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PERFORMANCE EVALUATION
OF
INTERNATIONAL FINANCE INVESTMENTS & COMMERCE BANK LIMITED
Executive Summary
Banking industry plays very important role in any economy. It has a long history as a service sector. Banks make it easy for people to complete their different monetary transaction and activity. It also creates new opportunity of earnings and help managing business with reliability.
Presently there are 49 banks operating in Bangladesh. Among them 30 privet sector commercial banks, 10 foreign commercial banks, 5 specialized banks and 4 nationalized commercial banks. Commercial banks work for profit providing financial services to its clients. Specialized banks are assisting specific sector of the country created by special ordinance by the parliament.
Commercial banks of the country are in its third generation growing faster then before and in more competitive environment. In terms of service banks have gained professionalism, efficiency and knowledge with skilled people. In year 2006 country’s privet sector commercial banks witnessed a growth of 31.87%
and the operating profit of 28 PCBs out of 30 were TK. 37.04 billion up by 8.95 billion from previous year.
The International Finance Investment & Commerce Bank Ltd. (IFIC Bank Ltd.)
is one of the first generation bank of the country. It was set up at the instance of the Government in 1976 as a joint venture between the Government of Bangladesh and sponsors in the private sector with the objective of working as a finance company within the country and setting up joint venture banks/financial institutions abroad. The Government held 49 per cent shares and the rest 51 per cent were held by the sponsors and general public.
In 1983 when the Government allowed banks in the private sector, IFIC was converted into a full-fledged commercial bank. The Government of the People’s Republic of Bangladesh now holds 35% of the share capital of the Bank. Leading industrialists of the country own 34% of the share capital and the rest is held by the general public.
The performance evaluation of the bank has been completed with the help of financial statements analysis techniques. Beside, the organizational framework & operational detail has been described to gain knowledge about this institution.
IFIC bank Ltd. provides all kinds of banking service and other financial solution. The deposit of the bank grows at 16.8% on an average in last twenty years. The bank earned TK. 1010 million as profit in 2006, and registered a growth of 42.30%.The bank maintains a steady liquidity position in the past years and operating abroad from its early life.
The bank was able to manage its debt, the times interest earned ratio of last four years shows a positive result of 1.12, 1.10, 1.11, 1.13 for 2002, 2003, 2004, and 2005 respectively.
About the report
This report is prepared as a requirement of MBA program as a part of internship of the Department of Finance, University of Dhaka. The report covered the time period from 21 January, 2007 to 07 March, 2007 of 1 month & 15 days.
There are five chapters in the report covering a description of IFIC Bank Ltd. and operational and financial activity. The first chapter deals with the methodology followed in the study and motivation behind the work.
Chapter two is devoted to Pallabi branch as I was given placement at this branch as an intern of the bank.
Chapter three covers the profile of IFIC Bank Ltd. in two different perspectives:
a. Organizational and
b. operational.
The first section covers IFIC at its organization base describes the departments and their job level also the employee profile.
The operational overviews entitles the bank’s different banking operation such as deposit, loans & advances, international business, information technology and introduction of new product.
Chapter four contains the financial statement analysis of the bank. The Balance sheet & the Profit & loss Account of the bank is analyzed to identify the strength and weakness and compare the performance over the years 2002, 2003, 2004 & 2005.
Chapter five concludes the report containing findings of the study.
The International Finance Investment & Commerce Bank Limited is a full service commercial bank of the Peoples Republic of Bangladesh. For the last two decades there has been a number of reformation in the banking sector of Bangladesh as well as of the global banking system and some new dimensions have evolved to match changes in the world’s flow of economic activity.
In terms of mode of service, reducing time & complicated paper work create significant economies of scale for the banking service as a whole. Bangladesh is also trying to reach that standard of service. The competition and other factor for this alleviation are there in the commercial banking sector. The report tries to portray this effort and identify the limitations there on.
Motivation
IFIC Bank Ltd is serving for a long time, as a commercial bank. From the beginning government and public sponsors comprises its equity structure.
The bank has survived the economic crises of the country and demonstrated a sound financial performance. It has also expanded its business outside Bangladesh and is offering almost every newest banking product and service. The bank has a significant share in foreign trade. So I thought as a student of finance IFIC Bank Ltd is the right place to learn more about finance.
