Internship Report On Credit Management Of First Security Islami Bank Limited(FSIBL) - A Case Study

Supervised by Kamrul Hasan Assistant Professor Department of Business Administration Southern University Bangladesh Prepared By

Rahul Palit ID-111-30-14 Major –Finance Date of submission: 8th OCTOBER, 2012

Letter of Transmittal

8th OCTOBER, 2012 Dean

Faculty of Business Administration Southern University Bangladesh
Subject: Submission of Internship Report. Dear Sir, It is my great pleasure to submit the internship report on Credit Management of First Security Islami Bank Limited (FSIBL) - A Case Study. I made sincere efforts to study related materials, documents, observe operations performed in First Security Islami Bank Limited. and examine relevant records for preparation of the report. I had to put in a lot of effort & hard work to the preparation of this report with the help of all the bank officials in the Bahadder Hat Branch. Within the time limit, I have to make this report as comprehensive as possible. But there may be some mistakes due to various limitations. For this reason, I ask for your kind consideration in this regard.

Yours Faithfully, --------------------------Rahul Palit ID-111-30-14

Students Declaration
I hereby announced that the extensive study entitled Credit Management of First Security Islami Bank Limited (FSIBL) - A Case Study.(Conducted on behalf of First Security Islami Bank Limited, Head Office, HR Division)Prepared in partial accomplishment of the requirements for the award of the degree in Bachelor of Business Administration (BBA). From Southern University BBA Department. Is my original work and not put forward For the award of the any other degree/fellowship Or other similar designation or accolade.

……………………………………

Rahul Palit ID-111-30-14

SUPERVISOR’S DECLARATION

This is certify that this paper is prepared by Rahul Palit (ID No:111-30-14) Degree of BBA (Finance).This is his original work. I am sure it will contribute to enhance existing knowledge. For his excellent paper work recommend accepting this paper and approved this for the Degree of BBA in Finance.

Kamrul Hasan Assistant Professor Department of Business Administration Southern University Bangladesh Chittagong, Bangladesh.

ACKNOWLEDGEMENT
Thanks to Al-mighty Allah for Blessing in completing the report with in the scheduled time. I am indebted to a number of persons for their kind recommendation, co-operative, submission, direction and their collaboration.

I have the unique opportunity to apply my theoretical & practical knowledge in this assignment. It‟s my obligation to disclose the name of all who have contributed in many ways to complete my assignment on the selected topic entitled “Credit Management”.

First, I would like to remember the contribution of Internship supervisor & my teacher: Mr. Kamrul Hasan whose guidance & help was very much required prepare the report successfully.

I am grateful to the Management of FSIBL Bahadder Hat Branch for providing me all sorts of facilities requested from time to time. My practical working knowledge in this financial institution helped me a lot. I am lucky and feel proud to get this opportunity for preparing this assignment. I have learned many things from this reputed organization in a short time.

Yours sincerely, Rahul Palit ID-111-30-14

Executive Summary

As banks play the key roles in the economy, it is important to know the performance of banks in their operational areas. In addition to this, banks‟ performances should be measured because of the several parties related to the banking industry. Depositors evaluate performance to make a decision regarding whether to trade with the bank, bank managers evaluate performance to formulate a strategy, and regulators evaluate to ensure whether the banks‟ performances align with the legal and societal structure of the country. The objective of the study is to analyze the “Credit Management of First Security Islami Bank Limited –A Case Study” Though primary objective of preparing this paper is to fulfil the requirement of BBA internship program but this study will serve as a reference for any kind of further research both for academic or business purposes. From the study we will get a clear picture of overall performance of FSIBL and also special scenario of customer satisfaction level of monthly savings scheme. Overall customer satisfaction depends on what type of service marketer providing to customer. Customers expect more return on their savings which is comparatively lower than other private commercial bank. The study has some shortcoming are lack of knowledge to such type of survey, time limitations, respondents‟ unwillingness to cooperate and limited sample size. This report is prepared on the basis of information collected from both secondary and primary sources and every effort has been made ensure that the information compiled in the report is accurate.

Table of Contents
Serial no

Subject Chapter-ONE INTRODUCTION

Page No

1.1 1.2 1.3 1.4 1.5 1.6 1.7 1.8

Introduction Definition of Credit Management Importance of Credit Management Objectives of the Study Scope of the Study Methodology of the Study Limitations of the Study Plan of the Study

Xl Xl Xl Xll XIll Xlll XIV XV

Chapter-TWO Overview of FSIBL 2.1 2.2 2.3 2.4 2.5 2.6 2.7
Overview of the bank Mission of the bank Vision of the bank Objectives of the bank Deposit Loans and Advance Services XVII XVII XVII XVIII XVIII XVIII XIX

Chapter-THREE
The Principles And Procedures Of Credit Planning

3.1 3.2

Principles
Overall procedure for sanctioning loan

XXII XXII

Chapter-FOUR 4.1 4.2 4.3
The Administrative Aspects Of Credit Management XXVIII Functions of credit division Operational guidelines for different credit facilities Credit administration XXVIII XXXIII

4.4

Credit monitoring

XXXIII

Chapter-FIVE The Social Objective Of Credit Management
5.1

5.2 5.3 5.4

Corporate Social Responsibility Ensuring better liquidity management Improving institutional efficiency Strengthening local banks

XXXV XXXVI XXXVI XXXVII

Chapter-SIX
The lending Policy And Evaluating The lending Operations Overall Credit Policy of FSIBL XXXIX 6.1 Rules for Application XXXIX 6.2 Documentation of Loan XXXIX 6.3 Loan Sanction XL 6.4

Chapter-SEVEN The Credit Risk Management 7.1 7.2 7.3 7.4 7.5
7.6 Impaired Asset Management Department Credit assessment Risk grading Reporting to business unit Rejection database Audit & Risk Management Division XLII XLII XLIII XLIII XLIII XLIII

Chapter-EIGHT 8.1 8.2 8.3 8.4 8.5 8.6 8.7 8.8 8.9
The Recovery Monitoring System Of The Credit Credit monitoring XLV Early Alert process XLV Custodial Duties XLVI Categories of loan XLVII Credit Monitoring XLVIII Operational Network XLIX Recovery Rate XLIX Sectoral and Credit Concentration LI Finance & Advisory Services LII

8.10

Loan Recovery Unit

LII

Chapter-NINE
The Impact Of Credit Management On Profitability And Productivity

9.1
9.2 9.3

9.4 9.5 9.6

Financial Highlights of FSIBL Customer Satisfaction Loan Department Credit Department Ratio Analysis Profitability Ratio

LIV LV LVII LVIII LXI LXIII

Chapter-TEN Major findings Problems And Recommendation 10.1
10.2 10.3 10.4 10.5 10.6 Documents deficiency and problem resolving Problems and Challenges of FSIBL ICT and its use in MIS SWOT Analysis Profit Rate Risk Recommendation of FSIBL Conclusions LXVII LXVII LXVIII LXIX LXXIV LXXV LXXVI

10.7

List of Table Name of the table Table-1 Table-2 Table-3 Table-4 Table-5 Page L LI LVI LVII LVIII

List of Chart Number of the chart Chart-1 Chart-2 Chart-3 Chart-4 Chart-5 Chart-6 Page XIX LIV LV LVI LIX LX

CHAPTER 1 Introduction

CHAPTER 1: INTRODUCTION
1.1 Introduction A banking institution is indispensable in a modern society. It plays a pivotal role in the economic development of a country and forms the core of the money market in an advanced country. In recent times the banking sector over the world has been undergoing a lot of changes due to deregulation, technological innovation, globalization etc. Bangladesh banking sector is lagging for behind in adopting these changes. Bank plays an important role in the business sectors and in the industrialization of a country. Basically the banks take deposits from the customers against interest and lend it to the borrowers against interest cessation period. Under these circumstances of bank offers different interest rates and other options to the customers to remit and deposit their money. These options are vary common among all the banks, but only the customer services and other facilities very from bank to bank.

1.2. Definition of credit management A function performed within a company to improve and control credit policies that will lead to increased revenues and lower risk including increasing collections, reducing credit costs, extending more credit to creditworthy customers, and developing competitive credit terms. Also called credit control. 1.3. Importance of Credit Management Turnover can only become profit when your debtor has fully paid for your product or service. It is of outmost importance that payment takes place within the agreed upon time limit.

