” Credit Risk Management of Jamuna Bank Limited”.
1.2.Background of the Study
Banking is one of the most important sectors for a country’s wealth building activities. At present the modern business industrialization, foreign trade, and investment almost all dependent on banks. But now a day the Banking sector of Bangladesh is suffering the disease of default culture, which is consequence, or result of bad performance of most of the banks in Bangladesh. EXIM BANK LTD. plays an important role towards the growth and economic development of Bangladesh.
1.3. Objectives of the Report
The secondary objectives of this report are:
· To have exposure to the credit operation and other function of Jamuna Bank Limited.
· To have a clear understanding of the business operation of Jamuna Bank Limited.
· To discuss the services offered by Jamuna Bank Limited.
· To assess and evaluate the growth trends of Jamuna Bank Limited.
· To evaluate the profitability of Jamuna Bank Limited.
· To identify the major strength and weakness of Jamuna Bank Limited in respect to other banks.
· To recommend ways and means to solve problems regarding banking of Jamuna Bank Limited.
1.4. Rationale of the Study
As it is the question of every concerned people that what is the difference between conventional banking and the Islamic banking and as the Islamic banking are spreading day by day in Bangladesh it is rationale to conduct the study.
Islamic banks can provide efficient banking services to the nation if they are supported with appropriate banking laws and regulations. This will help them introducing PLS modes of operations, which are very much conducive to economic development. It would be better if Islamic banks had the opportunity to work as a sole system in an economy. That would provide Islamic banking system to fully utilize its potential. This does not mean that the survival of Islamic banks operating within the conventional banking framework is altogether threatened. Evidences from Bangladesh indicate that Islamic banks can survive even within a conventional banking framework by which over from PLS to trade related modes of financing.
1.5. Methodology of the Study
Mainly have collected data from two sources. These two sources are as following.
? Primary source
The primary sources of my information are as below:
1. Direct observation
2. Investment Outlook
3. Questioning the concerned persons.
The secondary sources of my information are as below-
1. Annual report of JAMUNA BANK LTD.
2. Desk report of the related department
3. Different reference books
4. Some of my course elements as related to this report.
Although the officials were so busy, they gave me wholehearted cooperation in the time of internship also in preparing this report. It was such nice experiences have gathered from JBL. But have faced the following that may be terns as die limitations of the study.
Lack of records: Sufficient books, publications and figures were not available. If this limitation were not been there, the report would have been more useful.
Lack of time: The time period of this study is very short. Had only three months in hand to complete this report, which was not enough. So that could not go in depth of the study. Sometimes the officials were busy and were busy and were not able to give me much time.
Insufficient data: Some desired information could not be collected due to confidentially of business.
Banking Overview of Bangladesh
Banking Industry in Bangladesh: An Overview
The banking industry in Bangladesh is one characterized by strict regulations and monitoring from the central governing body, The Bangladesh Bank. As the government is often the owner and regulator as well as the supervisor and customer of a bank, there has been ample opportunity for mismanagement over the years. The banking sector is plagued with a lack of credit discipline, archaic loan recovery law, corruption, inefficiency, overstaffing, etc. Several reform measures of the financial sector have been taken to improve the situation. Relative stability achieved by the support extended by both the central bank and the Government of Bangladesh in the past has restored public confidence in the country’s banking sector. Moreover, Nationalized Commercial Banks (NCBs) and old generation Private Commercial Banks (PCBs) would have to lower the rate of NPAs in their portfolios. Failure to do so would mean re-capitalization, at least for the NCBs. This may in turn lead to a further drain on the limited resources of the Government of Bangladesh at this time or in the immediate future this recapitalization would not be feasible. With these conditions in place, the World Bank anticipates the likelihood of a situation where the ever-increasing burden of non-performing loans and growing rate of debt servicing would place the economy under enormous strain and result in a crisis in the banking sector in the long term. The main concern is that currently there are far too many banks for the bank to sustain. As a result the market will accommodate only those banks that can transpire as the most competitive and profitable ones in the future.
· Bangladesh Bank
· Commercial Banks
· Islamic Banks
· Leasing Companies
· Finance Companies
Figure 1: Percentage different banking Sectors in Bangladesh
Generally, the commercial banks and the finance companies provide numerous of banking products/services to cater to the needs of their customers. However, the Bangladeshi Banking industry is characterized by the tight Banking rules and regulations set by the Bangladesh Bank. All banks and financial institutions are highly governed and controlled under the Banking Companies Act 1993. The range of banking products and services is also limited in scope.
