Performance Evaluation & Profitability Analysis of Shahjalal Islami Bank (SJIBL) Ltd.

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Performance Evaluation & Profitability Analysis of Shahjalal Islami Bank (SJIBL) Ltd

Origin of the report:

We the students of BBA are asked to complete internship program as an integral part of BBA program. After successful completion of the program period a student must submit the report on the assigned topic to the Supervisor and the department. Three (3) credit hours for this internship program are being reserved. This program’s duration is three months. I was assigned to Shahjalal Islami Bank Limited to complete the program. My respective Supervisor has given me the topic “Performance Evaluation and Profitability Analysis of Shahjalal Islami Bank Limited”. In connecting to this, HRD of SJIBL sent me to the Dhaka Main Branch and assigned to prepare this report.

1.2 Authorization of the Study

The banking world has been undergoing rapid and fundamental changes. The speed of these changes has been maintained even after the global financial turmoil experienced during the past few years. It is well recognized that there is an urgent need for better-qualified management and better-trained staff in the dynamic global financial market. Bangladesh is no exception of this trend. Banking sector in Bangladesh is facing challenges from different angles though its prospect is bright in the future. To meet up the growing needs of skilled and eligible managerial manpower of different banks in the country, Dhaka University has initiated the BBA Program in Accounting & Information Systems under the Faculty of Business Studies. The objective of the BBA Program is to equip individuals to develop the specific skills and the breadth of judgment required of effective financial executives or bankers. Bank education is a practice-oriented education. Hence, the practical orientation in business or financial organization has been made an integral part of the BBA Degree requirement. For fulfilling this very requirement, I was sent to Shahjalal Islami Bank Limited. This report has been prepared on the basis of theoretical part of the various articles and under the close supervision of my internal Guide Dr. Mohobbot Ali, Assistant Professor, Department of Accounting & Information Systems.

1.3 Objectives of the study

The core objectives of the practical orientation program in banks are as follows:

• To gain practical knowledge in banking;
• To know about the profile of Shahjalal Islami Bank Limited (SJIBL)
• To get an overview of the private Banking in our country.
• To compare the performance of the bank from different aspects.

· To identify major strength and weakness of SJIBL in respect to other Banks

• To assess and evaluate the growth trends on SJIBL among other Banks.
• To know about profit structure of the bank.
• To know about performance of the Bank from 2001 to 2007
• To know about performance Compare to other Banks.
• To know about trends of Performance Parameters

· To apply theoretical knowledge in the practical field.

· To have exposure to the functions of general banking section.

· To fulfill the requirement of BBA Program.

· To gather knowledge about the functions and transactions of different departments of bank and check the compliance of practice with the theory.

· To recommend ways and means to solve problems regarding Banking.

1.4 Scope of the Report

Shahjalal Islami Bank Limited is one of the growing banks in Bangladesh. The scope of the study is Performance Evaluation and Profitability Analysis of the bank. The report covers the organizational structure, background, functions and the performance of the bank in different sections like General Banking, Investment Activities, Foreign Exchange Banking staring from the origin of the bank up to March of 2007.

1.5 Duration:

The duration of the study was a very short span of time. It was three months long internship program (Starting from February 2007 to April 2007). It was very much hard to complete a report as well as assigned tasks by the Bank. So I had to complete this study facing very much time pressure.

1.6 Areas of Operation:

This report covers General Banking performance, Foreign Exchange Performance and the same in Investment Banking of Shahjalal Islami Bank Limited. Especially this report emphasizes on the Profitability Analysis of the bank. The report also covers the organizational structure, background, functions and the performance of the bank, compares those performances with the Traditional Banks Average and Islamic Shariah based Banks Average.

1.7 Methodology:

To make the Report more meaningful and presentable, two sources of data and information have been used widely.

Source of Data

Figure 1.1: Sources of data

Both primary and secondary data sources were used to generate the report.

1.7.1 Primary:

Interview, observation, and 3-month work experience with different divisional in charge and suggestions of many executives of the bank, relevant file study as provided by the officers concerned.

1.7.2 Secondary:

Annual reports of SJIBL (2001-2006 and interim report up to March, 2007), Instruction circular of Head Office, Brochures of different Banks, News Paper & Magazine regarding Banking issues, Prospectus for IPO of shares Annual Report of ten banks other than SJIBL (2002-2006) and so on.

1.8 Limitations

The major limitations of this study are:

• Sufficient records, publications were not available as per my requirement.
• Information is not processed through computer.
• Time and budget constraint.
• Non-cooperative behavior of some officials of the bank.
• 3 months are very short time to prepare this type of comparative report.
• Another limitation of this report is Bank’s policy of not disclosing some data and information for obvious reason, which could be very much useful.

2.1 Banking Heritage

Shahjalal Islami Bank Limited (SJIBL) has six years long and relishing heritage. It is a second generation Bank which was incorporated as a public company limited by shares on the 1^st day of April 2001 under the Company Act 1994 with the vision to stand out as a pioneer banking institution in Bangladesh and contribute significantly to the national economy.

Privatization of Banking is an outcome of the delineate policy change in the Govt. of Bangladesh in the late 1970. The emergence of Shahjalal Islami Bank Limited (SJIBL) was at the injuncture of liberalization of global economic and Islamic activities, after the URUGUAY ROUND has been an important event in the financial sector of Bangladesh. The experience of the prosperous economics of Muslim countries, in particular of South Asia, has been the driving force and the strategic operational policy option of the bank. The company philosophy “A Bank with Shariah-Based on Banking” has been precisely an essence of the legend of success in the Muslim countries.