Your debtor paying later than agreed upon (or not paying at all), costs your company a lot of money. Consequently, it may be necessary to request payment or, in extreme cases, resort to legal debt collection. A perfectly organised credit management contributes to a better assessment of your credit risks as well as to a better collection of your debts, increasing the efficiency of your company and its usable capital. A company may be confronted with a temporary or a structural credit management problem. A company can have a temporary problem like short-term payment delays, lack of personnel or lack of practical knowledge in the field of credit management. Companies in these situations can rely on CRiON‟s credit managers. These managers will assess the credit risks, take on the debtors efficiently, guarantee the continuity of debt collection actions and critically screen debt collection in order to give additional advice. When a thorough change in the organisation takes place, external help is often very necessary. Far reaching reorganisation measures and new implementation procedures can be optimally monitored by CRiON‟s project managers. They help to streamline processes of change, minimize resistance and implement more efficient, more effective working methods. 1.4. Objectives of the Study The main objective of the study is to analyze the performance of corporate and consumer loan disbursement of FSIBL. To achieve this main objective the following sub objectives have been undertaken: 1. To examine the principles and procedures of credit planning. 2. To study the administrative aspects of credit management. 3. To evaluate the social objective of credit management. 4. To examine the lending policies and evaluating the lending operations. 5. To examine the credit risk management. 6.To examine the recovery monitoring system of the credit.

7.To examine the impact of credit management profitability and productivity. 8.To identify the major findings problems and recommendation.

1.5. Scope of the Study This report will be dealing with the overview of First Security Ialami Bank Ltd. & mainly deals with “Loan Disbursement” of this Bank. The topic is fixed. But the report has tried to cover overview of FSIBL objectives, functions, management, business policy and other things. This report has also mentioned some problems of FSIBL‟s Operating systems and its solutions. The empirical part includes only the published information and current practices of the First Security Islamic Bank Limited included. 1.6. Methodology of the Study The research design is presented belowArea of the study The proposed study has been focused on the Loan Disbursement of the FSIBL. In relation with the primary & secondary objectives, the Bahadderhat branch of the FSIBL has been selected to perform my internship program. Sources of information Primary Data: Data has been collected primarily through correspondence with the personnel working in different desks. Secondary data: Secondary sources consist of several reading materials such as circulars, journals, brochures, and annual reports. The required data and information to prepare the assignment have been collected from the followings sources: 1. Procedures published by the FSIBL, Head office. 2. Files and documents of the branch. 3. Personal interview with branch officials and Executives. Methods of data collection: The data presented in this report has been collected from the annual reports of the bank from 2006 to 2010, by taking interview of the credit officer, from the training instruments

of the bank, from published books and through structured questionnaire.

Data Processing & Analysis: Data has been computerized & processed by using MS Word, MS Excel. For the purpose of analyzing the data we have presented in tabular form, percentage form with necessary chart and graphs 1.7. Limitations of the study Lack of adequate Information of banking institution for preparing this report, so this report is based on only publicly available information. Although bankers have tried their best to help me, their nature of job is such that gives them little time to discuss. It was very difficult to get the actual information.

1.8.Plan of the study Chapter -1 : Introduction

Chapter -2 :Overview of FSIBL

Chapter -3: The principles and procedures of credit planning

Chapter -4:The administrative aspects of credit management

Chapter -5: The social objective of credit management.

Chapter -6:The lending policies and evaluating the lending operations. Chapter -7:The credit risk management. Chapter -8: The recovery monitoring system of the credit.

Chapter -9: The impact of credit management profitability and productivity.

Chapter -10:The problems of credit management and to suggest their probable solution. Under the above discussion the next chapter -2 will deal with the overview of FSIBL.

CHAPTER 2
Overview Of FSIBL

2.1. Overview of the bank First Security Islami Bank Limited (FSIBL) was incorporated in Bangladesh on 29 August 1999 as a banking company under Companies Act 1994 to carry on banking business. It obtained permission from Bangladesh Bank on 22 September 1999 to commence its business. The Bank carries banking activities through its 67 branches in the country. The commercial banking activities of the bank encompass a wide range of services including accepting deposits, making loans, discounting bills, conducting money transfer and foreign exchange transactions, and performing other related services such as safe keeping, collections and issuing guarantees, acceptances and letter of credit. From January 01, 2009 bank has converted into islami shariah based banking system instead of conventional banking system. The bank has constituted a sariah council consisting prominent ulama, bankers, lawyer and Economists to advice and guide on the implementation of islami sariah in business activates. 2.2 Mission of the bank FSBL mission is to provide banking services to our valued clientele with utmost proficiency & sincerity reinforced by an efficient workforce and the latest state of the art technology. 2.3 Vision of the bank The vision of FSBL is to always strive to achieve superior financial performance, be considered a leading Islamic Bank by reputation and performance. Try to encourage savings in the form of direct investment. To pay a vital role in human development and employment generation. To establish a welfare-oriented banking system.

2.4. Objectives of the bank The objectives of the FSIBL are given below: To provide efficient computerized banking system To enhance Loan with their valued client To accept deposits on profit-loss sharing basis. 2.5. Deposit The deposit of First Security Islami Bank Ltd. Stood at tk. 56344.95 million as on 31.12.2010 as against tk.42423.09 million of 31.12.2009 registering an increasing of tk. 13921.86 million i.e.32.81% growth. Deposit is the “life-blood” of a bank. Bank has given utmost importance mobilization of deposit introducing a few popular and innovative schemes.

2.6. Loans and Advance First Security Islami Bank Ltd. has able to increase its investment despite adverse condition in the domestic as well as in the global economy. Total amounts of loans and Advance of the bank stood at tk. 52123.9 million as on December 31,2010as against tk.38725.87 million as on December 31, 2009 showing an increasing of tk.13398.03 million With a growth rate of 34.6% Investments are the core asset of a bank. The bank gives emphasis to acquire quality asset and does appropriate lending risk analysis and follow all the terms and condition all sorts of investments to client.

Chart-1

2.7 Branch Network At present, the bank has 67 branches of which 26 branches are in

Dhaka Division, 26 branches are in Chittagong Division, 06 branches Another few branches are planning to open within December 2011. FSIBL has already started their on-line, SMS and ATM banking facilities for their clients. 2.7. Services (i) Deposits In addition to the normal deposit scheme, the bank has introduced attractive deposit scheme to encourage people and mobilize the deposit. Deposit scheme are: Current account Short term deposit Sundry Deposit Savings Bank account Fixed Deposit Non Resident Foreign Currency Account Resident Foreign Currency Account Monthly savings Scheme

Monthly profit based savings scheme Double benefit deposit Scheme (ii) Online any Branch Banking FSIB have set up Wide Area Network through Radio, Fibre-Optics & other available communication media systems to provide any branch banking to our customers. Customer of one branch is now able to deposit and withdraw money at any of our branches. All Branches are included in our Wide Area Network. No TT/DD or cash carrying will be necessary.

(iii) SMS Banking First Security Islami Bank Ltd. has officially launched SMS banking service from December 17,2007.

(iv) Locker Service For safekeeping of customer's valuables like important documents and goods like jewelleries and gold ornaments, FSIB Locker Service is available in most of the Branches in urban areas.

Under the above discussion the next chapter -3 will deal with the principles and procedures of credit planning.

CHAPTER 3
The Principles And Procedures Of Credit Planning

CHAPTER 3

3.1. Principles
The Principles are: • To identify the credit approval, their securities and monitoring process of FSIBL. • Identify the lending activities at FSIBL. • To identify the recovery rates of the loans in different sectors in last 4 years and have a comparison among them.

3.2. Overall procedure for sanctioning loan
The following procedure need to be followed for giving advances to the customer. These are: a) Party‟s application b) Filling form-A c) Collecting CIB report from Bangladesh Bank d) Processing loan proposal e) Project appraisal f) Head office approval g) Sanction letter h) Documentation i) Disbursement

A. Party’s application
At first borrower had to submit an application to the respective branch for loan, where he/she has to clearly specify the reason for loan. After receiving the application form the borrower Bank officer verifies all the information carefully. He also checks the account maintains by the borrower with the Bank. If the official becomes satisfied then he gives form-A (prescribed application form of Bank) to the prospective borrower.