With the liberalization of markets competitions among the banking products seems to be growing more instances each day. In addition, the banking products offered in Bangladesh are fairly homogeneous in nature due to the tight regulations imposed by the central bank. Competing through differentiation is increasingly difficult and other banks quickly duplicate any innovative banking service.
These private banks are popularly known to public as First Generation Banks (9 banks opened during 1982-88), Second Generation banks (13 banks opened during 1992-96) and Third Generation banks (13 banks opened during 1999-2001).
The name of all the banks operating in Bangladesh and their date of incorporation are given below
|Name of bank||Date of incorporation||Name of bank||Date of incorporation|
|Nationalized commercial banks||Specialized banks|
|Sonali bank Ltd||1972||BKB||1972|
|Janata Bank Ltd||1972||BSB||1972|
|Agrani Bank Ltd||1972||BSRS||1972|
|Rupali bank Ltd||1972||RAKUB||1987|
|Private Commercial Banks|
|1st generation private banks||2nd generation private banks|
|AB bank Ltd.||1982||Eastern bank Ltd||1992|
|Utara bank Ltd||1983||National credit and commerce bank Ltd||1993|
|National bank Ltd||1983||Prime bank Ltd||1995|
|Islami bank Ltd||1983||Dhaka bank Ltd||1995|
|IFIC bank Ltd||1983||Southeast bank Ltd||1995|
|United Commercial bank Ltd||1983||Al-Arafa Islami Bank Ltd||1995|
|The City bank Ltd||1983||Social Investment bank Ltd||1995|
|Pubali bank Ltd||1984||Dutch-Bangla bank Ltd||1996|
|Al-Baraka bank Ltd||1987|
|3rd generation private banks||Foreign commercial banks|
|Bangladesh Commerce Bank Ltd||1998||Standard Chartered bank||1948|
|Mercantile Bank Ltd||1999|
|Standard bank Ltd||1999||American Express Bank Ltd||1996|
|One Bank Ltd||1999||State Bank of India||1975|
|Exim Bank||1999||Habib Bank Ltd||1976|
|Premier Bank Ltd||1999||Muslim Commercial bank||1994|
|Mutual Trust Bank Ltd||1999||National Bank of Pakistan||1994|
|First security Bank Ltd||1999||CITI Bank N.A.||1995|
|Bank Asia Ltd||1999||HSBC||1996|
|The Trust bank Ltd||1999||Shamil Islami Bank||1997|
|Jamuna Bank||2001||Credit Agricol Indosuez||1997|
|Shahjalal Bank||2001||Hanvit Bank||1999|
|Bank of Silon||2007|
Source: Bangladesh Bank
3.1. Background Information of Jamuna Bank Limited
Jamuna Bank Limited is one of the leading private commercial banks in Bangladesh that has achieved tremendous popularity and credibility among the people for its products & services. It is a public limited company and its shares are traded in Dhaka and Chittagong stock exchange. The bank undertakes all types of banking transaction to support the development of trade and commerce in the country. JBLs service is also available for the entrepreneurs to set up new ventures and BMM-,, of industrial units.
To provide clientele services in respect of international trade it has established wide, corresponded Banking relationship with local and foreign banks covering major trade and financial interest home and abroad.
3.2. Historical Background of JBL
Jamuna Bank Limited (JBL) is a Banking Company registered under the Companies Act 1994 with its Head Office at Printers Building, 5 Rajuk avenue Dhaka-1000. The bank started its operation from 3rd June 2001. Jamuna Bank Limited (Jf31,) is a highly capitalized new generation Bank with an Authorized capital and paid-up capital of Taka 1600.00 million and Tk 390.00 million, Paid up capital of the Bank raised to Tk.429 million as of December, 2005 and the number of branches raised to 29.Thc bank gives special emphasis on export, import, trade finance SME finance Retail credit and finance to woman Entrepreneurs.
Employees of JBL share certain common values, which helps to create a JBL culture.
§ The client comes first.
§ Search for professional excellence.
§ Openness to new ideas &new methods to encourage creativity.
§ Quick decision-making.
§ Flexibility and prompt response.
§ A sense of professional ethics.
3.3.Corporate Slogan of JBL
Your Partner For Growth
3.4. Vision of JBL
To become a leading banking institution and to play a pivotal role in the development of the country.