Objectives of the study
1. To have an insight of day to day banking operation; and
2. To evaluate the financial performance of IFIC Bank Ltd.
Approach and Methodology
The research methodology followed in this report is in accordance with the objectives, requirement and scope of the study. The study has many limitations because of my inability to collect all the related information.
In this report the effort was given to emphasize on an overall performance evaluation of the International Finance Investment & Commerce Bank Limited.
The different techniques used in the analysis are
- Time series analysis is done with last 20 year’s data of deposits.
- Ratio and Trend analysis to evaluate financial position. For an example, the burden of debts and the company’s ability to repay them can be best evaluated by comparing I) firm’s debt to its assets and II) the interest it must pay for its funds to the interest it earns from its lending operations.
- Common size analysis for identifying trends in financial statements. The analysis is useful in comparative evaluation, where all income statements items are divided by sales and all balance sheet items are divided by total assets. The common size income statement shows each item as a percentage of sales and common size balance sheet shows each item as a percentage of total assets.
- Percentage change analysis, where growth rates are calculated for all income statement items and balance sheet accounts. Percentage change analysis helps to identify exclusively, the influence of any individual item. For an example it will identify if the interest expense decreased or increased the reported income.
5. SWOT analysis, which is a qualitative judgment and represents the
Strength, Weakness, and Opportunities and Threats for the company in terms of its financial states, service, client, contribution to the economy, growth and creditworthiness, stated in a brief manner.
Sources of data
1. Library search of IFIC Bank Ltd at the HRD and Research division.
2. Annual Report 2003 and Audit report 2005.
3. Academic calendar 2006 and 2007.
4. Web site of IFIC Bank Ltd., Bangladesh Bank and DSE.
5. Pallabi branch yearly performance evaluation report.
6. Prudential guidelines for Consumer Finance – IFIC Bank Ltd.
Introduction
During 2003 IFIC Bank Ltd. opened six new branches among which Pallabi Branch is one. Pallabi is located in Mirpur of Dhaka and identified as one of the developed area of Mirpur. Pallabi is a residential area with significant amount of commercial activity. Transport facility of the area is satisfactory. Potentiality of the branch is proven through its performance of three years of operation.
On 14 January, 2007 I was given placement as an intern at Pallabi branch of IFIC Bank Ltd. During my intern I have learned how a bank’s operational activities are run. At that time I get introduced with very nice and friendly people working for Pallabi branch, who has co operate me in every way and make my internship a special one.
Pallabi branch Profile:
Inception on: 2003
Location: Kashem Chamber
(1st and 2nd floor)
Commercial plot, 11
Main Road, 03
Section, 07
Pallabi, Dhaka.
Rival banks in the area: Standard Chartered, Brac bank, One bank
Ltd., Eastern Bank Ltd., AB Bank Ltd., Mutual Trust
Bank Ltd., Exim Bank Ltd.
Departments at the branch:
Inland L/C
Local Remittance
Deposit
Loans and Advances
Cash Management
IT Section
Accounts section
Product Offered by the branch:
Besides providing general banking service Pallabi branch is offering all the new product of the bank. Here the loans and advances segment is highlighted.
- Consumer Finance
- Small Enterprise loan.
- Large and medium size loan.
Portfolio of the loans and advances of the branch is as under:
| Category | 2006 | % of total | |
| Consumer finance | 9940000 | 11 | |
| Small enterprise loan | 35009000 | 40 | |
| Large and medium size loan | 39186000 | 46 | |
| Staff loan | 2362000 | 3 | |
| Total | 86497000 | 100 | |
Portfolio of the loans and advances
Consumer finance:
Background for consumer financing of IFIC Bank Ltd.:
During 1999 bank has introduced Consumer financing scheme and gradually develop following 7 (seven) product:
- Easy loan (secured personal loan)
- Consumer durable loan
- ‘Parua’ (education loan)
- ‘Thikana’ (house building loan)
- Flexi loan (personal loan)
- Peshajeebi loan (loan for professional)
- Auto loan.
