Banking operation of Dhaka Bank Ltd

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“Banking Operation of Dhaka Bank Ltd.”

Executive Summary

Economy of Bangladesh is still surviving to get rid from the world’s most underdeveloped economics. One of the reasons may its underdeveloped banking system. Since 1990, Bangladesh GOVT. has taken a lot of financial sector reforming measures for making financial sector as well as banking sector more sound and transparent.

Foreign Direct Investment (FDI) is increasing day by day. In the calendar year 2005, FDI was US$ 845 million against US$ 460 million in the year 2004. In terms of Foreign Remittance, this is also a good position compared to previous year.

Commercial Bank is the vital sector by which the foreign exchange transactions are affected or settled. Now a days world is surviving in a commercial age. Banks are working as a media to help people doing business.

On the other hand, the issues of remittance create increasing amount of attention in recent years for the significant contribution in our national economy by increasing our foreign currency reverse. Our Govt. gives most emphasis on Foreign Remittance to keep macro economic balance. In the recent survey it has been found that some bank manages this in an efficient manner but some does not. Dhaka Bank Ltd. has taken up several strategic initiatives for growth of remittance from expatriate Bangladesh by opening its own exchange company.

Chapter 01

1.1 Objectives of the Report:

The main objectives of the report are:

  • Identify the common factors that affect consumers on borrowing loans.
  • Compare and contrast the common factors using different loans.
  • Examine the overall satisfaction level about Dhaka Bank Ltd.’s loan.
  • To develop some recommendations.

1.2 Methodology of the Study :

This report is mainly prepared by the secondary & primary source of information like-

  • Direct observation in the DBL Dhanmondi Branch Dhaka.
  • Information sharing & discussion with bank professionals.
  • Questioning the concerned person.

1.3 Data Collection:

(i) Primary Source:

Primary data has been collected as a practical witness of the organization. Personal discussion with some Executives, Officers and clients helped a lot for getting various information of the organization.

(ii) Secondary Source:

The secondary sources are various books, journal, website etc. Name of those books, journal and website address mentioned at the end of this publication.

1.4 Analysis Techniques & Report Writing:

For preparation of this report, have to consult with many journals, reference books, websites and newspapers. At the time of writing, the help of personal computer was very important. By editing and rewriting of the data and information, it helped a lot. Day-by-day important data has been incorporated and several times the report has been edited and modified according to the situation.

1.5 Limitations of the Study:

Though the research has been properly planned and well executed, there are certain limitations which are inherent in nature and out of researcher’s control. These are-

  • Due to conservativeness, respondents were not very much frank in providing answers in some cases.
  • Some of the respondents did not take this research’s studies very seriously.
  • Some of the respondents adopted a policy of evasion & avoided answering the questions on silly grounds.
  • Some of the information provided by the respondents might not be correct.
  • Getting timely responses from the respondents was a difficult task.

Chapter 02

2. Introduction

Bank:

A Bank is a financial institute that offers different types of services such as it collects the secured fund of the society and uses those in a production manner by giving loan or by investing in economic development for the purpose of development of the society.

In other words, “A bank is an establishment which trades with money with the aim to earn profit. It is an establishment for deposit custody & issue of money and also for granting loans and discounting bills and facilitating transmission of remittances from one place to another place.”

Banking:

The activities or the services that are offered by banks are called banking. In other words, “The term Banking is defined as accepting for the purpose of lending or investment of deposits of money from the public, repayable on demand or otherwise, and withdrawable by cheque, draft order or otherwise.”

Banker:

Banker means a person transacting the business of accepting for the purpose of lending or investment of deposits of money from the public, repayable on demand or otherwise and withdrawable by cheque, draft order or otherwise and includes any post office savings bank.

In other words, “A person or a group of people who are engaged in banking activities.”

2.1 History of Dhaka Bank Ltd.:

Bangladesh economy has been experiencing a rapid growth since the 90’s. Industrial and agricultural development, international trade, inflow of expatriate Bangladeshi workers’ remittance, local and foreign investments in construction, communication, power, food processing and service enterprises ushered in an era of economic activities. Urbanization and lifestyle changes concurrent with the economic development created a demand for banking products and services to support the new initiatives as well as to channelize consumer investments in a profitable manner. A group of highly acclaimed businessmen of the country grouped together to responded to this need and established Dhaka Bank Limited in the year 1995.

The Bank 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 million and paid up capital of Tk. 100 million. The paid up capital of the Bank stood at 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, 2 SME Service Centers, 1 Business Center, 2 Offshore Banking Units across the country and a wide network of correspondents all over the world. The Bank has plans to open more branches in the current fiscal year to expand the network.

The Bank 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 its 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 Ltd. 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.

2.2 Our 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.

2.3 Our 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 razor sharp sparkle through accuracy, reliability, timely delivery, cutting edge technology and tailored solutions for business needs, global reach in trade and commerce and high yield on investments.