3.5. Mission of JBL
The Bank is committed to satisfying diverse needs of its customers through an array of products at a competitive price by using appropriate technology and providing timely service so that a sustainable growth, reasonable return and contribution to the development of the country can be ensured with a motivated and professional workforce.
The sponsors of Jamuna Bank Limited are successful leading entrepreneurs of the country having stakes in different segments of the national economy. They are eminent industrialist and businessman having wide business reputation both at home and abroad.
JBL is managed by highly professional people. The present Managing Director of the Bank is a forward looking senior banker having decades of experience and multi discipline of knowledge to his credit both at home and abroad. He is supported by an educated and skilled professional team with diversified experience in finance and banking. The management of the bank constantly focuses on the understanding and anticipating customers’ needs and offer solution thereof. Jamuna Bank Limited has already achieved tremendous progress with in a short period of its operation. The Bank is already ranked as one of the quality service providers and known for its reputation.
3.8. Objectives of JBL
· To earn and maintain CAMEL rating strong.
· To establish relationship banking and service quality through development of Strategic Marketing Plan.
· To remain one of the best banks in Bangladesh in terms of profitability and asset quality.
· To ensure an adequate rate of return on investment.
· To maintain adequate liquidity to meet maturity obligations and commitments.
· To maintain a healthy growth of business with desired image.
· To maintain adequate control systems and transparency in procedures.
· To develop and retain a quality work force through an effective Human Resources Management System.
· To ensue optimum utilization of all available resources.
· To pursue an effective system of Management by ensuring compliance to ethical norms, transparency and accountability at all levels.
3.9. Strategies of JBL
· To manage and operate the Bank in the most efficient manner to enhance financial performance and to control cost of fund.
· To strive for customer satisfaction through quality control and delivery of timely services.
· To identify customers credit and other banking needs and monitor their perception towards our performance in meeting those requirement.
· To review and update policies, procedures and practices to enhance the ability to extend better services to customers.
· To train and develop all employees and provide adequate resources so that customer needs car, be responsibly addressed.
· To promote organizational effectiveness by openly communicating company plans, policies, practices and procedures to all employees in a timely fashion
· To diversify portfolio both in the retail and wholesale market
· To increase direct contract with customers in order to cultivate a closer relationship between the bank and its customers.
3.10. Organogram of JBL
Board Of Directors
The Board of Directors consists of 13 members elected from the sponsors. The Board of Dirc-7 supreme body of the Bank.
All routine matters beyond the delegated powers of management are decided upon by or routed through the “Executive Committee, subject to ratification by the Board of Directors.
In line with the guidelines of Bangladesh Bank, a three-member Audit Committee of the Board of Directors been formed to assists the Board in matters related to Audit and Internal Control System of the Bank.
AI-Haj Nur Mohammed
Mr. Md. Sirajul Islam Varosha
Al-haj M. A. Khayer
Engr. A. K. M. Mosharraf Hussain
Mr. Arifur Rahman
Mr. Golam Dastagir Gazi
Bir Protik Mr. Fazlur Rahman
Mr. Md.Tajul Islam
Mr. Md. Mahmuclul Hoque
Mr. Md. Irshad Karim
Mr. Shaheen Mahmud
Mr. Mohammad Nurul Alam
Professor Dr. Mustafizur Rahman Mawlana
Mufti Ruhul Amin Mawlana Abdur Razzak
Professor Mowlana Md.Salahuddin & Mr. M Azizul Huq
3.12. Schemes offered by Jamuna Bank Limited
· Monthly Benefit Scheme
· Monthly Saving Scheme
· Education Saving Scheme
· Marriage Deposit Scheme
· Double Growth Deposit Scheme
· Triple Growth Saving Scheme
· Lakhpoti Deposit Scheme
· kotipati Deposit Scheme
· Millionaire Deposit Scheme
· 3.13.Branches of JBL
|Code||Name of Branch|
|0012||Nayabazar Islami Banking Branch|
|0019||Jubliee Road Islami Banking Branch|
|0020||Chistia Market Branch|
|0022||Baligaon Bazar Branch|
Products and Services of Jamuna Bank Limited
4.1. Products & Services
The products and services can be classifying in two ways & those arc.
The deposit products & services
The lending products & services
|Deposits products & services||Lending/Investment products & services|
|Corporate Banking||Hi-her Purchase|
|Personal Banking||Lease Finance|
|Online Banking||Personal loan for woman|
|Monthly Savings Scheme||Project Finance|
|Monthly Benefit Scheme||Loan Syndication|
|Double/Triple Benefit Scheme||Consumer Credit|
|Marriage Scheme||Import and Export. Handling Financing|
|Lichgate Deposit Scheme|
4.2. Corporate Banking
The motto of JBL’s Corporate Banking services is to provide personalized solutions to their customers. The Bank distinguishes and identifies corporate customers’ need and designs tailored solutions accordingly.
