Chapter- 1

Topic

SME LOAN A Case study on Jamuna Bank Limited, Savar Branch, Savar, Dhaka

Chapter-2
Introduction

1.1 Background of the study:

Knowledge and learning become perfect when it is associated with theory and practice. Theoretical knowledge gets its perfection with practical application. As our educational system predominantly text based, inclusion practical orientation program, as an academic component is as exception to the norm. As the parties; educational institution and the organization substantially benefit from such a program, it seems a win-win situation. It establishes contracts and networking contracts. Contracts may help to get a job. That is, students can train and prepare themselves for the job market. A poor country like Bangladesh has an overwhelming number of unemployed education graduates. As they have no internship experience they have not been able to gain normal professional experience or establish networking system, which is important in getting a job, so practical orientation is a positive development in professional area. Recognizing the importance of practical experience, School of Management and Business Administration has introduced a three months practical exposure as a part of the curriculum of Bachelor Business Administration program. In such state of affairs the present aiming at analyzing the experience of practical orientation related to various aspects of banking activities in the Jamuna Bank Limited, Savar Branch, Savar, Dhaka.

1.2 Rationale of the study:

Economy of Bangladesh is in the group of worlds most underdeveloped economics. One of the reasons may be its underdeveloped Banking system. Modern Banking system plays a vital role for a nations economic development. Over the last few years the Banking world has been undergoing a lot of change due to deregulation, technological innovations, globalization etc. These changes also made revolutionary changes of a countrys economy. Present world is changing rapidly to face the challenge of competitive free market economy. It is well recognized that there is an urgent need for better-qualified management and better-trained staff in the dynamic global financial market. In this regards, Jamuna Bank Limited is a scheduled commercial bank. Through financial intermediation the bank seeds avenues for employment of its funds where there is profit as well as where risk is the minimum and the cost of administering loans is low. (a) There is profit: It means that JBL considers the prospective as well as profitable sectors for the employment of its funds which will ultimately bring profit for the organization. (b) Risk is the minimum and the cost of administering loans is low: It means that JBL goes for the prediction of risk as well as the cost of administering loan in case of investment decision. While profit motivation remains the prime consideration for viable operation and growth of the bank, the bank would also respond adequately to the socio-economic objectives formulated by the government from time to time for accelerating pace of economic development of the country. The goal of the bank is to build up a balanced portfolio mix. The focus is on an effective and responsive financial intermediation will thus vest on one hand on channeling funds to a set of clientele having proven track record and on the other hand on socially and economically desirable activities for which finance is sought. This investment options shall be chosen through skillful and prudent evaluation by the bank officials of feasibility of the proposed ventures including measures to minimize risk factors. The entrepreneurs themselves would provide or hire managerial; skills, technology for production, marketing and servicing thereby diminishing the risk of investment.

1.3 Objective of the study:

This report is prepared primarily to fulfill the Bachelor of Business Administration (BBA) degree requirement in BBA program of the faculty school of business studies, Stamford University Bangladeh. There are two types of Objective of the study.

1.3.1 General Objectives:

The general objective of the report is to know about the management system of Jamuna Bank Limited as a private commercial bank, its formation, and its functional, operational, and financial aspects. To know the background of the organization is another objective. To enhance the knowledge of the readers about banking and finance is also a disguise objective of the report. To make a comparative analysis of SME credit scheme. To discuss the services offered by Jamuna Bank Limited. To assess and evaluate the growth trends of Jamuna Bank Limited. To evaluate the profitability of Jamuna Bank Limited. To identify the major strength and weakness of Jamuna Bank Limited in respect

1.3.2 Project Objectives:

Therefore the objectives behind conducting this study are as follows: To fulfill the requirement of the Internship Program. To gain in-depth knowledge of standard banking services of JBL. To present an overview of Jamuna Bank LTD. To appraise deposit mobilization activities of Jamuna Bank LTD. (To appraise credit activities of Jamuna Bank LTD. (To measure customer satisfaction level of Jamuna Bank LTD). To assess the expectation & satisfaction levels of Jamuna customers about JBL. To determine the most important attributes of service quality about Credit Application and Disbursement Process of JBL.

1.4 Scope and limitations of the study:

1.4.1 Scope:
The scope of the organizational part covers the organizational structure, background, objective, function and department and business performance of JBL as a whole. The main part covers the operational scenario of customer service about Credit & SME, of Savar branch, Savar, Dhaka. This refers that how the bank satisfying customers, help the customers by providing different categories of SME loans considering the existing market.

1.4.2 Limitation:
Although the officials were so busy, they gave me wholehearted cooperation in the time of internship also in preparing this report. It was such a nice experience I have gathered from JBL. But I have faced the following that may be terns as die limitations of the study.

1.4.3 No remuneration was provided:

The first obstacle was that they would not provide any remuneration for doing internship in JBL.

1.4.4 Lack of records:

Sufficient books, publications and figures were not available. If this limitation were not been there, the report would have been more useful. In doing the report I have faced some limitations what I cant ignore. Some of those limitations are: 1. Bankers dont want to disclose all the information I need. 2. Load at the work place was also a barrier to prepare this report. They always remain busy with their tight schedule. 3. Although the officers of the Jamuna Bank Limited have been very helpful, they didnt have enough time to provide, as they are very busy with their assigned works. So, in some cases, observation was needed. 4. Due to lack of experience, there may have been faults in the report through maximum efforts have been given to avoid any kind of mistake. 5. Large-scale research was not possible due to time constraints. 6. The research was conducted only within the SME customers of Savar Branch, Savar, Dhaka. 7. Relevant data and document collection were difficult due to the organization confidentiality. 8. Another limitation was that the data gathered could not be verified for accuracy.

9. The lack of intellectual thought and analytical ability to make it a perfect one. 10. Finally, the length of this internship program (12 Weeks) is not sufficient conduct a detailed study on the subject of research.

1.5 Methodology of the Report:

Methodology includes direct observation, face-to-face discussion with employees of different departments, study of files, circulars etc. and practical work. This study includes both quantitative and qualitative data. However, this report is basically qualitative in nature. In all the cases depending on the requirements data have been collected from different sources. Both the primary and the secondary form of information were used to prepare this report. The details of these sources are highlighted below:

1.5.1 Source of Data:

This report is based on both primary & secondary source of information. For theoretical development of this research paper the data has been collected from the various sources like different publications, library sources, books, articles, etc.

1.5.2 The primary sources are

For collecting primary data, we had to ask the respective officer(s). Others are like Exposure on credit division of the bank. (FEO & EO of the Bank) Official documents and File study.

1.5.3 The secondary sources are

Annual Report 2007, 2008, 2009 of Jamuna Bank Ltd. Visit the JBL website www.jamunabankbd.com Periodicals published by the Bangladesh Bank; Different publications regarding banking functions, operation, and transactions policies.

1.6 Literature Review:

Saving Account:
Saving Account is that type of account where people deposit their money with a tendency to save. A certain percentage of interest is given against the deposit.

Current Account:
Current Account and Saving Account are more of less same. The basic difference between a current account and a savings account is that current account does not calculate any interest.

Short Term Deposit:

Short-term deposit account can be opened with Tk.5, 000 as balance. This account is operated and maintained like a current account. The rate of interest on this type of a/c is 5.00% and withdrawals from this type of a/c require a notice of seven days.

Fixed Deposit:
JBL offers FDR for different amounts at different interest rates for different period of time. In the receipt holders name and other particulars are kept as secrete documents on the bank.

Monthly Savings Scheme (MSS):

The most popular product of Jamuna Bank Limited is JBL Monthly Savings Scheme (MSS). JBL has given highest interest in this scheme.

Double/ Triple Benefit Scheme (DBDS/TBDS):

Double/Triple Benefit Scheme is another popular product of JBL. These are high yielding deposit schemes in which depositors money will be double and triple at the end of 06 years and 10 years respectively.

Monthly Payable Profit Scheme (MPPS):

Depositor can get profit monthly from this scheme, thats why it is popular to all. Party must have saving account of same branch in opening of MPPS

Marriage Deposit Scheme:

Marriage of children, especially daughter is a matter of great concern to the parents. Marriage of children involves expense of considerable amount.

Credit:
The word Credit is derived from Latin word Credo, which means, I believe. It is usually defined as ones ability to buy with a promise to pay.

CC Hypo (Cash Credit Hypothecation):

Cash Credit allowed against hypothecation of an asset is known as Cash Credit (Hypo). In cash of hypothecation; the borrower retains the ownership and possession of goods on which charge of lending bank is created.

CC Pledge (Cash Credit Pledge):

Cash Credit allowed against pledge of goods is known as Cash Credit (Pledge). For Cash Credit (Pledge) the borrower pledges his goods to the banker as a security against the credit facility.

Overdraft:
The overdraft is always allowed on a special A/C operated upon cheques. The customers may be allowed a certain limit up to which he can overdraw within a specific period of time.

Inland Bills Purchased (IBP):

This kind of arrangements is allowed for purchase of inland bills. Some times Contractors need money to his liquidity problem. To avoid this kind of situation they want to take loan against their future dated cheque.

Loan against Imported Merchandise (LIM):

This is as similar as CC Pledge. But these loans are provided to the selected customers with internal contract.

Loan against Trust Receipt (LTR):

Under this arrangement, credit is allowed against trust receipt and the exportable goods remain in the custody of exporter but he is required to execute a stamped export trust receipt in favor of the bank.

Local/Foreign Documentary Bills Purchased (LDBP/FDBP):

Under this arrangement, credit is allowed for exporter for exportable goods. Banks provide all the agency commission. Its payback period is 21 days.

10

Letter of Credit:
Issuing letter of credit is one of the important services for JBL. A letter of credit is a document authorizing by the bank for a specific amount of money. Two types of L/C is provided by JBL

Hire Purchase:
The feature of hire purchase is that borrower pays his remaining amount over a period of 6 month to 2 years & some times more than 2 years.

Lease Finance:
Jamuna bank Ltd. is the first private commercial bank in Bangladesh who introduced lease finance facilities for funding requirement of valued customers & growth of their business.

Loan for Herbal Industry:

From primitive times, this region is famous for its different herbal medicine products. There are many entrepreneurs in our country who are engaged in herbal tree plantation, producing different herbal products and also exporting a significant quantity in abroad.

Flexible Working Capital Loan:

In most cases, SMEs do not own adjure immovable property that can be accepted by bankers as collateral for loans Flexible Working Capital Loan.

Working Capital/Trade Finance:

Most of SMEs suffer from working capital shortage. Business is an ongoing process and to survive in the market, working capital is an essential.

Loan Purchasing Capital Machinery &Vehicle:

Most of the SME customers suffer from not being able to expand further the business due to lack of capital. According to Jamuna Bank Ltd, Savar Branch, Savar, Dhaka. they only concern about Current Account, Saving Account, Short-term Deposit, FDR, Monthly Savings Scheme, Double Deposit, Consumer Credit Scheme, Letter of Credit, Overdraft, Local Documentary Bill Purchase, Vehicle Loan, SME Loan, House Building Loan, Working Capital Loan, Loan Against Imported Merchandise, Loan Against Trust Receipt.

11

Chapter- 3
Overview of Jamuna Bank Limited

12

3.1 Historical Background of JBL:

Jamuna Bank Limited (JBL) is a Banking Company registered under the Companies Act, 1994 with its Head Office at Printers Building (2nd floor), 5 Rajuk Avenue, and Dhaka1000. The Bank started its operation from 3rd June 2001.

Jamuna Bank Limited is a highly capitalized new generation Bank with an Authorized Capital and Paid-up Capita of Tk. 4000.00 million and Tk.1622.00 million respectively. Currently the Bank has 61(sixty one) branches- 27 branches in Dhaka, 10 branches in Chittagong, 09 branches in Rajshahi, 03 branches in Sylhet, 02 branches in Comilla and 01 in Barisal. Very soon more 03 branches will be opened.

Jamuna Bank Limited is a fast growing private sector bank in Bangladesh. This is a third generation private commercial bank. It has created a new horizon of its own in the banking arena of Bangladesh in terms of service to the customers. The bank has expanded and consolidated its customer base in both of its core businesses and retail banking.

The Bank undertakes all types of banking transactions to support the development of trade and commerce in the country. JBLs services are also available for the entrepreneurs to set up new ventures and BMRE of industrial units.

To provide clientele services in respect of international trade it has established wide correspondent banking relationship with local and foreign banks covering major trade and financial centers at home and abroad.

Jamuna Bank Limited is operating branches on both conventional interest based banking and Islamic Shariah Principle based Banking. The Bank starts Islamic Shariah based banking by opening an Islamic Banking Branch at Nayabazar, Dhaka. The Islamic Banking operations are completely separate from the conventional banking.

13

3.2 Objectives of the JBL:

To earn and maintain CAMELS Rating Strong. To establish relationship banking and improve service quality through development of strategies marketing plans. To remain one of the best banks in Bangladesh in terms of Profitability and assets quality. To introduce fully automated system through integration of Information Technology. To ensure an adequate rate of return on investment To keep risk position at an acceptable range (including any of balance sheet risk) To maintain adequate liquidity to meet maturing obligation and commitments To maintain a healthy growth of business with desired image To maintain adequate control systems and transparency in procedure To develop and retain a quality work force through an effective Human Resources Management System To ensure optimum utilization of all available resources To pursue an effective system of management by ensuring compliance to clinical norms, transparency and accountability

3.3 Strategies of JBL:

To raise capital up to Tk. 4000.00 million by 2010. To manage and operate the Bank in the most efficient manner to enhance financial performance and to control cost of fund To strive for customer satisfaction through quality control and delivery of timely services To identify customers' credit and other banking needs and monitor their perception towards our performance in meeting those requirements. To review and update policies, procedures and practices to enhance the ability to extend better service to customers.

14

 To train and develop all employees and provide them adequate resources so that customers' need be reasonably addressed. To promote organizational effectiveness by openly communicating company plans, policies, practices and procedures to employees in a timely fashion To cultivate a working environment that fosters positive motivation for improved performance

3.4 Vision of JBL:

To become a leading banking institution and to play a pivotal role in the development of the country and service so that sustainable growths, reasonable return and contribution to the development of the country can be ensured with motivated and professional workforce. Jamuna Banks aim is to satisfy customers with high quality service that reflects the global image as the premier international bank, to become a leading banking institution and
to play a pivotal role in the development of the country.