Consumer finance portfolio at the Pallabi branch:
| Category | 2006 (in thousand taka) | % of total portfolio | ||
| 1 | House building | 1660,000 | 16.70020121 | |
| 2 | Auto loan | 2143,000 | 21.55935614 | |
| 3 | Flexi loan | 510,000 | 5.130784708 | |
| 4 | Easy loan | 4727,000 | 47.55533199 | |
| 5 | consumer durable | 900,000 | 9.054325956 | |
| Total | 9940,000 | 100 | ||
In the port folio easy loan 47.55 percent is the highest, and then comes the auto loan of 21.55 percent, house building loan contributes 16.7 percent to the total and consumer durable and flexi loan is 9.05 and 5.13 percent respectively.
Organizational Overview
IFIC Bank Ltd.
Industry segment: Banking Company
Origin: Bangladesh
Established: In 1976, as a joint venture.
Incorporated: In 1983, as a full-fledged commercial bank.
Head office: Motijheel, Dhaka.
Branches: 65
Uniqueness: Significant presence in the South Asia and
Middle East.
Government of people’s Republic of Bangladesh – 35%
Leading Industrialists of the country – 31%
General public holding – 44%
Capital Structure – As on January 2007
Mission Statement of IFIC Bank Ltd.:
“Our Mission is to provide service to our clients with the help of a skilled and dedicated workforce whose creative talents, innovative actions and competitive edge make our position unique in giving quality service to all institutions and individuals that we care for.
We are committed to the welfare and economic prosperity of the people and the community, for we drive from them our inspiration and drive for onward progress to prosperity.
We want to be the leader among banks in Bangladesh and make our indelible mark as an active partner in regional banking operating beyond the national boundary.
In an intensely competitive and complex financial and business environment, we particularly focus on growth and profitability of all concerned.”
Board of Directors:
Thirteen (13) directors designated as under,
Eight represents Sponsors and general public.
Four represents the government of Bangladesh who are senior official in the rank and status of joint secretary/ Additional secretary.
Managing Director is the ex-officio Director of the board.
Achievements of the bank overtime:
1976 – Established as an Investment and Finance Company under
arrangement of joint venture with the Govt. of Bangladesh.
1980 – Commenced operation in Foreign Exchange Business in a
limited scale.
1982 – Obtained permission from the Govt. to operate as a
commercial Bank.
1983 – Setup its first overseas joint venture (Bank of Maldives)
on the Republic of Maldives.
– Commenced operation as a full-fledged commercial Bank in
Bangladesh.
1985 – Set up a joint venture Exchange Company in the Sultanate
of Oman.
1987 – Set up its first overseas branch in Pakistan at Karachi.
1993 – Set up its second overseas branch in Pakistan at Lahore.
1994 – Set up its first joint venture in Nepal for banking
operation.
1999 – Set up its second joint venture in Nepal for lease
financing.
2003 – Bank celebrated its 20th founding anniversary.
– Overseas Branches in Pakistan amalgamated with NDLC,
to establish a joint venture Bank: NDLC-IFIC Bank
Ltd. subsequently renamed as NIB Bank Ltd.
People at IFIC bank ltd.:
Total number of employee are-2,014.
1,430 are officer
584 are staff.
| Percentage of total | ||
| Number of male worker | 1739 | 86.34% |
| Number of female worker | 275 | 13.66% |
Departments at Head Office
Sub division of the departments
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
13.
Presence across the nation
Expansion policy across the nation is, as expected with the growth of the bank. There are 65 branches covering important trading and commercial centers of the country. These branches provide all banking facilities. To encourage and familiar people with bank as a reliable source of financial channel there has been a number of branches located in semi-residential areas. All the branches are technically equipped and manpowered.
Presence abroad
IFIC is the first among the banks in the private sector to have operations abroad. In 1983, the Bank set up a joint venture bank in Maldives known as ‘Bank of Maldives Limited’ (BML) at the request of the Government of the Republic of Maldives. This is the only national bank in that country having branches throughout that country. IFIC Bank managed the affairs of BML from 1983 to 1992. IFIC Bank sold its shares in 1992 to the Government of the Republic of Maldives and handed over the Management of BML to Maldives Government. Presently the bank is operating abroad as under:
- Oman International Exchange LLC (OIE), is a joint venture between IFIC Bank Ltd. and Oman nationals, was established in 1985 to facilitate remittance by Bangladeshi wage earners in Oman. The company is run by the bank under a management contract.
