“Investment Activities of EXIM Bank LTD”
1.1 Objectives of the Report
- To give an overview of Exim Bank Limited
- To focus on products, service and financial condition of EXIM Bank Ltd.
- To acquire sufficient knowledge on available investment activities.
- To identify the problems regarding investment activities of EXIM Bank Ltd.
- To make some recommendations to the problems regarding investment activities of EXIM Bank Ltd.
220.127.116.11 Primary Sources
- Oral interview of the responsible officers.
- Official Records of EXIM Bank ltd.
18.104.22.168 Secondary Sources
- Annual Reports of EXIM Bank ltd
- Relevant papers and different books.
- Manual of investment department.
- Prior research reports.
1.4.2 Data Analysis:
Data gathered for the study have been analysed using different ratios such as liquidity ratios, operating efficiency ratios and profitability ratios.
After completing the institutional experience, practical performance in real life becomes difficult. So, lack of experience greatly influenced preparing this report.
- It is too much difficult to comment and suggest based on only the annual report and information supplied by the organization.
- In many cases the relevant authorities are not aware about internship.
- Unwillingness to provide data due to confidentiality.
- Web site of the Organization wasn’t up to date to gather valuable information.
- The bank provides some short & long term loans for its employee’s viz., house-building loan, Car loan etc.
2.1 An overview of Islamic banking system in Bangladesh
Bangladesh is the third largest Muslim country in the world of which 90 percent are Muslim. Islamic banking system started operation in Bangladesh in 1983 with the establishment of first Islamic bank “Islami Bank Bangladesh Limited”. After that, five more full-fledged Islamic banks and 20 Islamic banking branches of 10 conventional banks have started their operations in the private sector on the basis of Islamic Shariah. They have passed about two decades of successful Islamic banking operations in Bangladesh in spite of some problems in their operations.
The growth of Islamic banking in Bangladesh is progressing day by day. The remarkable shifting or conversion of the conventional banks and their branches into the Islamic lines, signals high acceptance of the interest-free banking by the public in general. The Islamic banking industry continued to show strong growth since its inception in 1983 to June 2006 in tandem with the growth in the economy, as reflected by the increased market share of the Islamic banking industry in terms of assets, financing and deposits of the total banking system. The products being offered by these banks range from consumer credit to long term finance for big investment projects using Islamic modes of financing such as Marahaba/Mudaraba, Bai Mujjal and Izara Bill Bia.
At present, out of 48 banks in Bangladesh, 6 private commercial banks are operating as full-fledged Islamic banks and 10 conventional banks are partially involved in Islamic banking in a total of 20 branches.
2.2 Historical Background of EXIM Bank Ltd.
EXIM Bank Limited was established in 1999 under the leadership of Late Mr. Shahjahan Kabir, founder chairman who had a long dream of floating a commercial bank which would contribute to the socio-economic development of our country. He had a long experience as a good banker. A group of highly qualified and successful entrepreneurs joined their hands with
the founder chairman to materialize his dream. In deed, all of them proved themselves in their respective business as most successful star with their endeavor, intelligence, hard working and talent entrepreneurship. Among them, Mr. Nazrul Islam Mazumder became the honorable chairman after the demise of the honorable founder chairman.
This bank starts functioning from 3rd August, 1999 with Mr. Alamgir Kabir, FCA as the advisor and Mr. Mohammad Lakiotullah as the Managing Director. Both of them have long experience in the financial sector of our country. By their pragmatic decision and management directives in the operational activities, this bank has earned a secured and distinctive position in the banking industry in terms of performance, growth, and excellent management. The authorized capital and paid up capital of the bank are Tk. 1000.00 Million and Tk. 313.87 million respectively.
The bank has migrated all of its conventional banking operation into Shariah based Islami banking since July/2004.
2.3 Vision and Mission
Vision and mission of EXIM Bank Ltd. are as follows:
- To be the finest bank in the banking arena of Bangladesh under the Shariah guidelines.
- To maintain corporate and business ethics.
- To become a trusted repository of customers’ money and their financial advisor.
- To make our stock superior and rewarding to the customers/share holders.
- To display team spirit and professionalism.
- To have a Sound Capital Base.
2.4 Organogram of Exim Bank Ltd.
2.5 Organogram of Exim Bank Ltd. (Mirpur Branch)
2.6 Product & Services of Exim Bank Ltd.
2.6.1 Investment / Finance:
Modes of Investment:
22.214.171.124 Bai Muazzal
126.96.36.199 Izara Bil Bia
2.6.2 General Banking:
188.8.131.52 Mudaraba Savings Scheme: it is a saving scheme under which following schemes are available-
184.108.40.206.1 Monthly Savings Scheme (Money Grower): A monthly savings scheme. Secure your future with ease. A small savings of today will provide you comfort tomorrow. Savings period is for 5, 8, 10 or 12 years.