3.5 Mission of JBL:

The bank committed to satisfying diverse needs of its customers through an array of products at a competitive price by using appropriate technology and providing timely service so that a sustainable growth, reasonable return and contribution to the development of the country can be ensured with a motivated and professional workforce.

3.6 Values of JBL:

The value of jamuna bank Ltd. Your Partner for growth.

Customer Focus Integrity Teamwork Respect for the Individual Quality Responsible Citizenship

15

3.7 Corporate Profile:

Brief Profile of Jamuna Bank Limited: Name of the Company : Jamuna Bank Limited

Legal Form

Jamuna Bank Limited (JBL) is a Banking Company registered under the Companies Act, 1994 with its Head Office at Printers Building (2nd floor), 5 Rajuk Avenue, and Dhaka-1000. 3rd June 2001 3, Dilkusha C/A, Dhaka - 1000, Bangladesh 9555141,Ext.130 Fax: 880-2-9565762 JAMUBDDH jamunabk@bdcom.com www.jamunabankltd.com M/S Howladar Yunus & Co. Chartered Accountants Howladar, Yunus & Co. Chartered Accountants

Date of Commencement : Registered Office Telephone Tele-fax SWIFT Code E-mail Web Page Auditors : : : : : : :

Tax Consultant

16

Managing Director Company Secretary

: :

Mr. Motior Rahman Md. Anawar Hossain

3.8 Hierarchy of JBL:

The hierarchy of jamuna bank limited is given below:
Chairman

Managing Director (MD) Deputy Managing Director (DMD) Senior Executive Vice President (SEVP) Executive Vice President (EVP) Senior Executive Vice President (SEVP) Senior Executive Vice President (SEVP) Executive Vice President (EVP)

SVP (Board Secretary)

SVP (HRD)

SVP (Credit Dev.)

SVP

SVP

VP

VP

SAVP

SAVP

17

3.10 Products and services:

Division of General Banking: a) Accounts Opening b) Consumer Saving Scheme c) Cash Department d) Sanchayapatra

3.10.1 Account Opening:

Bankers his to maintain some common principles and procedures for open all most all deposit accounts. Major information is essential for identification of the account holders individually so that banker can discharge his obligations to everyone correctly and to the extent due. Following are the formalities a customer must maintain in case of opening of an account: Minimum age of 18 years Application in the prescribed form Furnishing Photographs of the applicant and attested by the introducer (2 copies) Introduction by an account holder Recording of specimen signature in the specimen signature card Mention nominee in the prescribed form Furnishing Photograph of the nominee (1 copies) Fig: Account Opening Procedure in a flow chart
Applicant fills up the relevant application form in the prescribed manner. She/he is required to fill up the specimen signature card. For individual introduction is needed by an account holder.

Account is opened

18

The authorized officer scrutinizes the introduction and examines the documents submitted.

After depositing the cash one cheque book & pay-in-slip book is issued.

Issuance of deposit slip and the deposit must be made in cash. No cheque or draft is acceptable to the Bank.

3.10.2 Saving Account:

Saving Account is that type of account where people deposit their money with a tendency to save. A certain percentage of interest is given against the deposit. People can withdraw money twice a week from this account. There are two type of saving accounta. b. Individual Saving Account. Joint Saving Account.

Requirements:

Passport size photo-2 copies Introducers signature in the a/c opening card Nationality certificate The depositor has to maintain a balance of Tk.1000 Interest rate of this account is 5% fixed.

3.10.3 Current Account:

Current Account and Saving Account are more of less same. The basic difference between a current account and a savings account is that current account does not calculate any interest. The current accounts are usually entrepreneurs, business organization, and companies etc. There are several types of current account available at the JBL-

Individual Current Account. Partnership Current Account Proprietorship Current Account Limited Company Current Account

19

 Account of Societies Clubs etc.

3.11 Consumer Savings Scheme:

3.11.1 Short Term Deposit:
Short-term deposit account can be opened with Tk 5,000 as balance. This account is operated and maintained like a current account. The rate of interest on this type of a/c is 5.00% and withdrawals from this type of a/c require a notice of seven days.

3.11.2 Fixed Deposit:

JBL offers FDR for different amounts at different interest rates for different period of time. In the receipt holders name and other particulars are kept as secrete documents on the bank. In the documents the name of nominee is also incorporated. If any holder of the receipt wishes to en-cash receipt before the maturity the bank usually do not pay the interest. But JBL, as goodwill pays a lump-sum amount of interest to the FDR holder. The rate of interest offered by JBL as follows: Interest rate on FDRUpto Tk 50,000,000 Above Tk5, 000,000 9.50% 9.75%

(Source: According to Jamuna Bank Ltd, Savar Branch, Savar, Dhaka)

3.11.3 Monthly Savings Scheme (MSS):

The most popular product of Jamuna Bank Limited is JBL Monthly Savings Scheme (MSS). JBL has given highest interest in this scheme. But considering the future liability Banks Authority decided to reduce the interest rate.

3.11.4 Double/ Triple Benefit Scheme (DBDS/TBDS):

Double/Triple Benefit Scheme is another popular product of JBL. These are high yielding deposit schemes in which depositors money will be double and triple at the end

20

of 06 years and 10 years respectively. Depositors can take loan up to 90% of their deposit at normal lending rate of interest of the bank. Minimum amount of this scheme is Tk.25,000/-. The rate of interest of DBDS is 12.25% and TBDS is 11.61%. But because of high interest rate, the Bank recently closed this product.

3.11.5 Monthly Payable Profit Scheme (MPPS):

Depositor can get profit monthly from this scheme, thats why it is popular to all. Party must have saving account of same branch in opening of MPPS. Because monthly profit transferred to his/her saving account and there is no charge for transferring of monthly profit. Minimum amount of opening an MPPS is Tk. 25,000/-, for five years and interest Rate is 12%. Its also a high interest base deposit. So, very recently the Bank closed this scheme

3.11.6 Marriage Deposit Scheme:

Marriage of children, especially daughter is a matter of great concern to the parents. Marriage of children involves expense of considerable amount. Prudent parents make effort for gradual building of fund as per their capacity to meet the matrimonial expense of their children specially daughters. Parents get relief and can have peace of mind if they can arrange the necessary fund for marriage of their children, no matter whether they survive or not till the marriage occasion. It can be a great help to the parents if there is any scope of deposit of a modest amount as per their financial capacity, which grows very fast at high rate of interest yielding a sizeable amount on maturity. With this end in view JBL has introduced Marriage Deposit Scheme, which offers you an opportunity to build up your cherished fund by monthly deposit of small amount at your affordable capacity.

3.11.7 Education Savings Scheme:

Education is a basic need of every citizen. Every parent wants to impart proper education to their children. Education is the pre-requisite for socio-economic development of the country. As yet, there is no arrangement of free education to the citizens from the government level. As such, there should be pre-arrangement of fund to ensure higher education of the children. Otherwise higher education may be hindered due to change of

21

economic condition, income of the parents at the future time when higher education shall be required. Todays higher education is becoming expired day by day. Parents can get relief and can have peace of mind if they can arrange the necessary fund for higher education for their children. As such, JBL has introduced Education Savings Scheme which offers you an opportunity to build up your cherished fund by monthly deposit of small amount at your affordable capacity or initial lump sum deposit to yield handsome amount on a future date to meet the educational expenses. Under this Scheme you have the different attractive options to avail the future benefit i.e. withdrawal of the total amount accumulated in lump sum or withdrawing monthly benefit to meet educational expense keeping the principal amount intact or to withdraw both principal and accumulated profit monthly for a certain period.

3.11.8 Lakhpati Deposit Scheme:

To become a lakhpati is a dream to most of the people of Bangladesh especially to the lower and lower middle class income group. They experience their expectations and wants are enormous in nature in our small span of life. To meet our deposit and wants we need right plan. Keeping the above in mind JBL has introduced Lakhopati Scheme which has flexibility in report of maturity and monthly installment as per affordable capacity.

22

3.12 Corporate Banking:

The motto of JBL's Corporate Banking services is to provide personalized solutions to our customers. The Bank distinguishes and identifies corporate customers' need and designs tailored solutions accordingly. Jamuna Bank Ltd. offers a complete range of advisory, financing and operational services to its corporate client groups combining trade, treasury, investment and transactional banking activities in one package. Whether it is project finance, term loan, import or export deal, a working capital requirement or a forward cover for a foreign currency transaction, our Corporate Banking Managers will offer you the accurate solution. Our corporate Banking specialists will render high-class service for speedy approvals and efficient processing to satisfy customer needs. Corporate Banking business envelops a broad range of businesses and industries. You can leverage on our know-how in the following sectors mainly:

Agro processing industry Industry (Import Substitute / Export oriented)

Textile Spinning, Dyeing / Printing Export Oriented Garments, Sweater. Food & Allied Paper & Paper Products Engineering, Steel Mills Chemical and chemical products etc.

Telecommunications. Information Technology Real Estate & Construction

23

Wholesale trade Transport Hotels, Restaurants Non Bank Financial Institutions Loan Syndication Project Finance Investment Banking Lease Finance Hire Purchase International Banking Export Finance Import Finance

3.13 Personal Banking Division:

Personal Banking Division (PBD) introduces to the customers with a variety of products. Our PBD continuously meets the challenges of developing new products and services to match the specific requirements of customers. Personal Banking Division (PBD) issues both VISA Debit Cards and VISA Credit Cards. VISA is the renowned Card brand in the earth. Jamuna Bank Limited is a principal member of VISA Worldwide. Remittance Cell is another successful wing of the Personal Banking Division. Our product range includes:

3.13.1 Visa Debit Cards:

You can now avail the convenience of VISA Debit Card. It is the easiest and the most secured way of utilizing your money for 24/7 retail purchases as well as cash withdrawal.

3.13.2 Visa Credit Cards:

The JBL Credit Card gives you a fast, convenient and reliable way to pay, 24 hours a day, wherever you are in the world. a) Visa Classic b) Visa Gold

3.13.3 International Credit Cards:

24

JBL International Credit Cards (VISA) allows you flexibility and convenience when you travel internationally. The VISA International card entitles you to exclusive discounts worldwide. Visa Dual (Gold)

3.13.4 JBL Remittance Cell:

Remit Fast is the motto of JBL Remittance Cell. It provides the best & faster services to its customers and connects the world through the renowned money exchange agencies. Such as Placid Nk Corporation, Moneygram Payment System Inc., Raffles Exchange Ltd.UK, Euro Bangla Money Transfer (UK) Ltd., Moneylink,UK, Homelink Remit (UK) Ltd., Rumana Money Services. Customers can avail improved pricing on remittance.

3.14 Bank Transfer:

3.14.1 Instant Cash/Spot Cash:
To offer our customers a greater banking convenience, we have introduced many modern banking facilities and some are under developments that include: With our large ATM network including non-branch ATM across the country you have the privilege of round the clock withdrawal and other account services at your convenience. Customer can enjoy higher ATM withdrawal limit each day. No fees on retail purchase and can use our Credit Cards at thousands of retail outlets around the world. There will be no commission charge on the endorsement of foreign currency for self and spouse. Our customer service agents are available on 365 days to offer assistance for you. Just connects to our agents and satisfy your banking needs anytime of a day or any query that you might have.

3.15 International Trade Finance:

International Trade forms the major business activity undertaken by Jamuna Bank Ltd. The Bank with its worldwide correspondent network and close relationships with key financial institutions provides an extensive trade services network to handle your transactions efficiently. Our key branches in Dhaka, Chittagong, Sylhet and Naogaon are staffed by personnel experienced in International Trade Finance. These offices are the focal point for processing import and Export transactions for both small and large

25

corporate customers. We offer a complete range of Trade Finance services. Our professionals will work with you to develop solutions tailored to meet your requirements, through mobilizing our full range of trade services locally, and drawing on our global resources. We can offer you professional advice on all aspects of International Trade requirements, namely: Issuing, advising and confirming of Documentary Credits. Pre-shipment and post-shipment finance. Negotiation and purchase of Export Bills. Discounting of Bills of Exchange. Collection of Bills. Assist customers to insure all risks. Foreign Currency Dealing etc.

3.16 List of Foreign Correspondents:

To provide International Trade related services we have established Correspondent Banking relationship with 336 locations of 106 world reputed Banks in more than 100 countries. Our main Correspondent Banks are: Citi Bank N.A., Standard Chartered, American Express Bank, Bank of New York, Bank of Nova Scotia, Duetche Bank, Dresdner Bank AG, Habib American Bank, Habib Bank AG Zurich, Bayerische Hypo Vareins Bank, Mashreq Bank PSC, Nordea Bank AB, Royal Bank of Canada, UBS AG, Union De Banques Arabes ET, Francaises, Wachovia Bank NA, Forties Bank S.A/NV, Svenska Handlesbanken, Bank of Ceylon, Banca Toscana, ABN Amro Bank, Commonwealth Bank of Australia, Danske Bank A/S. Absa Bank Ltd., Agricultural Bank of Chaina, Banca Intesa SPA, Banca Italo Albanese, Banca Popolare Commercio E Industria SPA, Bank Austria Credittanstal AG, Bank Commonwealth, Bank Madiri (Europe), Bank of Cyprus, Bank of Bahrain and Kuwait, Bank of Jordan Ltd., Bank Sadarat Iran, Blue Nile Bank, Commercial Bank of Kuwait, Commercial Bank of Qatar Ltd., Development Bank of the Philippines, Dexia Bank SA, EON Bank Berhad, First International Merchant Bank PLC., Foreign Trade Bank of North Korea, Foreign Trade Bank of Vietnam, Hiroshima bank, HVB, Hungary RT, ICICI Bank Canada. Industrial and Commercial Bank of China, ING Bank NV, Islamic Bank of Yemen and for Finance & Investment, Korea Exchange Bank, National Commercial Bank, Shinhan Bank, State Bank of India (Canada) UFJ Bank Ltd., United Bank of India, Bank of Bhutan, Allied Bank Philippines.

3.17 Foreign Remittance:

26

Jamuna Bank Ltd. has a network of branches in Bangladesh and more branches are going to be added to network soon. Remittance services are available at all branches and foreign remittances may be sent to any branch by the remitters favoring their beneficiaries. Remittances are credited to the account of beneficiaries instantly through Electronic Fund Transfer (EFT) mechanism or within shortest possible time. Jamuna Bank Ltd. has correspondent banking relationship with all major banks located in almost all the countries/cities. Expatriate Bangladeshis may send their hard earned foreign currencies through those banks or may contact any renowned banks nearby (where they reside/work) to send their money to their dear ones in Bangladesh. To facilitate sending money in Bangladeshi Taka directly, Jamuna Bank Ltd. has Taka Drawing Arrangement with many banks/exchange companies in different countries. The expatriate Bangladeshi may send their money in BDT through the branches/subsidiaries of Jamuna Bank Ltd.

