shipping & transport, trading, service, hospitals & NGOs has higher credit default rate. The percentage of classified loan recovery is very little and the provisions for doubtful debt are increasing which squeezes the net operating profit of the bank.
5.   In the context of any financial institution, there are five types of risk: (1) Credit risk (2) Foreign exchange risk (3) Internal control and compliance risk (4) Money laundering risk and (5) Asset-liability management risk.
6.   There are mainly two basic reasons for loan default (a) Intentionally and (b) Unintentionally.

(a)  Intentionally

• Some borrowers are usually predetermined that he will take loan from bank and will not repay it.
• Borrowers take loan by stating one purpose and then use it for another purpose thus proper investment is not made and loan defaults.
• Borrowers exploit the loan. For example, a borrower of Garments factory took loan to purchase materials but bought an imported car thus exploited the loan.

(b)  Unintentionally

• Industrial sickness. For example, in aspect of Dhaka Bank, the number of borrowers who are involved in the ‘Fertilizer sector’ are being classified, especially in the Chittagong sector. The reason behind this is due to price fluctuation of the fertilizer, borrower is unable to make profit so their loan is being classified
• Improper project handling
• If borrower dies unexpectedly and the next earner is less than 18 years old or the family members does not have the circumstances to repay the loan then the loan defaults.
• If the ship on which the goods were coming suddenly drowns in the Chittagong port then default case arises.

• If the product on the basis of which loan was taken looses the market demand then the borrower faces a huge loss in the market and thus becomes unable to make payment.
• Default case arises if there is fire damage to the factory, equipments, warehouse, offices etc.
• Natural disasters such as earthquakes or flood
• Lack of demand entrepreneurs are unable to foresee their product demand and starts production which ultimately piles up their product thus making them unable to pay back money they borrow to operate this activities.

 Chapter- 5: Conclusion & Recommendation

 5.1 Recommendations 

Credit risk management is a difficult, stressful and inexact process regardless the efficient decisions made by the credit professionals. It is too early to discuss how exactly to reduce the rate of non-performing loans.

At present

• Dhaka Bank Limited is focusing on to adopt an enterprise credit risk management approach to achieve an integrated view of risk.
• Encouraged by the pressure from regulatory requirements.

According to Basel II, the best practices in credit risk management should demonstrate:

• Centralization
• Standardization
• Timeliness
• Active portfolio management and
• Efficient tools for managing exposures

Banks can achieve best practice in credit risk management through enhancement of their existing tools and methods, including maintenance of consistent, accurate and reliable data.

Robust technology is a significant component of effective credit risk management. Some credit professionals in Dhaka Bank Limited thinks that it helps bank to identify, measure, manage and validate counter party risk. Few of the interviewed banker stated about the credit exposure that the ability to measure, monitor and forecast potential credit risk exposures across the entire firm on both counter party level and portfolio level is important.

Risk managers in bank make better and more informed decisions by:

      Efficient credit analysis

      Availability of better information

      Combined with timeliness in its delivery, leads to more effective balancing of risk and reward, and the possibility of higher long-term profitability

      Credit risk management include credit risk transparency

• Defined credit decision process
• Sophisticated risk measurement methodologies
• Stress testing
• Timeliness and accuracy of risk calculations
• Efficient credit risk reporting

The Bank has started its centralization process in response to the requirement of Basel II. The central disbursement of loans and advances has been started from the beginning of 2009. Some of the branches are selected first in test basis. Gradually, it will be conducted for all of the branches of the Bank. Again to fasten the credit approval system the Bank initiated Online Credit Approval System (OCAS). It is off course an important and necessary step for centralization of credit.

In the long-term success of any banking-organization, effective credit risk management is an important component of a bank’s overall risk management strategy. Due to present economic recession, the Bank should be careful in investing in the Garments sector. Besides, to help the Agricultural development of the country the Bank should increase its investment in the Agricultural sector. In this regard, adequate measures should be taken before loan disbursement.

The Bank should send the Risk Managers and Credit Officers to various training programs on loan application evaluation techniques on a regular basis, so that the Risk Managers as well the Credit Officers can properly evaluate all the loan applications in a structured and scientific way and select only those applications, which has a sound creditworthiness and repayment capability.