220.127.116.11.2 Monthly Income Scheme (Steady Money): A monthly scheme that really makes good sense. A sure investment for a steady return. Actually, steady money makes your money work for you. Higher monthly income for higher deposit.
18.104.22.168.3 Super Savings Scheme: Any individual, company, educational institution, government organization, NGO, trust, society etc. may invest their savings under this scheme.
The deposit can be made in multiples of Tk.5, 000.00
22.214.171.124.4 Multiplies Savings Scheme: To gather public’s idle money in exchange of high return within the shortest possible time.
126.96.36.199.5 Other Deposit Accounts
188.8.131.52.5.1 Al-Wadia Current Deposit
184.108.40.206.5.2 Mudaraba Savings Deposit
220.127.116.11.5.3 Mudaraba Short Term Deposit
18.104.22.168.5.4 Mudaraba Term Deposit
22.214.171.124.5.4.1 One Month
126.96.36.199.5.4.2 Three Months
188.8.131.52.5.4.3 Six Months
184.108.40.206.5.4.4 Twelve Months
220.127.116.11.5.4.5 Twenty Four Months
18.104.22.168.5.4.6 Thirty Six Months
Credit Disbursement & Credit Management of EXIM Bank
3.0 Investment Activities of EXIM Bank
In this report concentrated on main three modes of investment activities of EXIM Bank Bangladesh Limited. These are:
3.2 Bai Muajjal
3.3 Izara Bill Bia.
3.1.1 Definition of Mudaraba
The term Mudaraba refers to a contract between two parties in which one party supplies capital to the other party for the purpose of engaging in a business activity with the understanding that any profits will be shared in a mutually agreed upon. Losses, on the other hand, are the sole responsibility of the provider of the capital.
Mudaraba is a contract of those who have capital with those who have expertise, where the first party provides capital and the other party provides the expertise with the purpose of earning Halal (lawful) profit which will be shared in a mutually agreed upon proportion. This type of business venture serves the interest of the capital owner and the Mudarib (agent).
The capital owner may not have the ability or the experience to run a profitable business. On the other hand, the agent (the Mudarib) may not have adequate capital to invest in a business or project. Therefore, by entering into a contract of Mudaraba each party compliments one another, allowing a business venture to be financed.
3.1.2 Types of Mudaraba:
There are two types of Mudaraba. These are stated below:
- General Mudaraba: This investment is not limited by place, item or any other restriction.
- Specific Mudaraba: This investment is limited by purpose and the mudarib cannot go beyond the specific purpose.
3.1.3 Steps of Mudaraba
The bank provides the capital as a capital owner. The Mudarib provides the effort and expertise for the investment of capital in exchange for a share in profit that is agreed upon by both parties.
The Results of Mudaraba: The two parties calculate the earnings and divide the profits at the end of Mudaraba. This can be done periodically in accordance with the terms of the agreement, subject to the legal rules that apply.
Payment of Mudaraba Capital: The bank recovers the Mudaraba capital it contributed before dividing the profits between the two parties because the profit is considered collateral for the capital.
Distribution of wealth resulting from Mudaraba: In the event a loss occurs, the capital owner (the bank) is responsible for the entire loss. In the event of profits, they are divided between the two parties in accordance with the agreement between them, subject to the capital being recovered first.
3.1.4 Rules of Mudaraba
There are some legal rules that govern the business relationship Mudaraba which are as follows:
· There is a condition in Mudaraba that the capital be specific in nature. In other words, the amount of capital must be known at the inception of the contract. The purpose of this rule is to ensure that there is no uncertainty about the amount of capital and, thus, no uncertainty about the division of profits.
· It is a condition that capital must be in the form of currency in circulation. However, merchandise can be contributed, so long as both parties to the business arrangement agree upon its value.
· It is a condition that the capital cannot be subject to indebtedness.
· It is permissible for a Mudarib to mix his private capital with the capital of the Mudaraba, thus becoming a partner. In addition, it is also permissible for the Mudarib to dispose of capital on behalf of the Mudaraba.
· It is a condition that the capital of the Mudaraba is delivered to the Mudarib. Some of the jurists permit the capital owner to withhold capital and release it gradually according to the needs of the Mudarib since the Mudaraba adjudges unrestricted disposal.
· It is permissible to impose restrictions on the Mudarib as long as the restriction is beneficial and does not hinder the agent’s ability to make a profit.
The Mudaraba agreement may be terminated if one of the two parties decides to cancel the agreement. This is possible because the Mudaraba is an optional non-binding agreement.
3.1.5 Procedures of Opening Mudaraba
It is very difficult to successfully operate a Mudaraba business since actual financial position may not be reflected, profit may be manipulated and legal coverage may not be available. As such at the moment Bank may go for specific purpose Mudaraba only on a very selective basis. In this regard the following procedures shall be observed:
22.214.171.124 Selection of Mudarib (agent): The criteria for selection of Mudarib shall be as under:
a) The Mudarib must be an honest man of active good habits with firm commitment having capability to generate income. His/her integrity and honesty must be unquestionable and shall possess a good moral character.
b) He/she must be sufficient experienced in the line of business he/she proposes to undertake. No Mudaraba fund will be available for any experimental initiative.
c) He/she must be prudent and man of foresight to predict future market conditions.