3.18 Credit Facilities:

The main focus of Jamuna Bank Ltd. Credit Line/Program is financing business,
trade and industrial activities through an effective delivery system. Jamuna Bank Ltd. offers credit to almost all sectors of commercial activities having productive purpose. The loan portfolio of the Bank encompasses a wide range of credit programs. Credit is also offered to major thrust sectors, as earmarked by the govt., at a reduced interest rate to develop frontier industries. Credit facilities are offered to individuals including housewives, businessmen, small and big business houses, traders, manufactures, corporate bodies, etc. Loan is provided to the rural people for agricultural production and other offfarm activities. Loan pricing system is customer friendly. Prime customers enjoy prime rate in lending and other services. Quick appreciation, appraisal, decision and disbursement are ensured. Credit facilities are extended as per guidelines of Bangladesh Bank (Central Bank of Bangladesh) and operational procedures of the Bank.

3.19 Shop Finance Scheme:

3.19.1 Objectives: To enable the small business community to run the business smoothly

27

 Facilitating expansion of the existing businesses To improve the banking habit of self employed persons To diversify bank's lending to Small & Medium Enterprises (SME) which are
considered as less risky and help community developments? It may be noted down that the government is also encouraging investment in SME sector.

3.19.2 Categories of eligible business: i. ii. iii. iv. v. vi. vii. viii. ix. x.
Grocery/departmental/whole sale store Confectionary/bakery (owned by the bakers) Stationary shops Cloth materials & small local garment traders Shoe makers/shops PVC & plastic product traders/small manufacturers Tiles/sanitary items retailers Computer/Photostat/Cyber Caf. Electrical & electronic items retailers Pharmacy

xi. xii. xiii. xiv. xv. xvi. xvii. xviii. xix.

Gift shop/cosmetics shops Restaurant/fast food joints Hardwire shops Glass/ceramic retail outlets Sports kit retailers Photo studio Rod, Cement & C.I. Sheet (Tin) Shop Engineering Workshop Fertilizer & Pesticide shop

3.19.3 Maximum Loan Amount:

Up to a maximum of 10.00 lack in single case or 60% of possession value (distress value to be considered) whichever is lower. However, loan size will depend on creditworthiness of the borrower and the decision of the sanctioning authority.
1)

2) Branch Manager must verify the amount of possession money actually paid before recommending such proposal.

3.19.4 Tenure of the loan limit:

Minimum 01 year - Maximum 03 years from the date of disbursement of the loan.

28

3.19.5 Eligibility criteria:

The applicant must fulfill the following criteria to be eligible for loans and advances under the scheme:
i)

Shop owner must run the establishment himself, having at least three years of successful business experience ii) Valid lease deed for a minimum period of 03 years up to 05 years iii) Satisfactory conducted deposit account with JBL for minimum 03 months. iv) To deposit the daily sales proceeds in the account maintained with JBL v) Agree to abide by credit rules & regulations of JBL vi) Furnishing net-worth of the applicant/client. vii) Clean CIB viii) The bank reserves the right to accept or reject any application without assigning any reason whatsoever.

ix) The intending borrower shall apply through the letter head of the business firm or through a plain paper requesting the branch manager for sanction of loan under the Shop Finance Scheme

3.19.6 Security:
i)

Simple deposit of valid lease deed of agreement of the shop.

ii) A tripartite agreement to be signed in between leaseholder/shop owner/Bank- to the effect that the leaseholder cannot rent out or transfer the leased property without the written consent of the Bank. iii) The lease deed between the landlord and the borrower must be duly executed & the original lease deed should be kept in the Bank as part of document. iv) Lease must contain provisions enabling the landlord to forfeit the lease and enable the bank to enforce a right to sell the possession of the shop to liquidate the default debt (if any). v) Letter of disclaimer by the landlord to facilitate the bank to liquidate the default loan (if any) vi) Equal numbers of post dated cheques covering amount of each loan installment

29

3.19.7 Insurance:
All borrowing customers' inventory i.e. Stock-in-trade will be insured against Fire, Rsd & other risks with the Bank's mortgage clause cost of which will be borne by the shop owner/client/borrower.

3.19.8 Repayment Schedule:

Repayment schedule should be as under: i) In case of 01 year, 10 monthly installments for the loan limit up to Tk. 3.00 lac with 02 month grace period from the date of disbursement ii)In case of 02 year, 22 monthly installments for the loan limit up to Tk.6.00 lac with 02 month grace period from the date of disbursement iii)In case of 03 year, 34 monthly installments for the loan limit above Tk.6.00 lac with 02 month grace period from the date of disbursement.

3.20 Q-Cash Round The Clock Banking:

Jamuna Bank Q-Cash ATM Card enables you to withdraw cash and do a variety of banking transactions 24 hours a day. Q-Cash ATMs are conveniently located covering major shopping centres, business and residential areas in major cities. The network will expand to cover the whole country within a short span of time. With your Jamuna Bank Q-Cash ATM card you can: Cash withdrawal Round The Clock from any Q-Cash logo marked ATM booths. POS transaction (shopping malls, restaurants, jewellaries etc) Enjoy overdraft facilities on the card (if approved) Utility Bill Payment facilities Cash transaction facilities for selective branches nationwide ATM service available in Dhaka and Chittagong Withdrawal allowed from ATM's of Jamuna Bank Ltd., AB Bank, The City Bank, Janata Bank, IFIC Bank, Mercantile Bank, Pubali Bank, Eastern Bank Ltd, Dutch Bangla Bank Ltd, respectively And more to come Is Q-Cash

Is Q-cash Secure?
Yes, Q-Cash is fully secure. Q-Cash cardholders can only carry out transactions on QCash ATMs with Personal Identification Numbers (PIN). The PIN is a unique 4-digit

30

number that allows you to access your account. You can change your PIN anytime from ATM machine. In case you have lost your card, transactions cannot be done without the PIN.

3.21 Lease Finance:

Lease means a contractual relationship between the owner of the asset and its user for a specified period against mutually agreed upon rent. The owner is called the Lessor and the user is called the Lessee. Lease finance is one of the most convenient source of financing of assets viz machinery, equipment vehicle, etc. The user of the assets i.e. Lessee is benefited through tax advantages, conserving working capital and preserving debt capacity. Moreover, Lease is an off-balance sheet item i.e. lease amount is not shown in the balance sheet of the lessee and does not affect borrowing capacity. Leasing enables the lessee to avail the services of a plant or equipment without making the investment or incurring debt obligation. The Lessee can use the asset by paying a series of periodic amounts called lease payment or lease rentals to the owner of the

asset at the predetermined rates and generally in advance. The payments may be made monthly or quarterly. Jamuna Bank Ltd., the highly capitalized private Commercial Bank in Bangladesh has introduced lease finance to facilitate funding requirement of valued customers & growth of their business houses. Lease Items Vehicles like luxury bus, Mini bus, Taxi cabs cars, Pick-up, CNG three wheeler etc. Factory equipment. Medical equipment Machinery for Agro Based Industry Construction equipment Office equipment Generators, Lift & Elevators for commercial place. Sea or River Transport. Computer for IT Education Center.

3.22 SWIFT:
Jamuna Bank Limited is the member of SWIFT (Society for Worldwide Inter-bank Financial Telecommunication). SWIFT is a member owned co-operative, which provides a fast and accurate communication network for financial transactions such as Letters of

31

Credit, Fund transfer etc. By becoming a member of SWIFT, the bank has opened up possibilities for uninterrupted connectivity with over 5,700 user institutions in 150 countries around the world. SWIFT No.: JAMUBDDH

3.23 Trading of Government Treasury Bond & Other Govt. Securities:

Jamuna Bank Limited has been nominated as a Primary Dealer by the Bangladesh Bank for trading 5 years & 10 Years Treasury Bonds and other Government Securities.

3.23.1 Eligibility criteria:

Individuals and institutions resident in Bangladesh, including provident funds, pension funds, bank and corporate bodies shall be eligible to purchase the BGTBs.
(i)

Individuals and institutions not resident in Bangladesh shall also be eligible to purchase the BGTBs, with coupon payment and resale/redemption proceeds transferable abroad in foreign currency subject to fulfillment of conditions as mentioned in the Bangladesh Govt. Treasury Bond Rules-2003.
(ii)

3.23.2Loan facility:
JBL offers loan up to 90% of the present value of the bond/other securities against lien of the above instrument for their customers. Interested Financial

32

Institutions/Corporations/Insurance Companies/ Individuals are requested to contact the Bank in the following address

Chapter- 4

33

Theoretical Discussion

4.1 Credit:
The word Credit is derived from Latin word Credo, which means, I believe. It is usually defined as ones ability to buy with a promise to pay. From a bankers point of view, credit is the confidence of the lender on the ability and willingness of the borrower to repay the debts at a future date. Banks charge a higher interest for loans than the deposit rate given to customers. The difference in rates is the profit for a bank. 80% of a banks profit comes from the interests. Loans and advances comprise a large portion of banks assets and this is the backbone of a banks structure. The strength of a bank is primarily judged by the soundness of its loans and advances. So, the loan and credit department is a very important department of a bank. Credit policy is very important. If a bank takes very strict credit policy, then the amount of loan will be less. If the credit polity is flexible, then the amount of loan will be much. But strict credit policy leads to lesser bad loans. Sometimes, credit policy cannot prevent customers bad intention of not adjusting loans. This is why; strict credit policy is very necessary for every bank for the safety of their investments.

4.2 The importance of Securities in Credit:

Securities play a vital role in sanctioning credit. Security means things deposited as a guarantee of the undertaking or loan to be forfeited in case of failure to repay the same.

34

The customer/ guarantor should own it. In other words, the assets against which banks allow credits are called Securities. Good and strong securities help a bank to take decision about sanctioning credit. It also minimizes the risk. The type of securities offered may be, Government bonds, share, assignment of book debt or bills receivables, raw material and finished goods, fixed deposit receipts, land, factory building and other movable and immovable assets of the borrower. If a borrower becomes unable to adjust his loan, then bank can recover the loan amount by selling securities. That is why the role of securities is very important in credit system.

4.3 Present status of JBL:

JBL has the authorized capital of the Bank is Tk. 4000.00 million of 1,60,00,000 ordinary shares of Tk. 100 each and the paid up capital of the Bank is Tk. 1313.27 million divided into 4,290,000 ordinary shares of Tk. 100 each fully paid-up in cash. The following table shows the amount of fund indifferent sectors of JBL. The following table expresses the following situation JBL.

Table1: Present status of JBL

Particulars Authorized Capital Paid-up Capital Reserve fund Deposit (Core & Bank) Loan and Advances Investment Foreign Exchange Business Export Import Remittance Total Expenditure Net Profit/loss 2008 4000.00 1313.27 1131.07 27307.94 21036.86 4238.63 48929.14 18617.43 30311.71 3034.19 478.44 Taka in Million 2005 2007 4000.00 1225.71 647.01 20924.02 16617.45 5390.03 36182.17 13990.33 22191.84 2278.79 89.11 1600.00 1072.50 629.33 17284.81 12796.63 2552.67 27041.30 11583.64 15457.66 2048.58 253.40

35

4.4 Credit Policy:

4.4.1 Loans and Advances:
This section lends the fund what the bank mobilizes through its various deposit accounts. This is the second function of banks two generic function deposit mobilization and credit creation. The major part of banks income is derived from credit and since the banks credit is customers fund, bank takes extreme caution in lending.

4.4.2 Sanctioning Loans and Advance:

To have a clear idea about the credit management of JBL the following points are essential: a. Credit Policy of the Bank b. Credit Sanctioning Authority of JBL and c. Processing and Screening of Credit Proposal

4.4.3 Credit Policy of the Bank:

JBL Credit Policy contains the views of total macro-economic development of the country. As a whole by way of providing financial support to the trade, commerce and industry throughout its credit operation JBL goes to every possible corners of the society. They are financing large and medium scale business house and industry. At the same time they also take cares entrepreneur through its operation of lease finance and some micro credit, small loan scheme etc. The bank has come up with a scheme where women will be given financial support for their self-employment and development.

4.4.4 Credit Sanctioning Authority of JBL:

Delegated powers are expected to be exercised by the authorized executives sensibly keeping the bank's interest in mind. In exercising the power so delegated authorized executives shall also have credit restriction, tools and regulations as governed by Banking Company Act, Bangladesh Bank, and other usual credit norms. However, the following guidelines are laid down before the executives of JBL for exercising the delegated power The borrower must be a man of integrity and must enjoy good reputation in the market. The borrower must have the capacity and capability for utilizing credit .properly and profitably. The enterprise of the borrower must be viable and profitable i.e. proposal of the borrower must be evaluated properly and carefully so as to ascertain its

36

profitability. The enterprise must generate sufficient fund for debt and servicing." A customer to whom credit is to be allowed should be far as possible within the command area. . No sanctioning officer can sanction any credit to any of his near relatives and to any company where his relatives have financial interest.

4.4.5 Tools for Appraisal Credit:

The 10 C's of Good and Bad Loan- In addition to the formal credit appraisal, the credit an official of JBL tries to judge the possible client based on some criteria. These criteria are called the C's of good and bad loan. These are described below: Character: Make sure that the individual or company they are lending has outstanding integrity. Capacity: Make sure that the individual or the company they are lending has the capability of repaying the loan. Condition: Understanding the business and economic conditions that whether it will change after the loan is made.

Capital: Make sure that the individual or the company they are lending has an appropriate level of investment in the company. Collateral: Make sure that there is a second way out of a credit but do not allow that to drive the credit decision. Complacency: Official do not rely on past. They remain alert every time whether any mistake is taking place or not. Carelessness: They believe that documentation, follow up and consistent monitoring is essential to high quality loan portfolio. Communication: They share credit objectives and credit decision making both vertically and laterally within the bank. Contingencies: Make sure that they understand the risk, particularly the downside possibilities and that they structure and price the loan consistently with the understanding. Competition: They do not get swept away by what others are doing

4.4.6 Lending Risk Analysis (LRA):

Lending Risk Analysis is a. financial tool to ana1yz the risk associate in a loan proposal. According to Bangladesh Banks order every bank has to conduct LRA for every loan amounting Tk. 1 Crore and above. JBL is frequent user of this technique.

