The Standard Measurement Of The Non Conventional Financial Services Of Southeast Bank Ltd. From The Customer’s Point Of View.
CHAPTER ONE: Orientation To The Report
The objective of this research paper has been divided into two sections. In the first section, the objective is to analyze the whole organization and the industry itself the strengths, weaknesses and opportunities and threats will be analyzed. It has provided an in depth analysis about the whole organization including its various departments and identified the existing problems. The second section of this paper is the main part or the project part, in which the report has been done. As we have chosen the topic, in the second part we will try to measure the financial services provided by Southeast Bank Ltd. Then the objectives of the study in this project will he as follow:
Identifying each of the non-conventional services available at SBL in its all three departments,
(1) The general banking division
(2) The credit department and
(3) The foreign exchange or the export import department.
Explaining the overall function of all the three departments first. Describing the procedures and provisions of each of the services available At SBL.
After analyzing each of those services a number of criteria’s will be procured from each of them, which will virtually express the pros & cones of each of the services as well as quality.
Each of the criteria of the service will be graded in a 4 point scale and after that, the average of all the criteria’s grade point will be taken. The average grade point will be considered as the grade point of that particular financial service.
In order to grade the criteria’s of each of the services, sample survey will be done by inviting the clients to fill up the sample survey forms of the particular services. Five sample clients will be taken to grade the criteria’s of each of the services.
The 4.00 point scale will be divided into three categorical ranges, “standard”, “average standard” and “below standard”.
After grading all of the non-conventional services, it will be found that, which service falls under which category, means “standard”, “average standard” or “below standard”.
The findings of the report will be evaluated through two methods; one is observing the percentage of the “standard” or non “standard” and the other is the “t”—test method.
Formulating recommendations for the both, for the non “standard” to make them “standard” and for the “standard” to make them more “standard”. Finally giving the conclusion of the report.
This report has been provided a brief orientation about the organization SBL and then the project part of this report has analyzed all of the services provided by the SBL and the quality of those services has been also measured through grading by the sample clients in a 4.00 point scale.
As we tried to measure the quality of the services at SBL, then very first we required the data about the procedures and provisions of various non-conventional services of SBL. In order to get those we had to mostly rely on the secondary source of information. The secondary source was also useful for getting many of the organizational data of SBL. Among the secondary source, the annual report book, the credit operational manual, the banking manual, some report profile and instruments at the branch and I-I/O was very useful. But not all the data about the organization SBL and it’s services were found from the secondary source, then we had to rely on the primary source of information. Not only that, the main function of this report was taking the sample survey of the clients of the Bank, which was the part of the primary source of information. Through the sample survey, the clients were asked to grade the non-conventional services of SBL as well as giving their comments regarding the criteria’s of the services. The other way of primary source would be the perception and brainstorming of the writer (me) of this report, because he had to evaluate the report findings, formulate recommendations and finally had to give the conclusion of the report.
CHAPTER TWO: The orientation to the organization Southeast Bank Ltd.(SBL).
2.1 The Emergence of SBL:
-A Global Context
As already mentioned earlier, SBL emerged at a crucial juncture when Bangladesh was undergoing through economic reforms and trade liberalization according to the Uruguay Round Agreement. The experience of the East Asian Economies, especially South Asia has been the driving force that led to the establishment of Southeast Bank Ltd. (SBL). The company’s philosophy ‘ A Bank with Vision” has been prescribed with the essence of the legend of the Asian success.
2.1. a Economic Background:
In 1995, the world economic growth rate stood at around 3%. Trade liberalization, economic reforms and prudent management of macro economic fundamentals led to the highest growth rate of around 7.5% in Asia in 1995. The free movement of capital provided the Asian economies an opportunity to accelerate growth by attracting Foreign Direct Investment (FDI). Unfortunately, the Least Developing Countries (LDC)’s of Asia like Bangladesh failed to attract the foreign investors. In 1995 there was a mixed trend in the economy due to the combined effect of Financial Sector Reform Program (FSRP), tax reforms and trade liberalization. At the same time there was a great deal of political instability and deep apprehension among the, hat jeopardized the growth rate, and investment in the country. Moreover, trade liberalization exposed the country to fierce competition and lead to closure of several local enterprises. Despite these limitations, the country achieved a GDP growth rate of 4.4% in 1995. Though inflation was low, but it had a moderate increase due to the credit expansion in the domestic economy. Under the FSRP, the financial sector has been streamlined with introduction of more reform, new regulatory measures, relaxation and other measures. These are flexible deposit and lending rate policy with in a prescribed band, replacing capital to liabilities approach in assessment of capital adequacy by linking to asset and establishment of Credit Information Bureau (CIB) for customer information. Exchange control restrictions were relaxed and Taka was made fully convertible on the current account. Therefore, considering the world economic trends and the performance of the Bangladesh economy, SBL has emerged at a crucial time when the domestic economy was being exposed to competition and liberalization. As a result, since its inception SBL has been competing against the rising foreign and local competition to establish a firm footing in the banking industry of Bangladesh
2.2 SBL At A Glance:
As already mentioned earlier, SBL was incorporated as a public limited company on March 12, 1995 and commenced banking operations on May 25, 1995. It has been incorporated with an authorized capital of Tk. 500 million and a subscribed capital of Taka 10 million. The bank has been sponsored by a group of eminent business personalities headed by Mr. M.A. Kashem as the chairman of the Board of Directors. The bank management team is lead by Mr. Sayed Anisul Haque as the CEO of the organization. He is supported by Mr. Shah M. Nurul Alam as the Deputy Managing Director (DMD) of the bank. Currently the bank has ten branches in operation located in strategic areas of the country. A list of ten branches accompanied by their addresses is listed below:
2.2.a Corporate Headquarter
1, Dilkusha C/A, Purbani Annex Building, 3rd floor, Dhaka.
