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Chapter: 01

Introduction

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1.1 Background of the Study

Banks are the backbone of the global economy, providing capital for innovation,

infrastructure, job creation and overall prosperity. Banks also play an integral role in society,

affecting not only spending by individual consumers, but also the growth of entire industries.

The operations of banks are known as one of the most important economic activity in the

world. Any activity which requires investments and financial resources undoubtedly requires

the involvement of banks and financial institutions (Haghighat and Nasiri, 2003). Thus, banks

have the central role in the economy (Fethi & Pasioura, 2010). The financial environment of

any economy consists of typically five components, namely: money, financial instruments,

financial institutions, rules and regulations and financial markets. Among the various

financial institutions, banks are a fundamental component and the most active players in the

financial system (Dhanabhakyam & Kavitha, 2012). Bank is a financial intermediary that

channels funds from surplus units, the depositors, to the deficit units, the borrowers, in the

process gaining from the spread of the different interest charged. By the scope of its

functions, banks are the key to economic growth of any economy (Rashid, 2010). Further,

banks are a fundamental component of the financial system, and are also active players in

financial markets (Guisse, 2012). The essential role of a bank is to connect those who have

capital (such as investors or depositors), with those who seek capital (such as individuals

wanting a loan, or businesses wanting to grow). Banks have control over a large part of the

supply of money in circulation. Through their influence over the volume of bank money, they

can influence in the nature and character of production in any country (Brigham & Houston,

2011).

Bangladesh has a mixed banking system comprising nationalized, private and foreign

commercial banks. Now-a-days Commercial banks play a key role in the economic

development of a nation through mobilization of savings and allocation of credit to

productive sectors. Achieving to the components of a strong and efficient banking system,

achieving goals, efficient use of resources and operating efficiently have been considered for

many years, so it requires an assessment of a bank's performance (Teker et al, 2011).

Evaluation of bank performance is very important for Bankers due to the need to protect the

banking operations against continuous risks are due to gambling-incentives related to capital

market (Hays et al, 2009). Thus, financial performance helps us to measure the results of a

firm's policies and operations in monetary terms. These results are reflected in the firm's

return on investment, return on assets, value added. It also helps us to evaluate how well a

bank is using its resources to make a profit. Common examples of financial performance

include operating income, earnings before interest and taxes, and net asset value. It is

important to note that no one measure of financial performance should be taken on its own.

Rather, a thorough assessment of a company's performance should take into account many

different measures. Financial performance is a subjective measure of how well a bank can use

assets from its primary mode of business and generate revenues. This term is also used as a

general measure of a firm's overall financial health over a given period of time, and can be

used to compare similar firms across the same industry or to compare industries or sectors in

aggregation. The examination of financial performance in banking has important public

policy implications in the Bangladeshi context due to the following facts: Firstly, the

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principle aim is to achieve a more competitive and efficient financial system. The banking

industry is a vital part of the financial system in any country. Thus, its successes or failure

strongly affects the health of the economy. Secondarily, it is interesting to study the

determinants of financial performance, as it is extremely useful for managers in improving

organizational performance and it also helps the policy-making bodies create, if needed, an

appropriate regulatory environment. Lastly, sound financial health of a bank is the guarantee not

only to its depositors, but is equally significant for the shareholders, employees and the whole

economy as well. As a sequel to this maxim, efforts have been made from time to time, to measure the

financial position of each bank and manage it efficiently and effectively. In this paper, an effort has

been made to evaluate the banking practices and financial performance of Janata Bank Ltd.

Financial evaluation has been done by using CAMEL Parameters and Z score analysis.

In addition, it is clear from the review of earlier literatures that there has been no study on the

banking practices and performance appraisal of Janata Bank Ltd. Hence, I felt the need to

undertake the present study.

1.2 Objectives of the Study

1.2.1 Broad Objective

The prime objective of this study is to analyze the banking practices and performance of

Janata Bank Ltd.

1.2.2 Specific Objectives

To fulfill the broad objective, the specific objectives are as follows:

To give an idea about the major banking practice arena in Bangladesh;

To give an idea about financial performance and its measurement techniques;

To give an overview of the Janata Bank Ltd.;

To give an idea about major banking practice arena such as general banking activities,

credit management and foreign exchange operations of JBL.

To analyze the financial performance of JBL by using the CAMEL model and Z score

analysis;

To analyze the strengths, weaknesses, opportunities, and threats of JBL; and

Finally, to make recommendations and draw a suitable conclusion regarding JBL’s

activities and performance.

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1.3 Methodology of the Study

The method implies the way of doing thing and the procedure adopted to accomplish the job.

It also implies the techniques that are used to conduct a research. In such a context, research

method refers to the methods that a researcher uses in performing research question (Kothari,

2006). The term methodology is defined as a particular procedure or a set of procedures or the systematic

study of methods that can be applied within a discipline. Methodology does not refer to research or to

the specific analysis techniques rather it refers to anything or everything that can be encapsulated for a

discipline or a series of processes, activities or tasks. Methodology includes the following concepts

as they relate to a particular discipline or field of inquiry:

A collection of theories, concepts or ideas,

A comparative study of different approaches and

Critique of the individual methods (Wikipedia, 2008).

1.3.1 Selection of Sample: The main objective of the study is to analyze the banking practices and performance of Janata

Bank Ltd. Data are collected for the period of five years from 2009 to 2013 for financial

performance measurement and the necessary data has been obtained from the audited annual

report of the Janata bank Ltd.

1.3.2 Desk Study An extensive desk study has been conducted to have an idea about major banking practices

arena such as general banking activities, credit management, foreign exchange operations and

performance analysis techniques. This has helped me to frame theoretical background of the

study. In such a context, an extensive literature survey has been conducted. In this

connection, intensive use of internet has been considered as the main source of literature. In

addition to this, books and journals relevant to the study have also been consulted.

1.3.3 Primary Data The primary data are those which are collected afresh and for the first time, and thus happen

to be original in character. To complete this report I have obtained primary data through:

practical desk work, face to face communication with customers, staffs and officers and my

observations.

1.3.4 Secondary Data Latest annual reports of the sample enterprises have constituted the principal source of

secondary data. The annual reports of the sample enterprises which contained valuable

financial and non-financial information about the corporate affairs have been utilized for

constructing the reports. Besides, secondary data also include: research studies, the relevant

articles published in highly esteemed journals, books, different published documents of the

bank, and internet etc.

1.3.5 Analysis Techniques This report is descriptive in nature which briefly reveals major banking practice arena such as

general banking activities, credit management, and foreign exchange operations of Janata

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Bank Limited. For financial performance analysis, CAMEL model and Multivariate

Discriminate Analysis (MDA) is used, which was developed by Prof. Altman is known as Z

score model. For the analysis and interpretation of data some tools like MS-Word, MS- Excel

and MS- PowerPoint software were used.

1.4 Rationale of the Study

Over the last few years the banking world has been undergoing a lot of changes due to

deregulation, technological innovations, globalization etc. With the rapid growing

competition (due to free market economy) among nationalized, foreign and private

commercial banks as to how the banks operates its banking operation and how customer

service can be made more attractive, the expectation of the customers has immensely

increased. Reciprocating the sentiment, commercial/private banks are trying to elevate their

traditional banking service to a better standard, to meet the challenging needs and demands.

Side by side these banks have now concentrated their attention towards diversification of

their products for better performances and existence.

Banking sector in Bangladesh specially nationalized bank is facing challenges from different

angles. The recent shocks in the banking sector have exposed the vulnerability of the

seemingly resilient financial systems in the country. The recently detected Hall-Mark case

(2013) of forgery, as a nationalized bank, Sonali Bank Limited (SBL), is a testimony to poor

management, weak internal control and risk management, and above all, totals lack of

governance on the part of the bank. That’s why; I have selected my internship organization

on Janata Bank Ltd. which is a nationalized bank.

Almost all commercial banks in Bangladesh today are under great pressure to meet the

interests of their stockholders, employees, depositors, borrowers and customers. As the

numbers of investors in Dhaka Stock Exchange (DSE) are increasing day by day, a huge

numbers of investors of share markets are showing their interest to purchase and sell the

share of different commercial banks. But somehow, they are frustrated as the shares of

different commercial banks are not showing better performance yet. Therefore, evaluation of

banks' financial performance is important for all parties like depositors, bank manager,

stockholders, creditors, regulators and educationalist. By considering the above fact, I have

taken my internship topic titled “An Analysis of Banking Practices and Performance of

Janata Bank Limited: A Study on a Nationalized Bank”.