Jamuna Bank Ltd. Driers a complete range of advisory, financing and operational combining trade, treasury, investment and services to its corporate client groups coin transactional banking activities in one package. Whether it is a project finance, term loan, import or export deal, a working capital requirement or a forward cover for a foreign currency transition, there Corporate Banking Managers will offer you the accurate solution, their corporate Banking specialists will render high class service for speedy approvals and efficient processing to satisfy customer needs.
Corporate Banking business envelops a broad range of businesses and industries.
Every one can leverage on our know-how in the following sectors mainly:
Agro processing industry
(Import Substitute / Export oriented)
Textile Spinning, Dyeing / Printing
Export Oriented Garments, Sweater.
Food & Allied
Paper & Paper Products
Engineering, Steel Mills
Chemical and chemical products etc.
Real Estate & Construction
4.3. Personal Banking
Personal Banking of Jamuna Bank offers wide-ranging products and services matching the requirement of every customer. Transactional accounts, savings schemes or loan facilities from Jamuna Bank Ltd. make available to all a unique mixture of easy and consummate service quality.
They make every endeavor to ensure their clients’ satisfaction. Their cooperative & friendly professionals working in the branches will make your visit and enjoyable experience.
4.4. Online Banking
Jamuna Bank Limited has introduced real-time any branch banking onApril 05, 2005. Now, customers can withdraw and deposit money from any of its 30 branches located at Dhaka, Chittagong, Sylhet, Gazipur, Bogra, Naogaon, Narayanganj and Munshigonj. Their valued customers can also enjoy 24 hours banking service through ATM card from any of Q-cash ATMs located at Dhaka, Chittagong, Khulna, Sylhet and Bogra. All the existing customers of Jamuna Bank Limited will enjoythis service by default.
4.5. Monthly Savings Scheme (MSS)
Savings is the best friend in bad days. Small savings can build up a prosperous future. Savings can meet up any emergences. JBL has introduced Monthly Savings Scheme (MSS) that allows saving on a monthly basis and getting a handsome return upon maturity. If anyone wants to build up a significant savings to carry out you’re cherished Dream, JBL MSS is the right solution.
4.6. Monthly Benefit Scheme (MBS)
Jamuna Bank Limited has introduced Monthly Benefit Scheme (MBS) for the prudent persons having ready cash and desiring to have fixed income on monthly basis out of it without taking risk of loss and without enchasing the principal amount. This scheme offers highest return with zero risk. Everyone can plan your monthly expenditure with the certain monthly income under the scheme.
4.7.Double/Triple Growth Deposit Scheme
For people who have cash flow at this moment and want to get it doubled/tripled quickly JBL has introduced Double/Triple Growth Deposit Scheme that offers to make double/triple money within 6(six) years and 9.5 (nine and a half) years respectively resulting a high rate of interest.
4.8. Marriage Deposit Scheme
Marriage of children, especially daughter is a matter of great concern to the parents. Marriage of children involves expense of considerable amount. Prudent parents make effort for gradual building of fund as per their capacity to meet the matrimonial expense of their children specially daughters. Parents get relief and can have peace of mind if they can arrange the necessary fund for marriage of their children, no matter whether they survive or not till the marriage occasion.It can be a great help to the parents if there is any scope of deposit of a modest mount as per their financial capacity, which groves very fast at high rate of interest yielding a sizeable amount on maturity.
With this end in view JBL has introduced Marriage Deposit Scheme, which offers you an opportunity to build – up your cherished – fund by monthly deposit ofserial, amount at your affordable capacity.
4.9.Education Savings Scheme
Education is a basic need of every citizen. Every parent wants to impart proper education to their children. Education is the pre-requisite for socio-economic development of the country. As yet, there is no arrangement of free education to the citizens from the government level. As such, there should be pre-arrangement of fund to ensure higher educations the children. Otherwise higher education may be hindered due to change of economic condition, income of the parents at the future time when higher education shall be required. Today’s higher education is becoming expired day by day. Parents can get relief and can have peace of mind if they can arrange the necessary fund for higher education of their children. As such, JBI, has introduced ‘Education Savings Scheme’ which offers you an opportunity to build up your cherished fund’ by monthly deposit of small amount it at your affordable capacity or initial lump sum deposit to yield handsome amount on a future date to meet the educational expenses. Under this Scheme you have the different attractive options to avail the future benefit i.e. withdrawal of the total amount accumulated inlump sum or withdrawing monthly benefit to meet educational expense keeping die principal amount intact or to withdraw both principal and accumulated profit monthly for a certain period.