• Principal Branch:
1, Dilkusha C/A, Dhaka.
163/2 Mitford Road, Dhaka.
• Bangshal Branch:
14/3, North South Road, Dhaka.
• Gulshan Branch:
Gulshan Avenue, Dhaka.
• Agrabad Branch:
59, Agrahad C/A, Chittagong.
• Khatunganj’ Branch:
410-41 1, Khatunganj, Chittagong.
• Jubilee Road Branch:
96, Jubilee Road, Chittagong.
• Laldighirpar Branch:
New Market, Laldighirpar, Sylhet.
• Mouivi Bazar Branch:
124/I, Central Road, Moulvi Bazar.
• Khulna Branch:
• Dhanmondi Branch
• Kawran Bazar Branch
• Uttara Branch
• Mirpur Branch
2.2.1, Notes To The Accounts:
Legal Name: Southeast Bank Ltd.
Address: Corporate Headquarter
1, Dilkusha C/A, Dhaka-1000.
Phone : PABX 95500S1-5
Fax~ 880-2- 9550093
Type of Business: Commercial Banking
Date of incorporation: March 12, 1995
Date of commencement: May 25, 1995
List of all Facilities: Refer list of branches
Status of company: Public limited company. (IPO to be issued)
Authorized capital: Tk. 500 million
Paid up capital: Tk. 200 million
Subscribed capital: Tk. 1 00 million.
Financial Adviser: A. K. M. Gaffar
Auditor: M. J. Abedin & Co.
Karim Chamber, 99, Motijheel C/A, Dhaka
Company Secretary: A.K. Qureshi
2.3 List Of Executives And Officers With Hierarchy At SBL:
SBL has a total number of 358 employees which includes both officers and staffs in its headquarters and ten-branch countrywide. The lists of officers with their designations are given below:
Name Of The Designation In Number
• President & Managing Director 1
• Deputy Managing Director- 1
• Senior Executive Vice President- 1
• Executive Vice President- Currently Vacant
• Senior Vice President- 4
• Vice President – 7
• First Vice President – 1
• Asst. Vice President- 11
• First Asst. Vice President- 6
• Staff Officer- 17
• Senior Executive Officer- 24
• Executive officer- 6
• In Probation 20
• Officer- 15
• Junior Officer – 8
• Asst. Officer – 35
• Trainee Asst. Officer- 20
Support Management Staffs
• Apprentice Assistant
• System Operator
• Computer Operator
• Telex Operator
• Organizational Support Staff (Messenger)
• Security guard
Cash Department :
• Head teller
• Teller. Grade 1,2, 3
• Teller Apprentice
2.3.a Organizational Layout of SBL:
The Corporate Headquarter of Southeast Bank has nine major divisions and each comprising of various departments. The major divisions in the headquarter are as follows:
• Credit Services Division
• Credit Administration
• Financial Control & Electronic Data Processing
• General Services
• Human Resource Development
• Research & Development
• Branches Control Division
• International Division
• Company Secretary’s wing
2.3.b Branch level organizational layout:
The ten branches of SBL have the type of organizational structure. Each branch has three departments namely:
• General Banking
• Credit Department
• Trade Finance (Foreign Exchange) Functions of branch level departments:
As already mentioned earlier, the branches of SBL have three departments. The functions and activities of these branch level departments are discussed below:
• General Banking:
This department is the retail department of the bank that provides personal services to the retail customers. Major services provided in this department are deposits and withdrawals, remittance of foreign and local currencies, new account openings, purchase of foreign currencies, and purchase of various types of savings scheme such as Pension Savings Scheme, Paribarik Shanchay Patra (Family Savings Scheme) and selling of other Government savings bonds or certificates. The head of the General banking division is the Operations Manager who looks after the whole department as well as the bank. The cash wing, which is headed by a head teller, is also under the Jurisdiction of the General Banking Department.
• Credit Department
This is yet another key department in the branches particularly in the major or active branches. This department provides all sorts of credit facilities to the customers of the bank. As already mentioned earlier, services are only provided to the account holdets of SBL. The major services of the Credit Department includes providing Overdraft Facilities, Work order contract loans, time loan, term loan, project finance, Syndicated loan, Consumer Credit Scheme, Bank Guarantee and other services. The head of this wing is the Credit In-charge, who is responsible for the functioning of this department. He is in turn assisted by staff officers, Senior Executive Officers (SEO)’s and Probationary Officers.