The study may help formulating policy regarding the ideas relating to the feelings of the

customers and bankers. Furthermore, Janata Bank Ltd. executives who are actually executing

the policies undertaken by the top management will have a chance to communicate their

feelings and will have the feedback about their dealing with the customers.

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1.5 Scope and limitations of the Study

The scope of the study is limited to a nationalized bank named as Janata Bank Ltd. and the

report focuses mainly on major banking practices arena of JBL such as general banking,

credit management, foreign exchange operations; and financial performance of JBL.

I have faced some limitations, when I was preparing this report which is mentioned below:

The time period for this study was only 3 month which was very short.

Much confidential information was not disclosed by respective personnel of the department.

As the officers were busy with their daily work, they could provide me very little time.

Sometimes, they didn’t want to supervise due to pressure of work load.

Such a study was carried out by me for the first time. So, in-experience is one of the main

factors that constituted the limitation of the study.

There is a lack of sufficient secondary data.

During my internship program, I was placed in several sections as per the wish of the

concerned officials. As a result, I could not concentrate on a particular section/department for

my study.

1.6 Scheme of the Study

The study has been designed to present the findings in five different chapters. First of

all it is the introduction in which the research topic has been introduced by background,

objectives, methodology, study rationale, scope and limitations, and scheme of the study have

been described in this first chapter.

The second chapter titled “Theoretical Framework” which shows concept of bank and

banking, overview of banking sector in Bangladesh, major banking practices arena of a

nationalized bank such as general banking, credit management, and foreign exchange

operations; concept of performance and financial performance; usefulness of financial

performance; techniques to measure financial performance; and review of related literature

on financial performance.

The third chapter titled “An Overview of Janata Bank Ltd.” presents background of

JBL; profile of JBL at a glance; mission, vision and values of JBL; Strategic objectives of

JBL; product and services; organizational structure; human resources; report on sustainable

banking; key milestone; five years key financial information; and a brief idea of my

internship place (Gandamati Bazar Branch, Kotbari, Comilla) of JBL.

The fourth chapter titled “Analysis and Findings” depicts major banking practices arena

of JBL such as general banking, credit management, and foreign exchange operations of JBL;

financial performance and SWOT analysis of JBL.

The fifth and last chapter of the study is the recommendations and conclusion of the

whole study. The contributions of the report and scope for further research have also been

pointed out in this chapter.

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Chapter: 02

Theoretical Framework

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2.1 Definition of Bank and Banking

Bank is an institution that deals in money and its substitutes and provides crucial financial

services. The principal type of baking in the modern industrial world is commercial banking

and central banking.

Banking Means "Accepting Deposits for the purpose of lending or Investment of deposits of

money from the public, repayable on demand or otherwise and withdraw by cheque, draft or

otherwise."

The concise oxford dictionary has defined a bank as "Establishment for custody of money

which it pays out on customers order." Infact, this is the function which the bank performed

when banking originated.

"Banking in the most general sense, is meant the business of receiving, conserving &

utilizing the funds of community or of any special section of it."

2.2 Overview of Banking Sector in Bangladesh

2.2.1 Financial System in Bangladesh

Financial System is the set of well organized institutional set up which helps to transfer

excess funds from surplus unit to deficit unit. The financial system in Bangladesh includes

Bangladesh Bank (the Central Bank), scheduled banks, and non-bank financial institutions

like leasing etc, Microfinance institutions (MFIs), insurance companies, co-operative banks,

credit rating agencies and stock exchange. Banking sector occupies the lion portion share of

financial system in Bangladesh. Bangladesh bank is authorized for regulating and supervising

financial institutions in Bangladesh.

2.2.2 Banking sector in Bangladesh

Despite in recent years, many non-bank financial institution has been established, still the

financial system of Bangladesh is mainly banking sector based. Banking sector consists of

Bangladesh Bank as the central bank, four state-owned commercial banks, four specialized

bank/development financial institutions, thirty private commercial banks and nine foreign

commercial banks.

2.2.3 Bangladesh Bank Bangladesh Bank, the central bank and main regulatory body for the country's financial

system and monetary system, was established in Dhaka as an independent organization

according to the Bangladesh Bank Order, 1972 (P.O. No. 127 of 1972) with was effective

from 16th December, 1971 [Bangladesh Bank website]. Now, it has nine offices located at

different division of the country among which two in Capital city namely Motijheel and

Sadarghat, two in Rajshahi division namely Bogra and Rajshahi and one is each of the rest

five divisions namely Chittagong, Khulna, Sylhet, Barisal and Rangpur.

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Figure: Banking sector in Bangladesh

2.2.4 Functions of Bangladesh Bank

Bangladesh Bank basically responsible for all the core functions that are done by all the

monetary and financial sector regulators. Besides the core functions, Bangladesh Bank is also

responsible for some other supporting functions. The functions of Bangladesh Bank are cited

in below:

To formulate and implement monetary and credit policies.

To regulate and supervise and monitor financial intermediaries like banks and non-bank

financial institutions.

Currency issuance and circulation across the country.

Payment system management.

Holder and manager of FX reserve of the country.

Bankers to the Government.

To prevent money laundering.

To implement Foreign exchange regulation Act.

Preserve all credit information.

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Besides this function, Bangladesh Bank also responsible for asset classification, loan

concentration, setting up single borrower exposure limit, Licensing to the new bank and

branch, impose penalty for non-compliances, intervention in the management for assistance if

any bank face difficulties, prepare guidelines and issuance directives regarding banking

operation, guidelines for core risk management, publication of different economic review etc.

Bangladesh bank monitors the performance of all schedule banks operating in the country

through CAMEL rating system. The ratio used in CAMEL rating system reflects the

performance. Based on this CAMEL rating performance analysis, Bangladesh Bank

undertakes necessary initiatives. For this purpose, Bangladesh Bank depends mostly on

historic data. Bangladesh Bank also introduced the risk based inspection system for the

supervision of schedule banks. In a report of IMF 2010, it is stated that the supervision of

commercial banks is still compliance based to see whether policy and procedures are

followed for which it has to primarily rely on checklist and it lacks proper forward-looking

qualitative judgment.

2.2.5 History of Scheduled/Commercial Bank

2.2.5.1 State-Owned Commercial Bank

Bangladesh becomes independent after long nine months war. Before the liberation, most of

the banking company were owned by the then west Pakistanis. So, the then Government of

Bangladesh nationalized all the banks operating in Bangladesh except foreign Banks

(Incorporated in abroad). All these banks were grouped into commercial banks through

merger process. Among the six commercial banks, two banks namely Pubali bank and Uttara

bank were shifted to private sector in January, 1985 and another bank Rupali bank was

incorporated as public limited company with effect from December, 1986. The rest three

banks namely Sonali bank, Agrani bank and Janata bank were also transferred as public

limited company in 2007. So, now there are four state owned commercial banks operating in

Bangladesh.

In a report of IMF, it has been stated that the initial focus on state-led banking imitate the

Government„s lively quest of industrial policies to inspire growth. SCBs were considered as

the proper means of generating savings that could be facilitate industrial finance to the sectors

of the economy with the best growth prospects. SCBs major drawbacks are the lack of

corporate governance and undue political pressure even in loan disbursements without

properanalyzing the prospects of the borrower. Despite recently some measures have been

undertaken but this legacy is still visible in high NPL ratios and frail solvency. The

Government of Bangladesh has indicated its desire to divest of the state owned banks, and

took an initiative in late 2008 to make them limited liability companies. The Ministry of

Finance, in consultation with the SEC and BB allowed the banks to move their accumulated

losses into capital surpluses based on the notion of Goodwill. The accumulated losses were

converted in a Goodwill asset that will be amortized out of future profits. This accounting

treatment is questionable and concerns remain regarding the true financial condition of these

banks.

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2.2.5.2 Specialized Bank/Development Financial Institutions (DFIs)

After liberation, two specialized bank operating in Bangladesh were also nationalized and

renamed as Bangladesh Krishi Bank and Bangladesh Shilpa Bank. But Bangladesh Krishi

bank was divided in 1987 and renamed as Rajshahi Krishi Unnayan Bank (RAKUB) for

Rajshahi Division to promote agricultural development in that region and Bangladesh Krishi

bank for the rest of part of the country. In 1988, another specialized bank name Bank of

Small Industries and Commerce Bangladesh Ltd. (BASIC) was established as private bank to

promote small and medium entrepreneurship. In 1993, the then Government of Bangladesh

took the control of BASIC and was declared it as a specialized bank. Bangladesh Shilpa Bank

was merged with Bangladesh Shilpa Rin Sangsta (BSRS) in 2010 and renamed as

Bangladesh Development Bank Limited (BDBL). So, currently there are four specialized

banks which are termed as Development Financial Institutions (DFIs) operating in

Bangladesh.