126.96.36.199 Processing and Appraisal
a) Mudaraba investment may be made for any Halal item. This mode will be very much convenient for providing Capital to the rural have notes for their acquiring profitable items for generation of income.
b) Prepare Appraisal Report and ensure that all the information particulars, figures and statistics are incorporated correctly in the report.
c) Analyze lending risk covering among others the following points:
i. Honesty, integrity, social position and reputation of the client.
ii. Location of business site/residence and experience of the client.
iii. Composition of assets of the client where necessary.
iv. Extent and nature of liabilities of the client.
a) On completion of appraisal if found suitable prepare a Mudaraba Sanction Advice in quadruplicate. If the proposal is within the discretionally power delegated to the branch by head office, send Mudaraba investment Sanction Advice to the client in duplicate and one copy to concerned Department of Head Office relating one copy with the Branch.
b) If the proposal is beyond the discretionary power of the branch, forward the same to Head Office/Zonal Office with Appraisal Report in duplicate together with all other required papers and documents giving specific comments and
c) Obtain one copy of Mudaraba Investment Advice from the client duly accepted. This should be preserved with documents of the investment concerned.
The Loan is disbursed through the following steps:
a) Allot an account number to each proposal sanctioned. For this purpose, use Investment Account Opening Register. This register will be maintained mode-wise.
b) Execute the appropriate documents including agreement and arrange their safe keeping.
c) Open file client-wise. Attach Investment Account in each file and in the related papers.
d) Enter the proposal in the Mudaraba Investment. Complete all the ledger heads particulars and get them authenticated bay an Officer.
3.1.8 Concluding Remark
It is an investment-based form of financing. The provider of capital in Mudaraba has no role in the management of the capital. However, he has to bear the risk of capital loss as well as the opportunity cost of capital for the entire period of the contract. The rate of return is quite uncertain and the cost of capital is also uncertain.
3.2 BAI-MUAJJAL (Deferred Sale)
3.2.1 Meaning of Bai-Muajjal
The terms “Bai” and “Muajjal” are derived from the Arabic words ‘Bai’ and ‘Ajal’. The word ‘Bai’ means purchase and sale and the word ‘Ajal’ means a fixed time or a fixed period. “Bai-Muajjal” is a sale for which payment is made at a future fixed date or within a fixed period. In short, it is a sale on credit.
The Bai-Muajjal may be defined as a contract between a buyer and a seller under which the seller sells certain specific goods, permissible under Shariah and law of the country, to the buyer at an agreed fixed price payable at a certain fixed future date in lump sum or in fixed installments.
3.2.2 Important Features of Bai-Muajjal
The main important features of Bai-Muajjal investment are:
a) It is permissible and in most cases, the client will approach the bank with an offer to purchase a specific good through a Bai-Muajjal agreement.
b) It is permissible to take cash/collateral security to guarantee the implementation of the promise or to indemnify the bank for damages caused by non-payment.
c) All goods purchased on behalf of a Bai-Muajjal agreement are the responsibility of the bank until they are delivered to the client.
d) The bank must deliver the goods to the client at the time and place specified in the contract.
e) The bank may sell the goods at a higher price than the purchase price to earn profit.
a) Obtain application in duplicate form all types of clients in prescribed form.
b) Application for investment under different Schemes shall be made in prescribed forms developed for each of the Schemes.
c) Obtain and attach attached photograph(s) of the proprietor/partners/directors on the top right corner of the application form.
d) Scrutinized the application of the client to see that:
i. All columns are properly filled in.
ii. Particulars and information given therein are complete and correct.
3.2.4 Processing and Appraisal
If not secured by first class collateral securities, investment under Bai-Muajjal mode is more risky than investment under other modes which may be kept in mind. The following points should receive attention before making any investment decision under Bai-Muajjal mode:
a) Obtain invoice of Goods to be purchased & ensure that, the goods against which investment is made are readily saleable and have constant and effective demand in the market That, the prices of the goods are in conformity with the prevailing wholesale price & are not subject to violent changes.
b) That, the goods are not subject to rapid deterioration due to storage for ling period.
c) That, the quantity and other specifications of the goods as desired by the client can be ensured.
d) That, the bank will be in a position to procure the goods in time at a negotiated price.
e) Sale price of the goods is payable by the client at a specified future date in lump-sum or installments as per agreement.
f) Goods delivered to the client & also client’s own stock of business remains hypothecated to the bank.
3.2.5 Sanction & Disbursement
a) Investment made to the industrial undertakings for supply of raw materials etc., investment made to individual to firms for trading purposes, import goods from abroad and for supply of seeds, fertilizers etc. to agricultural sectors shall be termed as “Commercial”.
b) Proposal of Bai-Muajjal investment under different schemes shall be appraised on the formats developed for each type of schemes.