2.4 Our Goal:

Our people, products and processes are aligned to meet the demand of our discerning customers. Our goal is to achieve a distinction like the luminaries in the sky. Our prime objective is to deliver a quality that demonstrates a true reflection of our vision – “Excellence in Banking”.

2.5 The Products & Services:

Dhaka bank started its business in 1995 and now its has 44 branches throughout Bangladesh and 1 off shore banking unit at DEPZ, Savar Dhaka. The main activity of the bank is banking related business. The activities include deposit collection extending credit facility to different corporate organizations and small & medium enterprises. The bank issues ATM card to the account holders and it issues credit card to the customer through its retail banking wing. Being the member of Dhaka & Chittagong Stock Exchanges, Dhaka Bank helps to perform stock trading. The account holders of the bank can enjoy the SMS Banking facilities, which is a part of modern technology.

2.6 Credit Card Services:

Dhaka Bank offers everyday credit card in the short possible time. That is why we have developed processes to guarantee delivery of card in 7 days when applying for a fully secured card; for an unsecured it takes 10 days.

Reasons for Preferring Dhaka Bank VISA Credit Card-

  • Substitute of Cash- Zero Cash Handling ensures Security.
  • Wide Range of Local & International Products (Classic, Gold).
  • Hassle Free Documentation.
  • No Joining or Processing Fee.
  • Flexible Credit Limit Enhancement based on Usage & Regular Payment.
  • Flexible Payment through Cash, Cheque or Dhaka Bank account debit.
  • Auto Debit Payment facilities for DBL account holders.
  • Auto Renewal of card before expiry date.
  • Competitive Fees & Charges.
  • Supplementary Cards for dear ones.
  • Separate Limits for Supplementary Cards.
  • Cash Advance facility up to 50% of Credit Limit.
  • Dedicated Sales Team and Customer Service Desk at your service.
  • International Card against RFCD account & ERQ.
  • International Card- Accepted Worldwide for Purchase & Cash Withdrawals.

2.6.1 VISA Credit Card gives some advantages:

Everything you would expect from a credit card. We can use it at all the merchant locations that display the VISA Card sticker. That’s not all. We can also use it at all the locations that display the Card sticker. And that’s a whopping 7,000 merchants and more than 400 ATMs.

  • Free Supplementary Card: Your dear one needs a card too for everyday use. That is why our bank offers cards to your dear ones absolutely FREE. Your spouse can enjoy the same facilities as you do. So, you won’t have to worry about whether either of you are carrying enough cash.
  • Convenience: Unlike other cards, all branches of Dhaka Bank Ltd. can accept your bill payments and handle your card service requests. You may open an account as well with any of these branches to conduct all your banking and card service requirements under one roof.
  • Flexible Repayment Options: Dhaka Bank VISA Credit Card offers you credit facility absolutely FREE up to a maximum of 45 days. You get 15 days time from the date of statement to repay your dues. You can pay in full within 15 days (and save money; no interest accrued, no payout) or in part. The minimum amount required to pay is 1/20th of the total amount or Tk. 500 (whichever is higher). The revolving credit line of your card allows you to select payment terms to suit your other financial commitments.

2.6.2 Quick Replacement:

If your card has been lost or stolen, don’t worry. A replacement will be sent to you within a couple of days. But remember to report the loss as soon as you have detected it. Once reported, there will be no liability on fraudulent charges.

2.7 Dhaka Bank’s Loan & Advance Division:

(i) 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).

(a) Targeted Market:

The targetd 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.

(b) Restrictions and Client Eligibility:

Loans are restricted to Bangladeshi nationals falling in the categories mentioned below:

  • The minimum age for any borrower will be 21 years and  the maximum age will be 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.
  • 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).
Loan amount limit under the program Minimum loan amount

BDT 500,000

Maximum loan amount

BDT 3,500,000

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

(ii) 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 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.

(a) Targeted Market:

The targeted market for personal loan will mainly comprise of following category:

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

(b) 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 will be 52 years.
  • The minimum verified Gross Family Monthly Income of BDT 10,000.
Loan amount limit under the program Minimum loan amount

BDT 25,000

Maximum loan amount

BDT 500,000

(iii) Car Loan:

Car Loan is a term financing facility to individuals to aid them in their pursuit of having a car of their own. The facility becomes affordable to the clients as the repayment is done through fixed installment 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.

(a) Targeted Market:

The targeted 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.

(b) Restrictions and Client Eligibility:

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.
  • The minimum verified Gross Family Monthly Income of BDT 45,000.
Loan amount limit under the program Minimum loan amount

Not Specified

Maximum loan amount

BDT 20,00,000

(iv) 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  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.