B. Filling Form -A
After satisfying with party‟s application the applicant need to fill Form-A. It is the prescribed form provides by the respective branch that contains information of the borrower. It contains- Name with its factory location, Official address and telephone number, details of past and present business, its achievement and failures, type of loan needed etc.

C. Collecting CIB Report from Bangladesh Bank
After receiving the application for advance, Dhaka Bank sends a letter to Bangladesh Bank for obtaining a report from there. This report is called CIB (Credit Information Bureau) report. Dhaka Bank generally seeks this report from the head office for all kinds of investment. The purpose of this report is to being informed that whether the borrower has taken loan from any other Bank; if „yes‟ then whether the party has any overdue amount or not.

D. Processing loan Proposal
After receiving CIB report from Bangladesh Bank, then respective branch prepare an Investment proposal, which contains terms and conditions of Investment for approval of Head Office. Documents those are necessary for sending Investment proposal are: Necessary Documents While advancing money, banks create a lot of documents, which are required to be signed by the borrowers before the disbursement of the loan. Of them some are technically called charge documents. Necessary steps and documents: 1. Loan application form duly signed by the customer. 2. Acceptance of the term and conditions of sanction advice. 3. Trade license.

4. In Case Of Partnership Firm, copy of registered partnership deed duly certified as true copy or a partnership deed on non-judicial stamp of taka-150 denomination duly notarized. 5. In Case Of Limited Company a. Copy of memorandum and articles of association of the company including certificate of incorporation duly certified by Registered Joint Stock Companies (RJSC) and attested by the managing director and accompanied by an up-to-date list of directors. b. Copy of board resolution of the company for availing credit facilities and authorizing managing director/chairman/director for execution of documents and operation of the accounts. c. An undertaking not to change the management of the company and the memorandum and article of the company without prior permission d. Copy of last audited financial statement up to last 3 years. e. Personal guarantee of the directors including the chairman and managing director. f. Certificate of registration of charges over the fixed and floating assets of the company duly issued by RJSC. g. Certificate of registration of amendment of charges over the fixed and floating assets of the company duly issued by RJSC in case of repeat loan or change in terms and conditions of sanction advice regarding loan amount and securities etc. 6. Demand promissory notes. 7. Letter of hypothecation of stocks and goods. 8. Letter of hypothecation of books debts and receivable. 9. Letter of hypothecation of plant and machinery. 10. Personal letter of guarantee.

E. Project Appraisal
It is the pre-investment analysis. Project appraisal in the Banking sector is important for the following reasons: • To achieve organizational goals • To recommend if the project is not designed properly • To justify the soundness of an investment

• To ensure repayment of Bank finance Techniques of Project Appraisal An appraisal is a systematic exercise to establish that the proposed project is a viable preposition. Appraising officer checks the various information submitted by the promoter in first information sheet, application for Investment and Investment proposal. The Head Office (HO) mainly checks the technical, commercial and financial viability of the project. For others, HO is dependent on branch‟s information. But when the investment size is big, then the HO verifies the authenticity of information physically. F. Head Office Approval When Head office receive appraisal from the branch then, Head Office again appraises the project. If it seems to be a viable one, the HO sends it to the Board of Directors for the approval of the Investment. The Board of Directors (BOD) considers the proposal and takes decision whether to approve the Investment or not. If the BOD approves the investment, the HO sends the approval to the concerned branch. The respective officer of Head Office appraises the project by preparing a summary named “Top Sheet” or “Executive Summary” and then he sends it to the Head Office Credit Division for the approval of the Loan. The Head Office Credit Division considers the proposal and takes decision whether to approve the Investment or not. If the committee approves the investment; the HO sends the approval to the concerned branch. G. Sanction Letter After getting the approval of the HO the branch issues sanction letter to the borrower. A sanction letter contains: o Name of borrower, o Facility allowed, o Purpose, o Rate of interest, o Period of the Investment and mode of adjustment, o Security and Other terms and condition.

H. Documentation If the borrower accepts the sanction letter, the Documentation starts. Documentation is a written statement of fact evidencing certain transactions covering the legal aspects duly signed by the authorized persons having the legal status. The most common documents used by the Dhaka Bank for sanctioning different kinds of Investment are: o Joint Promissory Note, o Letter of Arrangement, o Letter of Disbursement, o Letter of Instalment, o Letter of Continuity, o Trust Receipt, o Counter Guarantee, o Stock Report, o Letter of Lien, I. Disbursement After sanction and completion of all formalities the respective officer disburses the loan. The officer writes cheque and provides it to the borrower. For this borrower has to open an account through which he/she can withdraw the money. Strategies for Recovery: Recovery of loan can be made in the following three methods: 1) Persuasive Recovery: The first step in recovery procedure is private communication that creates a mental pressure on borrower to repay the loan. In this situation bank can provide some advice to the borrower for repaying the loan. 2) Voluntarily: In this method, some steps are followed for recovering loan. These are: a. Building Task Force b. Arranging Seminar Under the above discussion the next chapter -4 will deal with the administrative aspects of credit management.

CHAPTER 4
The Administrative Aspects Of Credit Management

CHAPTER 4

4.1. Functions of credit division
Money lending is one of the main functions of a commercial bank. In the lending process, selection of borrower is the most crucial and vital job for a banker. Before a customer enjoys credit facilities it is important that the applicant should qualify for five Cs. The five Cs are: • Character – Intention to pay back the loan • Capacity – Borrower‟s competence in terms of utilizing the fund profitably and generate income • Capital –Financial strength to Lending cover the risk • Conditions – General business condition between two parties • Collateral – Implies additional securities In addition, objectives of the credit department are managing credit exposure of the bank, maintaining credit risk, compliance of Central Bank Ltd, recovering or collecting dues of retail loans or advances. At present credit division performs following activities: •Dealing with Corporate & Retail Credit •Perform Collection and Monitoring Activity •Support Recovery & Risk Management Besides this, the activities of this department include managing the financial books of the bank, checking all entries of the book are according to standards, preparing daily reports for Bangladesh Bank, revenue appropriation and calculations, setting the internal pricing rates etc.

4.2.Operational guidelines for different credit facilities
Broadly, there are two types of loan such asq RETAIL LOAN AND q CORPORATE LOAN

For each different types of loan, credit officer have follow different steps to accomplish credit activities appropriately. Each and every step is given below for various purposes of loan. q RETAIL LOAN: Retail loan can be classified into different types which are as follows1. Secured Overdraft (FO-FDR, DPS)

In case of Fresh loan: a) Receiving customer Application (RFCL) b) Receiving the Instrument (FDR, DPS) duly discharged by the client c) Verification of the Instrument, signature verification & lien marking from General Banking Division d) Preparation of Office Note e) Preparation of Sanction Advice & get it accepted by the client f) Obtain charge documents from the clients g) Mail limit request form to Credit Admin, Head Office for limit insertion h) Deduct charges i) Stamping the charge documents j) Entry of Security Documents in the SISO Register k) Safekeeping of Security Documents in the Safety Vault. In case of Renewal: a) Receiving customer Application b) Preparation of Office Note c) Preparation of Sanction Advice & get it accepted by the client d) Obtain charge documents from the clients e) Mail limit request form to Credit Admin, Head Office for limit insertion f) Entry of Security Documents in the SISO Register g) Safekeeping of Security Documents in the Safety Vault. In case of Enhancement: a) Receiving customer Application b) Receiving new Instrument (FDR, DPS) duly discharged by the client

c) Verification of the Instrument, signature verification & lien marking from General Banking Division d) Preparation of Office Note e) Preparation of Sanction Advice & get it accepted by the client f) Obtain charge documents from the clients g) Mail limit request form to Credit Admin, Head Office for limit insertion h) Deduct charges i) Stamping the charge documents j) Entry of Security Documents in the SISO Register k) Safekeeping of Security Documents in the Safety Vault. In case of Reduction: a) Receiving customer Application b) Ensure outstanding has brought down (By cash or encashment of FDR) c) Preparation of Office Note d) Preparation of Sanction Advice & get it accepted by the client e) Mail limit request form to Credit Admin, Head Office for limit reduction f) Return of Original Instrument (if adjustment by cash) g) Entry the release of Instrument in the SISO Register (Take client‟s signature on the register) In case of closing the Account: a) Receiving customer Application with cheque book (if issued) b) Ensure adjustment of outstanding liability (By cash or encashment of FDR c) Mail limit cancellation request form to Credit Admin, Head Office d) Close the account e) Return of Original Instrument (if adjustment by cash) f) Entry the release of Instrument in the SISO Register (Take client‟s signature on the register)