Shahjalal Bank Limited is named after the name of Saint Hajrat Shahjalal who dedicated his life for the cause of peace in this world and hereafter and served the humanity. The primary objective of Shahjalal Islami Bank Ltd. (SJIBL) is to serve the people for attainment of their economic goal and success in life here and hereafter. Shahjalal Islami Bank stands not only for the material well being but also for the ethical development of its customers. The Government of Bangladesh has licensed Shahjalal Islami Bank Limited as a Scheduled commercial bank in the private sector in pursuance of the policy of liberalization of banking and financial services and facilities in Bangladesh. In view of the above, the Bank within a period of 6 years of its operation achieved a remarkable success and met up capital adequacy requirement of Bangladesh Bank.

The bank started with authorized capital of Tk.2,000,000,000 divided into 20,000,000 ordinary shares of Tk. 100 each. The bank commenced is operation through the “Dhaka Main Branch” at 58 Dilkusha C/A, Dhaka-1000 as interest free shariah based commercial bank in the 10^th May 2001 with the permission of Bangladesh Bank with the name “Shahjalal Bank Limited (SBL)”. The name of the bank has been changed form “Shahjalal Bank Limited” to “Shahjalal Islami Bank Limited” on April 18, 2004 with the permission of Bangladesh Bank. The sponsors have subscribed and fully pain for 9,358,250 ordinary shares of Tk.100 each amounting to Tk. 935,825,000.

During this short span of time the Bank is successful in positioning itself as a progressive and dynamic financial institution in the country, though the bank has faced several risky periods, especially during 2003 to 2004 because of a foreign exchange dealing loss. In latter days the bank had been widely acclaimed by the business community, from small entrepreneurs to large traders and industrial conglomerates, including the top-rated corporate borrowers for its forward – looking business outlook and innovative financial solutions. Thus within this very short period of time it has been able to create an image and earn significant reputation in the country’s banking sector as a Bank with Vision. Presently, it has 21 branches.

SJIBL, overcoming the hazardous situation during 2004, now is growing fast as one of the leaders of the new generation banks in the private sector in respect of business and profitability as it is evident from the financial statements 6 years.

The bank in early 2007 proposed to increase the paid up capital to Tk. 1,871,650,000 consisting of 18,716,500 ordinary shares of Tk.100 each by issuing 9,358,250 ordinary shares of Tk. 100 each by way of Initial Public Offering (IPO). And the proposal was brought into practice through IPO in February 2007. After issuing the primary shares the issue was placed in “N” category

2.2 Industry Analysis

Bangladesh Banking Sector Keeping pace with the global changes in the sector, the banking sector of the country has been undergoing a remarkable change during the last couple of years. The Bank for International Settlement(BIS) has finalized the Basel-II Accord after issuing several consultative papers and impact studies and published the same under the title “International Convergence of Capital Measurements and Capital Standards” in June 2004 to be effective from 2006. Most of the developed and developing countries have drawn up the implementation plan. The neighboring countries have already chalked out the Basel Implementation Plan and started parallel run. Although the Basel Accord is not mandatory for the banks but international convergence and market forces will force the banks to adopt the same with in next couple of years. Bangladesh Bank has also formed a national committee to explore the various aspects of its implementation. Banking sector of Bangladesh consists of 48 banks, out of which, there are 4 NCBs, 5specialized banks, 09 foreign banks, 24 private sector commercial banks and remaining 06 private sector banks operating on Shariah principles. The NCBs occupy 39.80% and 37.13% of market share of Deposits and loans and advances respectively and others share the balance. CRISL expects a paradigm shift in the management pattern of the entire banking system on implementation of ensuring Basel Capital Accord. In the New Accord the risk emphasis has been expanded to credit and market risk and operational risk. In order to assess the risk, our neighboring countries like India and Pakistan have adopted standardized approach for Credit Risk and Basic Indicator Approach for operational risk which is considered to be easy for the banks at the initial stage. Under the Standardized Approach for Credit Risk, the banks will have to rate the clients by the external rating agencies for risk weight calculation based on rating while the bank will have to provide additional capital worth of 15% of the gross income for operational risk. The above would warrant the financial institution to invest more in IT infrastructure systems and Human resources. The business operation will be more sensitive to risk and capital and in this connection the supervisory oversight will be stronger. Under the above backdrop CRISL believes that the SJIBL management will devise its operational strategy.

2.3 Ownership Pattern

Currently SJIBL has 19 sponsor holders. Out of 19, only two are the representatives from two institutional shareholders. Among the sponsor shareholders, 12 board members holding 66.48% of the total outstanding shares as on 30th June 2006. Alhaj Md. Faruque is the individual shareholder, holding highest 8.52% of total outstanding shares. Nine shareholders are holding more than 5% of the total shares.

2.4 Company Vision, Missions, Goal, Objectives

2.4.1Vision of the Bank:

To stand out as a pioneer banking institution in Bangladesh and contribute significantly to the national economy.

2.4.2 Missions of the Bank:

· High quality financial services with the help of the latest technology.

· Fast and accurate customer service.

· Balanced growth strategy.