3.2.6 Some Observations
This type of financing by the bank is considered to be more risky than the other Islamic modes of investment previously discussed .The following steps may be taken to ensure the Bai-Muajjal Investment is a good proposition for the bank:
· The bank may meet with the prospective client regarding his investment needs and business experience prior to an application /proposal is submitted.
· The bank may review the client’s past performance and other financing arrangements he may have had with the bank in the past.
· The bank may review its current investment policy regarding this type of financing arrangement to ensure the proposal meets bank guidelines.
3.2.7 Causes of over dues of Bai-Muajjal Investment
The main causes of over dues of Bai-Muajjal investment are:
a) Party Must have shop:
Bai-muajjal investment should not be allowed to anyone who doesn’t have own shop. The shop must be visited by the responsible official to ascertain his overall business position.
b) Assessment of investment need:
Since Bai-miuajjal investment amounts to cash loan therefore the need of Bai-muajjal investment shall be carefully determined. Investment should not be more than 30% of own investment of the client.
Bank’s officials must pay regular visit to the shop of the investment clients so that the investment client feel obliged to make regular transaction in current account as well as repay investment in time.
d) Stock in Business:
Stocks in Business are not verified by obtaining Stock Report at regular intervals. Monthly stock-report should invariably be obtained from the clients.
e) Proper and adequate collateral:
Proper adequate and easily saleable collateral securities are to be obtained. Value of the collateral security is to be properly assessed and forced sale value thereof should be ascertained correctly.
Insurance shall have to be obtained covering risk of fire RSD etc. on hypothecated stock which many branches don’t obtain.
However, Bai-Muajjal is an important investment both for Bank and Customers. But it needs greater supervision and monitoring. Skilled man power is a vital for the success in this case of investment.
3.3 IJARAH BILL BIA
4.3.1 Definition of Ijarah
Jurists have defined Ijaraha as ownership of a benefit for consideration. This is also known as lease or Hire contract. Al-Ijarah is an Arabic term. This has been derived from the Arabic term “Ujr” or “Ujrat” which means ‘consideration’ or ‘return’ or ‘wages’.
According to Islamic Shariah (jurisprudence), Ijarah is a contract between two parties – the lessor and the lessee, where the lessees (Hirer or Mustajir) have the right to enjoy/reap a specific benefit against a specified consideration/rent/wages from the lessor – the owner (Muajjir).
3.3.2 Elements of Ijarah
The wording: This includes offer and acceptance
Contracting parties: This includes a lessor, the owner of the property, and a lessee, the party that benefits from the use of the property.
Subject matter of the contract: This includes the rent and the benefit.
The lessor (Mujjir) – The individual or organization who leases out/rents out the property or service is called the lessor.
The lessee: (Mustajir) – The individual or organization who hires/takes the lease of the property or service against the consideration rent/wages/remuneration is called the lessee (Mustajir).
The Benefit (Maajur) – The benefit that is leased/rented out is called the benefit (Maajur).
The rent (Ujrat) – The consideration either in monetary terms or in quantity of goods fixed to be paid against the benefit of the goods or service is called the rent or Ujrat or Aj’r.
3.3.3 Rules for Ijarah
Rules of Ijarah are mentioned below:
· It is condition that the subject (benefit/service) of the contract and the asset (object) should be known comprehensively.
· It is a condition that the assets to be leased must not be a fungible one (perishable or consumable) which can not be used more than once, or in other words the asset(s) must be a non-fungible one which can be utilized more than once, or the use/benefit/service of which can be separated from the assets itself.
· The lessor is under obligation to enable the lessee to the benefit from the assets by putting the possession of the asset(s) at his disposal in useable condition at the commencement of the lease period.
3.3.4 Custody and control of the assets:
· The asset shall remain at the custody and control of the client. It shall however, be seized by the bank if the client violates the terms and conditions of the Hire Purchase Agreement.
· The client will be asked to produce transport/vehicle for physical inspection at least once in a month or more frequently as deemed necessary till full adjustment of Hire Purchase Agreement.
· Asset supplied to any client on Hire Purchase basis and subsequently seized on account of violation of the terms and conditions of Hire Purchase Agreement shall be kept under Bank’s own watch.
4.3.5 Follow-up, supervision and recovery:
· Complete the file client-wise with the copies of Application, Appraisal Report, Izara Bill Bia Investment Advice and other documents and papers viz., Trade License, Income Tax Payment Certificate, Partnership Deed/Memorandum of Articles of Association etc. submitted by the client with the original application. Copy of all correspondences made and reply thereto shall be chronologically preserved in this file.
· Maintain a Due Date Diary showing therein, interalia, the date of repayment of installment and rent. This diary shall be reviewed by the incumbent-in-charge of the Branch daily at the opening of business hours. If the client defaults in payment of installment & rent, he shall be reminded invariably on the next day of due date to deposit the amount of arrears installment & rent..