2. Personal Loan Application & Disbursement: a) Receiving customer Application in prescribed form along with required documents & Application fee. b) Receiving CIB Undertaking for the Applicant & Guarantor along with fee. c) Scrutinize the Application Form & attached documents carefully d) Forward the Application Form & CIB Undertaking to Head Office (if found in order and you are satisfied) e) Follow-up the progress of the file in Retail Banking Division f) Preparation of Sanction Advice & get it accepted by the client after getting approval from Head Office g) Obtain signature on the charge documents from the client h) Obtain 3 unfilled Cheques from the client i) Ensure deposit of charges by the client in the link account j) Disburse the Loan by transferring the amount to client‟s Savings Account after completion of documentation as per H.O. approval k) Stamping the charge documents l) Entry of Security Documents in the SISO Register m) Safekeeping of Security Documents in the Safety Vault. 3. Car Loan Application & Disbursement: a) Receiving customer Application in prescribed form along with required documents & Application fee. b) Receiving CIB Undertaking for the Applicant & Guarantor along with fee c) Scrutinize the Application Form & attached documents carefully d) Forward the Application Form & CIB Undertaking to Head Office (if found in order and you are satisfied) e) Follow-up the progress of the file in Retail Banking Division f) Preparation of Sanction Advice & get it accepted by the client after getting approval from Head Office. g) Obtain signature on the charge documents from the client h) Obtain 3 unfilled Cheques from the client

i) Issue Purchase Order in favour of the Car Vendor with other related documents. j) Obtain all required Car Documents (copy of Registration & Insurance cover note, Original Delivery Chillan, Bill, Money Receipt, and Insurance Policy) and cross match those with the sanction & Quotation. k) Physically verify the vehicle (Reg. No., Engine No. & Chassis No.) l) Ensure deposit of charges by the client in the link account m) Disburse the Loan vide Pay Order favouring Car Vendor after completion of documentation as per H.O. approval. 4. Home Loan Application & Disbursement: a) Receiving customer Application in prescribed form along with required documents & Application fee. b) Receiving CIB Undertaking for the Applicant & Guarantor along with fee c) Scrutinize the Application Form & attached documents carefully d) Visit the property to physically verify the possession & ownership and also obtain valuation Report by the Surveyor e) Forward the Application Form & CIB Undertaking to Head Office (if found in order and you are satisfied) f) Follow-up the progress of the file in Retail Banking Division g) Preparation of Sanction Advice & get it accepted by the client after getting approval from Head Office h) Obtain all land related documents from the client and get it verified by the lawyer (Vetting the Documents) i) Obtain signature on the charge documents from the client j) Obtain 3 unfilled Cheques from the client k) Execute Tripartite Agreement as per Lawyer‟s draft l) Complete all other documentation formalities as per H.O. approval m) Physically verify the n) Ensure deposit of all charges by the client in the link account o) Disburse the Loan vide Pay Order favouring Car Vendor after completion of documentation as per H.O. approval p) Stamping the charge documents q) Entry of Security Documents in the SISO Register

4.3.Credit Administration
The administration function is critical in ensuring that proper documentation and approvals are in place prior to the disbursement of loan facilities. For this reason it is essential that the function credit administration be strictly segregated from relationship management/ marketing in order the possibility of controls being compromised of issues not being highlighted at the appropriate level.

4.4.Credit Monitoring
To minimize credit losses, monitoring procedures and systems shall be in place that provides an early indication of the deteriorating financial health of a borrower. At a minimum, systems shall be in place to report the following exceptions to relevant executives in CRM and RM team: Ø Past due principal or interest payments, past due trade bills, account excesses, and breach of loan covenants. Ø Loan terms and conditions are monitored, financial statements are received on regular basis, and any covenant braches or exceptions are referred to CRG and the RM team for timely follow-up. Ø Timely corrective action is taken to address finding of internal, external or regulator inspection/audit. Ø All borrower relationships/loan facilities are reviewed and approved through the submission of a credit proposal at least annually. Under the above discussion the next chapter -5 will deal with the social objective of credit management.

CHAPTER 5
Social Objective Of Credit Management

5.1.Corporate Social Responsibility FSIBL is committed to their corporate responsibility toward the community. They allocate 2% of their tax profit for CSR practices each year. They have also taken numerous initiatives towards social welfare and community development. They also donated��� Anti-Drug Campaign in Chittagong ��� Donation to Prime Minister‟s Relief Fund for bereaved family members of the Army Officers during the recent carnage at BDR Head Quarter, Peelkhana, Dhaka on March 10, 2009 of taka 25 Lac. ��� Donation to Prime Minister‟s Relief Fund for bereaved family members of the Army Officers during the recent carnage at BDR Head Quarter, Peelkhana, Dhaka on April 1, 2009 of taka 9.60 Lac. ��� Donation to BIRDEM Hospital in 2009 of taka 24 Lac. ��� Donation to Centre for Women &Child Health Hospital in 2009 of taka 24 Lac. ��� Contribution to Bangladesh Tennis Federation (BTF) as rd sponsorship of 23 Bangladesh International Junior Tennis Championships 2009 of taka 5 Lac. ��� Financial assistance for Shahidbagh Jame Mosque, Dhaka of taka 50 Lac. ��� Financial assistance for Kapasatia Jame Mosque, Hossainpur, Kishoreganj of taka 20 Lac. ��� Donation to Bangladesh Hockey Federation for sponsorship of Jawharlal Nehru Cup Hockey Tournament of taka 10 Lac. ��� Donation for the Aila Cyclone Victims of taka 10 Lac. ��� Donate 2 unit of Ambulances to be used by the Highway Police of taka 48.86 Lac. ��� Donation to the Players and Officials of National Hockey Team rd for winning 3 AHP Cup Tournament held in Singapore of taka 2 Lac. th ��� Donation to Bangladesh Athletic Federation Sponsorship of 25 National Junior Athletic Championships 2009 of taka 8 Lac.

��� Sponsorship of Air Ticket an international player to participate in International Chess Tournament to be held in Hungary of taka 0.80 Lac. 5.2.Ensuring better liquidity management Under the market-oriented practice adopted by the Bangladesh Bank, unilaterally imposed regulatory mechanisms are unlikely to contribute toward reducing the IRS in a sustained manner. Raising reserve ratios and/or increasing bank equity, for example, would more likely to induce the banks to increase IRS to cover the higher cost of loan able funds. On the other hand, measures like introduction of deposit insurance should contribute to reducing the IRS. Similarly, other plausible measures of reducing interest rate volatility and IRS include introducing refinance facility and market stabilisation funds, ensuring greater predictability of Bangladesh Bank's stand on inflation and monetary policy, and creating higher capability to procure funds and wider access to international markets for funding and hedging the interest rate risks. 5.3.Improving institutional efficiency Since the financial sector reform programme aims at bringing a competitive and liberalised environment leading to more integrated and efficient functioning of the financial markets, it is important for Bangladesh Bank to adopt deposit and lending rates (and hence IRS) of different bank groups as important indicators, monitor their movements regularly, and adopt appropriate measures to bring convergence toward competitive rates except for risk and other real differences. For ensuring such a competitive level of IRS, the banking sector needs to move toward achieving a level of institutional efficiency that would ensure effective competition, efficient banking operations, and credible risk and portfolio management within an environment characterised by high standards of regulation and supervision by Bangladesh Bank.