· High standard business ethics.

· Steady return on shareholders’ equity.

· Innovative banking at a competitive price.

· Attract and retain quality human resource.

· Firm commitment to the society and the growth of national economy.

2.4.3 Goal of the Bank:

To do business with all ethical standards and in a complete transparent manner will continue.

2.4.4 Objectives:

The objectives of SJIBL for 2007 are:

• To establish interest-free and welfare oriented banking system.
• To help in poverty alleviation and employment generations.
• To contribute in sustainable economic growth

· Periodic business review

· Partnership with customers

· Dynamics in work disposal

· Utilization of available resources

· Innovative banking & product improvement

· Market focus

· Security

· Use of modern technology

· Total service offer

· Expansion & diversification of customer base

· Human resources development & retention

· Consolidation of result achieved

2.5 Commitment to clients

Shahjalal Islami Bank Limited is a customer focused modern banking institution thriving fast in both earning & ability to stand out as a leading banking institution in Bangladesh. It delivers unparalleled financial services with the touch of our heart to retail, Small & Medium Scale Enterprises (SMEs), Corporate, Institutional, Governmental and individual clients through the outlets of branches across the country. Its’ business initiatives center on the emerging needs of the clients. The commitments to the clients are the following:

Provide service with high degree of professionalism and use of most modern banking technology.

Create life-long relationship based on mutual trust and respect.

Responds to customer needs with speed and accuracy.

Share the values and beliefs.

Grow as our customers grow.

Offer first-rated solutions of clients’ banking problems and issues.

Provide products and services at competitive pricing.

Ensure Safety and security of customers’ valuables in trust with us.

2.6 Core Values of SJIBL

The Core Values of Shahjalal Islami Bank Limited are:

Integrity

Respect

Fairness

Harmony

Team Spirit

Courtesy

Commitment

Service Excellence

Insight and Spirit

Enthusiasm for Work

Business Ethics

2.7 Core Strengths of SJIBL

Transparent and Quick Decision Making

Efficient Team of Performers

Satisfied Customers

Internal Control

Skilled Risk Management

Diversification

2.8 Branch Network of SJIBL

Branch Network is considered to be one of the most important requirements to have the low cost customers’ deposit which is considered to be a stable source of fund for banks. At present SJIBL operates its business through twenty one branches in different commercially important areas while four branches are operated at Sylhet and three branches are operated at Chittagong and the rest fourteen. During 2006 the SJIBL has been accorded permission for operating five new branches. Among the new branches 3 branches will be set up in Dhaka zone, while the balance two branches will be at Chittagong and Sylhet one in each district.

2.9 Organism of Shahjalal Islami Bank Ltd

2.9.1 Board of Directors:

In SJIBL the board of directors has been conceived as the sources of all power headed by is chairman. It is legislative body of the band board cam delegate its power and authority to professionals, but cannot delegate, relinquish of avoid their responsibilities. His board of directors of the bank consists of 13 members who are reputed business personalities and leading industrialists of the country.

2.9.2 Management structure:

The Management Structure of SJIBL is a hierarchy of organizational chain. The chain is maintained as under. In this hierarchy every officer is liable to his respective boss and each superior is to supervise is subordinates’ jobs.

2.10 Management Practices

2.10.1 Operational Environment:

Shahjalal Islami Bank Limited is a growing banking institution of the country. It integrates the latest technology into every facet of its operations. Its relentless effort to maximize shareholders’ wealth continued in 2006 amid a state of stiff competition, more comprehensive regulatory environment and ever increasing customer expectations. Yet the company completed another successful year. In the year 2006, it focused on increase of fee based income, diversification of revenue earnings through a wide range of financial products and services. It made an operating profit of Tk.845.069 million (EBIT) and thus posted a growth of 68.40% over the last year. It made significant progress in enhancing profitability of the bank compared to that of last year. Though the bank suffered a huge loss in 2003 & 2004, the quality and timely availability of management information have improved significantly. These, combined with sharp monitoring practices, enabled the Bank to manage the business better and identify any problem area sooner than later.

2.10.2 Capital Management:

Shahjalal Islami Bank is a fast growing Bank. Its commitment to maximize returns on their investment continues. Accordingly its capital management framework helps optimize the capital by ensuring the

(1) Best composition of capital in relation to business growth and

(2) Judicious use of capital through a mix of investment options. The Authorized Capital of the Bank is Tk.2000 million. It’s paid up Capital and Reserve reached Tk. 1,871.650 million as on February 28, 2007.

2.11 Corporate Governance:

Governance in Financial institutions is considered to be the agent of effective and profitable business operation. The Corporate governance establishes trust among the interested parties, provides information for the stakeholders, establishes professionalism, builds capacity to operate business efficiently and create a congenial working environment, which is inevitable to face the challenges of the present competitive business environment. Corporate governance in SJIBL may be delineated as follows:

Its corporate responsibility is about working to support sound decision making process and an appreciation for those fundamentals that create, protect and enhance long term value for shareholders. It helps bank to stay focused on sustainable corporate practices. Thus it can move forward to its goal of a culture of performance and responsibility.

2.11.1 Board:

The Board of SJIBL is constituted with 12 directors, which is in line with the requirement of Bangladesh Bank. The Board is actively controlling overall business of the bank. During 2006 & 2005, the Board conducted 05 and 11 meetings respectively. In order to observe the business of the bank more closely the bank board formed two Board Based Board committees namely, Executive committee (EC)and Audit Committee. These two boards are headed by two different Directors for better corporate management.