· The asset supplied on Izara Bill Bia basis shall be inspected regularly. If any misuse or improper handling is noticed in course of inspection, the client will be advised to use/handle the same properly.
3.3.6 Causes of overdue of IZARA BILL BIA
The main causes of overdue are mentioned below:
a) Obtaining equity:
Equity as per norms and practice is not being recovered before disbursement of investment. Proper and adequate equity should invariably be obtained supported by collateral security for the rest amount.
b) Model and Make:
Machinery and Vehicle of recent model and make shall have to be procured. Before procuring machinery and vehicle, its technical feasibility must have to be ascertained. In case of vehicle it must be get registered in bank’s name only and insurance cover note, road permit, tax token must be obtained in bank’s name.
The vehicle/machinery must be inspected at least once in a month so that the same cannot be shifted elsewhere/another route/place without bank’s knowledge.
d) Taking of possession:
In the event of party’s failure to pay 3 (three) consecutive installment the vehicle/machinery shall have to be taken into Bank’s possession.
3.4 .1 The Lending Procedure
The credit appraisal process starts with lending process, which consists of various sequential activities. The stages of lending process are done both at the branches and at the head office levels. The procedure starts when borrowers come to any branch seeking for loan and continues until the client adjusts the loan. Before sanctioning of the loan, the borrower’s application is appraised in various stages. To assess the credit appraisal systems of EXIM Bank Ltd., the stages of lending procedures as shown in the above flow chart are described below in sequential order.
188.8.131.52 Application from the credit applicant
The procedure of credit appraisal starts when a client comes to any branch of EXIM Bank for taking loan. EXIM Bank emphasizes on borrower selection and starts at very beginning of the procedure by primary interview of the client. The client is interviewed by the investment officer whether the particular type of loan he wants is available in EXIM Bank or if he is eligible for taking that type of loan. If investment officer satisfied with the client then the borrower is to apply in Bank’s prescribed format asking for that loan facility. If the officer is not satisfied with the client then is screened out from the facility.
The initial screening is very much important for credit Appraisal system since if a bad client pointed out at the beginning then the later activities for this client is not required .
Again the time spent against a bad customer could be utilized for another good client. But there is no precise way to measure a borrower ton be good or bad. So the investment officers of EXIM Bank interviews the client very carefully to get as much information as possible and puts emphasis on the following aspects:
184.108.40.206 Past track record: It is considered by the following criteria:
- Bank record: transaction records of own bank and other bank provided by the client. It is very useful for quantitative judgment of the borrower.
- Credit report of the client: this is provided by the Bangladesh bank which has a good validity in measuring client
- Market Information: the borrower’s reputation in the market is a better probe for the banker. Since in Islami Shariah principle for providing credit facility good must have to be bought or sold and because the maximum branches of EXIM.
- Financial statements: these statements are not always considered primarily for selecting a customer. But if the client brings with these statements then those helps a lot to decide the business status of the client.
- Managerial Ability: this is the basis for selecting a right borrower. Both the conceptual skills and human skills are used for analyzing the customer. The communicative skill is very essential for getting the right information for different types of customer. EXIM Bank prefers experienced officers for this purpose; for example, the in-charge of investment department of the branch manager makes the quick decision.
220.127.116.11 Obtaining CIB Report
EXIM Bank considers CIB (Credit Information Bureau) report provided by the central bank as the top priority information about the borrower. Therefore the bank strictly follows the CIB report as per rules & regulation of BRPD (Banking Regulatory and Policy Directory) instructions. After receiving the loan Application from the client, banks send a letter to Head Office to collect the credit inquiry report of that particular client from credit information bureau of Bangladesh bank. This report is collected if the loan amount exceeds TK. 50 thousands as per BRPD instruction. The purpose of this report is to be informed whether or not the borrower not taken loans and advances is i.c., whether those loans are classified or not.
In practice, Head Office of the bank collects the CIB report for its branches at the initial stages of the credit appraisal procedures. Concerned officer of investment division (HO) banks goes to Bangladesh Bank twice a week to submit the applications for CIB report in the name of particular borrower. Bangladesh Bank from its MIS provides the cm reports. Generally, these reports are not obtained in due time (3 days). Usually it takes 10 to 15 days to provide the reports and hence the processing of the loan is delayed. However, the concerned branches may prepare proposal and other necessary steps of the proposals (e.g. credit analysis, analysis of feasibility, of the project etc) during this slack time. But many branches do not practice this to avoid the useless hassles of workload, in case the CIB report is negative for the customer. Again, Head Office could arrange to go for collecting CIB report thrice in a week or in every two days in a week so that the bank gets frequent replies from the central bank.
18.104.22.168 Collection of documents
If Bangladesh Banks sends positive CIB report on that particular borrower then the bank assumes the prospective borrower to be a good one and then the bank starts scrutinizing the documents such as:
- In case of corporate client, financial documents of the company for the last three to five years. If the company is a new one, projected financial data for the same duration is required.