37

4.4.7 SWOT Analysis:

It is a technique used by the credit officers to evaluate credit proposal submitted by the company especially by the production concern. Here, S stands for Strength W stands for Weakness O stands for Opportunity T stands for Threat

Strength
It analyzes the inherent of the company, resilience, and brand loyalty, endowment etc.

Weakness
This analyzes the inherent weakness of a company, such as management, supply risk etc.

Opportunity
This analyzes the opportunity, which will be available to a company in a near future, such as tax incentives export credit facilities etc.

Threat
It analyzes the threats, which the company may face such as legal barriers, withdrawals of tax exemption and international law; withdraw of most favorable nation (MFN) and GSP facilities etc.

4.4.8 Credit Monitoring and Supervision Cell:

JBL is a unique characteristic in its loan management to make sure that there will 'be no bad loan in its-loan portfolio, JBL established a loan monitoring and supervision cell headed by a First Assistant Vice President. He along with other official frequently visits "customer premises or business whether loan amount, which is taken is used properly or not. Sometimes customer need more fund or ether types of facilities to run business profitably, then the monitoring authority takes necessary steps to meet customer's need

4.4.9 Processing and Screening of Credit Proposal:

There are some common regulations governed by Banking Company Act, 1991 Bangladesh Bank and the law of the State which has to be followed strictly at the time of screening a credit proposal. In addition credit proposals are appraised critically by JBL credit officials from various angles to judge the feasibility of proposal. The customer at the branch of the bank place credit proposals. When a customer comes with accredit proposal, the credit department officials of the branch make an open discussion with the customer on different issues of the proposal to judge worthiness of the proposal and customer. If the proposal seems worthwhile in all aspect then the proposal is placed before credit committee of the bank. After threadbare discussion, if the committee agrees in principle the proposal is sanctioned as per the delegated business power of the branch.

38

However, if the magnitude of the proposal is beyond the delegated business power of the branch they forward it to the Head Office with recommendation for sanction or approval. On receiving the proposal, the Credit Division of Head Office places the proposal in the Head Office Credit Committee. The committee further analyzes proposals critically and if agree in principle they sanction the same as per delegated business power. Again if the merit and magnitude of the proposal is beyond the delegated business power of the Head Office Credit Committee or Managing Director they forward proposal to the Board of the Bank with recommendation for approval. If the proposal is found unviable at the branch level they decline the same from their desk. In the same way, proposals are also declined from the Head Office Credit Committee and from Board if it is not feasible.

Processing and Screening of Credit Proposal

Branch Office
Customer Credit Officer

Credit Committee

Head Office Credit Committee

Executive Committee Board

39

4.4.10 Securities:
It is essentia1 that the proposals define clearly the purpose of the facility, the sources of repayment, the agreed repayment schedule, the value of security (land, machinery, security papers, bond, sanchaypatra etc.) and the customer relationships consideration implicit in, the credit division. Where the security is to be accepted as collateral for the facility all documentation relating to the security shall be in the approved from. All approval procedures and required documentation shall be completed and all securities shall be place prior to the disbursement of the facility. For creation of mortgage on the property-JBL requires the following documents: Original sale deed favoring owner of the land Certified copy of the sale deed of the previous owner of the same property. Duplicate Carbon Receipt (DCR) Up to date rent receipt and Municipal Tax Receipt Certified copy of C.S.S A. and R.S. Khatians Up to date Non-Encumbrance Certificate Valuation Certificate Clearance from RAJUK/WORKS MINISTRY

RAJUK approved plan of the building with the approval letter Photograph of the property from three different angles and the owner of the property Site Plan/ Mouza Map Board Resolution for mortgaging property if the same belongs to any Limited Company. The borrower is requested to submit the above-mentioned papers in original for verification by the Bank lawyer and creation on the property intended to mortgage against advance.

4.4.11 Documentation:
A document is a written statement of facts of proof or evidence arising out of particular transaction, which on placement may bind the parties there to answerable and liable to the law for satisfaction of the charge in question. The execution of documents in proper form and according to the requirements of the law is known as documentation. The documentation does establish a legal relationship between the lending bank and the borrower. The terms and conditions of loans and advances, the securities charged and the repayment schedule are recorded in writing. Proper documentation is necessary to safeguard the future interest of the bank. Documents are necessary for the acknowledgement of the debt by the borrower and

40

charging of securities to the bank by him. Proper and correct documentation is essential not only for the safety of advance but also necessary for taking legal action against the debtors in case of non-repayment of dues. Depending on the types of loans and advances different documents are required. Such as 4.4.11.1 Documentation of Loan: Demand of Promissory (D.P) Note Letter of partnership (in case of partnership concern) or resolution of the board of Directors (in case of Limited concern) Letter of Agreement Letter of Disbursement. Letter of Pledge (in case of pledge of goods) Letter of Hypothecation (in case of hypothecation of goods) Trust Receipt (in case-of L TR facility) Letter of Lien and Ownership (in case of advance against share) Letter of Lien for Packing Credits (in case of packing credits) Letter of Lien (in case of advance against FOR) Letter of Lien and transfer authority (in case of advance against PSP, SSP etc) Legal documents for mortgage of the property (as drafted by legal advisor)

4.4.11.2 Documentation of Overdraft: Demand of Promissory (D.P) Note Letter of partnership (in case of partnership concern) or resolution of the board of Directors (in case of Limited concern) Letter of Agreement Letter of Continuity Letter of Lien Legal documents for mortgage of the property (as drafted by legal advisor) 4.4.11.3 Documentation of Cash Credit: Demand of Promissory (D.P) Note Letter of partnership (in case of partnership concern) or resolution of the board of Directors (in case of Limited Concern) Letter of Agreement Letter of Continuity Letter of Pledge (in case of pledge of goods) Letter of Hypothecation (in case of hypothecation of goods)

41

4.4.11.4 Documentation of Bills Purchased: Demand of Promissory (D.P) Note Letter of partnership or resolution of the board of Directors Letter of Agreement Letter of Hypothecation of Bill All required Documents as mentioned before should be obtained before any loan is disbursed. Disbursed of any credit facility requires approval of the component authority that should ensure before exercising such delegated authority that all the required documentation have been completed. Credit Facilities Extended by JBL Classification of Loan The main functions of a commercial bank are two: 1) to take deposit and 2) to make advance. Making advance is the most important function of a bank. This depends on the profitability of the bank. Moreover, Bank make advance out of the deposits of the public CC Hypo (Cash Credit Hypo) which are payable at demand. A Commercial Bank makes advances to different sectors CC Pledge (Cash Credit Pledge) for different purpose i.e. financing of Trade and Commerce, Export and Import, Overdraft (Secured Overdraft) Industries, Agriculture, Transport, House-Building etc.

Continuous Loan

Force /Demand Loan

PAD (Payment Against Document) LDBP (Local Documentary Bills Purchased)

FDBP (Foreign Documentary Bills Purchased)

4.5 Classification of Loan:

LIM (Loan Against Imported Merchandise)

LTR (Loan Against Trust Receipt) There are various kinds of loan Jamuna Bank Ltd. Demand Loan ABP (BTBL/C) Demand Loan ABP (D/P;L/C)

Term Loan
Hire Purchase Loans (General) Lease Finance Personal loan for women Consumer Credit Scheme

42

SME

4.5.1 Continuous Loan of Jamuna Bank Lid:

4.5.1.1 CC Hypo (Cash Credit Hypothecation): Cash Credit allowed against hypothecation of an asset is known as Cash Credit (Hypo). In case of hypothecation; the borrower retains the ownership and possession of goods on which charge of lending bank is created. For Cash Credit (Hypo) Bankers takes following precautions: The banker carefully verifies the stocks of the hypothecated assets and their market price Obtains periodical statement of stock duly signed by the borrower Ensure that stocks are duly insured against fire with bank clause. Obtains sufficient collateral securities. Identify that whether the goods are ready saleable and whether they have good demand in the market. Ensure the borrowers trustworthiness. 4.5.1.2 CC Pledge (Cash Credit Pledge): Cash Credit allowed against pledge of goods is known as Cash Credit (Pledge). For Cash Credit (Pledge) the borrower pledges his goods to the banker as a security against the credit facility. The ownership of pledge goods remains with the pledged. The bank remains the effective control of the pledged goods. Pledged goods can be stored in the custody of borrower but under lock and key of the bank. Banks appointed guards are taken care of those goods round the clock. The banks delivered the pledged gods to the party by turns against payment. For Cash Credit Pledge following points are taken into consideration before allowing. Whether the quality of goods is ascertained. Whether the goods are easily saleable and those goods must have good demand in the market. The quality of goods is ensured. The goods cannot be perishable and will not deteriorate in quality as a result for short and long duration. The borrower has the absolute title of goods. The prices of the goods have to steady and are not subject to violent change. Goods should be stored in the presence of a responsible bank office. Ensure that stocks are duly insured against fire, burglary, with bank clause. Stocks must be inspected regularly by responsible bank office. The locks of the store are sealed and keys are kept in the bank.

4.5.1.3 Overdrafts:

43

The overdraft is always allowed on a special A/C operated upon cheques. The customers may be allowed a certain limit up to which he can overdraw within a specific period of time. In an overdraft A/C withdrawal and deposit can be made any number of times within the limit and prescribed period. Interested is calculated and charged only on the actual debit balances on daily product basis. Overdrafts are three types 1. Temporary overdraft (TOD) 2. Clean overdraft (COD) 3. Secured overdraft (SOD) 3.1 Temporary overdraft (TOD): Temporary overdraft (TOD) is allowed to honor cheques which is future dated for the valued client without any prior arrangement. This kind of facilities is provided for short time. 3.2 Clean overdraft (COD): Sometimes Overdrafts are allowed with no other security except personal security of borrowers. 3.3 SOD Secured overdraft (SOD); When Overdrafts are allowed against security is known as Secured Overdraft (SOD). Purposes: To businessman for expansion of their business. To contractors and suppliers for carrying on construction works and supply orders. Securities: Lien on fixed/term deposits. Shares/Debentures /Protiraksha Sanchay Patra Insurance Policy. Mortgage on real estates and properties. Interest Rate: 12 % per annum or the interest rate paid to the customers with adding 2.5%.

4.5.2 Forces/Demand Loan of Jamuna Bank Ltd:

44

4.5.2.1 Payment against Document (PAD): Under this arrangement, credit is allowed against documents for import of goods. These kinds of loans are provided after L/C. Eligibility PAD is generally granted to importer for import of goods. Interest Rate: 16 % per annum

4.5.2.2 Internal Bills Purchased (IBP): This kind of arrangements is allowed for purchase of internal bills. Some times Contractors needs money to his liquidity problem. To avoid this kind of situation they want to take loan against their future dated cheque. Eligibility Internal Bills Purchased is usually provided for future dated cheque against some service charge before 21days of the maturity date.

Interest Rate: 13 % per annum

4.5.2.3. Loan against Imported Merchandise (LIM): This is as similar as CC Pledge. But these loans are provided to the selected customers with internal contract. Eligibility This loan is only for the old and some special customers. Interest Rate: 14 % per annum 4.5.2.4. Loan against Trust Receipt (LTR) Under this arrangement, credit is allowed against trust receipt and the exportable goods remain in the custody of exporter but he is required to execute a stamped export trust receipt in favor of the bank. Where the declaration is made that he holds purchased with financial assistance of the bank in trust for the bank. Eligibility: LTR is generally granted to exporter for exportation of goods.

45

Interest Rate: 16 % per annum 4.5.2.5 Local/Foreign Documentary Bills Purchased (LDBP/FDBP): Under this arrangement, credit is allowed for exporter for exportable goods. Banks provide all the agency commission. Its payback period is 21 days. Eligibility LDBP/FDBP is generally granted to exporter for exportation of goods. Interest Rate: 16 % per annum

4.5.2.6 Letter of Credit: Issuing letter of credit is one of the important services for JBL. A letter of credit is a document authorizing by the bank for a specific amount of money. Two types of L/C is provided by JBL. Demand Loan ABP (Back To Back L/C) Demand Loan ABP (Deferred Payment; L/C) Eligibility: This facility is given to the exporter/manufacturer/producer. Terms and Conditions: It should stipulate the name of the loan/credit/grant. It should bear the name of the designed bank. Item mentioned in the LCA form must contain with the permissible item. Commission: 0.5% per quarter.

4.5.3 Terms Loan of Jamuna Bank Ltd:

46

4.5.3.1 Hire Purchase: The feature of hire purchase is that borrower pays his remaining amount over a period of 6 month to 2 years & some times more than 2 years. For this kind of credit the goods, which has been purchased, registered to the bank as owner. And after end of final payment goods are registered to owner formally. Eligibility Hire purchase facility is allowed to those people who have either fixed source of income or desire to pay it in lump sum. Interest Rate: 16 % per annum

4.5.3.2 Loans (General); When an advance is made in a lump sum repayable either in fixed monthly installment or in lump sum and no subsequent debit is ordinarily allowed except by way in interest and incidental charges etc. This is loans (general). Loan is allowed for a single purpose where the entire amount may be required at a time or in a number of installments within a period of short Spam. After disbursement of the entire loan amount, there will be only repayment made by the borrower. Loan once repaid in full or in part cannot be drawn again by the borrower. Entire amount of the loan A/C in the name of the customer and is paid to him through his SB/CD A/C. Sometimes loan amount are disbursed in cash. This loan is repayable within few months or few years. Securities: 1. Lien on fixed/term deposits. 2. Shares/Debentures/Protiraksha Sanchay Patra 3. Insurance Policy 4. Mortgaze of Real estates and properties 5. Hypothecation of stock/Stock/Machinery. Interest Rate: 16 % per annum

4.5.3.3 Lease Finance:

47

Jamuna bank Ltd. is the first private commercial bank in Bangladesh who introduced lease finance facilities for funding requirement of valued customers & growth of their business. Lease Items Vehicles like luxury bus, Mini bus, Taxi Cabs Cars, Pick-Up Van Etc. Factory equipments. Medical equipments. Machinery for agro based industry. Construction and office equipment. Sea or river transport and computer for IT education center.