2.2.5.3 Private Commercial Bank

Local private commercial bank started operation in the decades of 1980's. We can categorize

local private bank in the following manner:

First generation bank: Those established in the decades of 1980s.

Second generation bank: These banks started operation in 1990 to 1995.

Third generation bank: After 1998, these banks are established.

At present, there are thirty local private commercial banks operating in Bangladesh. PCBs

dominate the banking sector of Bangladesh. More than fifty percent of total deposits and

assets are covered by the PCBs. The performance of PCBs is much better than SCBs and

DFIs in all respects. Client service innovation and banking service automation is one of the

major reasons for their domination over the SCBs and PCBs. among the three generation of

PCBs, third generation banks are more innovative and provide better client services through

automation whereas first generation banks are little bit in backward position though they

continuously improving their condition to compete in the market. Bangladesh„s PCBs have

quickly occupy market share at the expense of the state-owned commercial banks (SCB) and

presently grasp more than 59 percent of total deposits whereas it is only 28 percent for the

SCBs and PCBs assets coverage is 58% whereas it is only 29% in SCBs.

2.2.5.4 Foreign Commercial Banks (FCBs)

Before liberation, there were few FCBs operating in the country which was incorporated in

abroad. Among those foreign banks, Standard chartered Grindlays Bank was merged with

Standard Chartered Bank in 2003 and then American Express Bank further merged with

Standard Chartered Bank in 2005. Credit Agricole Indosuez bank was renamed as

Commercial Bank of Ceylon Ltd. in 2003. Currently, there are nine foreign commercial

banks operating in Bangladesh. Foreign Commercial Banks suffered for lack of wide spread

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branch network. Their operation is basically limited to capital city and some other municipal

city corporation area.

2.2.5.5 Scheduled Bank According to the Law

According to Bank Company Act, 2007, "All such banks operating in Bangladesh with

different paid-up capital and reserves having a minimum of an aggregate value of Tk. 50 lacs

and conducting their affairs to the satisfaction of the Bangladesh Bank have been declared as

scheduled banks in terms of section 37(2) of Bangladesh Bank Order 1972. In terms of

section 13 of Bank Company Act, 1991, the minimum aggregate value was Tk. 20 crores.

From 30th March, 2003, it was tk. 100 crores and from the 8th October 13, 2007, it has been

raised at the minimum of Tk. 200 crores" [Bank Company Act, 2007].

2.3 Major Banking Practice Arena of a Nationalized Bank

The major banking practices arenas of a Nationalized Bank are:

2.3.1 General Banking

2.3.2 Credit Management

2.3.3 Foreign Exchange

2.3.1 General Banking General banking department is the heart of all banking activities. This is the busiest and

important department of a branch, because funds are mobilized, cash transactions are made;

clearing, remittance and accounting activities are done here.

General Banking consist the management of deposit, cash, bills and clearing house, account

opening, security instruments handling, customer services, locker facilities and other

ancillary services of the bank besides Advance and Foreign Trade.

The following departments are under general banking section:

2.3.1.1 Account Opening Section

2.3.1.2 Deposit Section

2.3.1.3 Cash Section

2.3.1.4 Remittance Section

2.3.1.5 Bills and Clearing Section

2.3.1.6 Accounts Section

2.3.1.7 Dispatch Section

2.3.1.1 Account Opening Section:

When a person wants to open an account in a Bank, needs to communicate with responsible

officer. For opening an account a person or company must fill up a bank account opening

form and needs to present the following things:

Fill up the specific type of form (Savings\Current\Std etc.) that the bank has given to

the customer.

The form should filled up by the applicant himself / herself

Two copies of passport size photographs have to give to the Bank. In case of

partnership account, all partners photograph have to submit.

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Documentation procedures must be fulfilled by the applicants.

Applicant must sign specimen signature sheet that provided by bank.

Introducer is mediatory to open any account.

Introducer’s signature and accounts number will verify by authorized officer

Authorized Officer will accept the application.

Minimum balance has to deposit to the bank by applicant (only cash is accepted).

Authorized officer will give entry to the register and open the account.

After that the officer will give cheque book to the account holder.

KYC (knowledge about your customer) should maintain.

The account should be properly introduced by any one of the following:

An existing Current Account holder of the Bank.

Officials of the Bank not below the rank of an Assistant officer.

A respectable person of the locality well known to the Manager/Sub-Manager of the

Branch concerned.

2.3.1.2 Deposit Section:

The term deposit of money means, to preserve money. After the consumption people want to

save some money for future uncertainty. So they deposit it to the bank. On the other hand

bank is a service organization that helps people to deposit their money for future. Bank’s

main motive is to mobilize the money and gain profit. Banks give loan to other people, they

invest it and give interest to the bank, by that the bank earns profit. By mobilizing that sum of

money, not only the individuals but also the economy is benefited.

There are four basic types of deposit are mainly used

1. Current Deposit.

2. Savings account.

3. Short term deposit (STD)

4. Fixed deposit (FDR)

2.3.1.3 Cash Section:

Cash section is very much important for any bank. Without cash section, no bank can do their

activities properly. Cash section is directly related to the customer. Following tasks are made

in cash section:

Here the customer deposit and withdraw money.

Customer may receive different type of financial instrument like Prize bonds.

Here the customers can pay their utility bills.

The cash payments of any kinds of remittance (Pay order, Demand order etc.) are

made here.

2.3.1.4 Remittance Section:

Money transferred from one place to another through banking channel is called remittance.

Remittances of funds are one of the most important activities of the Commercial Banks.

The main instruments used for remittance of funds are:

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Payment order (PO):

Demand Draft (DD)

Telegraphic Transfer (TT)

Mail Transfer (MT)

2.3.1.5 Bills and Clearing Section:

Clearing is the process of collection of proceeds of instruments of different banks by a

collecting bank through some systematic procedures with the involvement of Central Bank.

The amount of Cheques, Pay Order (P.O), and Demand Draft (D.D) collection from other

banks on behalf of its customer is a basic function of a Clearing Department.

Procedures of clearing as follows:

Crossing of the cheque.

Computer posting of the cheque.

Clearing seal & proper endorsement of the cheque.

Separation of cheque from deposit slip.

Sorting of cheque 1st bank wise and then on branch wise.

Computer print 1st branch wise & then bank wise.

Preparation of 1st Clearing House computer validation sheet

Examine computer validation sheet with the deposit slip to justify the computer

posting

Copy of computer posting in the floppy disk.

Sent to the local office.

2.3.1.6 Accounts Section:

Accounts department is very important department of general banking. There are many

transactions are made in every day in bank. Here the transactions are recording properly. If

there is any fault made then the accounts section may check it and do action against it. To

avoid these mishaps, the bank provides accounts department; whose function is to check the

mistakes in passing vouchers or wrong entries or fraud or forgery. If any discrepancy

regarding transaction arises, the department report to concerned department.

2.3.1.7 Dispatch Section:

Those documents that are enter in the branch or exit of the branch must go through this

section.

Keeping records of the documents send to other branches or banks.

Letters are sending to their respective destination.

Send those documents safely and correctly.

Receives documents come through different medium, such as postal service, courier

service, via messenger etc.

2.3.2 Credit Management This is the survival unit of the bank because until and unless the success of this department is

attained, the survival is a question to every bank. If this section does not properly work the

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bank itself may become bankrupt. This is important because this is the earning unit of the

bank. Banks are accepting deposits from the depositors in condition of providing interest to

them as well as safe keeping their interest. Now the question may gradually arise how the

bank will provide interest to the clients and the simple answer is – Loans & Advance.

2.3.2.1 Definition of Credit & Credit Management:

Credit:

The word credit comes from the Latin word “Credo” meaning “I believe”. It is a lender’s

trust in a person’s/ firm’s/ or company’s ability or potential ability and intention to repay. In

other words, credit is the ability to command goods or services of another in return for

promise to pay such goods or services at some specified time in the future.

“Credit is a Contractual agreement in which a borrower receives something of value now and

agrees to repay the lender at some date in the future, generally with interest. The term also

refers to the borrowing capacity of an individual or a company.”(Investopedia dictionary)

Credit Management:

“Credit Management is the process for controlling and collecting of payments from

customers. This is the function within a bank or company to control credit policies that will

improve revenues and reduce financial risks.” (Wikipedia dictionary)

According to King (2000), “credit management is the policies and practices business follows

in collecting payment from their customers”.