- Personal net worth of the borrower(s)
- In this stage, the bank will ensure that the documents are properly filled in and duly signed. Investment in-charge of the relevant branch is responsible for enquiring about the ins and outs of the customer’s business through discussing with him or them.
22.214.171.124 Scrutinizing Documents
Bank official of the investment department inspect the project for which the loan is applied. Here project existence, its distance from the bank originating the loan, monitoring cost and possibilities etc. are examined. If the proposed amount exceeds TK. 10.00 Lac, a senior officer from head office performs an on-site inspection of the project. In other cases, the officers from the branch go for inspection of the site. Here again, the prudence and wisdom of the officer are liable for judgment of providing credit facility to a customer. While visiting the site, other officers scrutinize the documents of the client. Sometimes the security documents are also evaluated and offers go for valuations of security like land, shops or market to know the real market value of the security.
126.96.36.199 Analysis of collected information:
Any loans proposal needs to be evaluated on the basis of financial information provided by the loan applicant. Financial spreadsheet analysis, which consists of a series of quantitative techniques, is employed to analyze the risk associated with a particular loan and to judge the financial soundness and the worthiness of the borrower. Besides, lending
risk analysis is also undertaken by the bank to measure the borrower’s ability to pay considering various risks associated with loan..
188.8.131.52 Evaluation of CIB Report:
EXIM Bank uses CIB Report as part of these credit appraisal procedures. It serves as a useful tool to assess borrower’s credit standing and loan repayment behavior. Bangladesh Bank provides Credit Information Bureau (CIB) Report to banks and other financial institutions. This report is about borrowers having outstanding loan balance of TK. 50 thousand and above with scheduled banks and non-bank financial institutions. This is basically a formatted task, which is done by the investment division before EC meeting and mentions the borrower’s status in the EC memo.
184.108.40.206 Analysis of Project feasibility:
In order to obtain a large credit for a new project, the perspective borrower has to apply through a request for credit limit from in the format provided EXIM Bank. This form, in effect, serves as a project feasibility report. Although, EXIM Bank may ask for a separate project feasibility report, filling-up of this prescribed form is mandatory for a new project. But for an exiting project in EXIM Bank this is not required in practice. In practice, EXIM Bank does not analyze feasibility of the small credits, which are very common in EXIM Bank.
The given information is analyzed in detail by the bank to measure the viability of the project. It covers the following aspects of the project
1. Technical aspect
2. Marketing aspect
3. Financial aspect
4. Managerial aspect
5. Socio-Economic aspect
Among the above aspects, EXIM Bank emphasizes on the Financial and Technical aspects and carefully analyze the points such as: detailed break-up of project costs, fixed, variable, semi-variable proposed primary and collateral securities for loan with valuation, proposed repayment scheduled with desired suspension period, breakeven analysis and financial ratio analysis etc. loan and location of the project Capacity and product-mix, machinery, equipment, and vehicles requirement, raw materials and other inputs requirement etc.
220.127.116.11 Branch activities & valuation of collateral:
The investment department in the branch includes along with two or four persons depending upon the requirement and availability of manpower of the branch. Manager of the branch take all the decision regarding credit with the help of in-charge of investment department. some important features of branch activities are given below:
- Branch plays key roles in investment operation. Usually branch investment department targets the potential borrowers, generates the investment relationship and completes the investment analysis and prepare a well written investment proposal.
- A Site Plan and Map along with 3R size distant photographs if the mortgaged property covering full disclosure from 3 angles mentioning detailed particulars on the back to the photographs duly authenticated by the authorized officer(s) to be obtained by the Branches.
- It should be ensured that the collateral is in the physical possession of the mortgagors(s) and the mortgagors(s) /owner(s) has/ have valid title over it.
- A letter of satisfaction from the Bank’s Lawyer to be obtained that the mortgage formality has been properly created.
18.104.22.168 Investment proposal & preparing MEMO for EC Meeting:
The branches start processing the loan at this stage. Based on the analysis (credit analysis) done by the branch, the branch prepares a loan proposal. EXIM Bank emphasizes on the information of the proposal such as:
- Name of the borrower(s).
- Nature of investment.
- Purpose of investment.
- Rate of return.
- Repayment schedule.
If the branch could start to prepare the investment proposal before getting the legal opinion and during CIB report collection period, then the total procedure would take lesser time.
Investment Division prepares a memo which is called EC memo by analyzing the proposal sent by the branch. The memo summarizes the proposal sent by the branch and some important information regarding the client for example if the client has any previous loan, the status of the previous loan, current performance.
EC meeting is held twice in a week and is generally supervise over by the honorable Chairman of the Bank. The Executive Committee takes decision whether to sanction the loan or not, thus in EXIM Bank each and the Executive Committee sanction every loan, there is no authority for sanctioning any loan even for the small ones except for the Quard against MTDR (SOD against Financial Obligation).