2.11.2 Audit Committee:

The Board has formed a three member audit committee as per Circular of Bangladesh Bank headed by Alhaj Anwer Hossain Khan, a director of the bank having qualification of Masters in Commerce. He Committee members have good exposure in the banking business and operation., he Committee conducted 06 and 18 meetings during 2006 and 2005 respectively against the minimum three to four meetings as set by Bangladesh Bank.

2.11.3 Delegation of Power:

As per guidelines of Bangladesh Bank, the bank is at the minimal stage of the delegation of power. Under the present delegation, the band has provided all administrative power to the management and some financial power to the Managing Director. In order o arrange functioning of the bank, the Board delegated its Investment (loan) approving power to the Executive committee, which is headed by a Director other than the Chairman of the Board of Directors.

2.11.4 Management:

SJIBL has completed five years of its operation to pursue the mission “To expand Islamic Banking through welfare oriented banking system, ensure equity and justice in economic activates, extend financial assistance to poorer section of the people and achieve balanced growth; & equitable development”. For smooth functioning of the activities the bank has formulated a new organism. The management team of SJIBL is headed by the Managing Director Mr. M. Kamaluddin Chowdhury.

2.11.5 Management Committee:

The Bank has formed several committees namely MANCOM (Management Committee) etc. Asset Liability Committee (ALCO), Investment Committee etc for its smooth functioning. The above Committees have been formed recently and yet start functioning appropriately.

2.11.6 Human Resources Policy:

In a financial sector services industry, the success is dependent on its quality of techno-human resources. The bank has recruited the top management having well exposure to the sector. Although the sector is now absorbing substantial number of young post-graduate professionals with comparatively food compensation packages with the objectives of giving appropriate training, a large number of private commercial banks are dependent in less number of experienced banking processionals at the top tier. The SJIBL follows a structured service rules and average compensation packages. The bank launched benefits for the employees like contributory provident fund etc as the long-term benefits. The bank has recruited 11 professionals at the mid-tier and 43 officers at the lower level in of 2006. The bank provides Training facilities to its new and existing staff through its training arrangement at head office premise on schedule and need basis at each year. Moreover, the bank has been sending its officers to BIBM and Bangladesh Bank for training and participating in various workshops on diverse banking issues on need basis.

2.11.7 Shariah Compliance:

Shariah Council of the SJIBL plays an important role in connection with the compliance and implementation of Islamic Shariah principles in every sphere of the bank’s operation. It consists of seven members including five Fakihs (Eminent Shariah Juries), Board Chairman and Managing Director; the council is headed by Janab Moulana Ubaidul Haq, Khaib of Baitul Mukkaram, the national mosque. During 2006 and 2005, the council conducted 02 and 04 meetings respectively.

2.12 Banking Ethics

Operational efficiency and professional integrity are inseparable and its principles of doing business are deeply anchored in its core values of integrity, fairness, harmony, commitment and high standard of business ethics. These values guide us to do not only the right thing but also the right way. It does business with full transparency after observing all ethical standards and aim at achieving sustainable growth.

2.13 Internal Control and Compliance

Shahjalal Islami Bank always keeps it in mind the importance of compliance. For this purpose, it constantly reflects its awareness of those requirements. Though these actions it observes all laws and regulations and uphold moral standard in its business practice. Though its compliance functions, it seeks to ensure that internal operating procedures are in accordance with the legal and regulatory requirements that are applicable in banking business.

It’s Internal Control and Compliance Division monitors operating procedure, work flows, risk management, risk control and internal control system. The objectives of auditing are to detect and prevent lapses and irregularities and to restore accuracy. The ethical principles associated with it are the following:

Independence

Integrity

Professional excellence

Confidentiality

Professional attitude

Maintenance of standard

2.14 Information policy

Shahjalal Islami bank pursues a clear-cut policy about information management in the bank. It reports to the shareholders, the regulatory authorities and the public in an open, transparent and timely manner concerning its corporate performance and progress about achievement of goals. Bank holds dialogue with its customers, shareholders based on mutual respect and trust. Annual and half yearly reports are widely circulated. Its website www.shahjalalbank.com.bd media release and Annual General Meeting is instruments which are used for flow of information from the bank. As a listed company, it is committed to timely disclosure and compliance of corporate information.

2.15 Social Responsibility

It is guided by a profound sense of responsibility to the society and to the environment in which it operates. Bank finances in projects which are environment friendly and generate employment opportunities. It has founded ‘Shahjalal Islami Bank Foundation’ to undertake social work. The foundation is making positive contributions in the following areas of social work:

To provide homestead to homeless people.

Self employment support to poor people by way of providing Rickshaw, Rickshaw Van, Sewing Machine, cash for poultry and livestock etc.

Cash assistance to poor people for poverty reduction.

Donations to poor but meritorious students to prosecute learning.

Donations to destitute people to enable them to lead a better life.

Donations to orphans and estranged women to eke out living.

Cash assistance to insolvent fathers to arrange marriage of their marriageable daughters.

Income generating device or cash assistance to destitute women for subsistence.

Assistance for rehabilitation of disabled poor people in the society.

Assistance for rehabilitation of mentally retarded poor people.