4.10.Lacpati Deposit Scheme
To become a lakhpati is a dream to most of the people of Bangladesh especially to the lower and lower middle class income group. They experiences their expectations and wants are enormous in nature in our small span of life. To meet our deposit and wants we need right plan. Keeping the above in mind JBL has introduced “Lacpati Scheme” which has flexibility report of maturity and monthly installment as per affordable capacity.
4.11.Q-Cash Round The Clock Banking
Jamuna Bank Q-Cash ATIM Card enables the costumers to withdraw- cash variety of banking transactions 24 hours a day. Q-Cash ATMs are conveniently located covering major shopping centers, business and residential areas in Dhaka and Chittagong. ATMs in Sylhet, Khulria and other cities will soon start be introduced. The network will expand to cover the whole country within a short span of time.
With customers Jamuna Bank Q-Cash ATM card they can:
§ Cash withdrawal Round The Clock from any Q-Cash logo marked ATM booths.
§ POS transaction (shopping malls, restaurants, Jewell Aries etc)
§ Enjoy overdraft facilities on the card (if approved)
§ Utility Bill Payment facilities
§ Cash transaction facilities for selective branches nationwide
§ ATM service available in Dhaka and Chittagong Withdrawal allowed from ATM’s of Jamuna Bank Ltd., AB Bank, The City Bank, Janata Bank, IFIC Bank, Mercantile Bank, Pubali Bank, Eastern Bank Ltd. Respectively.
4.12. Hire Purchase
Hire purchase is a type of installment Credit wider which the Hire purchase agrees to take goods on hire at a stated rate, which is inclusive of the repayment of principle as well as interest for adjustment of the loan within a specified period.
4.13. Lease Finance
Lease means a contractual relationship between the owner of the asset and its utter- fur a specified period against mutually agreed upon rent. The owner is called the Lessor and the user is called the Lessee.
Lease finance is one of the most convenient sources of financing of assets e.g. machinery, equipment vehicle, etc. The user of the assets i.e. Lessee is benefited through tax advantages, conserving working capital and preserving debt capacity. Moreover, Lease is an off-balance sheet item 1.e lease amount is not shown in the balance sheet of the lessee and does not affect borrowing capacity.
Leasing enables the lessee to avail the services of a plant or equipment without making the investment or incurring debt obligation. The Lessee car, use the asset by paying a series of periodic amounts called “lease payment” or “lease rentals” to the owner of the asset at the predetermined rates and generally in advance. The payments may be made monthly or quarterly.
Jamuna Bark Ltd., the highly capitalized private Commercial 1 Bank in Bangladesh has introduced lease finance to facilitate funding requirement of valued customers & growth of their business houses.
4.14.Personal loan for women Goal
To make financially sound and solvent surd self dependent the women.
Three categories of women are under this loan-
1. Self Employed Women 2.Working Women 3.House Wife
4.15. Project Finance
Project loan is considered as long-term investment of the bank. If the period is helpful to improve the economy and has a wide market then the bank thinks about giving project loan. To give this kind of loan the bank observes the willingness of the customer, his capacity and his ability to run the project. Having obtained this kind of information the bank makes a credit report about the customers loan proposal. Interest rate on loan varies from project Ratio of investment of customer and bank varies from customer to customer and the customer’s relationship with the bank.
4.16. Loan syndication
Bank cannot invest more then 15% of its paid up capital on one individual. When the loan amount exceeds 15% of its paid up capital then the bank share the loan with other bank for giving one individual and this is call loan syndicate.
4.17. Consumer Credit
Consumer credit scheme is relatively new field of micro-credit activities. People with limited income can avail of this credit facility to buy any household effects including car, computer and other consumer durable. It is a special credit scheme and the customers allow the loan on soft terms against personal guarantee and deposit of specified percentage of equity. The loan is repayable by monthly installment within a fixed period.