- Nepal Bangladesh Bank Ltd. (NB Bank), a joint venture commercial bank with the Nepalese in effect from June 06, 1994. The management interest was withdrawn after expiry of the Technical Service Agreement on 08 April, 2005.
- Nepal Bangladesh Finance and Leasing Ltd. (NBFLC), a joint venture leasing company started operations on 18 April, 1999.
- NDLC-IFIC Bank Ltd. was emerged by the amalgamation of the Pakistan operation of IFIC bank ltd. and National Development Leasing Corporation of Pakistan on 03 October, 2003. On 28 November, 2005 the bank was renamed as NIB Bank Ltd. due to revise minimum capital requirements by the State Bank of Pakistan and ownership structure has changed. Presently IFIC Bank Ltd. holds 7.31% share in the bank.
Operational Overview
Credit policy and Portfolio
Credit operation is one of the major tasks for any bank. The diversification and complexity this sector has gained in last 5/10 years that policy in this regard matters. IFIC Bank Ltd. works within the framework of three main objectives in their credit policy and portfolio management. The objectives are:
- Maintenance and improvement of quality of assets.
- Recovery on-time.
- Building-up efficient customer oriented credit delivery system.
The portfolio of loans and advances of IFIC Bank Ltd. in different aspects is described below.
Loans and Advances:
This is the general portfolio of the banks loans and advances as per sanctioned mode in different category. The detail with a common size analysis of the portfolio as a percentage contribution of each category to the total amount of loans and advances is shown here. The largest share in the portfolio is of term loan other than industrial. Second larger share is of cash credit. Next the term loan on industrial category. In the year 2005 a significant improvement appears on Inland documentary bill purchased.
| 2004 | % of total portfolio | 2005 | % of total portfolio | |||||
| Total Loans & Advances | 21280878608 | 21694895612 | ||||||
| 100% | 100% | |||||||
| 1 | Term loan (industrial) | 1993415649 | 9.37 | 2439604538 | 11.25 | |||
| 2 | Term loan (other) | 7211193084 | 33.89 | 6690460531 | 30.84 | |||
| 3 | House building loan | 257458327 | 1.21 | 162537979 | 0.75 | |||
| 4 | Staff loan PF and HB | 666544333 | 3.13 | 744989897 | 3.43 | |||
| 5 | Transport loan | 211549780 | 0.99 | 155405615 | 0.72 | |||
| 6 | Loan general | 122782598 | 0.58 | 223897310 | 1.03 | |||
| 7 | Secured overdraft | 1577778257 | 7.41 | 1887205644 | 8.70 | |||
| 8 | Cash credit | 4272931568 | 20.08 | 4403760754 | 20.30 | |||
| 9 | Inland documentary bill purchased | 1253304352 | 5.89 | 2034339982 | 9.38 | |||
| 10 | Foreign documentary bill purchased | 300339445 | 1.41 | 389533609 | 1.80 | |||
| 11 | Investor’s scheme | 40244 | 0.00 | 38959 | 0.00 | |||
| 12 | Payment against document (cash) | 254488872 | 1.20 | 108829264 | 0.50 | |||
| 13 | Payment against document (forced) | 633312197 | 2.98 | 211521878 | 0.97 | |||
| 14 | Payment against document (EDF) | 169003054 | 0.79 | 178029575 | 0.82 | |||
| 15 | Loan against imported merchandise | 815905021 | 3.83 | 613538634 | 2.83 | |||
| 16 | Loan against trust receipt | 945200525 | 4.44 | 861407896 | 3.97 | |||
| 17 | Export cash credit | 216039767 | 1.02 | 263625024 | 1.22 | |||
| 18 | Consumers’ credit scheme | 362161586 | 1.70 | 282454565 | 1.30 | |||
| 19 | Other loans and advances | 17429949 | 0.08 | 43713958 | 0.20 | |||
In the maturity grouping a balance has been maintained for the loans sanctioned as we can see the distribution in short term and long term.