2.3.2.2 General Concept of Loan and Advance:

These are the Asset based products of a bank and reflected in the asset side of the balance

sheet.

There are various types of loans and advances offered by bank depending on the purpose of

the borrowing customer.

Loan:

Loan means lending a fixed amount of money to borrower for a certain period time. The

borrower must repay the loan within the given time period. In Loan, the disbursement will

take place only for one time. The borrower can repay the loan all at a time or by installment.

Advance:

Advance is a little bit different than Loan. In Advance, the borrower is allowed and credit

limit for a given period of time. In that given period, the borrower can withdraw money as

many times as he want but he cannot exceed the credit limit. Again he can repay several

times whenever he wants. In Advance, disbursement and repayment occurs several times. But

at the end of the period, whole credit amount must be repaid to the banks. This type of credit

is allowed to business for their working capital requirement.

2.3.2.3 Five C’s of Credit:

Character

Capacity

Capital

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Condition

Collateral

Character:

Character denotes integrity of the borrower i.e. he should have willingness to repay the

money borrowed. The banker should investigate every aspect of the character factor and

should convince himself that despite adverse conditions, the applicant will make every effort

to discharge his debt as per terms.

Capacity:

Capacity means the ability to employ the funds profitably accordind to the terms and

conditions. The capacity of the borrower has to be determined to find out his experiences in

the line in which he is working.

Capital:

Capital denotes financial soundness. The borrower must have his own stake in the business

which creates a sense of involvement in the mind of the borrower. Capital is the financial

strength of a risk as measured by the equity or net worth of the business.

Condition:

Condition refers to the general business condition and the conditions in the particular industry

in which the borrower is engaged. The banker should exercise prudence whether the business

establishments are existent and continuing their business.

Collateral:

Collateral implies the additional securities taken to offset weaknesses that are apparent. All of

the collateral that may be made available to the bank will not make a bad loan good but it will

make good loan better. While assessing valuation of collateral securities bankers need to take

extra care by sampling survey and by examining information from land revenue office and

also enquiring people nearby. The documents of the collateral securities are to be verified

from the concerned Sub-Registered Office and other related office.

2.3.2.4 Principles of Good Lending Every Banker Follows:

Safety

Liquidity

Purpose

Profitability

Security

Spread/ Diversity

National interest

Safety:

Advances should be expected to come back in the normal course. The repayment of the loan

depends upon the borrower’s capacity to pay and willingness to pay. The capacity depends

upon the tangible assets of the borrower. The willingness to pay depends upon the honesty

and character of the borrower.

Liquidity:

Liquidity is the availability of bank funds on short notice. The borrower must be in a position

to repay within a reasonable time. Liquidity also signifies that the assets should be salable

without any loss.

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Purpose:

A banker would not throw away money for any purpose for which the borrower wants. The

purpose should be productive so that the money not only remains safe but also provides a

definite source repayment.

Profitability:

A banker has to see that major portion of the assets owned by it is not only liquid but also aim

at earning a good profit. The difference between the interest received on advances and the

interest paid on deposits constitutes a major portion of bank’s income. Besides, foreign

exchange business is also highly remunerative.

Security:

Security serves as a safety valve for an unexpected emergency. The security offered for an

advance is a cushion to fall back upon in case of need. An element of risk is always present in

every advance however secured it might appear to be.

Spread/ Diversity:

The advances should be as much broad-based as possible and must be in keeping with the

deposit structure. The advances must not be in one particular direction or to one particular

industry. Again, advances must not be granted in one area alone.

National Interest:

Bank has significant role to play in the economic development of a country. The banker

would lend if the purpose of the advance is for overall national development.

2.3.2.5 Types of Credit:

These two broad categories of credit can be broken down into smaller more specific types of

credit, there are limitless specific types of credit – outlined below are some of the more

popular options:

Overdraft:

This is when our bank allows us to take more money out than we currently have in our

account. This is usually an extremely temporary measure and there are high interest rates and

stiff fees/penalization for using an overdraft facility. Most banks also only allow a small

amount to be over drawn (less than $100) this type of credit is most often used when a person

hasn’t budgeted correctly and believe they have more money in their account than they

actually do.

Credit Card/Store Card:

A credit or store card is the most common form of a revolving loan. We can use these cards

to pay for almost anything these days and at the end of each month we are required to pay off

a monthly minimum or the full balance or anywhere in between. If the monthly minimum is

not bad then we’re usually charged a late fee.

Unsecured Loan:

An unsecured loan is almost always an installment loan, it’s useful when needing to raise a

large sum of money. It’s important to make sure that we can afford the monthly repayments

before applying for an unsecured loan as these are generally approved or denied based on our

salary.

Secured Loan:

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The most common type of secured loan is a mortgage. When we have a secured loan we put

an asset (in this case your house) as security for the loan, if we fail to pay the monthly

repayments then the security (in this case your house) will be repossessed and sold to recoup

the loaned amount. These are almost always installment loans.

Store Finance / Hire Purchase:

When we buy an item with store finance we are usually required to pay a monthly repayment,

this is another form of an installment loan. Because we are able to use the item while we pay

it off this is also known as a hire purchase. These are almost always extremely bad value with

high interest rate; lots of businesses try to make these types of loans more appealing to

customers by offering an interest free period.

Pawn broking:

Pawn broking is a form of a secured loan except that while the money is borrowed the

pawnbroker keeps physical possession of the asset you’re using for security. In most cases

the pawnbrokers are hoping that you don’t pay the money back as they undervalue your asset

and then sell it on to other customers.

2.3.2.6 Loan Classification as per Bangladesh Bank’s Banking Regulation & Policy

(BRPD Circular No.05; June 05, 2006):

All loans and advances will be grouped into four categories for the purpose of classification,

namely:

Continuous Loan

Demand Loan

Fixed Term Loan &

Short-term Agricultural & Micro Credit.

Continuous Loan:

The loan Accounts in which transactions may be made within certain limit and have an

expiry date for full adjustment will be treated as Continuous Loans. Examples are: CC, OD

etc.

Demand Loan:

The loans that become repayable on demand by the bank will be treated as Demand Loans. If

any contingent or any other liabilities are turned to forced loans (i.e. without any prior

approval as regular loan) those too will be treated as Demand Loans. Such as: Forced LIM,

PAD, FBP, and IBP etc.

Fixed Term Loan:

The loans which are repayable within a specific time period under a specific repayment

schedule will be treated as Fixed Term Loans.

Short-term Agricultural & Micro Credit:

Short-term Agricultural Credit will include the short-term credits as listed under the Annual

Credit Program issued by the Agricultural Credit and Special Programs Department

(ACSPD) of Bangladesh Bank. Credits in the agricultural sector repayable within 12(twelve)

months will also be included herein. Short-term Micro-Credit will include any micro-credits

not exceeding Tk. 25,000/= (twenty five thousand) and repayable within 12(twelve) months,

be those termed in any names such as Non-agricultural credit, Self-reliant Credit, Weaver's

Credit or Bank's individual project credit.

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2.3.2.7 Loan Classification Guidelines from Bangladesh Bank:

Central bank is the controller of money market in any country. As central bank, Bangladesh

Bank controls money market in our country. Bangladesh bank, time to time, issues some

guidelines and regulations for operation of a banking concern. These guidelines are general in

nature. Besides these, every commercial bank sets credit guidelines for these operations.

Whatever be the guidelines, the aim of it is to reduce the total amount of unsound credit as

well as improve the overall performance of the banks. Classification of overdue loans and

advances opened a new era in the credit management of commercial banks in Bangladesh.

Before 1989 no specific guidelines were followed by the commercial banks for this purpose.

In 1989, Bangladesh Bank issued BCD circular No. 34/1989 stating specific rules and

conditions of loan classification. After that each schedule banks except BKB, RAKUB, and

BSB would be responsible for its own loan classification according to the guidelines provided

by Bangladesh Bank.

Status, type and definition of classification:

Status

loan type Definition of status

Unclassified . all current loan all current loans with

required eligible security

Sub standard (SS)

When degree of risk for

non-payable is high but

there is reasonable respect

that the loan condition can

be improved

Continuous/demand/ term

loan

(less than 5 years)

more than 5 years

short term agri. credit and

micro credit

overdue is more than 3

months but less than 6

months if default amount of

installment is equal to

installment payable in 6

months

If default amount of

installment is equal to

installments payable in 12

months.

overdue is more than 12

months but less than 36

months

Doubtful (DF)

When chance of recovery is

uncertain

Continuous and demand

Term loan less than 5 years

More than 5 years

Short term agri. credit and

micro credit

overdue is more than 6

months but less than 9

months

If default amount of

installment is equal to

installments payable in 12

months.