• Foreign Exchange:
Though the name sounds buying and selling of foreign currencies, but actually it is the trade finance department of the branch. This department provides services regarding financing of international trade to its customers. Financing can be in terms of both funded or nun funded facilities. Major types of services include financing of Letter of Credit, (non funded), Bills against Letter of Credit (BLC), Loan against Trust Receipt (LTR), Loan against imported Good (LJM) and other services. This is another major department that earns a lot of revenue for a bank. The trade finance department is headed by the Foreign Exchange In-charge who is responsible for the proper functioning of the bank. He is in turn assisted by other officials of the department.
• Office of the Head of the Branch:
This is not a department but this is the office of the top executive of a branch. The HOB is the chief officer of the branch and is responsible for the whole activities of the branch.
2.3. c Information on key Employees:
The top management of SBL is comprised of group of eminent bankers with strong skills and proven track record of professional management. The top management who are associated with founding of the bank and involved during the inception process played a crucial role toward the establishment of the bank. Under their dynamic leadership and efficient management SBL has already established a firm footing in the financial sector of Bangladesh particularly among the new comer banks of 1995. The president and Managing Director of the bank, Mr. Sayed Anisul Haque, is a career banker and have an excellent reputation in the banking sector of Bangladesh. He was previously associated with AB Bank where he served as the Executive Vice President (EVP). He joined SBL since its inception and has been leading the organization with great competence.
Under his dynamic and able leadership, SBL has achieved remarkable success and he is directing the path of SBL as it embarks in to the new millenium.
Another top executive of the organization is Mr. Shah M. Nurul Alam, Deputy Managing Director of SBL. He has also earned excellent reputation in the banking field of Bangladesh and enjoys a proven track record of excellent managerial skill. He was previously associated with AD bank and joined SBL since its inception as Senior Executive Vice President (SEVP) and very recently he has been promoted to the office of the DMD.
The other key executives like SEVP, SVP’S, and VP’s come from different banks with a pool of various managerial and banking skills each contributing toward the growth and development of the organization. The top executives come from various banks such as AB Bank, BCCI, Uttara, Al- Baraka, Mahreq Bank, NCCBL and other leading banks of the country.
2.3. d Human Resources Policies and Practices:
• Recruitment and Employee Benefits:
The service rule of SBL states the recruitment policy of the bank. In general, the Board of Directors determines the recruitment policy of the bank from time to time. The minimum entry-level qualification for any official position other than supportive management is a Bachelors degree. However, informally the management prefers a minimum of master’s degree for the appointment of probationary officers in the Executive Officer position. Employees who are appointed in the entry level positions and having no prior banking experience and selected through direct recruitment are put under a two years probationary period. However, there has been some recent changes In the policy regarding the recruitment of probationary officers. According to the revised policy, the probationary period for MBA’s would be six months, BBA’s would be one year and all other discipline holders would have a probation period of two years. I revised recruitment policy is a part of the organization’s plan to recruit more MBA giving preference to MBA in order to build up a management team comprising competent MBA’s to lead the organization in future. After a successful completion of the probationary period, a probationary officer is eligible for job absorption and is confirmed to the designation for which he or she applied. During the time of confirmation, the employees records are scrutinized and the direct supervising officer prepares a report of performance appraisal and it is sent to the competent authority for decision and approval.
• Recruitment Process:
The recruitment for entry level positions begin with a formal written test which is conducted and supervised by the Institute of Business Administration (IBA), University of Dhaka. The written test is very close to the Graduate Management Admission test (GMAT) and in addition to this, it also comprises of analytical and descriptive type questions. After successful completion of the written test, a personal interview is conducted for the successful candidates by a panel of experts comprising of renowned bureaucrats and prominent bankers of the country.
2.3.e Employee benefits and Facilities:
• Provident fund:
According to the service rule of the hank, all permanent and confirmed employees of the bank automatically become contributors of the company’s provident fund. Each employee contributes a fund that is equal to 10% of the basic salary. The bank shall contribute to the fund monthly an amount equal to the contribution of each member.
• Superannuating Fund: Death/Survival Benefit:
The death cum survival benefit will be allowed to the employees of the bank on their nominees or legal heirs under the following hierarchical positions of the employees.
• Festival Bonus:
All regular employees of the bank including the probationary officers and temporary officers are entitled to festival bonus for Eid ul Fitr and Eld ul Azha.
• Incentive Bonus:
The Board of Directors of SBL at its discretion may decide to provide incentive bonus to the employees depending upon the profitability of the bank. All regular officers including the probationary officers and temporary officers will be entitled to the incentive bonus on daily bonus proportionately. Bonuses will not be entitled for the employees who have resigned or placed upon suspension or on disciplinary action.
An employee will be paid honorarium @ Tk. 5000 and Tk. 7500 for passing the Banking Diploma Part One and Part Two examinations respectively.
• Staff Loan:
For enhancing the quality of life for the SBL executives, the management provides a staff loan to its executives ranking from FAVP. Under the staff loan scheme, car loans are provided to bank executive at a favorable rate, A staff house-building loan is also under the scheme but not implemented yet as stated in the service rule.
• Risk Allowance:
Employee’s working in the bank’s cash department as Head Teller, Teller and Teller trainee shall be allowed a risk allowance @ Tk. 1000 for Plead Teller, Tk. 750 for the senior Teller and Tk. 500 for Teller and Teller and Teller Trainees only per month in consideration of the risk factor involved in handling cash.