4.18. Import and Export handling and financing
4.18.1. Import Financing
Is the most important method of import -financing International trade take place between sellers and buyers located in different countries. The parties to a trade transaction are not always known to each other. Even if they are known to each other the seller may not have full confidence in the carried worthiness of the buyer or the buyer may not like to pay before he actually receives the goods. In letter of credit the bankers credit worthiness is substituted for the credit worthiness of the importer. Under a bank- cards letter of credit, the issuing bank gives a written undertaking on behalf of the buyer that the bank will honor the obligation of payment or expectance as the case may be on presentation of stipulated documents. As the request of the importers bank issue the letter of credit at a merging by the govt. instruction. Bail: does not generally issue the letter of credit less then 50% margin. JBL follow the margin prescribed by the government strictly.
4.18.2. Export Financing
The Exporter needs finances at various stages, some at pre-shipment stage and the other at the post shipment stage.
FINANCIAL PERFORMANCE OF JBL
In 2006 Jamuna Bank Limited posted an operating profit of Tk.701.32 million as against Tk.419.94 million in 2005 with a spectacular growth of 67.00 percent over the preceding year. After having made necessary provisions for loans and advances in accordance with the instructions of Bangladesh Bank Net Income Before Tax (NIBT) stood at Tk.499.97 million in the year under review against Tk.363.31 million in the preceding year registering a growth of 37.62 percent. An amount of Tk. 246.57 million has been kept as provision for payment of Tax. Thus Net Income after tax and provision stood at Tk.253.40 million in 2006 which was Tk.199.82 million in 2005.
5.2. CAPITAL STRUCTURE
Jamuna Bank Limited has a conviction of maintaining a strong capital base in carrying with a paid-up capital of Tk.390.00 million divided into 3.90 million o of Tk.100 each. The authorized capital of the Bank is Tk.1600 million divided into 16.00 million of Tk.100 each. The Bank’s paid-up capital as at 31st December 2006 stood at Tk.1072.50 million. Tk. was raised through initial public issue of 4.29 million ordinary shares of Tk100 each with a premium- each while Tk.214.50 million was raised by issue of Bonus Shares in the ratio of 1:4
5.3CAPITAL ADEQUACY RATIO
The Bank adopted BIS risk adjusted capital standards to measure the capital adequacy in line with set by Bangladesh Bank. According to the instructions contained in Bangladesh Bank’s BRPD Circ dated September 07, 2002 relating to Capital Adequacy every commercial bank operating in the required to maintain at minimum 9 percent of its risk-weighted assets as capital.
Jamuna Bank maintain Capital Adequacy ratio of 14.79 percent as at 31.12.2006, which was higher than the require Adequacy Ratio. The amount of capital with break-up is given below:
|“Fig in BDT Million”|
|Tier I Capital||1562.47||807.14|
|Paid up Capital||1072.50||429.00|
|Non-repayable Share Premium Account||85.80|
|Proposed Bonus Share|
|Tier II capital||139.35||109.32|
|1 % Provision against Unclassified Loans||139.02||108.99|
|Exchange Equalization Fund||0.33||0.33|
|Total Capital (Tier I +Tier 11)||1701.82||916.46|
From the table it reveals that Jamuna Bank Limited was able to increase its core capital by 93.58 percent from Tk.807.14 million to Tk. 562.47 million and supplementary capital by 27.47 percent from Tk.1 09.32 million to Tk. 39.35 million and total capital by 85.69 percent from Tk.916.46 million to Tk.1 701.82 million.
5.4 TREASURY OPERATIONS
The Bank made its mark in Treasury operation. In money market the Bank played active role in local and foreign currency. Besides, it carried on operation as Primary Dealer. Having participated in local currency and foreign currency market and taken part in secondary trading of Govt. securities the Bank made significant growth. It would not be out of place to mention that Jamuna Bank Limited was the only third generation bank, which was selected as Primary Dealer by Bangladesh Bank owing to its excellent performance in money market. Treasury operation has been identified as one of the best sources for earning by the Bank through effective participation.
JBL’s dealing room is well equipped with modern and updated equipments like voice recorder, Reuter 3000xtra, CDBL electronic system etc. The activities of FX and local money market have been synchronized with complete segregation of activities of front and back offices. Intensive monitoring is ensured by the Bank’s Asset Liability Management Committee (ALCO) which sits in regular meetings to review the asset liability position and interest rates and takes important decisions thereon.
In the year 2006 there was a bit volatility in the local money market sometime in March-April but this market .vas more or less stable with a little fluctuations in interest rate during most of the time of the year. On the contrary, FX market was to a great extent volatile in 2006 having pressure on Taka against dollar. But our professionally skilled human resources were quite tactful in handling operations and could reap the benefits of local money market and FX market with significant growth. They were prudent enough to maintain the regulatory requirements of CRR and SLR of the Bank.