| Maturity Grouping of loans and advances | 2004 | % of total maturity grouping | 2005 | % of total maturity grouping | ||||
| Total | 21280878608 | 21694895612 | ||||||
| 100% | 100% | |||||||
| Repayable on demand | 937114014 | 4.40 | 712890633 | 3.29 | ||||
| Not more than 3 months | 2924770083 | 13.74 | 3105893969 | 14.32 | ||||
| Over 3 months but not more than 1 year | 6484372865 | 30.47 | 7194721658 | 33.16 | ||||
| Over 1 year but not more than 5 years | 2824609539 | 13.27 | 3770897307 | 17.38 | ||||
| Over 5 years | 8110012107 | 38.11 | 6909492045 | 31.85 | ||||
Basic classification of loans and advances of IFIC Bank Ltd. is as under:
| Classification of loans and advances | 2004 | 2005 | |||||
| Total | 21280878608 | % of total | 21694895612 | % of total | |||
| 100% | 100% | ||||||
| 1. Unclassified | 17600053608 | 82.70 | 18809867612 | 86.70 | |||
| 2. Special mention account | 0.00 | 790308000 | 3.64 | ||||
| 3. Substandard | 184952000 | 0.87 | 89553000 | 0.41 | |||
| 4. Doubtful | 75629000 | 0.36 | 52139000 | 0.24 | |||
| 5. Bad/loss | 3420244000 | 16.07 | 1953028000 | 9.00 | |||
Treasury and International Operations
IFIC Bank Ltd. one of the leading first generation bank of Bangladesh has a huge experience of overseas operation. Unlike other banks it has some joint venture at South Asia and Middle East. The division’s segmentation is as under:
Besides giving international trade related support to the branches the Division is responsible for maintenance of the Nostro accounts, for investment of excess foreign exchange reserves, for ensuring proper compliance of the foreign exchange regulations by the branches dealing in foreign exchange business.
The International Division also acts as an intermediary between the branches and the foreign correspondents without whose assistance international transactions would be almost impossible. With a view to enhance the Bank’s income the Division is entrusted with the development of different type of foreign exchange related products and services.
Service and Job schedule of this division are, FX Dealing, Money Market Operations, Investments Portfolio, Asset Liability management, Correspondent Banking and BKE issues, Joint Ventures Operations, Drawing Arrangements, Inward and Outward Foreign Remittance, AD License etc.
Joint Venture Operations abroad:
% of Share
| Total Equity | % share of IFIC Bank Ltd. | |
| Nepal Bangladesh Bank Ltd.
(NB Bank) |
719.85 million(NRS) as of 15 July 2005 | 50% of equity |
| Nepal Bangladesh Finance and Leasing Limited (NB Finance) | 30 per cent share of control | |
| Oman International Exchange LLC (OIE) | (751,363) RO as of 31st December 2004. | 25% of equity |
| NIB Bank Ltd., Pakistan | (4.139 billion) PKR as of 30th June 2005 | 7.31% of equity |
Information technology and online banking:
There are 65 branches across the nation of which 22 are Authorized Dealer (AD) for conducting foreign trade. All the branches are using computerized banking solution. To join the ever competitive technology base banking service IFIC Bank Ltd. now working on the objectives:
- Achieve better customer relationship management.
- Multi-channel distribution.
- Developing attractive products and services.
- Assured risk management.
- Use of better business intelligence and enhanced image.
To achieve these objectives Project Horizon has been launched. The project
is devoted to implement software banking solution solely for IFIC Bank Ltd.
featuring real-time, integrated and centralized banking solution. The solution
is being provided by Misys International Banking Systems, UK with
consulting services.
Five pilot branches have been selected for the first phase implementation.
These branches are Gulshan, Motijheel, Narayanganj, Agrabad and Sylhet.
In the second phase another 14 AD branches will be provided with the
solution.
Some of the success achieved already as Gulshan branch is being facilitated
with:
a. Internal and Communication infrastructures.
b. Initiation of Roll Out process.
c. Conversion and migration of live data.
d. Parallel runs with live data and routine reconciliation with the existing process.
Deposit and New Products
Some of the new products offered by IFIC Bank Ltd. are Visa Credit cards, ATMs, Phone Banking, Pension Savings Scheme, Death risk benefit scheme, Monthly income scheme and Customer credit scheme, Education Assistance Plan (deposit scheme).