Humanitarian aid in natural disasters.

2.16 Nature of Business of SJIBL

The bank in carrying out commercial, corporate, investment and retail banking relates services as follows:

· Corporate Finance

· Correspondence Banking

· Documentary Credits

· Foreign Exchange

· Guarantees

· Syndicated Finance

· Other related Business

2.17 Principal Products/Services:

Shahjalal Islami Bank Limited launched following financial products and services for its valued clients:

· Millionaire Scheme

· Double Benefit Scheme

· Triple Benefit Scheme

· Monthly Benefit Scheme

· Monthly Savings Scheme

· Hajj Scheme

· Cash Waqfo<href=”#_ftn1″ name=”_ftnref1″ title=””>[1] Scheme

· Household Durable Purchase Scheme

· Woman Entrepreneur Investment Scheme

· Scheme for financial Assistance to shop owners

· Small Entrepreneur Investment Program

· Medium Entrepreneur Investment Program

· Housing Investment Scheme

2.18 Discussion on some Products & Services of SJIBL

2.18.1 Double Benefit Scheme

Attractive savings plan under Double Benefit Scheme (DBS) of SJIBL is recently introduced.

Objective:

Double Benefit Scheme can make one’s dream of doubling his/her money within just 6 years.

Some Attractive Features of DBS:

· Account can be opened any time of the month.

· Deposit of TK. 10000.00 or its multiple will be doubled in 6 years.

· The scheme is admissible for any individual (single or jointly) or institution.

· Multiple accounts can be opened in single name.

· Flexibility allows to people and institutions of different income bracket to get advantage of the scheme.

· Deposit is covered by insurance. For accidental death during the tenure of the scheme, Bank will pay Double of the deposited amount to the nominee(s) immediately.

Credit Facility:

Credit/Investment facility of maximum 80% on deposited amount will be available in case of necessity.

2.18.2 Monthly Savings Scheme

Objective:

One’s dreams may turn really through Shahjalal Islami Bank’s “Monthly Savings Scheme”

SJIBL offers “Monthly Savings Scheme” to the general customers with an attractive savings plan. With this scheme one can save on a monthly basis and this will ultimately grow into a large amount of money. The scheme helps you to plan your future in a better way. The gradual growth in the deposit assures increased benefit and peace on mind.

Some Features:

· Any person of 18years age can open account

· Installment size: Tk. 100, 200, 500 and then multiple up to Tk. 50,000.00

· Installment term: 5 year 8 years, 10 years.

· Maximum profit rate is11.20%.

2.18.3 Monthly Income Scheme

Objective

Customer’s carefully built up savings is as important to the as it is to him/her. Shahjalal Islami Bank gives the first priority to the valued customers. The has introduced “Monthly income Scheme” for the customers which will generate a regular monthly income to meet their various needs.

What are the benefits?

· An attractive monthly fixed income.

· Maximum profit rate is up to 12.00 % per year.

· The scheme helps in the family budgetary process.

· It is flexible and will suit people in various income brackets.

· It helps parents with monthly education & other expenses.

· It assists trusts and Foundation that award monthly scholarships/stipends to students.

· Retirement benefit of service holders will yield regular monthly income.

· Wage earners can invest their money with comfort

2.18.4 Triple Benefit Scheme:

Under this scheme the bank provides the customers to triple their money. The customers have to make a fixed deposit for nine and half years, and after that time he/she will get the triple amount than he has deposited at the present time. In this case the maximum benefit rate is 11.62%.

2.18.5 Millionaire Project:

This is the project that the people desire best. In this project the account holder will be a millionaire with in 25, 20,15 or 12 years. This is an exiting product of SJIBL. And the product received a great customer response. The installment policies are:

2.18.6 Hajj<href=”#_ftn2″ name=”_ftnref2″ title=””>[2] Deposit Scheme:

This scheme is beneficial for the people who in tend to go to hajj. This is really a monthly deposit scheme. This scheme can produce maximum benefit of 11.50% per year on the deposited amount.

2.19 Major Investment Projects

Major investment projects of the bank are:

(1) Small Business Investment Project: To finance the small Entrepreneurs this project is introduced. Maximum investment in this project is 1 million taka.

(2) Small Entrepreneurs Finance Scheme: To finance the SME sector. The maximum investment limit is 5.00 million taka.

(3) Medium Entrepreneurs Finance Scheme : To finance the SME sector. The maximum investment limit is 2.50 crore taka.

(4) Housing Scheme: To help the limited incoming people for their housing.

2.20 Merchant Banking Operation

Merchant Banking is a new product of SJIBL .The division is poised to start the full-fledged Merchant Banking activities which include the following:

· Issue Management

· Underwriting

· Portfolio Management

3.1 Market Share<href=”#_ftn3″ name=”_ftnref3″ title=””>[3]

SJIBL’s market share of deposits and investments are small. The banking industry of Bangladesh had a deposits of Tk. 1,440.16 billion (excluding inter-bank and Government deposits) and loans and advance consisting of 4 NCBs, 5 specialized banks 10 foreign banks, 24 private commercial banks and 6 Islamic banks.. SJIBL’s customer deposits stood at Tk. 10.81 billion and TK. 6.92 billion in YE 2005 and YE 2004 respectively. The investments (loans & advances) of SJIBL stood at Tk. 10.59 billion and TK. 7.15 billion respectively during the same period. As on 31st December2006 SJIBL’s customer deposits stood at TK. 14.23 billion and TK.12.80 billion.