• Gash Incentive:
As a part of being company’s program in being a part of employee’s personal life and making a positive contribution, the management has decided to provide a cash bonus of Tk. 15000 to the employees who are expecting a child. The cash bonuses will he provided only for two children.
• Employee Vacations/ Paid Holidays:
There are several types of paid vacations that are offered by the management for the employees:
• Casual Leave:
A casual leave is a leave of absence for a very short period of time that may be unable to attend office during such period due to urgent private matters or sudden illness. An employee will be entitled to enjoy a casual leave often days in a given year.
• Privilege Leave:
Every employee shall earn a privilege leave on full pay after completion of one year service ~ 1/13 Th period spent on duty i.e. I day for every 13 days of duty. A maximum of 180 days privilege leave can be accumulated.
• Sick Leave:
An employee shall be entitled to enjoy the sick leave up to a maximum of 14 days in a given year. The leave can be availed only on submission of required medical documents.
• Quarantine Leave:
Quarantine leave may be granted by the competent authority for not attending office for a period of 10- 15 days on recommendation of a qualified practitioner.
• Maternity Leave:
The female employees of the bank are entitled to a maternity leave for period of six weeks at a time including pre-natal and post-natal with full salary & other benefits.
• Extra Ordinary Leave:
Extra Ordinary leave can only be granted to an employee when no other leave is admissible. The duration of extra ordinary leave shall be regulated so that the period of total leave does not exceed 360 days.
The Board of Directors shall grant gratuity to an employee of the bank and in the event of his/ her death while in service of the bank to his/her nominee or legal heirs. The eligibility for gratuity to an employee will depend on the service records and if the management considers his/her service to be good, efficient, sincere and faithful.’ All employees who have completed a minimum service of five years with the bank will be entitled to one month’s basic salary for each completed year of service to be calculated upon last pay drawn immediately proceeding the date of his/her ceasing to be in the service of the bank.
• Social Functions & Recreations:
The management of SBL arranges various types of social functions for recreation purposes of the employees and their family members. Major social functions include Annual Picnic, river Cruise, Cricket match with major corporate clients and other events. These programs are chalked out to create a healthy relationship among the employees as well as with the top management. It also adds a new flavor and dynamism to the existing day to day banking life of an employee.
The corporate headquarter and the Principal Branch are located at 1, Dilkusha C/A, Purbani Annex Building, Dhaka. The Principal Branch which has a floor area of approximately 5000 square feet and has two floors. The rent for the principal branch is Tk. 1,16,010 per month. The first floor of the branch houses the Retail banking facilities of the bank. Over here, the cash counters, account-opening booth, foreign and local remittance section, savings scheme section and the computer division are located. It also houses the Office of the Operations Manager who heads the General Banking Department. In the retail section, there are four counters and one exclusively for Grameen Phone Bill collection. The re is also a strong room where the volt is located. At the same time, there is also a storeroom used for the storage of important documents. The second floor of the branch accommodates the Credit Department Foreign Exchange Department, Accounts, Clearing and Guarantee sections. The second floor also accommodates the Office of the Plead of the Branch
As already mentioned earlier, SBLts Principal Branch is the main branch of the organization and considered to be the busiest branch of SBL. As it is located in the downtown of the city, the Principal Branch of the bank has now become the huh of all sorts of commercial activities. In this branch, during the peak hours, the retail counters can usually accommodate approximately fifty customers at a comfortable pace. However, during the extreme rush hours, particularly when the time for Grameen Phone bill collection arrives, the whole retail area gets crowded and the queue of customers even gets out of the of lice and extends as Fir as the main gate of Purbani Hotel. However, there are several drawbacks involved in the facilities and layout of the Principal Branch of SBL. First of all, it was not a wise decision to choose the present site as the location for Principal Branch. It is wide]y known that the Principal Branch is the main branch of a bank and therefore it is always the busiest branch of any bank. Therefore, the Principal Branch should always be spacious and have adequate space for expansion. At the present site of SBL’s Principal branch, the office is heavily crowded. There is no space for seating arrangements. Most important is that there is a severe shortage of storage facilities as the existing storeroom is not sufficient for storage of bank goods and documents. As a result, things are piled up in trunks and put in front at the second floor. This tarnishes the outlook and view of the branch. It is expected that the branch will become busier in the coming days and in the next five years if things does not change Principal Branch of SBL would look no better than the traditional banks of the country. Therefore the management choice in establishing the Principal branch here was not correct and very soon the branch has to move from its present site, as it will not be able to take the load.
The situation is also similar at the Head Office. It also lacks adequate space and storage facilities. The head office is over crowded and very small space for making seating arrangements. As the bank is expanding, the current floor space at the head office is getting extremely inadequate and immediately requires expansion.
2.4 Products Of SBL:
Being a new bank, SBL provides a variety of services to its customers. Throughout its three major departments in the branches, there are several services that are offered to the customers. The major services of the bank are listed below:
2.4.a Funded services:
• Cash Credit
• Over Draft
• Time Loan
• Term Loan
• Export Cash Credit
• Real Estate Loans
• Syndicated Loans! Project Loans
• Consumer Credit Scheme
• Bills under Letter of Credit
• Loan against Trust Receipt
2.4. Non funded services:
2.4.c Fund Generating Services.