5.4.Strengthening local banks As the present analysis shows, the local banks (SCBs, PCBs, and SBs) are weak compared with the FCBs on most counts of earning and profitability indicators and hence face unfair competition. For these banks, the better return on capital is mainly due to their small paid up capital relative to total equity.24 It is important therefore for the Bangladesh Bank to use its regulatory power to strengthen the capital base of the local banks. This is necessary to strengthen the local banks especially in view of the increasing competition that the local banks will have to withstand as the banking sector opens up through reform and liberalisation enabling greater participation of the foreign banks.

Under the above discussion the next chapter -6 will deal with the lending policy and evaluating the lending operations.

CHAPTER 6
The lending Policy And Evaluating The lending Operations

6.1. Overall Credit Policy of FSIBL Lending being the most important function of commercial bank, every bank should have own credit policy. Credit policy generally aims at (a) creating healthy loan assets to ensure goods interest earning for the bank (b) ensuring ultimate safety through judicious selection of based on its saleability. The credit policy of FSIBL has been formulated of the plan of “ALL NEW LOANS TO BE GOODS LOANS”, The plan was formed on the basis of the following objectives: • To maximize the profit of the bank by making sound lending • To deliver credit to viable borrowing at a reasonable cost • To provide satisfactory return on investment • To assist the social and economic development of the country • To deliver general banking services to the public and credit to viable borrowers at a reasonable cost. 6.2. Rules for Application Interested clients shall apply to any branch of the bank as per following procedures: 1. Application In Bank‟s prescribed form duly filled in all accounts. 2. Two passport size photographs duly attested. 3. A certificate of net monthly income from the employer (in case of Service holders). 4. Suppliers should be authorized by the Bank. 6.3. Documentation of Loan The customer will execute the following documents: D.P. Note Letter of Undertaking Letter of Instalments Letter of Hypothecation Loan Agreement Under Consumers Finance Schemes

Letter of disbursement Letter of Authority The client will also submit crossed cheques in advance for all the stipulated instalments in favour of the Bank towards repayment of loan including interest and service charge. Personal guarantee of two officials of the same rank or of superior rank of the borrower, officers/Managers of Bank in the grade of principal officer or above. The guarantor must have to be a man of means and shall have to be acceptable to bank. Security in the form of FDR/BSP/PSP or Bank/ Insurance guarantee or corporate if possible may be obtained. The articles procured under the scheme shall remain hypothecated to the bank as security. 6.4. Loan Sanction Clients demand specific amount of loan from the Bank after making justification of clients demand, the amount of money sanctioned by Bank as loan is called Loan Sanction. Generally the loan FSIB offers to its clients is divided into two categories; Retail loan and Consumer Credit Scheme.

Under the above discussion the next chapter -7 will deal with the credit risk management.

CHAPTER 7
The Credit Risk Management

7.1. Impaired Asset Management Department This department of the bank looks after the default loans and tries to recover them. It is said that the less job load this department has, the better it is for the bank itself. The head of IAM directly reports to the Managing Director of the Bank and this division is an administrative division of the bank. This department of the bank has two wings. One wing looks after the impaired assets of SME wing and another wing looks after the impaired assets of retail business. Normally if a loan instalment is six months over due, then the credit department hands over the file to IAM for recovery. IAM first issues a letter in soft language. Then if it does not work, IAM issues further three letters to the defaulter. If it does not work either, then IAM files a case against the defaulter. Usually this case filing is done in the 11 month of the default. Loan Admin - The posting is done in the system in the Asset Operations Department. Then Loan Admin sends requisition to Fin Admin. Fin Admin: Fin Admin take care of the other expenses. Recovery: Recovery Dept. prepares an overdue report and informs the TM. Recovery dept. keeps track of the money. Legal notices are given to the defaulters. MIS: MIS dept. keeps the total record of loan from its sanction to repayment. 7.2. Credit assessment The evaluation process is carried out based on „Lending Guideline‟ described in this Policy and the clauses and documents checklist as per the PPG. The detailed credit risk assessment should be conducted prior to the approving of any loans. The Credit Risks are detailed in the Risk Management Chapter of this policy.

7.3. Risk grading Bank shall formulate a separate risk-grading matrix customized for SME financing on the basis of expert opinion taking into consideration the experience of the Bank in lending the SMEs for last few years.

7.4. Reporting to business unit A monthly summary of all new loans approved, renewed, enhanced, and a list of proposals declined stating reasons thereof shall be reported by Credit Team to the Business Head. 7.5. Rejection database A rejection database is to be maintained listing the businesses and owners/sponsors to ensure that businesses and owners/sponsors with bad history, dubious integrity and high delinquency rate do not get loan from banks. 7.6. Audit & Risk Management Division The Risk Management Division is responsible for measuring risks that the Bank might face in the course of its operations, developing corporate risk management policies and ensuring that risks remain within the limits in which the Bank prefers to bear such risks in line with its own strategic targets and risk appetite. The primary goal of risk management is to provide capital to businesses in line with their risks (economic capital), maximize risk-adjusted return and increase the added value. Under the above discussion the next chapter -8 will deal with the monitoring system of the credit.

CHAPTER 8
The Monitoring System Of The Credit

8.1. Credit monitoring To minimize credit losses, monitoring procedures and systems shall be in place that provides an early indication of the deteriorating financial health of a borrower. At a minimum, systems shall be in place to report the following exceptions to relevant executives in CRM and RM team: Ø Past due principal or interest payments, past due trade bills, account excesses, and breach of loan covenants. Ø Loan terms and conditions are monitored, financial statements are received on regular basis, and any covenant braches or exceptions are referred to CRG and the RM team for timely follow-up. Ø Timely corrective action is taken to address finding of internal, external or regulator inspection/audit. Ø All borrower relationships/loan facilities are reviewed and approved through the submission of a credit proposal at least annually. 8.2. Early Alert process An Early Alert Account is one that has risks or potential weaknesses of a material nature requiring monitoring, supervision, or close attention by management. If these weaknesses are left uncorrected, they may result in deterioration of the repayment prospects for the asset or in the Bank‟s credit position at some future date with a likely prospect of being downgraded to CG 5 or worse (Impaired status), within the next twelve months. Early identification, prompt reporting and proactive management of Early Alert Accounts are prime credit responsibilities of all Relationship Managers and must be undertaken on a continuous basis. An Early Alert report should be completed by the RM and sent to the approving authority in CRM for any account that is showing signs of deterioration within seven days from the identification of weaknesses. The Risk Grade should be updated as soon as possible and no delay should be taken in referring problem accounts to the CRM department for assistance in recovery.

Despite a prudent credit approval process, loans may still become troubled. Therefore, it is essential that early identification and prompt reporting of deteriorating credit signs be done to ensure swift action to protect the Bank‟s interest. The symptoms of early alert shown in are by no means exhaustive and hence, if there are other concerns, such as a breach of loan covenants or adverse market rumours that warrant additional caution, an Early Alert report should be raised. Moreover, regular contact with customers will enhance the likelihood of developing strategies mutually acceptable to both the customer and the Bank. Representation from the Bank in such discussions should include the local legal adviser when appropriate. 8.3. Custodial Duties Loan disbursements and the preparation and storage of security documents should be centralised in the regional credit centres. § Appropriate insurance coverage is maintained (and renewed on a timely basis) on assets pledged as collateral. § Security documentation is held under strict control, preferably in locked fireproof storage.