Table 2: Lease Period by Items

Sectors
Vehicles like luxury bus, Mini bus, Taxi Cabs Cars, Pick-Up Van Etc Factory equipments Medical equipments Construction equipment. Office equipment. Generators, Lift & Elevators for Commercial place Sea or river transport Computer for IT education center Machinery for agro based industry

Period Up to Years 4 5 5 3 3 3-5 4 2-3 5

Maximum Limit: 70% of acquisition cost. Security /Collaterals: The following securities are acceptable. Ownership of leased assets before the period of loan adjustment. Collateral securities in the form of land & building /Fixed Deposits/Other cash collateral /Wage Earners Development Bond having liquidation value covering at least 100% amount of finance.

48

Deposit of A category shares, National Savings Certificates, ICB Unit Certificates, assignment of life insurance policies, Bank Guarantee also be allowed as collateral securities. Creation of charge of fixed assets of the existing industrial units requiring BMRE. Creation of charge on the existing vehicle will also be acceptable as securities.

Charges: Bank charges are modest and competitive. Lease Deposit: Before disbursement of lease finance, the lessee shall have to deposit 3 months rentals in advance, which will be adjusted at the end of the lease period. Grace Period: For capital machinery and equipment, maximum grace period of 6 (six) months may be allowed for installation/commercial production. Payment Date: Rental payments shall be made every month and there shall be three payment dates as detailed below. If lease executed Between 1st to 10th........ 5th of subsequent months Between 11th to 20th........ 15th of subsequent months After 20th....................... 25th of subsequent months

Insurance Coverage:
The vehicle /Equipment /Lease asset shall have to be covered by a comprehensive insurance policy throughout the whole lease term at lessees own cost in the name of Jamuna Bank Limited. The premium shall be on account of lessee. Repair and Maintenance of Leased items: The lessee is obliged to maintain the vehicle/Equipment in good working order and is solely responsible for any loss or damage as long as it is in his possession. Repair and maintenance cost for taking care of normal wear and tear and keeping it in good running condition during the lease period shall be the responsibility of lessee.

Transfer price/Lease Renewal Rental: On final adjustment of the lease finance, the lessee may have an option to purchase the equipment at 5% of the lease finance. Besides the above option, the lessee may renew the lease on year-to-year basis or return the equipment to the bank.

49

4.5.4 Personal Loan for Women:

This is one of the new events in Bangladesh in credit sector. Woman who are interested and has the ability to pay it back in time those can get this kind of facility. To encourage the women JBL provide loan with low interest. Eligibility: The borrower must be the following profession. Service holder of Government Organization Service holder of Semi- Government Organization Service holder of Multinational Organization Service holder of Bank and Insurance Company Shop owner/has small business. Interest Rate: 15.5 % per annum

4.5..5 Consumer Credit Scheme:

Consumer credit is recently new field of micro credit activities; people who have limited income can avail of this credit facility to buy any household effects including car, computer, household and other commercial durables. JBL plays a vital role in extending the consumer credit. Eligibility: The borrower must be the employee of the following organization. Government Organization Semi- Government Organization Multinational Organization Bank and Insurance Company Reputed Commercial Organization Professionals Interest Rate: 16 % per annum

4.5.5 SME or Micro Credit of JBL:

Small businesses play a significant role in the socio economic development of a country. Irrespective of the systems of the economy, growth stage of the country, place of

50

industry in the economy, use of skill & technology in any country small business plays an important role which none of the concerned people dare to undermine though small in size but small business and their entrepreneurs are big with large potentiality. Jamuna Bank limited has also launched this SME policy for small businesses. Bangladesh Bank Provide BRPD Circular No. 07, dated 03.11.04 has given prudential regulatory guidelines for Small Enterprise Financing with the advice to the commercial banks to implement the same. The role of Small and Medium Enterprises is very crucial in the economic development of the country. SME plays the vital role for employment generation, particularly self-employment by making significant contribution of 25% to GDP.. As a part of commitment, JBL may substantially contribute to the socioeconomic development of the country providing financial support to the Small and Medium Enterprise sector. In spite of the importance of the SME, the entrepreneurs in this sector are facing constraints in access to institutional credit particularly from banking institutions. Lack of access to credit is considered as one of the most serious impediments for growth of the SME sector. The main reasons for credit constraints are the complex and cumbersome lending procedures and traditional collateral requirements of the banks. The finance in this sector requires constant, intensive and close supervision and monitoring on the part of the bank. Traditionally the Banks do not usually take interest in this sector since the loan amount is small, absence of acceptable collateral security and cost of supervision. The scope of investment of Bank is gradually going to be limited due to stiff competition and small economy compared to large numbers of Banks. But the SME segment is still almost virgin, untapped and uncovered by institutional finance and as such there is ample scope and good opportunity for investment so as to take the advantage to increase the portfolio providing a viable and vast lending outlet for the bank. Effective rate of return on SME Financing is comparatively higher over the large loan because of lower bargaining strength of the customers. Under SME it is easier to recover banks money by selling/foreclosing the security as the customers have not that much strength and influence to face court case unlike big customers.

It is more comfortable for the bank if the finance to SME is given in the form of term loan. Because in case of term loan, the money is recovered gradually by installments reducing the outstanding and full adjustment within the validity of

51

the limit enabling more recycling of banks funds. But the continuous loan is perpetual in nature and never-ending process. If the customer falls into crisis, it is very difficult to recover the loan. As per guidelines of Bangladesh Bank higher provision shall have to be made for SME loans. A general provision @ 2% is to be maintained on the outstanding SME loans, which is 1% for other loans. Unlike others credits, there is 100% refinance facility from Bangladesh Bank at bank rate i.e. presently 5%. However, the facility shall be available only for term loans. And as such, JBL may prefer term loans to continuous loans.

4.5.6 SME Credit Scheme:

In view of the above and in the light of guidelines of Bangladesh Bank, the bank authority has approved Small Enterprise Financing Scheme as under: I. It is a segment of business loan which is directly different from personal/retail credit e.g. consumers credit, auto loan and other personal/retail loan products. II. If the loan amount is covered by FDR up to 50% of the loan and the customer has regular cash-flow to pay installments, then further security shall not be insisted for other than Hypothecation of stock or items financed and personal guarantee of the customer. This is because of the fact that on paying loan installments, the outstanding loan amount is gradually reduced and the value of the FDR. III. For experienced tested customers with good past track record who have a repaid loan under Double loan scheme twice as per sanction terms and business growth is satisfactory. IV. For good repayment, incentive may be allowed to the customers @5%of interest charged as rebate. V. Loan processing procedures under SME should be made simple easier. VI. Scoring system shall also be introduced for selection of the customers. VII. This shall be a supervised credit scheme where the security shall be decided on case-to-case basis considering the merits of the proposal and the risk factor.

4.5.6.1 Establishment of small Enterprise unit: The concept of managing Core Risk in banking is the segregation and separation of the marketing/sales function from Approval/Risk Management where administration

52

functions will be under operations umbrella. With this end in view, a separate risk management capacity to be established in the credit division, of JBL Head Office for the purpose of Small Enterprise finance/business. Small Enterprise Unit shall be headed by a senior level executive at H.O. Bank shall put in place efficient computer based MIS to effectively cater to the needs of small Enterprise financing portfolio. The following chart represents the preferred management structure at Head Office level:

Managing Director
Deputy Managing Director

Head of Credit

In-Charge, SME Department

4.5.6.2 Definition of Small Enterprise: Small Enterprise (SE) means an entity; ideally not a public limited company does not employ more than 60 persons (if it is a trading concern) and 30 persons (if it is a service concern) and also fulfills the following criteria: a) A service concern with total assests at cost excluding land and building from tk.50, 000 to tk.30.00 lac. b) A trading concern with total assests at cost excluding land and building from tk. 50, 000 to tk.1.00 crore.

SME Credit Analysis & Verification Unit

SME Credit Monitoring &Collection Unit

SME Credit Administration Unit

4.5.6.3 Customer segment: Initially, Small Enterprise located within the accessible area of JBL branches will be the targeted areas under this program. The entrepreneurs should have an existing profitable business or a viable business plan.

53

I. Small Enterprise financing, like other credit facilities must be subject to the Banks risk management process setup for this particular business. The process may include identifying sources of repayment assessing customer ability to repay, expected future cash flows, his/her past dealings with the bank The net worth and information obtained from a Credit Information Bureau (CIB) of Bangladesh Bank. II. At the time of granting facility under various modes of SME, a written declaration shall be obtained from the borrower divulging details of various facilities already obtained from other institutions to ensure that the total exposure in relation to the repayment capacity of the customer does not exceed the reasonable limits as laid down in the approved policies of the bank as well as to help avoid exposure having multiple facilities.

Nationality:
SME firm/company must be Registered and shared owned by Bangladeshis Application must be 100% private owned Principal place of business must be in Bangladesh.

Age limit:
Age range must be between 20years to 60 years.

4.5.6.4 Purposes: Grocery/departmental/whole sale store Confectionary/bakery (owned by the bakers) Stationary shops

54

Cloth materials & small local garment traders Shoe makers/shops PVC & plastic product traders/small manufacturers Tiles/sanitary items retailers Computer/Photostat/Cyber Caf. Electrical & electronic items retailers Pharmacy Gift shop/cosmetics shops Restaurant/fast food joints Hardwire shops Glass/ceramic retail outlets Sports kit retailers Photo studio Rod, Cement & C.I. Sheet (Tin) Shop Engineering Workshop Fertilizer & Pesticide shop

Limit on clean facility for tk.2 lac to below tk.10 lac: In order to facilitate growth of smaller loans, banks are free to determine security requirements for loan below tk. 10 lac. The branches of this bank also obtain other common documents/charge documents as at $ 1.2.1; 2.5 and others as applicable. Maximum Exposure: As per Bangladesh Banks Guidelines JBL can take the following maximum exposure in SMEs:
Table3: Maximum Exposure limit

% of classified SME advances to total portfolio of SME advances Below 5% Below 10% Below 15% Up to and above 15% Source :( collected from JBL own branches).

Maximum limit 10 times of the equity 6 times of the equity 4 times of the equity Up to the equity

4.5.6.5 Period of SME Loan: I. For continuous Loan/Bai-Murabaha II. For Term Loan/HPSM

: 1(one) year : Maximum up to 5 (years).

55

4.5.6.6 Mode of Repayment: a. For continuous loan credit turnover must be equal to the limit amount in a quarter and full and final adjustment within the validity period b. For term loan, repayment to be made by monthly installment and full and final adjustment within the validity period. 4.5.6.7 Loan Documents: Common documents applicable for Proprietorship/Partnership/Limited Company: * Loan Application from duly signed by the customer. Loan Application form should be accompanied by a Borrowers Basic Fact Sheets Basic Fact Sheet under the seal and signature of the borrower. * A written declaration shall be obtained from the borrower divulging details of Various facilities already obtained from other institutions. * Acceptance of the terms and conditions of Sanction Advice. * Trade License. * Photographs of the proprietor / partners / directors duly attested. * Personal net worth statement of the proprietor / partners / directors. * Copy of TIN Certificate. * Short description of the products of the enterprise. * Project Profile (if new project). * Quotation / Intent / Pro-forma Invoice etc (as applicable) * Marketing / distribution system of the company. * Short profile of the proprietor / partners / directors mentioning their business experience / education etc. * Brief description of the management of the company mentioning their educational professional experiences. * Name and address of the sister/allied concerns. * Group Brochure. * Name and address of present bankers. * A latest liability statement of all the business concerns of the Group with other Bank/Financial Institutions (Mentioning-name of business concern name of bank and branch, nature of facility, limit amount, outstanding, Overdue if any etc.) * Credit information Bureau (CIB) report from Bangladesh Bank.

Wherever practical, insurance policy for 110% of the stock value covering potential with banks mortgage clause in joint of the bank and client.

56

4.6 Natures of SME Business of Jamuna Bank Ltd:

4.6.1 Proprietorship Firm:
Copy of financial statements for last 03 years for analysis and record is required. However, financial statements singed by the borrower will suffice where the exposure is fully secured by liquid assets. Common documents and charge documents as at SL. 2.1:2.5 and other as applicable.

4.6.2 Partnership Firm:

a) Copy of Registered Partnership Deed duly certified as true copy or a partnership Deed on non-judicial stamp of Tk. 150 denomination duly notarized. b) Copy of financial statements for last 03 years for analysis and record. However, financial statements singed by the borrower will suffice where the exposure is fully secured by liquid assets. Common documents and charge documents as at SL 2.1:2.5 and others as applicable.

4.6.3 Limited Company:

Copy of Memorandum & articles of Association of the company including Certificate of Incorporation duly certified by Registrar Joint Stock Companies (RJSC) and attested by the Managing Director accompanied by an up-to-date list of Directors. Copy of Board Resolution of the company for availing credit facilities and authorizing Managing Director/Chairman/Director for execution of documents and operation of the accounts. An Undertaking not to change the management of the company and the memorandum and articles of the company without prior permission of the bank. An Undertaking not to change the management of the company and the memorandum and articles of the company without prior permission of the bank. Copy of financial statements for last 03 years for analysis and record. However, financial statements singed by the borrower will suffice where the exposure is fully secured by liquid assets. Certificate of Registration of charges over the fixed and floating assets of the company duly issued by RJSC.

Certificate of Registration of amendment of charges over the fixed and floating assets of the company duly issued by RSC in case of repeat loan

57

or change in terms and condition of sanction advice regarding loan amount, securities etc. Common documents and charge documents as at SL 2.1: 2.5 and others as applicable. Legal Documents:
All documents formalities pertinent to the mortgage of properties are to be examined/ completed by the Pane Lawyer of the bank along with legal opinion.

Minimum conditions for taking exposure:

1. It is recognized that a large number of enterprises other than limited companies (i.e. sole proprietorship /partnership firms etc) may not have proper books of accounts including balance sheet, profit & loss account and the may not be able to prepare current and future cash flows due to lack of sophistication and expertise. 2. It is expected that in such cases, banks shall assist the borrowers in obtaining/developing such books of accounts as per forms/formats prescribed by each bank and no SE shall be declined access to credit merely on this ground. 3. Bank shall not approve and /or provide any exposure (including renewal, enhancement and rescheduling) until and unless the prescribed loan Application Form is accompanied by a Borrowers Basic Fact Sheet under the seal and signature of the borrower.

Timing of creating provision:

Bank /Branches shall review, at least on a quarterly basis, the collectibles of their loans /advances portfolio and shall properly document the evaluations so made. Shortfall in provisioning if any, determined, as a result of quarterly assessment shall be provided for immediately in their books of accounts by the branch /concerned Department of Head Office on quarterly basis.