• Current Deposits
• Savings Deposits
• Fixed Deposits
• Short Term Deposits
• Dearer Certificate Deposits
2.4. d Commission based services:
• Domestic Bill collection
• Foreign Bills Purchase
• Pay order
• Foreign Exchange transaction Demand draft
Like all other industries, the banking sector of Bangladesh is also under the grip of seasonally factors. Similarly, SBL also have some Seasonality trends that affect the banking operations. According to competent sources of the bank, the seasonal characteristics of the banking services depend upon several festivals of the country. There is a tremendous withdrawal spree by the depositors during the Eid ul Fitre and the Eld ul Azha since during this time general people need cash in hand to purchase various commodities, payment of Zakat and buying of sacrificial animals. Therefore both small and medium depositors withdraw certain amount of money during the two religious festivals. Banks are also under tremendous pressure during the pre-Eid days and many banks borrow money from other banks or other branches as cal] money loan to finance any short fall in the cash reserves in order to honor the depositors claim. Another major seasonal characteristics is the annual closing of 3 I’ December. Each year during the annual closing there are some withdrawal sprees as many depositories withdraw cash to meet personal or financial requirements. During this time banks have to deal with the withdrawal spree and many banks practice “Window Dressing” by showing fictions deposits. On the other hand, there are some inflows of deposits during the annual closings. Bank officials’ frantically try to attract deposits in order to meet the stipulated targets. Therefore bank officials try to attract various depositors with lucrative offers and services.
2.5 External Factors That Affect SBL:
There are several factors that affect the product pricing strategy of any bank. These factors are mainly external factors, which has to be taken in to consideration while designing the pricing strategy. Some of the external factors that affect the pricing strategy of SBL are discussed below:
2. 5.a Bangladesh Rank policies and circulars:
Like all other countries, the banking services are guided and regulated by the Central bank. Similarly, the guidelines and instructions of Bangladesh Bank heavily influence SBL’s pricing strategies. Bangladesh Bank determines the band for interest rate variation for both lending and deposits. The commercial banks operate with in the stipulated hand of interest rate as prescribed by Bangladesh bank. Therefore, SBL can not charge any absorbitant interest for its depositors and borrowers.
2. 5. h Credibility and Customer—Bank Relationship:
This is another important pricing factor in designing the pricing strategies of the bank. Although, there are some prescribed policies on interest rates set by the Bangladesh Bank and as well as by the SBL management, but in practice the bank can charge various interest rates to its different types of clients. This depends upon the credibility of the client and the bank-customer relationship. If the customer has a good credit report and maintains a good banking transaction with the bank, then that customer would get a favorable interest rate from the bank. This particularly happens with the corporate clients of SBL. The different types of corporate clients are getting different types of interest rate depending upon there past performance and credibility. This is practiced in order to survive in this tremendous era of competition and so it is very important to attract and retain the corporate clients. Many corporate clients of the top 20 customers of SBL are provided this preferential rate.
2.5.c Macro Economic Conditions:
The financial institutions are always heavily influenced by the macro economic conditions both globally, regionally or locally. The key macro economic indicators like GDP growth rate, inflation, industrial growth rate, expansion of trade and commerce and other factors affect the operations and the pricing strategy of the bank. SBL, since its inception has achieved a steady growth rate. However the present economic downturn or recession is affecting SBL’s operations. The country is now under a deep recession having a major decline in industrial growth rate, galloping inflationary pressure, decline in international trade with export targets for the fiscal year yet to be achieved and other factors will eventually affect SBL and other banks pricing strategies. Many banks will have to revise the interest rate structure for its various services in order to cope with economic slowdown. However, first quarter results for SBL’s Principal Branch is quite satisfactory as they have surpassed their stipulated targets despite the economic sluggishness going on in the country.
2.6 The Product wise Breakdown Of SBL:
The consolidated statement of affairs or the Balance Sheet of SBL reveals important information regarding the breakdown or product wise classification in the sales of composition. The most recent available data as on 3 1 st December provides the following breakdowns:
• Deposit composition:
Demand Deposits: Tk. 591, 814, 954.03
Savings Deposits: Tk. 275,739,578.65
Time Deposits: Tk. 2,493,721,004.86
• Loans & Advances:
Time Loan: Tk. 354,198,962
Term Loan: Tk.408, 594,395
Consumer Credit Scheme: Tk. 59,539,390
Over Draft: Tk. 1,041,346,046
BLC: Tk. 342, 460, 699
LJM: Tk. 2,988,891
LTR: Tk. 384,606,162
Staff Loan: Tk. 4,160,700.99
• Non – Funded Facilities:
Guarantee: Tk. 319,325,552
L/C Import: Tk. 847,449,011
L/C Export: Tk. 32,963,412,34
2.6. a Product Coverage Areas:
The various type of SBL products include providing General Banking services to various types of customers, credit facilities such as Term! Time loan, Working capital financing, Industrial financing, Trade finance, Consumer Credit scheme and other services. It should be mentioned that SBL does not provide ant services in the financing of agri products.