SJIBL held only 0.75% of total market deposits and 0.81% of total market investment (loan & advances) on 31st December 2005. However, the growth rate of SJIBL is much higher than that of the overall market growth mainly due to small base effect. The SJIBL’s customer deposits were increased by 56.33% compared to industry growth of 16.56% and PCBs growth of 20.00% in YE 2005 over previous year. During the same year, the investments (loans and advances) of SJIBL were increased by 48.14% compared to industry growth of 19.08% and PCBs growth of 30.00% in YE 2005. As a third generation bank in the private sector with an age of only 5 years, the SJIBL has been growing rapidly though the size of the bank is still small considering its market deposits and investments(loans & advances).

3.2 Operating Efficiency

SJIBL’s operating efficiency is satisfactory. This satisfactory operating efficiency can be evaluated by Net Investment Income Margin (NIIM), operating income, operating expenses, cost-to-income ratio and yield per 100 Taka staff cost. Bank’s NIIM shows noteworthy improvement during the last couple of years. The NIIM of the bank stood at 4.59% (annualized) on 31st December2006 while the same was 3.83% in YE 2005 (Peer average 2.96%) 1.38% in YE 2004 and 3.23% in YE 2003. SJIBL’s operating income shows an increasing trend over the years. Its’ operating income stood at TK.1,056.52 million (annualized) as on 31st December2006 compared to TK. 677.12 million in YE 2005, TK.215.74 million in YE 2004 and TK. 182.54 million in YE 2003. The bank’s Efficiency Ratio (Cost to Income) has improved significantly. As on 31st December2006, bank’s total income stood at TK. 1,056.52 million (annualized) compared to TK. 677.12 million in YE 2005 while its total operating expenditures stood at TK. 212.61 million (annualized) and TK. 175.28 million during the same period. Its cost to income ratio stood at 20.12%, 25.89%, 65.31% and 86.74% as on 30th June2006, in YE 2005, YE 2004 and YE 2003 respectively against its peer average of 33.09% in YE 2005. Bank’s Yield per Tk. 100 staff cost shows notable growth in operating income. It stood at Tk. 875(annualized) as on 31st December2006 against TK. 666 in YE 2005, TK. 140 in YE 2004 and TK. 44 in YE 2003. In terms of costs, personnel expenses were increased to TK. 96.49 million (annualized) in 2006 compared to TK. 75.30 million in YE 2005 representing 28.14% growth. Similarly, other operating expenses were increased to TK. 116.12 million (annualized) in 2006 from TK. 99.98 million in YE 2005.The bank’s personnel expense to average assets ratio stood at 0.61%, 0.62%, 0.66%, 1.08% and 1.63%in 2006, YE 2005, YE 2004, YE 2003 and YE 2002 respectively against peer average of 0.84% in YE2005. Its operating expenses to total average assets has decreased to 1.34% (annualized) in 2006compared to 1.45% in YE 2005 and 1.74% in YE 2004. Over the investment income grabs the larger portion in the total income pie of the SJIBL followed by fee income in 2006. Its share of net investment income has increased to 61.64% in 2006 compared to 60.07% in YE 2005 and 42.93% in YE 2004respectively. The share of fee income has declined to 31.87% in 2006 compared to 32.70% in YE 2005and 43.58% in YE 2004 respectively. The bank’s share of other income stood at 6.49%, 7.23% and13.49% in 2006, YE 2005 and YE 2004 respectively.

3.3 Capitals and Reserve

3.3.1 Capital position up to 2006:

The Authorized Capital of the Bank remained unchanged at TK.2000.00 million as on February 2007. The paid up capital of the Bank rose by TK.1871.65 million as on January 2007 by issuing ordinary shares thorough IPO. The Bank could raise the capital and reserve from TK. 741.696 million in 2005 to TK.2187.288 million in February 2007.

The Capital and Reserve position of the Bank as on 31^ST December, 2006 is appended as follows:

a) Core Capital (Tier-1Capital) Taka in million

Paid up capital 935.825

Statutory Reserve 189.508

Retained Earnings / Loss (164.691)

Total Core Capital 960.642

Chart: 1

Source: Annual Report 2001-2006

3.3.2 Capital Structure in February 2007

The Capital Structure of Shajalal Islami Bank Limited before and after IPO<href=”#_ftn4″ name=”_ftnref4″ title=””>[4] was as under:

1 Capital Structure Prior to IPO

Issued, subscribed and paid up capital 9,35,825,000

2) IPO

a)Initial Public Offer (Non-Residential Bangladeshi) 93,582,500

b) Initial Public Offer(Mutual Fund) 93,582,500

c) Initial Public Offer 7,48,660,000

Total Capital after IPO 1,871,650,000

3.4 Deposits

3.4.1 Growth of Deposit:

The deposit products have been diversified to suit wide range of customers. The accumulated total deposits of the Bank were TK.18090.645 million as on December 31, 2006 as against TK.12, 204.622 million as on December 31, 2005 registering an increase of 48.23%. The budget of the bank is to raise the amount of total deposit to 27,850 million taka by the end of 2007 of which the proportionate budgeted growth up to the February of 2007 is to rise the deposit to 53.95% i.e. 19,359.361 million taka while the actual deposit collection was over performing and actual deposit collection by the end of February of 2007 was 19,601.553 million taka.