EC memo is very important for quick scanning of the credit status of the borrower. Although the EC memo is much formatted task, it should be prepared carefully.
22.214.171.124 Collection of Charges Documents
After issuing the sanction advice, the bank collects necessary charges charge documents. Charge documents are generally printed documents provided by the Bank for execution by the clients. Charge documents vary on the basis of types of facility, types of collateral etc. The loan is disbursed only when the customer submits all the required charge documents and so the clients usually submit the documents as early as possible. Sometimes a borrower with a good track record cannot submit some particular charge documents but needs the loan urgently. In these cases, EXIM Bank, depending on the other collateral, Securities, disburses the loan but collect the charge documents later.
3.5 Recovery of irregular/stuck-up/overdue investment
The procedures of recovery of irregular/stuck-up/overdue investment are as follows:
a) Contracting the investment client in writing and meeting personally
In order to ensure timely recovery of investment, supervision al all stage shall be ensured. This will include supervision from the date of disbursement to total repayment. In case repayment as per schedule doesn’t come the Manager shall personally enquire about the
cause of non repayment. If he is convinced that the difficulty is temporary in nature and is likely to overcome shortly he should discuss the situation with the investment clients and obtain reasonable definite repayment schedule under intimation to Head Office.
b) Sending Resume of Investment to Head Office:
Branch manager will send the Resume of Investment mentioning therein the latest position of investment, security, irregularities occurred and the efforts made, in the meantime for regularization/recovery of the investment as well as suggesting future action.
c) Issuance of Registered Notice:
If the investment client doesn’t come forward to repay within a reasonable period, legal notice is to be served through panel lawyer of the Bank with copy endorsed to Head Office. The reaction of legal notice is also to be brought to the knowledge of Head Office with comments of the Branch Manager for further instructions.
d) Suit to be filed:
If filing of suit is allowed by Head Office the same should be filed against the client concerned and the Guarantor if any under civil Procedure Code 9 for specific performance to be deemed as breach of contract. In case the investment is not covered by collateral security suit is to be filed with attachment of assets before judgment. On the other hand if the investment is secured by Mortgage of Property Title Suit is to be filed.
e) Disposal of Murabaha/Mudaraba Stock:
In case where the investment is secured by pledge of stock it should be mentioned in the registered Notice that in case the party fails to lift Murabaha goods on making repayment, the bank shall dispose of the same by inviting open tender through National/local daily.
f) Inviting Tender for Disposal of Stock:
In spite of the above if the client doesn’t come forward to lift the goods, tender notice shall be published in One National/Local daily on obtaining Head Office approval.
FINANCIAL AND SWOT ANALYSIS OF EXIM BANK LTD.
4.1: Financial Position
As a commercial Bank, EXIM bank does all traditional Banking business including the wide range of savings and credit scheme products, retail banking and ancillary services with the support of modern technology and professional Excellency. But main focus of EXIM Bank is, for obvious reason, on export and import trade handling and the development of entrepreneurship and patronization of private sectors.
Following table depicts the financial conditions of EXIM Bank Limited:
Table: 01 Financial Condition of EXIM Bank Ltd.:
Figures In Core
|Investment(Shares & Bonds)||237.70||154.30||163.30||223.33|
|Foreign Exchange Business||3461.96||4931.24||7294.00||9617.51|
|a) Import Business||1926.00||2678.10||4143.20||4949.67|
|b) Export Business||1512.46||2241.84||3128.50||4623.46|
|Loan as (%) of total Deposit||80.62%||101.97%||91.97%||93.18%|
|No. of Foreign Correspondent||185||200||222||246|
|Number of Employees||627||768||934||1020|
|Number of Branches||19||28||28||30|
|Return on Assets||3.15%||3.44%||1.65%||1.73%|
4.2 Financial Performance Analysis of EXIM Bank Ltd.
Analyzing the financial performance (also called financial analysis) is so much essential for each and every business institution as well as for the Banking institutions. Financial analysis typically is associated with ratio analysis. Ratio analysis involves the methods of calculating and interpreting the financial ratios to analyze the firm’s relative financial performance. The main purpose of this analysis is to analyze and monitor the firm’s financial performance, so, that the interested parties (both the external and internal) can realize the firm’s actual performance easily, which is so much essential for the parties. There are several ratios that help a particular analyst to analyze the past performance of a particular firm and to diagnose the various relevant variables, which are important for improving the future operation of that firm. The financial ratios, those are useful for analyzing the past financial performance of a financial institution, such as – Bank, can be divided into five broad categories for convenience and they are enumerated below :
4.2.1 Liquidity Ratio
4.2.2 Operating Efficiency Ratio
4.2.3 Profitability ratio
4.2.1 Liquidity Ratio: It measures a firm’s ability to meet up or satisfy its short tem obligations, as they become due. The commonly used liquidity ratios are-
126.96.36.199 Net-working Capital: Net working Capital although not actually a ratios, is a common measure of firm’s overall liquidity. It measures a particular firm’s liquidity by measuring the excess of current assets over the current liabilities. So, it is calculated by using the following formula-
Net-working Capital=Total Current Asset – Total Current Liabilities
Table: 02 Net-working Capital ratio:
|name of ratio||Years|
Figure-01: Net-working Capital ratio
Interpretation: We know that net-working capital measures a firm’s ability to serve its short term obligations as they become due, by measuring the excess of current assets over the current liabilities and the higher the ratio, the higher the liquidity of the firm. So after observing the above graph, we can say that the net working capital and as well as the liquidity of EXIM Bank is fluctuating year to year, which is risky for the company and the Bank had highest of liquidity in the year 2003 and lowest level of liquidity in year 2004 but the Bank’s liquidity is increasing at an increasing rate form the year of 2004 to 2006, as they have maintained a steady level of current liabilities, which is favorable for the Bank.