Verification by the auditors:

The external auditors as a part of their audits of banks shall verify that all requirements of regulation -12 for classification and provisioning for assets have been complied with. Bangladesh Bank shall also cheek adequacy of provisioning during on site inspections.

4.7 Necessary formats for SME Loan:

58

To process, appraise and analysis the loan proposal the following formats are enclosed herewith: (i) Loan Application Form (ii) Borrowers Basic fact Sheet (iii) Borrowers Credit rating Sheet (iv) Personal network statement. (v) Declaration of liabilities in the name of sister /allied concerns. (vi) Debit authority (for term loan only) (vii) Profile of the client /proprietor /partners /directors (viii) Short description of the products of the enterprise (ix) Declaration of the Borrower regarding liability (x) Information of the guarantor (xi) Irrevocable letter of authority with regard to post dated cheque (xii) Letter of lien and set off over Deposit Accounts /Margin Deposits (xiii) Personal Guarantee (xiv) DP Note (xv) Letter of continuation (xvi) Letter of Disbursement.

4.8 Categories/ Types of SME Credit Scheme:

Considering the existing market demand, profitability for the Bank and to diversify the risk portfolio of the Bank, the board of directors of JBL in its 50th meeting held on 08.01.06 approved revised SME credit policy in line with the guidelines of Bangladesh Bank and also approved the following SME products for launching in JBL-

4.8.1 Double Loan (Double Amount of Loan FDR Value):

In most cases, the SME owners do not own adequate immovable property that can be accepted by bankers as collateral for loans. Movable assets that the SME can provide are rarely accepted as principal security for loans. So to boost SME financing a term loan is launched under which loan amount shall be double of FDR value. This facility shall be provided to those who have Proven track record Experience Adequate cash flow to repay installment Reputation in respect of fulfilling commitment.

59

Under this product, if the loan amount is covered by FDR up to 50% of the loan amount and the customer has regular cash-flow to pay installments and deposit of installments by the customer is followed up the loan is likely to be secured and for experienced customers with good past track record who have successfully repaid loan under Double Loan Scheme at least twice business cash flow has grown accordingly, credit facility up to 03 times of the FDR value may be considered. The following formalities should be followed by the SMEs Double Loan1.1: Customer Segment : Any Small and Medium Size Entrepreneur. 1.2: Mode of Finance : Term Loan 1.3: Purpose : a) Capital Investment b) Working Capital Finance 1.4: Experience : Minimum 02 years with successful track records 1.5: Nationality : Bangladeshi 1.6: Age Limit : Between 25 years to 50 years. 1.7: Loan Size : Tk. 2.00 Lac to tk. 50.00 Lac (Depending on requirement and regular source of cash flow to service the loan installment) 1.8: Security / Collateral (Case to Case basis) : a) Loan of FDR; b) Hypothecation of machineries, equipment, vehicles, inventories; c) Personal Guarantee of the spouse(s); d) Personal Guarantee of the person(s); e) Post dated check for each installment and one undated check for full loan value including full interest; f) Any other security as deemed fit on a case to case basis; 1.9: legal documents 1.10: Rate of Interest/Return 1.11: Loan processing fee 1.12: Penal interest/Compensation 1.13: Maximum period of Loan 1.14: Repayment method 1.15: Disbursement mode : as per documentation checklist. : 16% P.A : 1% of the loan amount : 4% P.A on the overdue amount : 05 years : Installment basis : Shall be disbursed in lump-sum/ at a time.

60

4.8.2 Loan for Purchase of Business space/possession right:

It is very comfortable and convenient if SMEs can run the business from own office shop. A permanent place of business can serve rental expense and other hassles as well as can enhance credit worthiness of the enterprise in the market. But a mare dream to SME for want of fund at his disposal to purchase a business space/possession right. Because now-a-days it is too costly in the part of SME to materialize this dream from his own source(s). Thus to recover this problem and to help the SME to own a business/possession right JBL can offer/initiated a loan product titled Loan for Purchase of business space/possession right The following formalities should be followed by the SME- Loan for Purchase of business space/possession right. 2.1: Customer Segment 2.2: Mode of Finance 2.3: Purpose 2.4: Experience 2.5: Nationality 2.6: Age Limit 2.7: Loan Size : Any Small and Medium Size Entrepreneur. : Term Loan : Purchase of business space/possession right. : Minimum 02 years with successful track records : Bangladeshi : Between 25 years to 50 years. : Tk. 2.00 Lac to tk. 50.00 Lac (Depending on requirement and regular source of cash flow to service the loan installment) 2.8: Security / Collateral (Case to Case basis) : a) Ownership of the space/possession right purchased in the banks name; b) 30% of the purchase value in the form of FDR duly likened & discharged; c) Hypothecation of machineries, equipment, vehicles, inventories; d) Personal Guarantee of the spouse(s); e) Personal Guarantee of the person(s); f) Post dated check for each installment and one undated check for loan value including full interest; g) Any other security as deemed fit on a case to case basis; 2.9: legal documents : As per documentation checklist. 2.10: Rate of Interest/Return : 16% P.A 2.11: Loan processing fee : 1% of the loan amount 2.12: Penal interest/Compensation : 4% P.A on the overdue amount 2.13: Maximum period of Loan : 05 years 2.14: Repayment method : By monthly rental/Installment basis 2.15: Disbursement Mode : Direct to the seller.

61

4.8.3 Festival Credit:

Bangladesh is land of multiple religions with multiple culture & various festivals. A portion of our entrepreneurs make their products targeting different festival like Eid, Bengali New Year, Durga Puja, Christmas ect.for producing bulk quantity with shortest period of time, they face fund crisis. As such, they borrow money from moneylenders at exorbitant interest rate. To overcome this problem JBL has come forward with a new product for SME customers named as Festival Credit. The following formalities should be followed by the SME- Loan for Purchase of business space/possession right. 3.1: Customer Segment 3.2: Mode of Finance 3.3: Purpose 3.4: Experience 3.5: Nationality 3.6: Age Limit 3.7: Loan Size : Any Small and Medium Size Entrepreneur. : Term Loan (For Conventional Branches of JBL) : Purchase of Inventory. : Minimum 02 years with successful track records : Bangladeshi : Between 25 years to 50 years. : tk. 2.00 Lac to tk. 50.00 Lac (Depending on requirement and regular source of cash flow to service the loan installment) 3.8: Security / Collateral (Case to Case basis) : a) Registered mortgage with power of authority; b) Hypothecation of machineries, equipment, vehicles, inventories; c) Personal Guarantee of the spouse(s); d) Personal Guarantee of the person(s); e) Post dated check for each installment and one undated check for loan value including full interest; f) Any other security as deemed fit on a case to case basis; 3.9: legal documents : As per documentation checklist. 3.10: Rate of Interest/Return : 16% P.A 3.11: Loan processing fee : 1% of the loan amount 3.12: Penal interest/Compensation : 4% P.A on the overdue amount 3.13: Maximum period of Loan : 06 (six) months 3.14: Repayment method : By monthly Installment or in lump sump within the loan period after the festival. In case of term loan installment may be realized as under: a) Interest/profit will be recovered in each month b) Principal will be realized with the last installment. 3.15: Disbursement Mode : One time.

62

4.8.4 Shop/Office Renovation Loan:

Now-a-days, Office/Commercial space renovation with most modern interior & exterior decoration is essential to attract customers. But attractive interior & exterior design of a shop/office is too costly to afford by SMEs. To overcome this problem, JBL has come forward with a new product for SME customers named as Shop/Office Renovation Loan. The Shop/Office should preferably be owned/possession right purchased by the customers or minimum 10 years valid Lease Agreement with the owner. The following formalities should be followed by the SMEs Shop/Office Renovation Loan 4.1: Customer Segment : Any Small and Medium Size Entrepreneur. 4.2: Mode of Finance : Term Loan (For Conventional Branches of JBL) 4.3: Purpose : Shop/Office Renovation 4.4: Experience : Minimum 02 years with successful track records 4.5: Nationality : Bangladeshi 4.6: Age Limit : Between 25 years to 50 years. 4.7: Loan Size : tk. 2.00 Lac to tk. 50.00 Lac (Depending on requirement and regular source of cash flow to service the loan installment) 4.8: Security / Collateral (Case to Case basis) : a) Registered mortgaged of property/Assignment of possession right; b) Lien of FDR duly discharged covering at least 25% of the Loan amount; c) Hypothecation of machineries, equipment, vehicles, inventories; d) Personal Guarantee of the spouse(s); e) Personal Guarantee of the person(s); f) Post dated check for each installment and one undated check for full loan value including full interest; g) Any other security as deemed fit on a case to case basis; 4.9: legal documents : as per documentation checklist. 4.10: Rate of Interest/Return : 16% P.A 4.11: Loan processing fee : 1% of the loan amount 4.12: Penal interest/Compensation : 4% P.A on the overdue amount 4.13: Maximum period of Loan : 05 years 4.14: Repayment method : Installment basis 4.15: Disbursement mode : One time.

63

4.8.5 Loan Purchasing Capital Machinery &Vehicle:

Most of the SME customers suffer from not being able to expand further the business due to lack of capital. But, business is an on going process and to survive the market BMRE of the project and procurement of vehicle is essential. Under this product, if the customer is able to provide 30% of the cost of machinery in the form of FDR and has regular cash flow to pay loan installments, then further security may not be insisted other then hypothecated stock and personal guarantee of the customer. The following formalities should be followed by the SMEs Loan Purchasing Capital Machinery and Vehicle SMEs5.1: Customer Segment : Any Small and Medium Size Entrepreneur. 5.2: Mode of Finance : Term Loan/Lease Finance (For Conventional Branches of JBL) 5.3: Purpose : Loan Purchasing Capital Machinery and Vehicle 5.4: Experience : Minimum 02 years with successful track records 5.5: Nationality : Bangladeshi 5.6: Age Limit : Between 25 years to 50 years. 5.7: Loan Size : tk. 2.00 Lac to tk. 50.00 Lac (Depending on requirement and regular source of cash flow to service the loan installment) 5.8: Security / Collateral (Case to Case basis) : a) Registered mortgaged of property/Assignment of possession b) Ownership of the machinery/Vehicle purchased in the name of JBL c) Lien of FDR duly discharged covering at least 30% of the Loan amount; d) Hypothecation of machineries, equipment, vehicles, inventories; e) Personal Guarantee of the spouse(s); f) Personal Guarantee of the person(s); g) Post dated check for each installment and one undated check for full loan value including full interest; 5.9: legal documents : as per documentation checklist. 5.10: Rate of Interest/Return : 16% P.A 5.11: Loan processing fee : 1% of the loan amount 1.12: Penal interest/Compensation : 4% P.A on the overdue amount 5.13: Maximum period of Loan : 05 years 5.14: Repayment method : Installment basis 5.15: Disbursement mode : One time.

64

4.8.6 Working Capital/Trade Finance:

Most of SMEs suffer from working capital shortage. Business is an ongoing process and to survive in the market, working capital is an essential. . To overcome this problem, JBL has come forward with a new product for SME customers named as Working Capital/Trade Finance. The following formalities should be followed by the Working Capital/Trade Finance SMEs6.1: Customer Segment : Any Small and Medium Size Entrepreneur. 6.2: Mode of Finance : Term/Time Loan (For Conventional Branche of JBL), HPSM/Bai-muajjl (For Islami Branches of JBL) 6.3: Purpose : To meet Working Capital Requirement. 6.4: Experience : Minimum 02 years with successful track records 6.5: Nationality : Bangladeshi 6.6: Age Limit : Between 25 years to 50 years. 6.7: Loan Size : tk. 2.00 Lac to tk. 50.00 Lac 6.8: Security / Collateral (Case to Case basis) : a) Registered mortgaged of property/Assignment of possession; b) Ownership of the machinery/Vehicle purchased in the name of JBL; c) Lien of FDR duly discharged covering at least 30% of the Loan amount; d) Hypothecation of machineries, equipment, vehicles, inventories; e) Personal Guarantee of the spouse(s); f) Personal Guarantee of the person(s); 6.9: legal documents : as per documentation checklist. 6.10: Rate of Interest/Return : 16% P.A 6.11: Loan processing fee : 1% of the loan amount 6.12: Penal interest/Compensation : 4% P.A on the overdue amount 6.13: Maximum period of Loan : 05 years 6.14: Repayment method : Sales proceeds to be deposited in the concerned account. 6.15: Disbursement mode : By Installment or in lump sump within the loan period. In case of term loan installment may be realized as under: c) Interest/profit will be recovered in each month d) Principal will be realized with the last installment.

4.8.7 Flexible Working Capital Loan:

65

In most cases, SMEs do not own adjure immovable property that can be accepted by bankers as collateral for loans. Movable assets that the SME can provide are rarely accepted as principal security for loans. But business is an ongoing process and to survive in the market, working capital is essential. For that in order to boost SME financing JBL a term loan product is designed for SME customers named as Flexible Working Capital Loan. This facility shall be provided to those who have Proven track record Experience Adequate cash flow to repay installment Reputation in respect of fulfilling commitment. The following formalities should be followed by the Flexible Working Capital loan SMEs7.1: Customer Segment : Any Small and Medium Size Entrepreneur. 7.2: Mode of Finance : Term Loan 7.3: Purpose : To meet Flexible Working Capital Requirement. 7.4: Experience : Minimum 02 years with successful track records 7.5: Nationality : Bangladeshi 7.6: Age Limit : Between 25 years to 50 years. 7.7: Loan Size : Tk. 2.00 Lac to tk. 50.00 Lac (Depending on requirement and regular source of cash flow to service the loan installment) 7.8: Security / Collateral (Case to Case basis) : a) Registered mortgaged of property/Assignment of possession; b) Hypothecation of machineries, equipment, vehicles, inventories; c) Personal Guarantee of the spouse(s); d) Personal Guarantee of the person(s); 7.9: legal documents : As per documentation checklist. 7.10: Rate of Interest/Return : 16% P.A 7.11: Loan processing fee : 1% of the loan amount 7.12: Penal interest/Compensation : 4% P.A on the overdue amount 7.13: Maximum period of Loan : 05 years 7.14: Repayment method : By Installment or in lump sump within the loan period. 7.15: Disbursement mode : Shall be disbursed in lump-sump/at a time.