The present strategy is to increase the deposit base through maintaining competitive interest rates and having low cost of founds that would ensure a better spread with the lending rate.

Chart 3.2

Source: Annual Report 2001-2006 and Summery of Performance Report on 31.12.2007

3.4.2 Deposit Mix:

The Deposit mix means combination of different types of deposit in the same chart. SJIBL collects different types of deposits from individual and organizational clientele and also from other banks. The deposit mix at the end of 2006 was as:

Chart 3.3

<href=”#_ftn5″ name=”_ftnref5″ title=””>[5]

Source: Annual Report 2001-2006 and Summery of Performance Report on 31.12.2007

From Chart 3.2 it is clear that there is a negative correlation of Bank deposit flow with core deposit flow, with the growth of time the core deposit is increasing while the reverse situation exists for the bank deposit, though the total deposit is increasing. Chart 3.3 says that the major portion of the banks deposit comes from term deposit.

3.5 Loans and Advances

In 2006 and early 2007 Shahjalal Islami Bank Limited registered phenomenal growth in the credit portfolio. Because of visionary policy of the Bank management, loans and advances had increased by 46.51% than that of the previous year. The loans and advances of the Bank stood at TK.15, 515.788 million as on December 31, 2006 as against TK.10, 590.271 million in the previous year. The growth as achieved has been possible due to support and patronage of the customers. The Bank’s policy for the year was to expand the credit portfolio in the export oriented industries and the result of this policy is well reflected in the export business of the Bank (registering around 79.22% growth i.e. TK.4,987.030 million as compared to TK.6,294.906 million of the previous year). The budget of the bank is to raise the amount of total investment to 24350 million taka by the end of 2007 of which the proportionate budgeted growth up to the February of 2007 is to rise the amount to 56.94% i.e. 16664.236 million taka while the actual deposit collection was over performing and actual deposit collection by the end of February of 2007 was 15549.475 million taka. And the budget for the first two months of 2007 was achieved up to 93.31%.

The credit portfolio of the bank is well diversified having a balanced mix covering a wide spectrum of business and industries including readymade garments, textiles and spinning, telecommunication, pharmaceuticals, steel & engineering, ship scraping, cement, edible oil, real estate, education, transport etc. The Bank also expanded its financing to the small enterprise& consumers under consumers credit schemes for acquiring various household items. Moreover, in order to help the poor segment of people of the society, the Bank extended its financial assistance to NGOs for onward finance to the poor people.

The Bank has implemented the CRM policy as per guidelines of the Central Bank and segregated the Loan Approval Department from Credit Marketing Department. We have separate units at Credit Division of Head Office for handling Garments Industry, Syndication Loans, Project Financing, Loan to Small Enterprise& Consumers etc. to ensure due diligence and expedite the decision making process.

3.5.1 Sector-wise Classification of Investment:

SJIBLmakes a well mix of investment horizon. It invests in almost all profitable sectors. To make well diversified mix of investment and to reduce risk it is necessary. The sector wise classification of investment is given as bellow:

Chart 3.4

Source: Annual Report 2006

From the analysis it is revealed that the bank invests the greatest percentage of its investment to miscellaneous sectors like Personal, car home appliances etc loans, in 2006 it was 3963.044 million which was 31% of total investment. And the second largest amount goes to the cotton & textile sector; in 2006 it was 2026.725 million which 16% of total investment was.

3.5.2 Investment other than loans and advances:

The investment portfolio of the bank during the year 2006 was Tk.1105.236 million against Tk.579.179 million in the previous year registering a growth of 52.04%. The portfolio of investment included Government Treasury Bills & securities, Moradabad, Bai-muajjal, Bills purchased & discounted etc. The bank has always given importance on investment of Funds in high yield areas simultaneously maintaining Statutory Liquidity Recruitments (SLR) as fixed by Bangladesh Bank.

Chart 3.5

<href=”#_ftn6″ name=”_ftnref6″ title=””>[6]

Source: Annual Report 2006

3.5.3 Growth in Investment-2001-2007:

The investment of the bank in different sectors is making a great way to the success of the bank’s goals. The accumulated total investment of the Bank was TK.15515.788 million as on December 31, 2006 as against TK.10590.271 million as on December 31, 2005 registering an increase of 46.51%. The budget of the bank is to raise the amount of total investment to 24350 million taka by the end of 2007 of which the proportionate budgeted growth up to the February of 2007 is to rise the amount to 56.94% i.e. 16664.236 million taka while the actual deposit collection was over performing and actual deposit collection by the end of February of 2007 was 15549.475 million taka. And the budget for the first two months of 2007 was achieved up to 93.31%.

The present strategy is to increase the investment base through maintaining competitive interest rates and having low cost of founds that would ensure a better spread with the lending rate. The flow investment of the bank over the period was as follows:

Chart 3.6

<href=”#_ftn7″ name=”_ftnref7″ title=””>[7]

Source: Annual Report 2001-2006 and Summery of Performance Report on 31.12.2007

3.5.4 Investment to core deposit ratio:

The investment to core deposit ratio represents how much of the core deposits were invested to earn by the bank. The ratio of the bank was fluctuating over time. In recent times, it is seen that, the ratio was declining. It happened for lack of proper investment opportunities and rise in banks’ lending rate. The trend of the ratio is as follows:

Chart 3.7

<href=”#_ftn8″ name=”_ftnref8″ title=””>[8]

Source: Annual Report 2001-2006 & Prospectus for IPO

The investment to core Deposit Ratio is fluctuating over time. In 2001 it was 41.79% and in the immediate next year it raised up to 95.75%. After that the fluctuation continued still now.