5.5. DEPOSITS AND DEPOSIT MIX
In commercial banks operation starts with mobilization of resources i.e. tapping of deposits and then the said resources are deployed as loans, advances and investments for the purpose of maximizing wealth which -sans deposits have dominance in commercial bank’s operations. That is why, there is a common saying that deposit is the lifeblood of a bank. In keeping with this axiom JBL attachesutmost importance to the deposit mobilization campaign and to the optimal deposit mix for minimizing COF as far as practicable. A stiff competition persisted in the market as to deposit mobilization and there was a pressure on interest rate. 3esides, instability in political atmosphere was adversely affecting business, which stood as a hindrance to the smooth operation of banks including deposit mobilization.
Despite all these unfavorable factors JBL was able to instill confidence in customers as to its commitments to the depositors and borrowing customers and thereby could mobilize a total deposit ofTk.17284.81 million in 2006 against that ofTk.14454.13 million in the preceding year showing an increase of Tk.2830.68 million being 19.58 percent. Endeavor is underway for augmenting low cost deposit by accommodating good customers at competitive price. For healthy growth of business JBL puts emphasis on no cost and low cost deposit all the time.
A number of savings schemes are in place for mobilizing long term deposits which can be planned to be invested in term loans in-the area lease finance, project finance and consortium finance with a view to having better yields. JBL’s such move will motivate the people to have good savings habit, as well. The comparative position of deposit mix of the Bank as on 31.12.2006 and 31.12.2005 is depicted below:
|Types of Deposit||As on
|As on 31.12.2005||Changes||Changes in & over the year|
|Current A/C & others||2088.47||1543.06||+545.41||35.35|
|Short term Deposit||636.87||384.03||+252.84||65.84|
|Foreign currency Deposit||31.36||37.74||-6.38||-16.91|
5.6 LOANS & ADVANCES
Though there was an unfavorable business environment due to political turmoil throughout the year JBL was in constant efforts to explore different areas of credit operation and could raise the credit portfolios to Tk.12796.63 million in 2006 with an increase of Tk.1784.80 million (16.21%) over that of the preceding year. The total credit as on 31.12.05 was Tk.11011.83 million. In order to ensure compliance with regulatory requirements for avoiding risk of exposure to single borrower, concentration on large loans, to bring in excellence in credit operation in relation to risk management, yield, exposure, tenure, collaterals, security valuation etc. JBL strived for further diversification of credit portfolios. It’s credit facilities were concentrated on Trade Finance, Agriculture and related sector, project finance, wholesale and retail trade, transport sector, hospital & diagnostic centers and syndicate financing for big projects, capacity additions to the manufacturing sector and structured financing for developing infrastructure of the country. Initiatives are underway for helping small and medium entrepreneurs in the ventures for which, in JBL, we are developing SME credit products and strategies. JBL has also increased lending activities to small consumers through Consumer Credit Scheme.
5.7 RISK MANAGEMENT
As a regulatory body Bangladesh Bank wants all banks to take effective measures for implementation of risk management in banking operations covering the major risks in asset-liability management, credit risk management, Foreign Exchange Risk Management, Internal Control & Compliance and Money Laundering Prevention. As these risks are integral parts of banking business JBL has put highest priority on management of such risks with intense monitoring of credit portfolios. We believe these will improve our operational and financial performance along with meeting the regulatory requirements. The Bank is in constant efforts to establish superior monitoring of credit risks and returns. For bringing in harmonious matching between assets and liabilities ALCO reviews these on a regular basis for keeping risk in this area to an acceptable level. The Bank’s credit policy guidelines and procedures are continuously reviewed and upgraded by its internal committees. The Bank also pursues an effective internal control system by establishing systems and procedures for scrutinizing the transactions periodically, encompassing key back-up supports and commissioning regular contingency plans. Through establishment of proper governance structure risk and returns are evaluated with a view to producing sustainable revenues, reducing volatility in earnings and enhancing value to shareholders. Maintenance of quality of assets is always the key issue to the JBL Management. Continuous efforts are made to maintain earning assets at the highest possible level so as to maximize profits and minimize cost of operation.