Deposit and other usual banking product and service are provided by the bank with its longtime experience and efficiency. Detail of deposit and other accounts of the bank as of year 2004 and 2005 are given below:
(taka in million)
| Maturity grouping of deposits and other accounts | 2004 | 2005 | ||||||
| 1 | Payable on demand | 4476672064 | 3437281364 | |||||
| 2 | Repayable on 1 month | 4011600000 | 3779501971 | |||||
| 3 | Over 1 month but within 6 months | 5230103856 | 5230103856 | |||||
| 4 | Over 6 month but within 1 year | 5763700000 | 4357785495 | |||||
| 5 | Over 1 year but within 5 years | 2391900000 | 2571516145 | |||||
| 6 | Over 5 years but within 10 years | 1249000000 | 1398301004 | |||||
| 7 | Over 10 years or more | 0 | 0 | |||||
Financial statement analysis
Financial statement analysis involves the objective of
I. Comparing the firm’s performance with that of other firm of the same industry
II. Evaluating trends in the firm’s financial position overtime.
In this chapter financial statement of IFIC Bank Ltd. is analyzed in the context of second objective served by such analysis. The techniques used are SWOT analysis, Ratio and trend analysis, Percentage change analysis and Common size analysis. Some of the component of these techniques can not be covered as nature and criteria of the absence of with specific nature and criteria.
Part A: Time Series Analysis
| Time series analysis of Deposit (1984-2005) | ||||
| (in million tk.) | ||||
| Year | t | Deposit(Y) | t2 | Yt |
| 1984 | 1 | 863.4 | 1 | 863.4 |
| 1985 | 2 | 1586.4 | 4 | 3172.8 |
| 1986 | 3 | 2344.13 | 9 | 7032.39 |
| 1987 | 4 | 3722.08 | 16 | 14888.32 |
| 1988 | 5 | 5098.66 | 25 | 25493.3 |
| 1989 | 6 | 5912.78 | 36 | 35476.68 |
| 1990 | 7 | 6712.5 | 49 | 46987.5 |
| 1991 | 8 | 8284.49 | 64 | 66275.92 |
| 1992 | 9 | 9594.76 | 81 | 86352.84 |
| 1993 | 10 | 11649.03 | 100 | 116490.3 |
| 1994 | 11 | 12747.5 | 121 | 140222.5 |
| 1995 | 12 | 13565.35 | 144 | 162784.2 |
| 1996 | 13 | 14811.08 | 169 | 192544 |
| 1997 | 14 | 15623.94 | 196 | 218735.2 |
| 1998 | 15 | 16793.49 | 225 | 251902.4 |
| 1999 | 16 | 16732.09 | 256 | 267713.4 |
| 2000 | 17 | 16577.52 | 289 | 281817.8 |
| 2001 | 18 | 17616.69 | 324 | 317100.4 |
| 2002 | 19 | 19131.85 | 361 | 363505.2 |
| 2003 | 20 | 19798.97 | 400 | 395979.4 |
| 2004 | 21 | 20774.48 | 441 | 436264.1 |
| 2005 | 22 | 22505.17 | 484 | 495113.7 |
| ?t =253 | ?Y =262446.36 | ?t2 =3795 | ?Yt = 926716 | |
| n = 22 | ?Y*?t = 66398929.08 | (?t)2 =64009 | ||
| t =11.5 | Ý= 11929.38 | |||
Trend equation for time series analysis is,
Y = a + bx, where,
a = Ý – bt
b = (?yt – ?y?t/n)/ ?t2 – ?t2/n
Now,
b = (?Yt – ?Y ?t/n)/?t2 -(?t)2/n
= (3926716 – (262446.36*253)/22)/ (3795-(2909.5/22))
=1026.067
And,
a = Ý – bt
= 11929.38 – 1026.067*11.5
=129.6056
So, the trend equation of deposit is,
Y = 129.6056 + 1026.067x
Growth Rate (GR) of deposit,
= [ n-1?Yn/Y1-1]*100
= 16.8%
Acceleration Rate (AR) of deposit,
= [ n-1?(Yn/Yn-1)/(Y2/Y1)-1]*100
= 13.46%
Significance:
I. During the period 1084-2005 deposit increased at an average rate of TK. 1026.067 million per year.
II. Growth rate (GR) indicates during the period of 1984-2005 deposit increased at an average rate of 16.8% per year.
III. Acceleration rate of 13.46% indicating that in future the GR in each successive year will be 113.46% of the previous year’s GR.
Part B: Ratio and trend Analysis
I. Liquidity Ratios:
Indicate the firm’s ability to payoff its obligation at anytime. The two