3.6 Number of Accounts

The number of clientele of the bank is increasing day by day with the expansion of the bank’s services and operation. The number of bank account was as under:

3.6.1 No. of Deposit Accounts:

The No. of deposit Accounts of the bank increased overtime. The trend for the same is shown in chart 3.8

Chart 3.8

Source: Annual Report 2001-2006 and Summery of Performance Report on 31.12.2007

The deposit products have been diversified to suit wide range of customers. The total deposits account of the Bank was 92977 as on December 31, 2006 as against 54775 as on December 31, 2005 registering an increase of 69.74%. The budget of the bank is to raise the amount of total deposit accounts to 165000 by the end of 2007 of which the proportionate budgeted growth up to the March of 2007 is to rise the accounts to 77.46% i.e. 107382 while the actual deposit collection was over performing and actual deposit account opened by the end of March of 2007 was 1, 06,138.

3.6.2 Investment Accounts:

The bank with the span of time is increasing over time. As it increased its investment horizon the investment account also increased. A chart showing the change is as under:

Chart 3.09

Source: Annual Report 2001-2006 and Summery of Performance Report on 31.12.2007

The investment schemes have been diversified to suit wide range of sectors. The total investment accounts of the Bank was 7870 as on December 31, 2006 as against 5889 as on December 31, 2005 registering an increase of 33.64%. The budget of the bank is to raise the amount of total investment accounts to 14000 by the end of 2007 of which the proportionate budgeted growth up to the March of 2007 is to rise the accounts to 77.89% i.e. 9096 while the actual investment was over performing and actual deposit account opened by the end of March of 2007 was 8558.

3.6.3 L/C Account:

L/C Account is one of the most important instrument profit making activities of a bank by dealing in foreign exchange for the customers. And it helps the bank a great much to reach its goals. The deposit account volume of SJIBL on 31.12.2006 was 5,613 which was 25.18% more than that in previous year. It reached at the amount of 1,446 in March 2007. The trend was as:

Chart: 3.10

<href=”#_ftn9″ name=”_ftnref9″ title=””>[9]

Source: Annual Report 2001-2006 and Summery of Performance Report on 31.12.2007

3.6.4 Export Bill:

Export Bill is one of the most important instrument profit making activities of a bank by dealing in foreign exchange for the customers. And it helps the bank a great much to reach its goals. The deposit account volume of SJIBL on 31.12.2006 was 2099 which was 49.54% more than that in previous year. It reached at the amount of 1,734 in March 2007. The trend was as:

Chart-3.11

<href=”#_ftn10″ name=”_ftnref10″ title=””>[10]

Source: Annual Report 2001-2006 and Summery of Performance Report on 31.12.2007

3.7 Profit paid on deposit

The bank pays a very significant amount of profit on deposit. The amount paid in this regard by the bank was as under.

Chart 3.9

<href=”#_ftn11″ name=”_ftnref11″ title=””>[11]

Source: Annual Report 2005-2006

In 2005 the bank paid profit of tk. 860.233 on deposit which wasTk. 590.375 million of profit on deposit in 2006. The total profit paid on deposit by SJIBL decreased by 31.37%.

3.8 Investment Profit Receipts

Bank receives a large amount from the investment profit, which is the main mean of the banks’ income. SJIBL’s receipts, in the recent periods were as under:

Chart 3.11

<href=”#_ftn12″ name=”_ftnref12″ title=””>[12]

Source: Annual Report 2005-2006

3.9 Classified Investment up to 28 February 2007

Classified investment means the investments those are neither repaid within the specified loan term nor became due for such a period so that those can treated collectible.

Chart 3.12

<href=”#_ftn13″ name=”_ftnref13″ title=””>[13]

Source: Summery of Performance Report on 31.12.2007

3.10 Asset Liability Management

The Asset Liability Committee (ALCO) at Head Office routinely analyzes and closely monitors the Balance Sheet gap of the bank on monthly basis. The Asset Liability Management (ALM) Desk of Treasury Department prepares monthly ALCO paper as per the guidelines provided by the Focus Committee formed by Bangladesh Bank. Emergency ALCO meetings are also arranged to address any crisis situation as & when it appears.

During the year 2005, both the local and foreign currency markets were very volatile. The committee prudently monitored interest rate risk, liquidity risk, and exchange rate risk and maturity gap of assets and liabilities of the bank during the year. By doing so, the bank was able to maximize its profitability and maintain enough liquidity both in Local Currency and in Foreign Currency. The committee also monitored its policy of strict compliance of CRR (Cash Reserve Requirement) and SLR (Statutory Liquidity Requirement) with Bangladesh Bank.

The Asset Liability Management (ALM) Manual of the Bank is approved by the Board of Directors. The Board of Directors of the Bank periodically reviews the overall Asset Liability Management of the bank.

Chart 3.13

Source: Annual Report 2001-2006

The Asset and Liability position is growing over time. Both of these have significant implication on the success of the bank. And as fou