2.6.b Sales Method:
It has been mentioned earlier that SBL pursues a selective banking strategy in its process of carrying out banking operations. An individual without having an account in the SBL is not provided any banking services. At the same time there must be an introducer from the bank before opening an account. Deposits are attracted to the bank through a process called “Deposit Hunting”. The officers of the bank are sent to different clients as well as individual clients through their own network or channels. As far as the loans and advances are concerned, SBL also pursues a selective banking strategy. They are not offering their services to a wide ran2e of C½Storn.ers In fact. unofficially every one not able to SBL’s
loans and advances. A majority of the loans and advances have accessible to SBL’s loan and advances. A majority of loans and advances have been provided with in a group of customers who are sonic how related or known to the sponsors or the top executives and senior bank officials. In this way they try to make their portfolio secure and make it easier for them to recover the loan from the client as he or she is known well to the management. Therefore, SBL’s selling strategy is quite conservative and in ward looking and services are only provided to the clients chosen on a selective basis. In fact most of the top-notch corporate clients of SBL has been brought to this organization trough the network of the sponsors and the top management. However, the problem is that as they bank is expanding, this type of conservative selling strategy might not work in attracting the required number of clients to the bank.
2.6. c Sales Incentive Program :
Since SBL does not have a separate wing of sales department, the officers of the bank have to directly sell their services to the customers. There is no prescribed set of policy about the sales incentive at SBL. However, officers are motivated to attract depositors and borrowers to the bank and this is recorded in the appraisal or personal record of the employee, which in turn adds a positive attribute of the employee to the management. In the future, it is expected that the concerned officer may have a better chance of career progression and development in the organization.
2.6. d Advertising & Sales Promotion:
This is one of the weakest areas at SBL where the management does not put much emphasis on it. SBL does not pursue an aggressive marketing
and advertising campaign, which would bring the organization to the limelight. Rather, the management maintains a low profile about the organization and preferring to consolidate position. Therefore, other than opening new branches, SBL does not run any commercials in any of the media] of Bangladesh. Currently, SBL has only one attractive billboard in the city at the Farm Gate over bridge. This neon sign has greatly exposed the bank to the general public and many people are now aware about this organization. However, this is not enough. Another indirect method of public relations or promotion is the branch manager’s conference of SBL. Though officially it is a program where the top management get in touch with the branch managers located through out the country. This acts as a major forum for interaction between the top management and the branch managers. However, the outcome of the branch managers conference is published in various newspapers and this a!so acts a as a promotional tool for the bank. SBL does not have any frequent publicity releases and they don’t promote their image with the advertising platform ‘ A Bank with Vision”.
2.6. e Legal aspects affecting Southeast Bank:
As already mentioned earlier, SBL commenced its operations on May 25, 1995 as a scheduled bank as licensed by the Bangladesh bank. The bank was incorporated with an authorized capital of Tk. 500 million, paid d up capital of Tk. 200 million and an issued capital of Tk. 100 million. A breakdown of the shareholders indicate that there are 32 shareholders or subscribers holding ten Lac shares worth Tk. 100 each amounting to a subscribed capital of Tk. 1 00 million.
The main sponsors of the bank are:
(Sponsors and their family members own fifty percent of the stock)
• Mr. M . A. Kashem
• Mr. Azimuddin Ahmed
• Mr. Yusuf Abdullah Haroon
• Mr. Md. Abu Tayub
• Mr. Mashiur Rahman
Salient Features Of The Memorandum Of Articles:
2.7 Minimum Period Of Holding Shares:
According to the articles of association of SBL, the members of the sponsor group are not entitled to transfer share held by them in the company for a period of not less than three years from the date of commencement of business.
2. 7.a Voting Rights:
The voting rights of the shareholders are strictly proportional to the number of shares held by them respectively subject to the provision of section 144 of the Banking Companies Act or any amendment as may be made from time to time.
2. 7.h Qualifications for the position of CEO:
The President and Managing Director of the organization as the CEO of the bank who shall be appointed by the board of Directors with the prior approval of Bangladesh bank. The CEO shall be in office for a term not more than five years and may be extended from time to time. During this period the Board of Directors can replace or remove the CEO.
2. 7.c State Law Affecting Banking Operation:
It has been mentioned earlier that the banking industry is one of the most highly regulated industries particularly in Bangladesh. Some of the major legal considerations affecting the banking operations in Bangladesh are discussed below.
2.8 The Bank Companies Act. 1991
This act which has been revised up to May 1997 covers the major areas of establishing, operating, directing and winding up a bank. The major features of the Bank Companies Act are:
> A banking company shall have a paid up capital nit less than Taka Twenty Crores or six percent of the total demand and time liabilities of the bank.
> No Banking company incorporated in Bangladesh will be allowed to. commence business unless it satisfies that the subscribed capital of the company is not less than one half of the authorized capital and that the paid up capital is not less than one half of the subscribed capital.
> The capital of the company should consist of ordinary shares only.
> The voting rights of the shareholders are strictly proportionate to the contribution made by the individual.
> Other than new banks or specialized banks, every banking comp-any must take the prior approval of Bangladesh Bank before appointing the CEO and the Adviser and shall not be dismissed or released before the prior approval of Bangladesh bank.