If default amount of

installment is equal to

installments payable in 12 to

18 months.

Overdue is more than 36

months but less than 60

months.

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Bad/ loss (BL)

No security held, borrower

not traceable, time barred

loans, no hope of recovery

Continuous and demand

Term loan

(up to 5 years)

more than 5 years

Short term agri. credit and

micro credit

overdue is more than 12

months.

If default amount of

installment is equal to

installment payable in18

months.

If default amount of

installment is equal to

installment payable in 24

months.

overdue is more than 60

months

Source: Studies in Bangladesh Banking, BIBM, 2000

2.3.2.8 Loan classification system (international standard):

Length of overdue Status of

classification

Rate of provision

Less than 3 months Unclassified 1%-5%

Loans overdue for 3

months but less than 6

months

Sub standard (SS)

10%-25%

Loans overdue for 6

months but less than 9

months

Doubtful (DF)

50%-75%

Loans overdue for 9

months or more

Bad/ loss 100%

Source: Studies in Bangladesh Banking, BIBM, 2000

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2.3.3 Foreign Exchange It is well known fact that the money is a medium of exchange for all transactions that take

place inside the country as well as outside the country. In Bangladesh, we have the Taka for

financing the internal trade and other obligation. So, the home currency has to be converted

into the currencies of other countries, to meet the obligation that arises out import of goods

and services from other countries. That part of the economic science that deals with the

conversion of home currency into foreign currency for the purpose of setting international

obligations is called foreign exchange.

2.3.3.1 Definition of Foreign Exchange:

Foreign Exchange means foreign currency and it includes any instrument drawn, accepted,

made or issued under clause (13), Article 16 of the Bangladesh Bank Order, 1972. All

deposits, credits and balances payable in any foreign currency and draft, travelers check,

letter of credit and bill of exchange expressed or drawn to Bangladeshi currency but payable

in any foreign currencies.

Foreign Exchange Act. 1947 defines foreign exchange as "foreign currency and includes

deposits, credits, and balances payable in foreign currency as well as drafts, travelers checks,

letter of credit, bills of exchange drawn in local currency but, payable in foreign currency"

2.3.3.2 Review of related literature on foreign exchange:

The purpose of foreign exchange market is to enhance transfer of purchasing power

dominated in one currency for another currency. The foreign exchange market is not a

physical place rather it is an electronically linked network of banks, foreign exchange brokers

and dealers whose function is to bring together buyers and sellers of foreign exchange. It is

not confined to any one country, but is dispersed throughout the leading financial centers of

the world (Shapiro, 2001 cited by Al Amin, 2013).

The foreign exchange market consists, of two tiers, the Interbank market in which major

banks & financial institutions, trade with each other and the Retail market in which banks

deal with their commercial customers (Redhead and Hughes Is, 1998 cited by Al Amin,

2013)

Today foreign exchange has been the talk of the town, and this is because foreign exchange

plays a very crucial role in the overall performance of the national economy. The practice of

managing foreign exchange resources has therefore evolved broadly in line with the

globalization and liberalization of economies and financial market. This has played over such

areas as risk management and active portfolio management. Broadly speaking foreign

exchange is held and managed to facilitate international transactions (Anifowoshe, 1997 cited

by Al Amin, 2013).

Foreign exchange major tasks is to ensure that the reserves are maintained at an adequate

level to serve as a cushion or buffer at times of temporary foreign short falls in foreign

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exchange receipt. In fact, such a respite enables country to put its house in order and adopt

necessary measures to deal with the external shock destabilizing the Economy (Nwakwo,

2001).

The use of trade and exchange controls as tools of reserve management involved

comprehensive restrictions on trade and other international transactions. The main objectives

here are to ensure that foreign exchange reserve, are conserved and adequate to guarantee

external stability and that the available resources are optimally used to promote domestic

production (Anifowoshe, 1997).

2.3.3.3 Importance of Foreign Exchange:

The importance of foreign exchange is described in brief as under:-

Foreign exchange reserves show the financial strength and the stage of development

of the economy.

The acceptance of currency at a predetermined rate makes the international trade

easier.

The foreign exchange ratio shows a direct relationship between the prices of the

commodities in the national and international market.

The foreign exchange balances of a country directly affect the rates of exchange. A

hard currency nation has stability in foreign exchange rate.

The rising foreign exchange balances of a nation increases its credit worthless in the

international capital market.

2.3.3.4 Functions of Foreign Exchange:

The Bank actions as a medium for the system of foreign exchange policy. For this reason, the

employee who is related to the bank to foreign exchange, especially foreign business should

have knowledge of these following functions:

Export:

• Pre-shipment Advances

• Post-shipment Advances

• Export Guarantees

• Advising/Confirming Letter of Credit

• Facilitating project exports

• Bills for collection

Import:

• Opening letters of credit

• Advance bills

• Import loans and guarantees.

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Exchange Dealings:

• Rate computation

• Nostro/Vostro Accounts

• Forward contracts

• Derivatives

• Exchange position and cover operations

Remittances:

• Issue of DD, MT, TT etc.

• Encashment of checks, DD, MT, TT etc.

• Issue and encashment of travelers' checks

• Sale and encashment of foreign currency notes

• Non-resident deposits

Statistics:

• Submission of returns

• Collection of credit information

2.4 What is Performance?

The results of activities of an organization or investment over a given period of time

(Investorsword.com)

The accomplishment of a given task measured against preset known standards of accuracy,

completeness, cost, and speed. In a contract, performance is deemed to be the fulfillment of

an obligation, in a manner that releases the performer from all liabilities under the contract

(Business dictionary.com)

2.5 What is Financial Performance?

The word ‘Performance is derived from the word ‘parfourmen’, which means ‘to do’, ‘to

carry out’ or ‘to render’. It refers the act of performing; execution, accomplishment,

fulfillment, etc. In border sense, performance refers to the accomplishment of a given task

measured against preset standards of accuracy, completeness, cost, and speed.

Thus, financial performance refers to the act of performing financial activity. In broader

sense, financial performance refers to the degree to which financial objectives being or has

been accomplished. It is the process of measuring the results of a firm's policies and

operations in monetary terms. It is used to measure firm's overall financial health over a

given period of time and can also be used to compare similar firms across the same industry

or to compare industries or sectors in aggregation.

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Financial Performance Analysis is the process of scientifically making a proper, critical and

comparative evaluation of profitability and the financial health of Banks through the

applications of the techniques of financial statement analysis (Gupta and Verma, 2008).

Financial Performance refers to the achievement of the bank in terms of profitability.

Profitability of a bank denotes the efficiency with which a bank deploys its total resources to

optimize its net profits and thus serves as an index to the degree of asset utilization and

managerial effectiveness (Dhevika et al., 2013).

Financial analysis is the process of identifying the financial strength and weaknesses of the

firm by properly establishing relationship between the items of the balance sheet and the

profit and loss account (Pandey, 1979).

2.6 Usefulness of financial performance to various

stakeholders

The analysis of financial performance is used by most of the business communities. They

include the following.

1. Trade Creditors

The creditors provide goods / services on credit to the firm. They always face concern about

recovery of their money. The creditors are always keen to know about the liquidity position

of the firm. Thus, the financial performance parameters for them evolve around short term

liquidity condition of the firm.

2. Suppliers of long term debt

The suppliers of long term debt provide finance for the on-going / expansion projects of the

firm. The long term debt providers will always focus upon the solvency condition and

survival of the business. Their confidence in the firm is of utmost importance as they are

providing finance for a longer period of time. Thus, for them the financial performance

parameters evolve around the following:

i) Firm’s profitability over a period of time.

ii) Firm’s ability to generate cash - to be able to pay interest and

iii) Firm’s ability to generate cash – to be able to repay the principal and

iv) The relationship between various sources of funds.

The long term creditors do consider the historical financial statements for the financial

performance. However, the financial institutions \ bank also depends a lot on the projected

financial statements indicating performance of the firm. Normally, the projections are

prepared on the basis of expected capacity expansion, projected level of production \ service

and market trends for the price movements of the raw material as well as finished goods.

3. Investors

Investors are the persons who have invested their money in the equity share capital of the

firm. They are the most concerned community as they have also taken risk of investments –

expecting a better financial performance of the firm. The investors’ community always put

more confidence in firm’s steady growth in earnings. They judge the performance of the

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company by analyzing firm’s present and future profitability, revenue stream and risk

position.