4.8.8 Loan for Herbal Industry:

66

From primitive times, this region is famous for its different herbal medicine products. There are many entrepreneurs in our country who are engaged in herbal tree plantation, producing different herbal products and also exporting a significant quantity in abroad. For that this sector is known as one of the profitable sector in the country. But in most cases, these entrepreneurs are suffering from capital shortage. In compliance with Bangladesh Bank Circular NO-ACSPD (Polio) 36/2004/444-479, JBL give emphasis in this sector and designed a term loan product for SMEs engaged in this sector, named as Loan for Herbal Industry. The following formalities should be followed by the SMEs Loan for Herbal Industry8.1: Customer Segment : Any Small and Medium Size Entrepreneur. 8.2: Mode of Finance : Term Loan 8.3: Purpose : a) Fixed Investment b) Working Capital 8.4: Experience : Minimum 02 years with successful track records 8.5: nationality : Bangladeshi 8.6: Age Limit : Between 25 years to 50 years. 8.7: Loan Size : Tk. 2.00 Lac to tk. 50 Lac 8.8: Security / Collateral (Case to Case basis) : a) Registered mortgage of property; b) Hypothecation of machineries, equipment, vehicles, inventories; c) Personal Guarantee of the spouse(s); d) Personal Guarantee of the person(s); e) Post dated check for each installment and one undated check for full loan value including full interest; f) Any other security as deemed fit on a case to case basis; 8.9: legal documents : As per documentation checklist. 8.10: Rate of Interest/Return : 16% P.A 8.11: Loan processing fee : 1% of the loan amount 8.12: Penal interest/Compensation : 4% P.A on the overdue amount 8.13: Maximum period of Loan : 05 years 8.14: Repayment method : Installment basis 8.15: Disbursement mode : Shall be disbursed in lump-sum/ at a time.

67

4.8.9 Loan for Women Enterprises:

50% populations of our country are women. Gradually women are coming out of homes. They are now working in different work places very successfully undertaking different innovative/creative ventures. With a view to provide financial support to the women entrepreneur JBL has prepared a loan product titled as Loan for Women Entrepreneur under its SME scheme. Objectives of Loan for women: * The Bank shall get wide publicity with proper launching of the product backed by advertisement at regular intervals. * Create diversified client based. * Increase spread of the loan portfolio. * In hence the scope of deposit mobilization. Eligibility: Women entrepreneur having a financially viable productive venture. Creative/innovative venture shall be given preference The following formalities should be followed by the SMEs Loan for Women Enterprises9.1: Customer Segment : Any Small and Medium Size Entrepreneur. 9.2: Mode of Finance : Term Loan 9.3: Purpose : a) Fixed Investment b) Working Capital 9.4: Experience : Minimum 02 years with successful track records 9.5: nationality : Bangladeshi 9.6: Age Limit : Between 25 years to 50 years. 9.7: Loan Size : tk. 2.00 Lac to tk. 50.00 Lac 9.8: Security / Collateral (Case to Case basis) : a) Registered mortgage of property/assignment of possession right; b) Hypothecation of machineries, equipment, vehicles, inventories; c) Personal Guarantee of the spouse(s); d) Personal Guarantee of the person(s); 9.9: legal documents : As per documentation checklist. 9.10: Rate of Interest/Return : 16% P.A 9.11: Loan processing fee : 1% of the loan amount 9.12: Penal interest/Compensation : 4% P.A on the overdue amount 9.13: Maximum period of Loan : 05 years 9.14: Repayment method : Installment basis 9.15: Disbursement mode : Shall be disbursed in lump-sum/ at a time.

68

4.9 Interest Rates along with other conditions charged to different categories of loans according to the policy of Jamuna Bank Ltd.:
Personal Loan:
Rate of Interest: Processing Fee: VAT: Late payment interest: Early settlement: 13%-15% p.a. 1.50% of Loan amount. 15% on Processing fee. 48% p.a. (4% p.m.) on the arrear installment amount or BDT 200 (whichever is higher). i. A fee @ 0.50% on the settlement amount (excluding VAT). ii. Payment of at least 3 (three) equated monthly installments in case of partial settlement. BDT 500.

Non refundable verification fee:

Car Loan:
Rate of Interest: 16% p.a.

Home loan:
Rate of Interest: 13% p.a.

Lease Finance:
Rate of Interest: Risk Fund: 15% p.a. 1% of lease amount.

Corporate Loan (CCH):

Rate of Interest: Margin on B.G. Commission on B.B. Interest on Funded Liabilities: Margin on L/C: Commission on L/C: 12% p.a. 10% Cash Margin. 0.50% per Quarter. 14% p.a. 10% Cash Margin. 0.50% for 1st Quarter; 0.25% from next Quarter.

Bank Guarantee:
Cash Margin: Commission: 12% 0.40% for 1st Quarter; 0.30% from Next Quarter.

69

Commission on 100% Cash Margin:

BDT 500.

LC/LG/ OD/ STL:

Rate of Interest: Margin on L/C: Margin on B.G.: Commission on L/C: Commission on B/G: 13% p.a. with quarterly rest or as advised by the Head Office from time to time. 10% in Cash. 5% in Cash. 0.25% for 1st Quarter; 0.15% for subsequent Quarters. 0.25% per Quarter, i.e. 1% p.a.

Long Term Receipt (LTR):

Interest on Funded Facility: Penal Interest: 12% p.a. (with quarterly rests or as advised from time to time).

In case of Overdue/ Excess, over 2% penal interest to be charged on outstanding loan amount. Margin on L/C & L/G: I. 10% margin, i.e. 5% at the time of opening L/C by keeping lien of FDR / STD accounts of sister concerns and rest 5% in the form of cash during the creation of LTR. II. 10% Cash margin in case of issuing B.G. Commission on L/C & I. 0.30% for 1st Quarter and 0.20% for subsequent L/G: quarters for L/C. II. 0.35% per quarter on guarantee amount in case of Bank Guarantee. Retirement of By creating LTR upto 90% of CFR value if room is available / Documents: in cash. Repayment: a. From sale proceeds / in cash within the validity. b. Return of Original Bank Guarantee.

4.10 Classification of Loans and advances

When loans become irregular in repayment, these loans are called classified loans. Classification of loans is the process of identifying those loan accounts and giving special attention to those loans by separating those loan accounts. Classification of loans also measures the level of risk associated with it. Every banks give loans and advances. But not all the loans are repaid by the borrower in specific time. There are some loans,

70

the repayment of which is irregular. Banks find out these loans and give special treatment to these loans.

4.10.1Classification of loans is of two types:

a) Classified Loans: Loans, the repayment of which is irregular. b) Unclassified Loans: Loans, the repayment of which is regular. 4.10.1.1 Classified loans are of three types again: a) Substandard: Repayment is irregular, but it can be improved. b) Doubtful: Unlikely to be repaid but special collection efforts may result in partial recovery of the loan amount. c) Bad or Loss: No chance is left for recovery of loan.

4.11 Classification of loans and advances as per Bangladesh Bank Circular

71

Taka in million
14 00 12 00 10 00 8 00 6 00 4 00 2 00 0 200 8 2 7 00 Doubtful 20 06 B or loss ad

substandard

4.12 Profit of Jamuna Bank Limited

Profit is the amount of outstanding after deduct of all kinds expenses from the total earning amount. Table: 4 Profitability of Jamuna Bank Ltd.

72

Particulars/year Operating Profit Profit before Tax Profit after Tax

2005 419.94 363.31 199.82

2006 701.32 499.97 253.40

Taka in million 2007 2008 824.21 405.04 89.11 1040.20 865.82 479.44

Graph: Profit after Tax

In 2008 Jamuna bank Limited registered an operating profit of Tk. 1040.20 million as against Tk. 308.83 million of 2007 recording an excellent growth rate of 35.98 percent in the year. After keeping provision against Loans & Advances in line with the instruction of Bangladesh Bank BCD Circular No.20 of 1994 BCD Circular No. 12 of 1995 and BRPD Circular No.16 of 1998,the profit before tax stood at Tk.363.31 million in 2007

against Tk.273.70 million of 2006 registering a growth rate of 32.74 percent. Provision against Tax for the year kept for Tk. 163.49 million and the net profit stood at Tk.199.82 million (Profit after tax & provision).

4.13 Deposit & Deposit Mix of Jamuna Bank Limited:

73

Bank deals with others asset to earn profit. Deposit is the most important source of bank fund. 90% of banks fund is collected from deposit. Deposit is always been termed as the life-blood of a commercial Bank. In the year 2008, Due to many uncertainties on economic front, significant pressures on economic performance and among others, the adverse impact of devastating flood in JulySeptember and among others, the adverse impact of devastating flood in July-September 2007, declining trend in interest rates, Jamuna Bank Limited was able to increases its customers confidence and mobilized a total deposit of Tk. 14,454.13 million registering a growth of 38, 31 percent over 2004. The total deposit position of the bank was Tk 10,450.16 million in 2004.Efforts are being made for augmentation of low cost deposit in order to accommodate good customer at a competitive price.

Table: Deposit and its Growth Rate

Taka in million
Particulars Deposits Deposit Growth rate 2004 1940.12
-

2005 3251.9
67.61%

2006 6614.06
103.39%

2007 10450.16
57.99%

2008 14454.13
38.31%

4.13.1 Deposit:
Deposit chart is given below. (Year 2004-2008)

74

Deposit

30000 25000 20000 15000 10000 5000 0 2004 2005 2006 2007 10450 14454 17285 20924

27308

2008

4.13.2 Deposit Mix:

Deposit Mix chart is given below. (Year 2008)
0% C urrent Ac and other Accounts F ed Depos ix its s aving B ank D epos its B payable ill S hot TermDepos it D epos Under S it pecial S chem e F oreig C n urrency D epos it

15% 6% 2% 5%

12%

60%

4.14 Loans & Advances

Loan and advance is the main source of banks income. Commercial banks earn 80% of its profit from loan and advances. The loan and advance of Jamuna bank is shown below:

75

Table: Loans & Advances Taka in million Year/Particulars Loans & Advances Growth Rate 2004 349.21 N/A 2005 1514.28 333.6% 2006 3239.52 113.93% 2007 6722.8 107.52% 2008 11011.83 63.79%

Graph: Loan and Advances

Advance s
12000 10000 8000 6000 4000 2000 0 2004 2005 2006 Year 2007

Taka in Million

2008

In FY05 after adverse impact of devastation flood and declining trend in interest rate JBL, continued to explore its area of credit and was successful to build up a sizable quantum of credit, which stood at tk.11, 011.83 million as on 31.12.2005, registered an overall increase by 63.80 percent over 2006. The total credit as on 31 st December 2008 was Tk.6, 722.81 million. In compliance to regulatory requirement and to avoid risk of single industry or large loan concentration and to maintain the Banks credit excellence relating to proper risk management, yield exposure, tenor, collateral security proper valuation etc. the credit portfolio of JBL was further diversified. JBLs credit facilities mainly concentrated on Trade Finance, Agriculture and related sector, project finance, wholesale and retail trading, service sector, transport sector ,hospital, small &medium entrepreneurs.

4.15 Investments of Jamuna Bank Ltd:

This is one of the most important parts of Banks to earn Profit.

Graph: Investment

76

Invesrme nts
2500 2000 1500 1000 500 0 2005 2006 Year 2007

Taka in Million

2008

In December 2008s the investment was Tk.2037.87 million, growth rate 75.12 percent over Tk 1163.70 million of December 2007. The investment portfolio comprises Government Treasury Bills of Tk. 630.00 million, Treasury Bonds of Tk 875.00 million Prize Bonds, primary shares, Zero coupon bonds etc. JBL is one of the perference shareholders of Aftab Automobiles LTD. Amounting Tk.50.00 million. The bank also invested in two shares amounting Tk.2.00million of Central Depository system.

4.16 Credit Risk of Jamuna Bank Limited:

Principal Risk Components Financial Risk Business/Industry Risk Weight 50% 18%

77

 Management Risk Security Risk Relationship Risk

12% 10% 10%

4.16.1 Credit Risk Grading Score Sheet:

78

79

Figure: Different Types of Credit Risk

CREDIT RISK

Financial Risk

Business/Indu stry Risk Size of Business

Management Risk

Security Risk

Relationship Risk

Leverage

Experience

Security Coverage Collateral Coverage Support

Account Conduct Utilization of Limit Complianc e of Covenants/ Condition Personal Deposits

Liquidity

Age of Business Business Outlook

Succession

Profitability Industry Growth Coverage Market Competitio n Barriers to Business

Team Work

80

Chapter- 5
Analysis and Findings

81

5.1 Break Even Analysis:

Break-Even Analysis is commonly known as the Cost-Volume-Profit (CVP) analysis. Break-even analysis shows the relationship between cost and revenue with respect to profit. By showing the break-even point, this analysis says the minimum level of output or sales that is required to equate the cost. Moreover, break-even analysis provides a clear idea about the required volume of sales to earn a target profit. Thus break-even analysis helps the decision criteria.
Fixed Cost

BEP =

Sale per unit - Variable Cost per unit

5.2 Sensitivity Analysis:

Sensitivity analysis provides the picture of relative changes in overall profitability due to change in any variable. Usually changes (increase) in material and other variable cost or changes (decrease) in selling price are being taken into consideration for making sensitivity analysis.

5.3 Ratio Analysis:

Ratio analysis is the analysis and interpretation of data given in the financial statement such as: Balance Sheet, Income statement etc. Ratio is the quantitative expression of relationship between two accounting figures. Ratio analysis gives a clear picture about the strength and weakness of a firm, its historical performance and current financial condition. The common ratios that are being used in the analysis are: Liquidity Ratio: i. Current Ratio ii. Acid test etc. Solvency Ratio: i. Debt-Equity ratio Ii. Debt to total asset ratio iii. Debt service coverage ratio etc. Profitability Ratio: i. Profit Margin ii. Return on Investment iii. Return on Equity etc.

Activity Ratio: i. Inventory turnover Ratio ii. Debtors/Receivable turnover Ratio iii. Total asset turnover Ratio etc.

82

5.4 Ratio Analysis of Jamuna Bank Limited:

Particulars 2006 2007 2008

Current Ratio= Current Asset/Current Liabilities Debt-Equity Ratio= Total Liabilities/Total Stockholders Equity Return on Equity= Net income available to common stockholders/Average common stockholders equity Profit per branch Ratio=Net profit after tax/ No. of Branch

0.22928

0.4844

0.78575

19.8932186

21.2148

20.6382

0.24756

0.256788

0.13546

8687829.