8.4.Categories of loan All loans advances will be grouped into 4 categories for the purpose of classification. These areasContinuous Loan Demand Loan Fixed Term Loan and Short Term Agricultural & Micro Credit Continuous Loan: The loan Accounts in which transaction may be made within certain limit and have an expiry date for full adjustment will be treated as continuous loan. For example: CC (cash credit), OD (Over Draft) etc. In continuous loan bank need some collateral securities to the customer. If customer wants to take a lone against his FDR (any bank account) he has to submit all documents of FDR. He also take loan against his fix assets like land, house. Demand Loan: The loan that becomes repayable on demand by the bank will be treated as Demand Loans. If any contingent or any other liabilities are turned to forced loans (i.e. without any prior approval as regular loan) those too will be treated as Demand Loans. Such as: Forced LIM, PAD, FBP, and IBP etc. In demand loan bank need charged documents (shown in 4.3). If customer wants to take loan against his house, at first bank have to see all deeds and documents legal or not, then take the valuation of assets and give loan 80% (force rate) of value. Fixed Term Loan: Loans which are repayable within a specific time period under a specific repayment schedule will be treated as Fixed Term Loans. Short Term Agricultural & Micro Credit: Short Term Agricultural & Micro Credit will include the short-term credits as listed under the Annual Credit program issued by the Agricultural Credit department of Bangladesh Bank. Credit in the agricultural sector repayable within less than 12 months will also be included herein. Short-term Micro-

Credits will include any Micro-Credits for less than Tk. 25,000/- and repayable within less than 12 months, be those termed in any names Such as non-agricultural credit, self-reliant Credit, Weaver‟s Credit or Bank‟s individual project credit. Actually this loan doesn‟t need special documents. It‟s only need chairmen/commissioner certificate. Term Loan A term loan is a contract under which a borrower agrees to make a series of interest and principal payments on specific dates to the lender. Term loan have three major advantages over public offeringsspeed, flexibility & low issuance costs. There are two of term loan one is short term another is long term. Short term loan is only five years or less than five years and long term loan up to five years. These two loan recovery system can be same like instalment. 8.5.Credit Monitoring To minimize credit losses, monitoring procedures and systems shall be in place that provides an early indication of the deteriorating financial health of a borrower. At a minimum, systems shall be in place to report the following exceptions to relevant executives in CRM and RM team: Ø Past due principal or interest payments, past due trade bills, account excesses, and breach of loan covenants. Ø Loan terms and conditions are monitored, financial statements are received on regular basis, and any covenant braches or exceptions are referred to CRG and the RM team for timely follow-up. Ø Timely corrective action is taken to address finding of internal, external or regulator inspection/audit. Ø All borrower relationships/loan facilities are reviewed and approved through the submission of a credit proposal at least annually.

8.6.Operational Network FSIBL is currently operating with the highest operating network among the private commercial banks (PCBs). The bank has been operating with 86 branches (including 30 SME/Agriculture branches) with the inclusion of 15 new branches during 2011. In order to facilitate and control the administrative function of the branches, FSIBL has set up 12 zones including one new zone (Mymensingh) throughout the country. Among 86 branches, 9 branches are in Dhaka Central Zone, 24 branches (excluding 2 SME/Agriculture branches) in Dhaka South Zone, 22 branches (excluding 2 SME/Agriculture branches) in Dhaka North Zone, 15 branches (excluding 2 SME/Agriculture branches) in Chittagong North Zone, 16 branches (excluding 2 SME/Agriculture branches) in Chittagong South Zone, 24 branches (excluding 4 SME/Agriculture branches) in Bogra Zone, 23 branches (excluding 3 SME/Agriculture branches) in Khulna Zone, 29 branches (excluding 4 SME/Agriculture branches) in Comilla Zone, 20 branches (excluding 3 SME/Agriculture branches) in Sylhet Zone, 17 branches (excluding 3 SME/Agriculture branches) in Barishal Zone, 18 branches (excluding 3 SME/Agriculture branches) in Rajshahi Zone and 19 branches (excluding 2 SME/Agriculture branches) in Mymensingh Zone. This large branch network of FSIBL is supported by 100 own ATM and 1035 shared ATM along with 30 SME/Agriculture branches and Internet Banking.

8.7. Recovery Rate The recovery perspective in Bangladesh has always been poor and ineffective that sometimes made the Banking sector insolvent. However, the recovery rate of NCBs, PCBs and ICBs are given below:

Table 1: Recovery Rate of NCBs, PCBs and ICBs

Source: Various Issues of FSIBL and Newspaper Articles.

the comparison of NCBs and PCBs show that in order to strengthen the economic conditions of the economy, the NCBs must be improved in terms of its NPL, ROA, ROE, NII and other monitoring, assessment and performance evaluation metrics. The Islamic Banks have been found to be investing generally in the projects with quick returns resulting higher recovery rate of commercial loans provided by the banks. This leads the banks not to take up the projects with long gestation period, i.e., insignificant investment under Mudaraba and Musharaka mode of financing. The short term financing under Murabaha and Bai Muajjal assures the required rate of return, as themark up of profit is pre assigned according to the bankers and the users of the loans. Moreover, the Islamic Banks cover their loan risk by taking the collateral and other forms of securities such as FDR Account with the Bank. Thus, the better performance recovery rate of commercial loans in Islamic Banks is due to its lending portfolio and its different modes of financing. Generally, the Islamic Banks are not performing the true Islamic Banking instruments.

Table-2

Source: News paper Source and Various Issues of FSIBL.

8.8. Sectoral and Credit Concentration (Stand alone basis) The bank is continuing its operation with concentration to trade finance and textile sector. The sectoral portfolio reveals that 32.52% investment was in trade finance, followed by 20.82% in textile, 5.24% in iron & steel engineering, 5.04% in housing, 3.50% in RMG, 2.00% in agricultural sector and rest are segregated to other general investment. While reviewing sectoral NPI in 2011, it was revealed that classified investment pie is mostly comprised of trade finance (23.16%) followed by Textile (20.34%), Transport (19.53%), House building (4.59%), others (30.23%) and rest are insignificantly distributed in different sectors. CRISL views that the bank is significantly exposed to sectoral concentration risk in textile sector which might be affected with the volatility of commodity price both in the national and international market and the sectoral performance.

CRISL reviewed financing facilities extended to Group of companies of FSIBL and it was revealed that the funded exposure of the bank to different Group of companies contribute significant portion of capital which exposes the bank to credit concentration risk. 8.9. Finance & Advisory Services Given the needs of its large and varied base of corporate clients FSIBL 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 FSIBL hopes to play the role of strategic counsellor 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. 8.10. Loan Recovery Unit The RU should directly mange accounts with sustained deterioration. All time bank monitoring the loan client with a very special care. If any client fails to adjust his loan amount, bank has to take some step against client to recover the loan. The RU‟s Functions are: At first, Bank can send 3 times reminder to the client. (1st reminder, 2nd reminder,3rd reminder). Make call to the customer or verbally say the entire problem about loan adjustment and request to clean up all the deals. If client fail to pay the money the guarantor is responsible to pay in terms of complain. Under the above discussion the next chapter -9 will deal with the impact of credit management profitability and productivity.

CHAPTER 9
The Impact Of Credit Management On Profitability And Productivity

9.1. Financial Highlights of FSIBL Although there are a number of other competitors, this serves as a basic competitors for FSIBL. For Bahadderhat Branch, it seemed the competitors are the surrounding banks. I have done a questionnaire method and face-to face interview lush secondary information to collect the following data. Chart-2:Basic competitors for FSIBL

Analysis: From the survey, I found that out of 100 percent 36 percent of the total sample size said that the overall quality of DBL is excellent, 34 percent good and 30 percent moderate.

Chart-3:Loan department of FSIBL How satisfied you are by the Loan Department of FSIBL?

Analysis: Here I find that among 50 (100%) clients 20 (40%) are very much satisfied with the loan department of FSIBL where as only 1 (2%) is very dissatisfied with the performances. But average percent is good. Here we can see that 2 clients are dissatisfied and 1 is very dissatisfied. The reason that he was dissatisfied was because he wanted more time to pay his instalments. But FSIBL did not allow this.

9.2. Customer Satisfaction I have done a questionnaire method and face-to face interview lus secondary information to collect the following data.

Table-3:Quality of service of FSIBL How do you rate the quality of services of FSIBL?

Chart-4:Qality of service of FSIBL

Analysis: From the survey, I found that out of 100 percent 36 percent of the total sample size said that the overall quality of FSIBL is excellent, 34 percent good and 30 percent moderate.