4. Management

Management for a firm is always keen on financial analysis. It is ultimately the responsibility

of the management to look at the most effective utilization of the resources. Management

always tries to match effective balance between the asset liability management, effective risk

management and short-term and long-term solvency condition.

2.7 Techniques to measure financial performance There are various techniques available to judge the financial performance of the firm. They

include the following:

2.7.1 Ratio Analysis

2.7.2 DuPont Analysis

2.7.3 Z-Score Model

2.7.4 CAMEL Model

2.7.5 Common-Size Financial Analysis

2.7.6 Trend Analysis

2.7.1 Ratio Analysis

The Ratio Analysis is considered to be the most powerful tool of financial analysis. In simple

language ratio means relationship between two or more things. It is also said that a ratio is the

indicated quotient of two mathematical expressions.

The ratios are classified as under:

a) Liquidity Ratios

b) Leverage Ratios

c) Activity Ratios and

d) Profitability Ratios

The objective behind calculating each of the ratios is different and the outcome expected is

also different. Let us study the objective behind every type and sub-type of ratio.

a) Liquidity Ratios

Liquidity Ratios are calculated to measure the firm’s ability to meet its current obligations.

The solvency position is indicated by the liquidity ratios. The solvency position is very

critical for any firm. It is often indicated by the Bangladeshi industry that it has ample

sources available for the long term finance, but very limited sources are available for the

short term finance or to meet working capital requirement. So, a firm’s performance in this

area is an important indication towards the performance. The ratios that indicate liquidity

position are: current ratio, quick ratio, cash ratio, interval measure, net working capital ratio

etc.

b) Leverage Ratios

Leverage Ratios are popularly known as the capital structure ratios as well. Any firm has got

two sources of finance one is owned funds and the other is borrowed funds. As a general rule,

there should be an appropriate mix of debt and owners’ equity in financing the firm’s assets.

26 | P a g e

The ratios that indicate leverage are: debt ratio, debt-equity ratio, capital employed to net

worth ratio, interest coverage ratio etc.

c) Activity Ratios

Activity Ratios are calculated evaluate the efficiency with which the firm manages and

utilized its assets. These ratios are known as turnover ratios as well. The activity ratios

involve a relationship between sales and assets. A proper balance between sales and assets

generally reflects that assets are managed properly. The ratios that indicate level of activities

are: inventory turnover ratio, debtor’s turnover ratio, assets turnover ratio and working capital

turnover etc.

d) Profitability Ratios

A firm’s performance is often judged by the profitability. However, two types of profitability

ratios are calculated.

a) Profitability in relation to sales.

b) Profitability in relation to investments.

The ratios that indicate the profitability position of a firm are: gross profit margin ratio, net

profit margin ratio, operating expense ratio, return on investment, return on equity, earning

per share, dividend per share, dividend payout ratio, dividend and earnings yield, price

earnings ratio, market value to book value ratio etc.

2.7.2 DuPont Analysis

The DuPont Corporation created its method for analyzing return on equity in the 1920s. The

original three-step model deconstructs the above formula in three parts and at each point we

can measure different efficiency.

Three-Step DuPont Model:

The three-step DuPont model is expressed as follows:

ROE = Net profit margin × Asset Turnover × Equity Multiplier

Where:

Net Profit margin = Net Profit ÷ sales

Asset Turnover = Sales ÷ Total Assets

Equity Multiplier = Total Assets ÷ Shareholders’ Equity

The three-step DuPont model measures Management’s effectiveness at generating profits

(Net Profit margin), managing assets (asset turnover) and finding an optimal amount of

leverage (equity multiplier).

Net Profit Margin:

The net profit margin (or net margin) of a company reflects management’s pricing strategy by

showing how much earnings they can generate from a single rupee of asset.

Net Profit margins are also an expression of the amount of competition a company faces—the

more competitive the industry, all else being equal, the lower the profit margins for the

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Companies in the industry. Companies with high profit margins indicate that they have a

highly proprietary product or service that carries with it a price premium.

Net margins vary from company to company, and, historically, certain ranges can be

expected across industries. Therefore, it is important to compare the ROEs and other financial

ratios of companies in similar lines of business, as similar business constraints exist in each

distinct industry.

Asset Turnover:

Asset turnover measures how much sales a company generates from each rupee of asset. It

helps us to measure management’s effectiveness in using assets to force sales.

The majority of high-margin companies also tend to have low asset turnover. This is because

an organization can only do a certain amount of business without incurring additional costs

that would adversely impact profit margins. On the other hands, low-margin organizations

tend to have high asset turnover, as they rely on high sales volume to generate profits.

By improving its asset management policies, a company can increase shareholders’ returns

without necessarily increasing profit margins.

Equity Multiplier:

The final component of the three-step DuPont Model is the equity multiplier, which helps us

to examine how an organization uses debt to finance its assets. A higher equity multiplier

indicates higher financial leverage, which means the company is relying more on debt to

finance its assets.

An organization can boost its return on equity by raising its equity multiplier (increasing the

amount of debt it carries). If a company is already sufficiently levered, taking on additional

debt increases the risks of not being able to fulfill its obligations to creditors and going

bankrupt (Cited by Nanavati, 2013).

2.7.3 Z-Score Model The Z-Score Model for predicting bankruptcy was published in 1968 by Edward I.

Altman, who was, at the time, an Assistant Professor of Finance at New York University.

Edward I. Altman (born 1941) is a Professor of Finance at New York University`s Stern

School of Business. He is best known for the development of The Z-Score Model for

predicting bankruptcy. Dr. Altman was inducted into the Fixed Income Society's Hall of

Fame in 2001 and was amongst the inaugural inductees into the Turnaround Management's

Hall of Fame in 2008. He was named one of the "100 Most Influential People in Finance" by

the Treasury & Risk Management magazine in 2005. The Z-Score Model can provide a

significant idea about the financial soundness of the selected pharmaceuticals. The number

produced by the Model is referred to as the company's Z-Score, to represent the likelihood of

a company going bankrupt in the next two years. The Z-Score Model uses multiple corporate

income and balance sheet values to measure the financial health of a company. It is a linear

combination of five common business ratios, weighted by coefficients. It is proven to be very

accurate to forecast bankruptcy in a wide variety of contexts and markets. Studies show that

the model has 72%-80% reliability of predicting bankruptcy. However, The Z-Score Model

does not apply to every situation. It can only be used for forecasting if a company being

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analyzed can be compared to the database. It utilizes seven pieces of data taken from the

corporation’s balance sheet and income statement. Five ratios are then extrapolated from

these data points. To calculate the Z-Score, the results of each of the above five ratios are

multiplied by a set factor (i.e. a coefficient developed by Professor Altman). The results of

this multiplication are then added together to determine the company’s Z-Score (Cited by

Islam and Mili, 2012).

Z = 1.2X1 + 1.4X2 + 3.3X3 + 0.6X4 + 0.99X5

Where;

X1: Working Capital / Total Assets

X2: Retained earnings / Total Assets

X3: Earnings before interest & taxes / Total Assets

X4: Market value of equity / Total debt

X5: Sales / Total Assets

Z: Overall index

The higher is the score, the healthier the company. It is a good idea to compare a company’s

Z-Scores over time to get a better idea as to how the company is doing. The lower the Z-

Score, the more likely a company is to go bankrupt. The company is financially safe when

score is above 3.00, The Company is on alert to exercise the caution when score is 2.00-2.99,

there are chances that the company could go bankrupt in the next two years when score is

1.8-2.00, and The Company’s financial position is embarrassing when score is below 1.8

(Cited by Thavamalar and Prasad, 2012).

2.7.4 CAMEL Model: In the 1980s, the US supervisory authorities, through the use of the CAMEL rating

system, were the first to introduce ratings for on-site examinations of banking institutions.

The concept introduced a uniform system of rating a banking institution in the United States.

It is based on examiner assessment of a banking institution under certain supervisory criteria,

and is used by all three US supervisory agencies, i.e. the Federal Reserve System, Office of

the

Comptroller of the Currency (OCC) and the Federal Deposit Insurance Corporation (FDIC)2.

Under this system, each banking institution subject to on-site examination is evaluated on the

basis of five (now six) critical dimensions relating to its operations and performance, which

are referred to as the component factors. These are Capital Adequacy, Asset Quality,

Management Quality, Earnings Quality and Liquidity.

Capital Adequacy:

Capital Adequacy indicates whether the bank has enough capital to absorb unexpected losses.