> The position of the CEO can not be left vacant for more than three months. If the company falls to appoint a CEO with in three months, Bangladesh Bank may appoint an administrator for discharging the duties of the bank.
> Every banking companies incorporated in Bangladesh shall create a reserve fund.
> A banking company shall not form any subsidiary company except for the purposes mentioned in the act.
> No banking company will be allowed to make loans and advances against the security of its own shares or grant unsecured loans or advances on the guarantee of the directors or family members of the directors.
> Bangladesh Bank may give directions to banking companies in matters of credit ceilings, minimum ratio of small loans, purpose and limit of advances and the rate of interest.
> No banking company will be allowed to operate unless it obtains a license from Bangladesh bank
> Bangladesh hank has the power to remove the Chairman, directors and the CEO of a bank.
> Bangladesh bank has the power to supersede the decisions and activities of the Board of Directors of the bank
> In case of winding up of Business, the High Court Division of the Supreme Court may apply to Bangladesh Bank for the imposing moratorium on business.
2.8.a The Negotiable Instruments Act 1881 (as ,modified up to
The Negotiable Instruments Act or the NI Act governs various aspects and exchange of negotiable instrument in Bangladesh. This law sets different provisions and regulates transactions of instruments, promissory notes, bill of exchange and others. The act sets rules regarding writing down and presentation of checks, delivery and negotiation by endorsement. It also sets guidelines of presenting negotiable instrument, payment and interest, discharging liability on notes, bills and checks through cancellation, release and payment. Another key feature is how to dishonor by non-acceptance and non-payment and who and how the notice should be given. How the acceptance and payment for honor is made and rules for compensation is also mentioned in the act. Special provisions of check regarding crossing, account payee, special crossing and other relevant issues are discussed.
2.8. h Uniform Customs and Practice for Documentary Credit
The UCPDC 500, which has been prescribed by the International Chambers of Commerce (ICC), will apply to all documentary credits and will be binding on all the parties. This law deals with the whole gamut of International Trade Finance. It states the different types of credit, which can be classified in to revocable and irrevocable. It also states the liability of the issuing, advising and the confirming bank as well as revocation of a credit. The law also sets a standard for examination of documents in international trade and how to examine them and how to detect discrepancy. It states the bank to bank reimbursement arrangements. The transport documents in different types of mode of transport are also stated in the law. The law specifies required documents for sea, land and air transport. The provisions of clean transport documents are also mentioned in the regulations.
2. S.c Foreign Exchange_ Regulations Act 1994
This act regulates the exchange of foreign currencies, remittances and opening of foreign currency account under various classifications. According to this law, FC Accounts can be opened without initial deposits and bears no interest and both the account holder or the nominee can operate the account. The entire remittance from abroad is free from income tax. It also states the documents required for the opening of such accounts. Other guidelines enumerated are regulations regarding Residence Foreign Currency Deposit Account, Exporters Foreign Currency Deposit accounts, Non resident foreign currency account and others. It also sets out regulations regarding inward remittance, telegraphic transfer, foreign demand draft, and issue of cash or traveler’s checks. Finally, recent incentives provided are also mentioned in the act.
2.8. d Artha Rin Adalat Act 1990
One important legal framework in order to create a positive impact on loan portfolio management is the Artha Rin Adalat Act. This law has made banks viable and balance the rights of banks to foreclose on collateral with the rights of individuals and firms so that debts can be recovered in a timely manner. Prior to this law, banks had to file cases in sub judge courts, commercial courts and others which was found to be quite inadequate in the rapidly changing environment of the financial world. With the establishment of Artha Rin Adalat (Financial Debt Court), it is expected that there will he speedy disposal of money suits.
2.8.e Bankruptcy Act 1997
The banks and other financial institutions of this country have for a long time been urging for passing of a Bankruptcy Act to deal with their claims expeditiously. This act has already been passed by the parliament and will introduce procedure for corporate restructuring that go beyond liquidation like the bankruptcy act of industrially developed countries.
2.9 Macro Environment Scanning(MES):
It is very important to carry out a macro environment scanning for the banking industry in order to identify and analyze the external factor that affect the growth and development of the banking sector in Bangladesh. A through analysis of the macro environment in which the banks operate will allow the banks to develop pro-active strategies and navigate the organization in the turbulent ocean of competition
29. a Political & legal:
• Trade liberalization:
After the political changeover in 1975, Bangladesh have been going through successive trade liberalization and economic deregulation. In the mid eighties Bangladesh launched the Structural Adjustment program (SAP) under the prescriptions of World Bank and the IMP to cut down the twin deficits i.e. trade and budget deficits. From the early nineties the national financial sector has been going through a reform process under the Financial Sector Reform Program (FSRP) that focused on streamlining the NCB’S, DFI’s and the local PCB’S. Under the FSRP, new policies, regulations and relaxation have been introduced for healthy operations of the financial sector. FSRP has introduced Lending Risk Analysis (LRA) that analyzes the credit risk of the borrower. Under FSRP, Credit Information Bureau (CIB) has been established at the Bangladesh Bank where financial information of all the borrowers above Tk I million is recorded. Moreover, credit exposure matrix has been created where banks send reports to CIB of credit facilities to clients above Tk. l million. Thus CIB has become a major source of database. Apart from FSRP, the financial sector is still going through reforms. Under the latest World Bank recommendation the banking Division of the Ministry of Finance is being abolished a step further in providing autonomy to Bangladesh Bank. The emergence of SBL and other contemporary banks and the arrival of the foreign banks are all due to the on going reforms in the financial sector of Bangladesh.