The Risk Managers should be encouraged to build up their knowledge base about various industries, the opportunities and risks in the sectors, the well performers and the upcoming companies, industry standards etc. For example, Risk Managers and the Credit Officers can be given incentives to attend various seminars, workshops, or training programs in these areas.

CRM must be strict to see that all the procedures of loan evaluation and monitoring are followed before giving any new loans. It was observed that not all the steps of the present guideline are followed strictly by the Risk Managers. For example, the Risk Managers did not go on regular quarterly calls to the clients and also sometimes did not verify all the information provided by the clients. This gives rise to chances that the client’s actual position may not be understood on time and increases the credit risk. So steps must be taken to ensure strict adherence to the loan evaluation and monitoring policy. Real value of business can come from making regular visits to the customers’ place of business rather than holding all meeting in the bank.

The Risk Managers should keep their eyes open about the position of the industries of their respective clients.  As soon as any new risk occurs in the industry or the industry shows signs of deterioration, they should analyze its impact on their respective clients and act accordingly. As soon as the client fails to make timely repayment, pressure should be created on him to make the payment urgently and no further credit should be allowed to him unless he pays back the previous dues (except for cases where new loans are needed to ensure past loan’s recovery). Also no unnecessary restructuring of repayment schedule should be allowed.

For improving the recovery position and reducing huge overdue loans, fast action needed to attract government and urge upon government and political parties to take necessary steps for repayment of defaulted loans. Management has to take proper steps to increase the loan recovery situation and while providing loan they should collect adequate information about borrower so that the loan can not become a bad or loss.

Legal and Compliance Unit should immediately launch legal procedures against those accounts where negotiation has failed and there is no chance of repayment. They should try to recover as much of the loan as possible by disposing of the securities held against these loans.

Credit risk can never be measured precisely, and any model that says it can be wrong. There are no universal models that perfectly cover credit risk. Selecting the right model is very important and it mainly depends on the client segment, country or business areas. Erroneous or non-specified models may lead to lost revenues through poor customer selection or collections management.

Many sophisticated models are available for credit risk management but financial institutions still depend on knowledge, experience and judgment to provide input to these models. Thus, a human factor remains key element in the successful risk management.

As the loan scale of commercial banks is inflating quickly, bank should improve their internal control and try to perfect their risk management system. As Bangladesh is experiencing technological advancement besides the qualitative judgment quantitative tools can be used to support their decisions. The ability to build quantitative models is becoming commonplace with the many readily available statistical and computational software packages. Quantitative tools can deliver accessible detail to credit analysts that can provide them with insight into individual company operating and financial strategies. These improvements will enable a bank or analyst to gather information to assign a rating more quickly and with greater efficiency and consistency than bank have been able to do in the past. Data insufficiency is the key barrier to the model design and implementation. Banks must therefore attempt to build adequate database for implementing credit risk modeling over a period of time.

Credit rating must be given proper emphasis. Whenever a credit rating is lowered, the Risk Managers must look into the account to see whether there is any chance of the client being loan defaulter eventually.

 5.2 CONCLUSION

In conclusion, it has been observed that Dhaka Bank Limited is issuing loans to large corporations and other borrowers without any specific collateral or proper documentation. Most of those borrowers take loans by using market reputation or by showing the ability to generate earnings. This makes a common tendency within the borrowers not to pay the loan installments. A proper structured loans and advances policy will prevent this loan default and high level of classified loans will be minimized. As a result, the profitability of the bank will rise through this loan and advances.

To reduce non-performing loans the following measures should be considered carefully:

1. Selection/assessment of borrower
2. Political/internal pressure group
3. Economic recession
4. Calculation of CRG based on real financial picture of the clients’ business. Judgment of clients’ financial statement.
5. Time to time visit to the clients’ business to monitor the business condition.
6. Credit rating of the client should be done. In this regard, number of Credit rating agencies should be increased.
7. CRM manager should have adequate knowledge/proper understanding about clients’ business.
8. Emphasis should be given on clients’ cash flow.
9. CRM Manager as well as Credit Officer should be ethical in all credit activities.
10. The borrower should make available of all financial data.
11. Successor of the Directors should be properly developed.