It is required to maintain depositor’s confidence and preventing the bank from going

bankrupt. Some of the ratios considered to assess the capital adequacy of the banks by

researchers were total capital as a percentage of total assets, total loans as a percentage of

total capital, total assets to total shareholders‘ funds, ratio of total shareholders‘ funds to total

net loans, ratio of total shareholders‘ funds to total deposits, ratio of shareholders‘ funds to

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contingency liabilities, ratio of total shareholders‘ funds to total risk weighted assets (CAR),

Debt- Equity ratio, Coverage ratio etc.

Asset Quality:

This indicates what types of advances the bank has made to generate interest income. When

loans are given to highly rated companies, the rates attracted are lower than that of lower

rated doubtful companies. Thus asset quality indicates the type of debtors of the bank. Some

of the ratios considered to assess the asset quality of the banks by researchers are total loan as

a percentage of total assets; loan closes provision to total net loans, ratio of loan loss

provision cot gross loans. On performing assets to net advances, investments in government

securities to total investments and Standard advances to total advances etc.

Management Quality:

This parameter is used to evaluate management quality so as to assign premium to better

quality banks and discount poorly managed ones. It involves analysis of efficiency of

management in generating business (top-line) and in maximizing profits (bottom-line).Some

of the ratios considered to assess the management quality of the banks are operating expense

as a percentage of total assets, deposit interest expense as a percentage of total deposits, total

of risk weighted assets to total assets, total advances to total deposits (CD ratio), profit per

employee, business per employee and return on net worth etc.

Earnings Quality:

This parameter lays importance on how a bank earns its profits. This also explains the

sustainability and growth in earnings in the future. Some of the ratios considered to assess the

earnings ability of the banks were net income as a percentage of total assets, net-interest

income as a percentage of total assets, ROA, ROE, Pre-tax profit/total assets, income spread

to total assets, cost to income ratio, operating profit to total assets, interest income to total

income and non - interest income to total income etc.

Liquidity

Banks are in a business where liquidity is of prime importance. Among assets cash and

investments are the most liquid of a bank‘s assets. In this category of ratios, the ability of

banks to meet its obligations is assessed. Some of the ratios considered to assess the earnings

ability of the banks were Liquid assets as a percentage of total assets, liquid assets as a

percentage of total deposits, total deposits as a percentage of total loans, deposits/total assets,

liquid assets to demand deposits, cash to total assets and investments in government securities

to total assets etc.

2.7.5 Common-Size Financial Analysis

Common-size statement is also known as component percentage statement or vertical

statement. In this technique net revenue, total assets or total liabilities is taken as 100 per cent

and the percentage of individual items are calculated likewise. It highlights the relative

change in each group of expenses, assets and liabilities.

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2.7.6 Trend Analysis

Trend analysis indicates changes in an item or a group of items over a period of time and

helps to drown the conclusion regarding the changes in data. In this technique, a base year is

chosen and the amount of item for that year is taken as one hundred for that year. On the

basis of that the index numbers for other years are calculated. It shows the direction in which

concern is going.

2.8 Review of related literature on financial performance

The measurement of bank performance particularly commercial banks is well researched and

has received increased attention over the past years (Seiford and Zhu, 1999). There have been

a large number of empirical studies on commercial bank performance around the world (Yeh,

1996; Webb, 2003; Lacewell, 2003; Halkos and Salamouris, 2004; Tarawneh, 2006).

The trend of commercial banking is changing rapidly. Competition is getting stiffer and,

therefore, banks need to enhance their competitiveness and efficiency by improving

performance. Normally, the financial performance of commercial banks and other financial

institutions has been measured using a combination of financial ratios analysis,

benchmarking, measuring performance against budget or a mix of these methodologies

(Avkiran, 1995).

Seeking to eliminate the weakness of the Beaver’s model, Altman (1968) used multiple

discriminate analysis (MDA) to derive a linear combination of the ratios which best

discriminate between financially failed and non-failed groups. He matched 33 bankruptcies

firms with the 33 non-distressed firms from the same industry and of similar size. 22 financial

ratios were used in his study and computed the Z-score with 5 most important financial ratios.

Companies with a Z-score lower than the cutoff score are financially distressed; firms having

a Z-score higher than the cutoff score are financially sound. The lower a firm’s Z-score, the

higher its probability of default.

Saleh Jahur and Parveen (1996) used Altman’s MDA model to conclude the bankruptcy

position of Chittagong Steel Mills Ltd. They found that absences of realistic goals, strict govt.

regulations are the main reasons for the lowest level of bankruptcy.

Dheenadayalan and Deviananbrasi (2007) he had suggested that the “Z” score of the sample

units remain below the grey area from 1997-07 but in the year 2001-02, the “Z” score is -

0.29. After 2001-02, the decreases in the score indicate that the sample unit is not financially

sound and healthy. The sample units need to put in efforts to increases the score. This will

help the sample unit to avoid any damage to its liquidity and solvency positions, thereby

avoiding financial distress and bankruptcy (Cited by Dhevika et al.,2013).

Bhatasna and Raiyani (2011) in their paper “A study on Financial Health of Textile Industry

in India: A “Z” – Score Approach” revealed that all the sample companies like SPML Ltd

and WIL Ltd were financially sound enough during the study period bearing SSML and

SKNL which had slightly lower “Z” score on the basis of average scores during the study

period.

Kannandasan (2007) he has made an attempt to have an insight into the examination of

financial health of a watch company in India. To evaluate the financial conditions and

31 | P a g e

performance of a company, this study used the Z-Score model, and finally, it was concluded

that the financial health of the company was good and financial viability is also healthy.

Velavan (2010) in his study measures “Financial Health of E.I.D. Parry Sugar Limited using

“Z” scores Model- A Case Study”. In this study, the financial health of E.I.D Parry Sugars

Limited as per Altman guide lines, the financial health of the sample units were tested

through Z-Score and finally, it was concluded that the financial health of the company was

good and financial viability is also healthy.

Prasuna (2003) analyzed the performance of Indian banks by adopting the CAMEL Model.

The performance of 65 banks was studied for the period 2003-04. The author concluded that

the competition was tough and consumers benefited from better services quality, innovative

products and better bargains.

Bhayani (2006) analyzed the performance of new private sector banks through the help of the

CAMEL model. Four leading private sector banks – Industrial Credit & Investment

Corporation of India, Housing Development Finance Corporation, Unit Trust of India and

Industrial Development Bank of India - had been taken as a sample.

Gupta and Kaur (2008) conducted the study with the main objective to assess the

performance of Indian Private Sector Banks on the basis of Camel Model and gave rating to

top five and bottom five banks. They ranked 20 old and 10 new private sector banks on the

basis of CAMEL model. They considered the financial data for the period of five years i.e.,

from 2003-07.

Barr et al. (2002 p.19) states that “CAMEL rating has become a concise and indispensable

tool for examiners and regulators”. This rating ensures a bank’s healthy conditions by

reviewing different aspects of a bank based on variety of information sources such as

financial statement, funding sources, macroeconomic data, budget and cash flow.

Majumder and Rahman (2011) used financial ratios and Prof. Altman’s MDA Model (The Z-

Score Model) for financial analysis of selected pharmaceutical companies in Bangladesh.

They observed from the study that the profitability, liquidity and solvency position of the

selected pharmaceuticals are not in sound position and it was also observed that most of the

selected pharmaceuticals have a lower level position of bankruptcy. These reviews provide

that for the overall financial diagnosis of the selected listed pharmaceutical companies in

Bangladesh, ratio analysis and Professor Altman’s The Z-Score Model are the most fruitful

techniques.

32 | P a g e

Chapter: 03

An Overview of Janata Bank Limited.

33 | P a g e

3.1 Background of Janata Bank Limited

Janata Bank Limited is the 2nd largest state owned commercial bank in Bangladesh.

Immediately after the liberation of Bangladesh in 1971, the erstwhile United Bank Limited

and Union Bank Limited were renamed as Janata Bank. The established of Janata Bank was

happened under the Bangladesh Bank order 1972. It was incorporated as a public Limited

Company on 21, May 2007 vide certificate of incorporation No-C66933(4425)07 in the early

era of privatization. The Bank has taken over the business of Janata Bank at a purchase

consideration of Tk. 2593.90 million as a going concern through a vendor agreement signed

between the Ministry of Finance of the Peoples’ Republic of Bangladesh and the Board of

Directors on behalf of Janata Bank Limited on 15th November 2007. Janata Bank Limited,

one of the state owned commercial banks in Bangladesh, has an authorized capital of Tk.