188.8.131.52 Current Ratio: A measure of liquidity, calculated by dividing the current assets by current liabilities. It shows the level of current assets that a particular firm has against per Taka of current liabilities of that firm. So the equation becomes-
Current ratio = Current assets / Current liabilities
|name of ratio||years|
Table: 03 Current ratio
Table: 03 Current Ratio
Figure: 02 Current ratio
Interpretation: We know that, the current ratio measures a firm’s liquidity by measuring the portion of its current asset relative to its current liabilities and the higher the ratio, the higher the liquidity of the firm. So, after observing the graph shown above, I would like to say that the company’s current ratio is fluctuatingyear to year and Bank’s current ratios are always below the standard level (2), which is not good and risky for the firm – EXIM Bank. But from the year 2004 to 2006 Bank’s current ratio as well as the liquidity is increasing at slow rate, which is good for the Bank and the Bank should try to maintain or improve the liquidity of the Bank.
4.2.2 Operating Efficiency Ratio: The ratio measures a particular Bank’s operating efficiency, which is the Bank’s ability to serve its customers in the most effective way by using least amount of resources (such as time, cost etc.). The following ratios are widely used to measure a particular Bank’s operating efficiency:
184.108.40.206 Operating Cost to Income Ratio: It measures a particular Bank’s operating efficiency by measuring the percent of the total operating income that the Bank spends to operate its daily activities. It is calculated as follows:
Operating Cost to Income Ratio = Total Operating Cost/Total Operating Income
Table: 04 Operating Cost to Income Ratio
|name of ratio||Years|
|Cost to Income Ratio (%)||34.24||33.06||31.00||27.04||31.54|
Figure: 03 Operating Cost to Income Ratio
Interpretation: We know that this ratio measures the operating efficiency of a particular Bank my measuring the portion of the total operating costs relative to the total operating income of that Bank and the higher the ratio, the lower the operating efficiency and vice-versa. So, after observing the figure drawn above, I am able to say that, during the time period between the years 2003 to 2006, the operating efficiency of the EXIM Bank was increasing, which was a good sign of the Bank but in the year 2007, the ratio started to increase, which indicates that the Bank is incurring more costs than that of previous years and this is not a good sign for the Bank. So the Bank should give a close eye on this matter to improve its efficiency.
220.127.116.11 Total Asset Turnover: Total Asset Turnover indicates the efficiency with which the firm uses its assets to produce operating income. It is calculated by using the following formula:
Total Asset Turnover = Total Operating Income /Total Assets
Table: 05 Total Asset Turnovers
|name of ratio||Years|
|Total Asset Turnover||0.052||0.047||0.05||0.047||.048|
Figure: 04 Total Asset Turnovers
Interpretation: We know that this ratio measures the return from per unit of total assets and the efficiency of the Bank in using its total assets to generate operating income and the higher the ratio, the higher the efficiency of the Bank in using its assets. So, after observing the given graph, we are able to say that the return from per unit of total asset, as well as the Bank’s efficiency in generating income is fluctuating from year to year and the Bank generated the maximum turnover in year 2003 and lowest turnover in the following year 2004 but from the year 2006 the return from per unit of asset is increasing, which is a good sign for the Bank and the Bank should try to maintain this performance.
18.104.22.168 Fixed Asset Turnover: It measures the return per unit of fixed assets. It is calculated by using the following formula
Fixed Asset turnover = Total Operating Income/Net Fixed Assets
Table: 06 Fixed Asset turnovers
|name of ratio||Years|
|Fixed Asset Turnover||5.3||6.581||8.032||9.651||11.287|
Figure:05 Fixed Asset Turnover ratio
Interpretation: We know that this ratio measures the return from per unit of fixed assets as well as the Bank’s efficiency in using the fixed asset to generate return and the higher the ratio, the higher the efficiency of the Bank in using its fixed assets. So, after observing the given graph, I am able to say that the return from per unit of net fixed assets is increasing from year to year, which is a good sign for the company – EXIM Bank and the Bank should try to maintain the current level of performance for its future betterment.
22.214.171.124 Investment to Deposit Ratio: It shows the operating efficiency of a