8208052.105

4076194.733

Spread Ratio= (Interest Income-Interest expense)/ Wording fund Profit per Employee Ratio=Net profit after tax/ No. of Employee

0.0195044

0.02062737

0.075395

380609.678

348888.120

194722.678

83

5.5 Ratio Analysis:

Ratio Analysis 2008 SI.NO. Particulars 1 Return on Average Assets (ROAA) 2.98 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 Return on Average Assets (after 1.65 tax) Return on Average Equity (after 25.12 tax) Net Interest Margin (average) 4.78 Net Interest Margin Efficiency Ratio Return on Investment Profit Margin Return on Risk Weighted Asset Burden coverage Ratio of fees income Interest yield Marginal cost of fund Burden cost of fund Burden yield on advances Profit on lending Yield on advanced Interest expenses to total expenses Salary exp. To total overhead exp. Salary exp. To total fees income Expenses coverage Return on paid-up capital Productivity ratio Per employee deposit Staff per branch Capital to deposit % 4.46 40.46 15.72 21.25 4.22 58.96 10.31 13.77 8.38 9.27 14.73 5.46 14.40 76.52 57.89 98.18 72.66 36.51 32.24 29.21 23.97 8.95 2007 1.74 0.38 5.54 4.39 3.88 37.96 8.80 13.05 2.69 63.59 10.34 12.77 7.64 8.13 13.58 5.45 13.15 77.87 47.36 74.49 78.87 7.27 29.68 24.30 24.60 8.95 2006 2.70 1.37 21.39 4.39 4.06 38.64 10.20 18.18 4.35 74.43 11.96 13.87 8.89 9.67 15.34 5.67 14.81 78.44 43.38 58.28 78.44 23.74 32.74 28.81 21.43 9.85 2005 2.39 1.32 28.25 3.24 2.39 38.40 6.02 21.03 4.03 72.57 11.00 10.68 6.82 7.22 12.09 4.87 12.72 79.97 43.33 59.71 79.97 31.37 31.37 27.35 21.88 6.34 2004 2.35 1.34 29.46 3.35 2.87 3974 6.91 19.59 4.68 65.66 9.75 11.58 7.08 7.63 11.90 4.27 13.04 81.29 48.46 73.81 81.29 29.19 29.19 23.38 22.35 6.46

84

5.6 Asset Quality Ratio (%):

Asset Quality Ration 2008 SI.NO. Particulars Performance Ratio % 1 2 3 4 5 Nonperforming loan to total loan Loan loss reserve to total loan Loan loss reserve to NPL NPL reserve to NPL Loan to deposit 2.84 2.83 99.35 49.52 77.04 5.06 4.45 88.02 61.74 79.42 5.03 2.50 49.81 28.21 74.03 0.46 1.13 242.98 20.00 76.18 0.04 1.01 2404.24 39.75 64.33 2007 2006 2005 2004

5.7 Credit Rating Report of Jamuna Bank Ltd:

This is a credit rating report as per the provisions of the Credit Rating Companies Rules 1996. CRISL long-term rating is valid for only one year and short term rating for six months. After the above periods, these ratings will not carry any validity unless the bank goes for rating surveillance Surveillance Rating-2008 Surveillance Rating-2007 Outlook Date of Declaration Long Term ABBB+ Stable May 25, 2009 Short Term ST3 ST3

5.8 Rationale:
Credit Rating Information and Services Limited (CRISL) upgrades long term credit rating of Jamuna Bank Limited (JBL) to A- (pronounced as single A minus ) from BBB+ (pronounced as triple B plus) and reaffirms short term rating to ST-3 based on financials up to FY2008 and other relevant qualitative and quantitative information. The above rating is on the basis of banks good fundamentals such as good financial performance, good asset quality, above average capital adequacy, increase in internal capital generation, diversified product lines etc.

85

However, the above fundamentals, to some extent, are constrained by increase in operating cost compared to operating income, high cost of fund, limited delegation, moderate credit risk management, moderate corporate governance, dependence on term deposit etc. Banks rated in this category are adjudged to offer adequate safety for timely repayment of financial obligations. This level of rating indicates a banking entity with an adequate credit profile. Risk factors are more variable and greater in periods of economic stress than those rated in the higher categories. Short term rating indicates good certainty of timely payment. Liquidity factors and company fundamentals are sound. Although ongoing funding needs may enlarge total financing requirements, access to capital markets is good. Risk factors are small. CRISL also placed the bank in Stable Outlook in consideration of its existing fundamentals and steady business growth. Overall financial performance of the bank was good in 2008. Pre-tax profit of JBL rose to Tk.865.82 million in 2008 from Tk.405.04 million in 2007 and net profit after tax increased noticeably to Tk.479.44 million in 2008 from Tk. 89.11 million in 2007. ROAA rose to 2.98% in 2008 from 1.74% in 2007 against the 3.19% of peer average. Similarly, ROAE of JBL significantly increased to 45.36% in 2008 from 25.17% in 2007. The asset quality of the JBL improved in 2008 over last year. Total NPL declined to Tk.598.31 million in 2008 from Tk.840.34 million in 2007. Gross NPL ratio fell considerably to 2.84% in 2008 from 5.06% in 2007. Similarly, the Net NPL ratio declined to 1.11% in 2008 from 1.28% in 2007. Gross NPL coverage ratio rose to 112.88% in 2008 from 98.19% in 2007. Overall capital adequacy of the bank was above average during 2008. Risk Weighted Capital Adequacy Ratio stood at 11.91% in 2008 comprising 10.39% of core capital and 1.52% supplementary capital. Internal rate of capital generation of the bank significantly increased to 26.29% in 2008 compared to 8.79% in 2007. The above increase was due to the substantial increase in profit. Leverage ratio improved to 13.65 times in 2008 from 14.94 times in 2007. Shareholders fund to total asset rose to 6.83% in 2008 from 6.27% in 2007.

Overall operating efficiency of the bank declined in 2008. As growth of operating expense was higher compared to growth of operating income, efficiency ratio rose to 40.64% in 2008 from 37.96% in 2007. Yield per Tk.100 cost fell to Tk.252.28 in 2008 from Tk.345 in 2007 and against peer average of Tk.299.76.

86

5.9 Findings of Jamuna Bank Limited:

While working at Chowrasta Branch, Gazipur, I have attained a newer kind of experience. After collecting and analysis data I have got some problem of the JBL. These problems completely from my personal viewpoint, which is given below: Lack of update products is a drawback of the general banking area of the JAMUNA Bank. New products such as student loan, medical loan, marriage loan are not available in JBL. From the clients view introducer is one of the problems to open an account. It is general problem to all commercial bank. They face troubles with those clients who have not any knowledge in banking transactions and banking rules. As the deposit is heart of running the banking activities JAMUNA Bank Deposit growth not good. Because JAMUNA Bank deposit rate is low other than commercial bank such as Dhaka Bank, Prime bank Mercantile Bank, HSBC Bank, Bank Asia etc. JBL has not recruited competent people to filling its lower and mid level position they recruit only once a year. This is really tough to recruit high skilled employees. Lack of proper training arrangement of employees. As a result of technological change such as use of new software There are few staffs who have lacking in computer knowledge are not efficient enough to finish every task immediately so before utilizing new technology proper training should be arrange. Clients generally complain that rate of interest for various type of credit is quite high. In many cases productivity from loaned investment is inadequate that borrower become incapable in repaying loan. one problem is that bank always follows the policy of risk averse in the world today all the organization are moving in approach of risk taking. As a result it is facing some problems and also facing competition from other bank The recovery of capital in small business loan section is threatened.

87

 JAMUNA Bank has insufficiencies of Authorized Dealer Branch in respect of the total foreign business. Bank has only six branches, which have AD licenses. As a result in total foreign exchange business is very small in respect of total market. Per-shipment inspection certificate should obtain from the exporter of back to back L/C. Because it reduce it fraud and forgery in case of import against master export L/C, but all the time this pre-shipment inspection certificate are not wanted by the bank JBL does not promote itself for catering its services to the public or the business organization.

88

Chapter- 6
Conclusion and Recommendations

89

6.1Recommendations:
In order to get competitive advantage & to deliver quality service, top management should try to modify the services. For the improvement of the service the following measures should be taken: The Jamuna Bank Ltd. should concentrate more on its deposit products and offer more attractive interest rates than those offered by any other bank. For customers convenience, JBL should provide more personnel to deliver faster services to their honorable customer. Development of human resources should be ensured to increase efficiency in work. Ensure proper communication system and maintenance of files & machineries should be modernized. More interest should be paid on deposit account so that customers are convinced to deposit their money in bank. Research & Development wing must be more extensive and rich. Effective strategies must be undertaken against defaulter. Project Management must be practiced in case of investing in the project. Feasibility study of the project, project planning, monitoring and evaluation should be undertaken. JBL must have to follow the management functions (from planning to control) strictly in all of their business activities and also operation the bank. Branches should have a separate section to analyze the financial statement for fining its liquidity, profitability & ownership ratios. In JBL job rotation is fully absent. Job rotation is very important to make the all the employees from every department more efficient. Time consumed at service level should be minimized at optimum level. Evaluate customers needs from their perspective and explain logically the shortcomings. Improve office atmosphere to give customers better feeling. Use of effective MIS.

90

Bank should not give loans to aged clients. Specifically, client over 55 years of age (in Bangladesh context) should not be given loan. To deliver quality service top management should try to mitigate the gap between customers expectation & employees perception. The Tax Payers Identification Number (TIN) must be made compulsory for applying for the loan. Though it is a norm to submit TIN number by the client, but in many cases, it is ignored. The credit officials must ensure that this TIN number is submitted by the client before the sanctioning of loan

Bank should ensure that if a borrower dies, there are other capable persons who can take charge of the business and keep the business running without any interruption.

91

6.2 Conclusion:
The year 2010 was an extraordinary period for Bangladesh because of the challenges faced from the impact of the sudden fall in the share market. Despite the challenges, the year was another successful year for the banking industry in Bangladesh and the bank has managed quite successfully. The bank ended the year with a steady growth and the market share was retained in all areas of operation. The Jamuna Bank Limited is a strong and effective player in the financial system. It is a solid, forward-looking, modern local bank with a record of sound performance. It is a new generation bank. It is committed to provide high quality financial services/products to contribute to the growth of GDP of the country and the growth of industrialization, boosting up export, creating employment opportunity for the educated youth, raising standard of living of limited income group and overall sustainable socioeconomic development of the country. The bank has a vision to be the best private commercial bank in Bangladesh in terms of efficiency, capital adequacy, asset quality, sound management, etc. It is now one of the top most profitable private commercial bank in the country. The success of the scheme will depend on personal initiatives drive supervision 9 SME practices. Planning for the organization is very strong. Very careful about careful strategic selection. Constant follow up of the credit port folio by the managers. The efficiency of the branch managers, among others, is evaluated on the basis of the extent of success achieved by them in implementing the scheme. So, the scheme is coming into force with immediate effect. The bank is maintaining a well-structured communication from top to bottom level. The work experience in the Jamuna Bank, Foreign Exchange Branch for the period of internship program was very educating. All officers of this branch were cooperative and very friendly in their attitude. Job environment in the Jamuna Bank, Foreign Exchange Branch is excellent. At the same time, the service provided by the officers of this branch is praiseworthy compared to other competitive private and foreign banks.

92

As a concluding remark, I would like to say that the bank has been able to attain a leading role with 10 years of success story. But to remain unrivalled among other new generation banks, it has to overcome the new challenges posed by them. They must also emphasize on the domestic scenario more closely and analyze any certain trends and strategies of their competitors. The bank must accept any failures and consider these as a persuasion to pursue future goals instead of looking back on the failures and it must keep looking forward to playing an important role in our economy. As a leading bank of Bangladesh, JBL contributes in the business with promising future. I can hope that JBL can spread their business with increasing various scheme and other utility services.

93

References:
Web site of JBL: www.jamunabankbd.com Web site of Bangladesh Bank. Web site of www. google.com Annual reports of Jamuna Bank Limited. Prospectus of Jamuna Bank Limited. A Text Book on Foreign Exchange & Risk Management, Syed Ashraf Ali A Text Book on Bank Management, Bankers Training Handbook.

94

Appendices

95

APPENDICE-1

Items Total Assets Total CA Fixed Assets-Gross Fixed Assets-Net Inventory Quick Assets

2008-09 2007-08 2006-07 2005-06 2004-05 48730951557 3164662949 3364586725 29569878542 28042365887 9 5 32287661155 2103686101 2504596012 20535634231 18562354654 2 0 681599896 609023043 58564069 524569824 456523654 615781504 313915658 296543558 285620463 265542652 128533532 94422259 117545632 84533426 82455325 3980875046 2627958909 2018742656 1620453238 1200369698

Source: Annual report and Official Records of the Jamuna Bank Ltd. Annual report 2004, 2005, 2006, 2007, 2008.

96

Appendice-1 The Financial Condition of JBL:

SL 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 Paid up Capital Total Capital ( Core + Supplementary) Capital Surplus Total Assets Total Deposit Total Investment (Loans & Advance) Total Contingent Liabilities and Commitment Investment Deposit Ratio ( % ) Percentage of Classified Investment against total Investments Profit after Tax and Provision Amount of Classified Investment Provisions kept against classified Investment Provisions surplus Cost of Fund Profit Earning Assets Non-Profit Earning Assets Return on Investment in Securities (ROI) Return on Assets (ROA) Income from Investment in Securities Particular

(Amount in Taka)
2009 1,621,882,500 3,997,664,705 880,659,405 2008 1,621,882,500 2,444,338,501 392,695,301

48,730,951,55 31,646,629,499 7 42,356,203,56 27,307,936,141 3 32,287,661,15 21,036,861,012 5 14,718,947,86 9,169,471,638 8 76.23% 77.04% 2.20% 923,123,207 710,858,000 465,638,000 11.93% 2.84% 479,437,923 598,309,000 296,285,000 12.49%

34,961,013,26 27,668,329,466 9 13,769,938,28 3,978,300,033 9 16% 16% 1.89% 1,361,492,698 1.51% 666,152,122

97

20 21 22

Earning Per Share (2008: Basic EPS, 2007: Adjusted EPS) Net Income Per Share Price Earning Ratio (Times)

56.92 56.92 9.20

29.56 29.56 9.02

98