9.3. Loan Department How satisfied you are by the Loan Department FSIBL? Table-4:Loan department of FSIBL

Analysis: Here I find that among 50 (100%) clients 20 (40%) are very much satisfied with the loan department of FSIBL where as only 1 (2%) is very dissatisfied with the performances. But average percent is good. Here we can see that 2 clients are dissatisfied and 1 is very dissatisfied. The reason that he was dissatisfied was because he wanted more time to pay his instalments. But FSIBL did not allow this. 9.4. Credit Department How would you rate the quality of The Credit Department service of Bank Limited? Table-5:Credit department of FSIBL

Chart-5:Credit department of FSIBL

Analysis: From the survey, I found that out of 100 percent 38 percent of the total sample size said that the overall quality of lending service of FSIBL is excellent, 22 percent satisfactory and 24 percent moderate and only 16 percent is not dissatisfactory. It means the overall opinion of clients is positive about the quality of customer care service of FSIBL.

Chart-6:Total ATM Booths

Analysis: Here in the graph we can see BRAC Bank have maximum ATM booths around 120, next we have DBBL who have total of 65 ATM booths. EBL and SCB have almost equal number of ATM booths. Mercantile Bank, AB Bank and Dhaka Bank have least ATM booth in different division in Bangladesh. Surprisingly MTB and UCBL don‟t have any ATM booth, in order to meet up with customer requirements they have co branding with FSIBL for providing ATM service.

9.5. Ratio Analysis Capital Adequacy Ratio This ratio expresses capital as a proportion of total risk-weighted assets. Both capital and assets should be fairly stated with the appropriate loan loss provisions and intangible assets having been deducted. This ratio indicates the margin of protection available to both depositors and creditors against unanticipated losses that may be incurred by the bank. For the FSIBL, the ratio is computed as:

Earning Assets to Total Assets Ratio: This consists of earning assets (interest-bearing investments, loans and advances) divided by total assets. It will reveal the extent to which bank's assets are put into productive use. Investment in equipment and buildings may not directly generate income but they are important for the bank's operations. For the FSIBL, the ratio is computed as:

Cash Ratio This ratio relates the sum of cash in hand and at banks including the Central Bank to total deposits. For the FSIBL, the ratio is calculated as:

Loans to Deposit Ratio This ratio is a measure of bank liquidity; the higher the ratio, the lower the liquidity. For the FSIBL, the ratio is calculated as:

FIRST SECURITY ISLAMI BANK LIMITED BALANCE SHEET

Loans to Assets Ratio The loans to asset ratio is similar to the loans to deposits ratio. Other things equal, a rise in this ratio would indicate lower liquidity and the need to evaluate other liquidity ratios. For the FSIBL, the ratio is computed.

There is no standard way to measure a bank's liquidity. Those without access to internal data will have to use a number of ratios. Larger banks will have greater flexibility in liquidity planning because they can practise liability management nation-wide. Because of this ability, their liquidity planning horizon is much shorter than it is for smaller banks.

9.6. Profitability Ratio Return on Assets Return on assets, often described as the primary ratio, relates the income earned by the bank to the resources employed by it. Normally return' is taken as profit before extraordinary items, since these items fall outside the scope of the bank's normal operations. This does not

mean that extraordinary items should be ignored by the analyst, but that their significance should be assessed as a separate exercise from the analysis of the bank's performance.

For the FSIBL, the ratio would be computed as follows:

The ratio of profit before tax to average total assets essentially is an indication of management ability to generate income and its ability to control expenses. The variations in this ratio could be due to a number of factors including a portfolio shift to higher or lower yielding assets, an increase or decrease in the level of interest rates, or an increase or decrease in fees and other income not related to the employment of assets.

Return on Equity This ratio relates profit earned after tax by the bank to resources contributed by its owners, i.e. ordinary share capital plus reserves.

Under the above discussion the next chapter -10 will deal with the major findings problem and recommendation.

CHAPTER 10
Major Findings Problems And Recommendation

10.1. Documents deficiency and problem resolving: If there is any error found then it informed to the respective CRO. If the application form is not filled properly then the file is sent to the CRO to fill the application properly. If any document error is found then the loan administration division asks the CRO to send the required documents and the file stored to the loan administration division.

10.2. Problems and Challenges of FSIBL Problems Related to Macro Operation of the Islamic Banks 1 Liquidity and Capital 2 Valuation of bank Assets 3 Financial Stability 4 The Ownership of Banks 5 Increased Cost of Information 6 Control over Cost of Funds. 7 Mark-up Financing and Corrupted Mark-up 8 Excess Resort to the Murabaha Mode of Financing 9 Utilization of Interest Rate of fixing the Profit Margin in Bay Modes. 10 Financing Social Concerns. 11 Lack of Positive Response to the Requirement of government Financing. 12 Failure of Islamic Banks to Finance High Return Projects. 13 Sacrifice of allocate Efficiency 14 Loss of Distributive Efficiency. 15 Depression of Profit. 16 Lack of Full-fledged Shariah Audit. 17 Fraud-Forgery or corruption in Islamic Banks. 18 Minimum Budget for Research and Development.

19 Working Environment. 20 Issuance of Letter of Guarantee (L/G) 21 Minimum Budget for Research and Development. 22 Lack of Shariah Manual or Guidelines. 23 Non-exemption of Stamp Duty for Purchasing Property by Banks. 24 Lack of Co-operation between Islamic Banks and Islamic NGOs for extending Microcredit. 25 Lack of Establishment of Links with other Training Institutes and Shariah Supervisory Bodies. 26 Lack of Intention of the Management to be strict with Shariah Guidelines. The above problems are some of the burning problems confronting the Islamic banks in Bangladesh. However it is felt that much operational work and in-depth research work has to be undertaken to allow the Islamic banks to flourish with highest quality and strength. 10.3. ICT and its use in MIS FSIBL is continuously improving in the automation of banking activities. All the branches have been brought under on-line banking using Fiber Optics, DDN and Radio Link where „Any Branch Banking‟ facilities are being provided. FSIBL is the only bank in Bangladesh, which developed in-house built integrated Banking system namely eIBS having major modules viz.: General Banking (GB), Investment and Foreign Exchange. Both GB and Investment module are running at all 266 branches including 30 SME/Agriculture branches. The foreign exchange module has been implemented at 43 authorized Dealer (AD) branches. Apart from the core banking facilities, the bank provides other IT enabled services such as shared and owned Automated Teller Machine (ATM), SMS banking, EFTN and i-banking.FSIBL has established the country‟s largest Data Center in the banking sector running on Sun Solaris 10 & Oracle 10g

Enterprise Edition. Branch data are being uploaded in the Data Centre from all online branches, which are being used as branch backup data

and preparing MIS reports for different Wings/Divisions/Departments of Head Office. A strong central MIS has already been set up through using data from the Data Centre. IBBL has completed setting up Disaster Recovery Site (DRS) as per guideline of Bangladesh Bank as a replication of existing Data Centre which is on live operation. 10.4. SWOT Analysis Strengths: • Strong corporate identity  According to the customers, FSIBL is the leading provider of financial services identity worldwide. With its strong corporate image and identity, it has better positioned itself in the minds of the customers. This image has helped FSIBL grab the personal banking sector of Bangladesh very rapidly.
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• Strong employee bonding and belongings FSIBL employees are one of the major assets of the company. The employees of FSIBL have a strong sense of commitment towards organization and also feel proud and a sense of belonging towards FSIBL. The strong organizational culture of FSIBL is the main reason behind its strength. • Efficient Performance It has been seen from customers‟ opinion that FSIBL provides hasslefree customer services to its client comparing to other financial institutions of Bangladesh. Personalized approach to the needs of customers is its motto.


 Young enthusiastic workforce

The selection & recruitment of FSIBL emphasizes on having the skilled graduates & postgraduates who have little or no previous work experience. The logic behind is that FSIBL wants to avoid the

problem of 'garbage in & garbage out'. And this type of young & fresh workforce stimulates the whole working environment of FSIBL.  Empowered Work force The human resource of FSIBL is extremely well thought & perfectly managed. As from the very first, the top management believed in empowering employees, where they refused to put their finger in every part of the pie. This empowered environment makes FSIBL a better place for the employees. The employees are not suffocated with authority but are able to grow as the organization matures.
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 Hospitable Working Environment All office walls in FSIBL are only shoulder high partitions & there is no executive dining room. Any of the executives is likely to plop down at a table in its cafeteria & join in a lunch, chat with whoever is there.
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 Strong Financial Position It has been seen that the net profit has been gradually rising over the years. Furthermore, FSIBL is not just sitting on its previous year‟s success, but also taking initiatives to improve. Weaknesses: • High charges of L/C Presently FSIBL charges same rates for all types of import L/C. But for import L/C of exports-oriented industry, FSIBL should reduce the charge of L/C. As a result, exporter will be benefited and the country

will earn more foreign exchange. The commission often even rises up to 30%.