(a) Targeted Market:

The targeted market for personal loan will mainly comprise of following category:

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

(b) 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 will be 52 years.
  • The minimum verified Gross Family Monthly Income of BDT 10,000.
Loan amount limit under the program Minimum loan amount

BDT 25,000

Maximum loan amount

BDT 500,000

(v) 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.

(vi) Non Performing Loan:

As of 31 December 2008, 96.16% of the total Bank’s loan portfolio was regular while performing as compared to 3.15% of 2007. Bank made required provision as of 31 December against performing and non-performing loans as per rate and classification norm provided by bank. The volume of Non-Performing loans stood at 1,908 million in 2008 from 1,258 million in 2007.

2.8 Sector wise Advance:

A wide range of business industries and sectors constitute the Bank’s advance portfolio. Major sectors where the bank extended credit include steel & engineering, ship breaking, edible oil, sugar, housing & construction, pharmaceuticals, chemicals, electronic & automobiles, energy & power, service industries, trade finance, personal/ consumer credit, leasing etc.

Name of Sector Percentage of Loan Amount of Loan in million Tk.
Agricultural Industries 0% 0000
Pharmaceutical Industries 2% 993.78
Textile & Garment Industries 21% 10434.69
Chemical Industries 2% 993.78
Food & Alied Industries 6% 2981.34
Transport & communication Ind. 4% 1987.56
Electronics & automobile Ind. 1% 496.89
Housing & Construction Ind. 9% 4472.01
Engineering & Metal Industries 5% 2484.45
Energy & Power Industries 2% 993.78
Service Industries 2% 993.78
Other 46% 22856.94
Total 100% 49698

 

 

 

 

 

 

 

 

 

 

2.9 Endorsement of Cash:

Cash Foreign currency can also be remitted through endorsement in the passport. In case of endorsing cash on passport the requirements are same as in case of issuing traveler cheque but the only exception is that the passport holder is not required to be presented by himself.

The way of transferring the fund:

  • NOSTRO Account
  • VOSTRO Account
  • LORO Account

(i) NOSTRO Account:

An account that a bank holds in a foreign currency in another bank is called NOSTRO Account.

(ii) VOSTRO Account:

VOSTRO Account is the opposite of NOSTRO Account where a multinational bank maintains account in the local bank to meet the requirements of spending fund.

2.10 SWOT Analysis:

 

Strengths

  • Compared to industry, default loan is very low that is 1.5% of total loan.
  • Most of the default loans are secured so that chance of recovery is very high.
  • Superior asset quality.
  • Very good income generating from non-funded business.
  • Experienced top-level executives.
 

Weakness

  • Exposure in large loan.
  • High leverage.
  • Relatively low yield from fund based business.
  • Tight liquidity position.
 

Opportunities

  • Agro base business.
  • Scope of new business in SME and Consumer credit scheme.
  • Reach of market penetration through diversified products and banking network.
 

Threats

  • Market pressure for lowering the interest rate.
  • Increased competition in the market for quality asset.
  • Liquidity asset.

2.11 Findings:

Today is not like yesterday & tomorrow will be differ from today. Given the first chance, dynamic global economy and pressure of globalization, liberalization, consolidation & disintermediation, it is essential that Dhaka Bank Ltd. should adopt some of the industry’s best practice that are not practiced currently. These are given below:

  • The lending guide line should include industry and business segment focus, type of loan facilities, single borrower and group limit.
  • Large loan risk must be minimized and should be emphasised to its SME and consumer credit scheme so that recovery rate may increase.
  • Lending functions should be segregated in following ways:
    • Relationship Management
    • Risk Management
    • Credit Recovery.

2.12 Recommendation:

  • The segregation of duties will improve the knowledge level & expertise in each department.
  • The responsibility of the key person of the above function must be clearly specified.
  • DBL should introduce new product & services comparing it with other local & foreign banks.
  • New more branches are to be opened in different parts of the country & aboard.
  • The quality of the service is to be improved & quicker services to be ensured to its clients.

Conclusion

Quality service provides a bank higher profit and goodwill in the long run. This is also important for sound growth and development in the organization. Bank credit plays a vital role in economic development of a country, specially for a developing country like Bangladesh. A banker can not sleep well with bad debt in his portfolio. The failure of commercial banks occurs mainly due to bad loans which occur due to inefficient management of the loans and advance portfolio. Therefore any banks must be extremely caution about its lending portfolio and credit policy. So far Dhaka Bank Ltd. has been able to manage its credit portfolio skillfully and kept the classified loan at a very lower rate – thanks go to the standard & stringent credit appraisal policy and practice of the bank.

Bibliography:

Dhaka Bank LTD. Annual report

WEB: www.Dhakabankltd.com

Credit rating Report of Dhaka Bank LTD. By CRSIL

Credit operation manual

“Guideline to fill in the CIB-01 from,” Credit Information Bureau