• Changes in the legal system:
For smoother operation of the financial institutions, the country’s legal system is also being modified in order to cope with the need of the rapidly changing environment of the banking sector. New laws are being established such as the Bank Companies Act which has been made exclusively for the operation and establishment of bank companies. The introductions of the Artha Rin Adalat Act and the bankruptcy Act are also recent changes that are have been made in the legal system that affects the operation of the banks. It is expected that these changes would expedite the process of loan recovery and at the same time lead to a speedy disposal of money suits filed by various banks.
• International Trade:
As Bangladesh is experiencing both unilateral and multilat3crlal trade liberalization under the Uruguay Round, the country’s trade barriers are gradually being eliminated. According the trade deal of WTO, trade harriers will have to be eliminated by the year 2005. As the economy is opening up, the volume of international trade has greatly increased the influx of foreign commodities and the export of Bangladeshi goods have greatly expanded the volume of international trade. The banking sector is being heavily influenced by the growth of foreign trade. New private banks are emerging and are actively involved in trade finance and earning a lot of revenue through Letter of Credit.
• Energy sector:
With the advent of the present government, the energy sector of Bangladesh is booming and expanding rapidly. The oil, gas and mineral resources of the country has attracted worldwide corporate giants like Mobil, Shell, Cairn and others to invest in Bangladesh. Energy sector has now become a thrust sector for attracting FDI. The present situation in the energy sector has attracted several multinational banks to start operations in Bangladesh in order to grab the lucrative market. The foreign banks are providing assistance to these corporate giants as they gain the contracts of exploration of gas and mineral resources. It is expected that foreign banks will arrive in future due to the growth of the energy sector.
This problem has two-sided impact in Bangladesh. The political parties under the severe grip of illegal trade unionism back the NCB’s. As result, the productivity or output is declining rapidly in the NCB’S. The’ country’s Central Bank is also under the grip of trade unions. However, the PCB’s and the FCB’s are free from trade unions, as they are not allowed to operate. As a result, level of service and productivity is much higher in the PCB’s and the FCB’S. Therefore the private sectors as well as foreign banks are free from the threat of trade unions.
2.9.h Economic Forces:
This is another major external factor that affects the growth and development of the banking sector. Some of the major issues are discussed below.
• GDP Growth Rate:
This is the major indicator of the country’s economic performance and has a direct impact on the financial institutions. Currently according to ADB, GDP growth rate is around 5.7%. A steady growth rate with continues market oriented reforms will contribute positively by expanding the volume of business and profitability of the bank. In an economy, a steady growth means there will be more investment, savings and consumption in the economy. As result banks also get more deposits and more projects for credit disbursement.
This is yet another important economic force that can influence the banking sector. Currently, in Bangladesh Inflation is in an increasing trend and if is this trend continues then it may cause problems for the financial institutions in future.
• Fiscal and Monetary Policy:
These are the two major important policies of the government that have a direct impact on the financial institutions of a country. Depending upon various uses the GOB designs its fiscal and monetary policies. If inflation is in an increasing trend, GOB may squeeze the money supply in the market through a contractionary monetary policy. Credit crunching is a process by which the GOB restricts credit expansion by the bank. GOB may also borrow from the banks selling treasury bills to finance fiscal deficit. Therefore, the banking sector is heavily influenced by the country’s fiscal and monetary policies.
2.9.c Social Forces:
• Customer Attitude:
As banks are service-oriented organizations, they always have to consider the attitude of the customer. The people particularly in the urban areas no longer like traditional banking. The urban customers want innovative and quality service from the bank where the “speed7’ of the service is the primary concern. Customers now want a speedy service accompanied by attractive and well decorated impressive branches with customer friendly officers providing tailor made services to the customers. The up coming private branches like SBL, Dhaka Bank Ltd. and Dutch Bangla Bank have now established impressive branches which are compatible to FCB’s in order to attract customers. SBL’s impressive Gulshan branch has already earned a reputation for the hank and has attracted lots of potential customers in the posh Gulshan area.
> Customer taste and Psychology :
Previously banks were only considered when people wanted to make deposits or go for commercial loans. But now the scenario is gradually changing. People are now asking for credit facilities for the purchase of consumer durable. In order to match with the customer needs, banks are also increasing their retail products such as ANZ’s SYFANZ, PLANZ and other services.
> Technological Forces:
There have been tremendous changes that affect the financial institutions of the country. As a part of providing quality and speedy service to customers, banks need to be equipped with the state of the art technology in order to compete in this dynamic and competitive industry. Some of the recent technological advancements are:
> On line banking operations:
The multinational banks in Bangladesh have already installed on line banking operations system. Under this system, a customer doesn’t need to go to a particular branch for carrying out his or her transactions but rather