 Absence of strong marketing activities FSIBL currently don't have any strong marketing activities through mass media e.g. Television. TV ads play vital role in awareness

building. FSIBL has no such TV ad campaign. Although they do a lot of CSR activities compared to other banks. • Not enough innovative products In order to be more competitive in the market, DBL should come up with more new attractive and innovative products. This is one of the weaknesses that DBL is currently passing through but plans to get rid of by 2010. • Diversification FSIBL can pursue a diversification strategy in expanding its current line of business. The management can consider options of starting merchant banking or diversify it to leasing and insurance. As FSIBL is one of the leading providers of all financial services, in Bangladesh it can also offer these services. • Lack of Proper Motivation The salary at FSIBL is very decent, but it lacks other sorts of motivation. Incentives such as bonuses are given for acquiring a particular figure, but all in all these are the only motivational factors. • High Cost for maintaining account The account maintenance cost for FSIBL is comparatively high. Other banks very often highlight this. In the long run, this might turn out to be a negative issue for FSIBL.

Opportunities: • Distinct operating procedures Repayment capacity as assessed by FSIBL of individual client helps to decide how much one can borrow. As the whole lending process is based on a client's repayment capacity, the recovery rate of FSIBL is close to 100%. This provides FSIBL financial stability & gears up FSIBL to be remaining in the business for the long run. • Country wide network The ultimate goal of FSIBL is to expand its operations to whole Bangladesh. Nurturing this type of vision & mission & to act as required, will not only increase FSIBL's profitability but also will secure its existence in the log run. • Experienced Managers One of the key opportunities for FSIBL is its efficient managers. FSIBL has employed experienced managers to facilitate its operation. These managers have already triggered the business for FSIBL as being new in the market. • Huge Population Bangladesh is a developing country to satisfy the needs of the huge population, a large amount of investment is required. On the other hand, building EPZ areas and some Govt. policies easing foreign investment in our country made it attractive to the foreigners to invest in our country. So, FSIBL has a large opportunity here.
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 El Dorado Program It is software which enables customers to deposit and withdraw money from any bank with the cheque or deposit of any other bank. Although a select few has implemented this program, this poses as an opportunity for FSIBL as the number of transactions would drastically increase.

• Bigger Market Although the GDP per head decreased a bit in 2009 from 2008, there is a huge untapped market that requires loans and intends to deposit also. • BASEL II Implementation of BASEL II would definitely provide benefits. But it requires a lot of monitoring. For this FSIBL has formed BIU (BASELL II Implementation Unit). BASEL II is basically a framework set forth by Bangladesh Bank to reduce credit risk, operational risk and market risk. This would definitely aid FSIBL if it is stringently followed. Threats: • Upcoming Banks/Branches The upcoming private, local, & multinational banks posse‟s serious threats to the existing banking network of FSIBL: it is expected that in the next few years more commercial banks will emerge. If that happens the intensity of competition will rise further and banks will have to develop strategies to compete against and win the battle of banks. • Similar products are offered by other banks Now-a-days different foreign and private banks are also offering similar type of products with an almost similar profit margin. So, if all competitors fight with the same weapon, the natural result is declining profit. • Default Loans The problem of non-performing loans or default loans is very minimum or insignificant. However, this problem may rise in the future thus; FSIBL has to remain vigilant about this problem so that proactive strategies are taken to minimize this problem.

• Industrial Downturn Bangladesh is economically and political unstable country. Flood, draught, cyclone, and newly added terrorism have become an identity of our country. Along with inflation, unemployment also creates industry wide recession. These caused downward pressure on the capital demand for investment.

10.5. Profit Rate Risk Regulatory pressure to reduce profit rate in the market has been creating substantial profit rate risk for the banks. The Asset Liability Committee (ALCO) of FSIBL monitors and evaluated the overall profit rate structure. FSIBL has been following a competitive profit rate and has flexibility of setting profit rate according to market conditions and Bangladesh Bank ceilings. The bank has no profit sensitive trading portfolio. For non trading portfolio (general investment), the bank has been operating through buying and selling policy i.e. Bai-Murabaha, Bai-Muajjal, Bai-Salam, Bai-as-Sarf and Rent sharing mode like HPSM. IBBL also makes Investment under Musharaka mode i.e. profit and loss sharing mode and Mudaraba mode i.e. profit sharing and loss bearing on short term basis. Investment exposures under profit loss sharing mode is insignificant, hence facing little risk of investment loss. In case of rent sharing mode i.e. HPSM, the bank can adjust the rate of rent in line with market situation. FSIBL has been exposed to some risk on buying and selling mode.

10.6.Recommendation of FSIBL The following are some recommendation of FSIBL: (i) Improvement of the HRD The HR department of the bank is one of the weakest areas and many of the human resources development and policies are not being followed or implemented. Though there has been performance appraisal for the employees but still it is lying idle and no action has been taken. The management should immediately apply the performance appraisal system and take appropriate actions on the basis of that appraisal. (ii) Better recruitment FSIBL must pursue a strong and an effective recruitment system so that the right people are recruited at the job. It must focus on attracting, getting and retaining qualified personnel for filling up the positions. It is worth spending more on attracting qualified human recourses rather than getting wrong people in the wrong position. (iii) Stop reference appointment FSIBL management and particularly the Board of director must change the system of appointing people by giving their reference. It has been deeply observed that most of the appoint references are not up to the standard and have a poor performance. It may not be absolutely possible to eliminate the reference appointment system as it is a local private company, but still the tendency can be reduced to a certain extent if bold steps are undertaken by the management and the board of directors. (iv) Branch expansion For expanding geographically the bank should open up new branches strategies important places. The bank can open new branches in Mailbag, Karkalla and new Eskaton of Dhaka city. Some of its rivals already entered in some of this regions and some of are on the way, so the bank should expand in this regions without making any delay. Before entering

into new market the bank should do extensive market research. The bank should build reflective management team who can make quick decision. Improved customer service and consequently get satisfactory operational result. Avoid force loan as minimum as it can. Incorporate more products for the customer. Proper training and technology should be used to minimize risk at the root level. Auto mated letter machine (ATM) and credit cards should be introduced as soon as possible because of its prevailing demand in the market. 10.7. Conclusions Modern commercial banking is challenging business. The rewards are modest. The penalties for bad looking are enormous. Commercial banks are great monetary institutions, important to general welfare of the company more than many other financial institutions. FSIBL is an emerging bank. The bank has completed twelve years of banking services. At the initial stage of business, every institution has to go through the difficult stage of survival. To achieve the confidence of the customers, the bank must execute some improvement in its marketing and operational areas – FSIBL should try to win customers faith by providing them efficient and dependable services, credit facilities and updating with user friendly modern technologies. The bank should redesign all sorts of banking procedure to be more users friendly, attractive and impressive. Information and Analysis is not sufficient because it is difficult to measure and express perfectly within this short time of my internship period. But it is a great opportunity for me to get use to with the operational environment of commercial banking of FSIBL.

I have tried by soul to incorporate the research report with necessary relevant information in my report. This report basically deals with “Investment Management”. But all information is not available about this topic. It is found from the report that credit management of FSIBL,Bahadderhat Branch. There are many terms and conditions about this credit.FSIBL should always try to improve their service level in every term. Reference Books: “Bank Management & Financial Services” 6th Edition. McGrawHill Singapore. - Peter S. Rose & Sylvia C. Hudgins (2007) Mishkin, F. S (2009), The Economics of Money, Banking, and th Financial Markets. 9 ed. New York: Pearson, Addison Wesley. BIBM. 1999. Reading Materials on Islamic Banking. Performance. Appraisal And Compensation Management: A Modern Approach. pp 8 - 272.

Reports: First Security Islami Bank Limited, Annual Report 2008-2009. First Security Islami Bank Limited, Annual Report 2010-2011.

Internet: http://www.fsiblbd.com