The investment portfolio of the Bank as on 31.12.2006 rose to Tk.2552.67 million from Tk.2037.84 million as on 31.12.05 registering an increase of Tk.514.83 million being 25.26 percent. The investment portfolio was blended with Government treasury bills amounting to Tk.345.88 million, Treasury Bonds of Tk.1939.78 million, investment in primary shares and Zero Coupon Bonds. Its investment was made in acquisition of Preference Shares of (5.00-2.50) 2.50 million of After Automobiles Limited. Besides, Tk.2.00 million has been invested in acquisition of two shares of Central Depository Bangladesh Limited (CDBL). The Bank’s major portion of investment is in Govt. Treasury Bills and Bonds for the purpose of fulfilling Statutory Liquidity Requirement.
5.9 IMPORT BUSINESS
The total import business handled by the Bank in 2006 was Tk.15457.80 million compared to Tk.12151.90 million in the preceding year registering a rise of Tk.4305.80 million being 27.20 percent. A sizeable L/C’s were also opened by the Bank in the year under review. The import items included industrial rawmaterials, machinery, consumer goods, fabrics, accessories etc.
5.10 EXPORT BUSINESS
The Bank handled export business worth TO 1583.70 million in the year under report. In 2005 total export business handled by the Bank was Tk.6521.80 million. Thus there was an increase of Tk.5061.90 million in export business handled by the Bank, being 77.62 percent over the preceding year. The major export item was Ready-made Garments.
6.1 Loans and Advances
This section lends the fund what the bank mobilizes through its various deposit accounts. This is the second function of banks two generic function -deposit mobilization and credit creation. The majorpart of banks income is derived from credit and since the banks credit is customer’s fund, bank takes extreme caution in lending.
6.2 Sanctioning Loans and Advance
To have a clear idea about the credit management of JBL the following points are essential.
a. Credit policy of the Bank
b. Credit Sanctioning Authority of JBL and
c. Processing and Screening of credit proposal
6.2.1 Credit Policy of the Bank
JBL Credit Policy contains of total macro-economic development of the country as a whole by way of providing financial support to the trade, commerce and industry. Throughout its credit operation JBL goes to every possible corners of the society. They are financing large and medium scale business house and industry. At the same time they also take care entrepreneur through its operation of lease finance and some micro credit, small loan scheme etc. The bank has come up with a scheme where women will be 91% financial support for their self employment and development.
6.2.2 Credit Sanctioning Authority of JBL
Delegated powers are expected to be exercise by the authorized executives sensibly keeping the bank’s interest in mind. In exercising the power so delegated authorized executives shah also have credit restriction, tools and regulations .as governed by Banking Company Act, Bangladesh Bank, and other usual credit norms. However, the following guidelines are laid down before the executives of JBL for exercising the delegated power.
· The borrower must be a man of integrity and must enjoy good reputation in the market.
· The borrower must have the capacity and capability for utilizing credit properly and profitably.
· The enterprise of the borrower must be viable and profitable i.e. proposal of (lie borrower must be evaluated properly and carefully so as to ascertain its profitability.
· The enterprise must generate sufficient fund for debt and servicing.”
A customer to whom credit is to be allowed should be faras possible within the command area. No sanctioning officer can sanction any credit to any of his near relatives and to any company where his relatives have financial interest.
18.104.22.168 Tools for Appraisal Credit
The 10 C’s of Good and Bad Loan
In addition to the formal credit appraisal, the credit an official of JBL tries to judge the possible client based on some criteria. These criteria are called the C’s of good and bad loan. These are described below:
Character: Make sure that the individual or company they are lending has outstanding integrity.
Capacity: Make sure that the individual or company they are lending has the capability of repaying the loan.
Condition: Understanding the business and economic conditions that whether it will change after the loan is made.
Capital: Make sure that die individual or the company they are lending has in appropriate level of investment in the company.
Collateral: Make sure that there is a second way out of a credit but do not allow that to drive the credit decision.
Complacency: Official do not rely on past. They remain alert every time whether any mistake is taking place or not.
Carelessness: They believe that documentation, follow up andconsistent monitoring are essential to high quality loan portfolio.
Communication: They share credit objectives and credit decision making both vertically and laterally within the bank.
Contingencies: Make sure that they understand the risk, particularly the downside possibilities and that they structure and price the loan consistently with the understanding.
Competition: They do not get swept away by what others are doing.
22.214.171.124 Lending Risk Analysis (LRA)
Lending Risk Analysis is a financial tool to analyze the risk associate in a loan proposal. According to Bangladesh Banks order every bank has to conduct LRA. For every loan amounting Tk. I Core and above. JBL is frequent user of t