20000 million (approx. US$ 250 million), paid up capital of Tk. 19140.00 million, reserve of

Tk.17976.20 million. The Bank has a total asset of Tk. 586082.98 million as on 31st

December 2013. Janata Bank Limited operates through 897 branches including 4 overseas

branches at United Arab Emirates. It is linked with 1239 foreign correspondents all over the

world. The Bank employee’s more than 15(fifteen) thousand persons. The Board of Directors

is composed of 13 (Thirteen) members headed by a Chairman. The Directors are

representatives from both public and private sectors. The Bank is headed by the Chief

Executive Officer & Managing Director, who is a reputed banker. The corporate head office

is located at Dhaka with 10 (ten) Divisions comprising of 44 Departments.

Amid adverse geopolitical economic situation, the management of Janata Bank with its

pragmatic business policies has tackled the situation efficiently and fruitfully. In view of

creation of employment opportunities Janata Bank Limited has been proved to be the best

employment provider in the banking sector. In continuity of this trend, 665 Executive

Officers were appointed in the year 2013. A total of 3,371 officers and staffs were appointed

in 2011 and 2012. At present, the number of total employees of the bank stands at 15,485.

The bank had to spend a considerable amount of money on account of salaries, allowances

and other incidental expenses for such a large number of employees. Yet, in this year Janata

Bank has strengthened its position further in the banking sector. At the end of 2013, the total

assets of the bank stood at BDT 586,083 million which was BDT 511,129 million in the

previous year. Net profit of the bank stood at BDT 9,551.39 million in the year 2013 as

against BDT 15,280.34 million net losses in the previous year. The deficit of capital of bank

was BDT 20,117 million in the year 2012 which has transformed into a surplus of BDT 908

million in the year 2013. As a result capital adequacy ratio rose from 3.70% to 10.27%.

As a player of money market JBL is also playing its due role. So, earning profit is not its sole

consideration, rather contributing significantly to the national economy ultimately increasing

shareholders’ wealth are its prime objectives. Apart from this, JBL’s efforts were relentless

and uncompromising in establishing JBL as a high profile bank. JBL’s endeavor to establish

good governance and best practices for credible and sustainable development was incessant

in conducting banking business. Among the state owned commercial banks, Janata Bank

Limited has been able to earn the highest chunk of operating profit during the year 2013.

34 | P a g e

3.2 Profile of the JBL at a glance

Name of Company:

Registered Office :

Legal Status :

Date of Incorporation :

Date of Commencement of Business :

Banking license obtained from Bangladesh

Bank :

Authorized Capital :

Paid up Capital :

Face value per share :

Shareholding Pattern:

Tax Identification No. :

Vat Registration No. :

Chairman of the Board of Directors :

CEO & Managing Director :

Chief Financial Officer (CFO) :

Company Secretary :

Domestic Network

Number of Branch :

No. of Urban Branch :

No. of Rural Branch :

Number of Divisional office :

Number of Area Office :

Number of AD Branch :

Overseas Network

Number of Branch :

Location of Branches :

Subsidiaries

Janata Capital and Investment Ltd :

Janata Exchange Company srl. :

Number of Correspondence :

Number of Employees :

Number of Exchange House :

Corporate Rating Status

Entity Rating (2012) :

Telex :

Phone PABX :

Fax :

E-mail :

Website :

Swift Code :

Janata Bank Limited

Janata Bhaban

110, Motijheel C/A Dhaka-1000, Bangladesh

Public Limited Company

21 May 2007

21 May 2007

31 May 2007

BDT 20,000 Million

BDT 19,140 Million

BDT 100

100% Share owned by Government of the

People’s Republic of Bangladesh

001-200-2732

9011050160

Professor Dr. Abul Barkat

Mr. S M Aminur Rahman

Mr. Md. Nurul Alam FCMA, ACA

Mr. Md. Mosaddake-Ul-Alam

893

450

443

10

47

57

04

Abudhabi, Dubai, Al-Ain and Sarjah. UAE.

Dhaka

Italy

1239

15485

68

A+ in the long run, AR-2 in the short run

As Government owned Bank : AAA in the

long run and AR-1 in the short run.

675840JBDBJ, 671288 JBHOBJ

9560000, 9566020, 9556245-49.

88-02-9564644, 9560869

md@janatabank-bd.com

www. janatabank-bd.com

JANB BD DH

35 | P a g e

3.3 Organizations Mission, Vision and Values 3.3.1 Mission

Janata Bank Limited will be an effective commercial bank by maintaining a stable growth

strategy, delivering high quality financial products, providing excellent customer service

through an experienced management team and ensuring good corporate governance in every

step of banking network.

3.3.2 Vision

To become the effective largest commercial bank in Bangladesh to support socio-economic

development of the country and to be a leading bank in south Asia.

3.3.3 Values

Figure : Values of Janata Bank Limited

36 | P a g e

3.4 Strategic Objectives of JBL

JBL Have

• Concern

• Commitment

• Competence

JBL’s Strengths

Nationwide networks, 893 branches •

Foreign network, 4 branches and •

1239 foreign correspondence

State-owned image •

Goodwill •

Received globally recognized awards •

Strong deposit base •

No capital shortfall •

No provision shortfall •

Skill manpower •

Experienced higher level management •

Newly recruited talents •

Friendly board of directors •

JBL’s Brand

• Quality and responsive staff

• Efficient service

• High and sustained growth (deposit

advance, import, export, foreign remittance

noninterest income and recovery)

• Good quality loan

• Low classified loan

• Timely recovery

• Business diversification

• Attract low cost deposit

• Participate in capital market

• Improve agricultural loan

(Disbursement, recovery etc.)

• High impact of CSR

• Aesthetic infrastructure

JBL’s Need

Sense of belonging (ownership) •

Improve service mentality •

Human touch with clients •

Proactive, team spirit •

Loosing branches make profitable •

Chronic weak branches make strengthen •

Managerial efficiency (GIS of good

customer/ •

borrowers; meeting each within 1 km radius)

Strong cash recovery •

Strategic thinking •

More agricultural loan •

Broadening of deposit base; reaching all •

Automation, on-line banking •

Need based training •

More remittance •

Discipline, chain of command •

Hygienic bank premises •

Avoid intermediary between management

and clients •

No hidden cost •

Avoid insurance engineering •

Demand estimation of CC loan •

Proper security valuation •

Manager willing to take risk •

Borrower’s preference •

Disposal through ADR •

Synthesis of mass banking and elite banking•

Avoid loan sanctioning bureaucracy •

Innovative thinking •

Free from corruption •

Aware gender sensitivity •

37 | P a g e

3.5 Products and Services of JBL

JBL render both corporate and retail banking services with a strong focus on socio-economic

development of the country. The bank typically provides short term working capital loan and

limited long term credit exposure. Moreover, JBL offers micro enterprise and special credit

as well as rural banking. Under corporate banking services JBL provides trade finance,

project finance, syndicate finance. On the other hand, consumer loan, deposit scheme,

remittance facilities are provided through retail banking. In 2013, JBL launched its own

innovation to remittance payment system at all branches which facilitate Deposit/withdrawal

from any branch in this system.

1.0 Deposits

1.1 Current & Call Deposits

a. Current Deposit

b. Call Deposit

c. Deposit in Foreign Currency

d. Resident Foreign Currency Deposit

e. Deposits in F.C (WES)

f. Convertible taka A/C (D)

1.2 Savings Bank Deposits

a. Savings Bank Deposit

b. Savings Deposit from Foreign Remittance

c. SB General

d. Q-Cash Deposit

e. Non-Res F.C Deposit

f. School Banking Deposit

1.3 Monthly Scheme Deposits

a. Deposit Pension Scheme

b. JB Savings Pension Scheme

c. Janata Bank Deposit Scheme

d. Medical Deposit Scheme

e. Education Deposit Scheme

f. Ghore Ghore Sanchay

g. JB Monthly Savings Scheme

h. JB Special Deposit Scheme

i. JB Monthly Amanat Prokalpa

1.4 Term Deposits

a. Fixed Deposit

b. JB Double Benefit Scheme

c. JB Monthly Benefit Scheme

d. Retirement Savings Scheme

e. JBL Retirement Savings Scheme

f. Continuous Benefit Account

1.5 Special Notice Deposit

a. Special Notice Deposit

b. Convertible Taka A/C(SND)

2.0 Loans & Advances

2.1 Agriculture Loan Programs

a. All kinds of Crops Loan, Loan for

Cultivation

of Sugarcane (mill area), Fisheries &

Shrimp,

Purchase of Cow/ Buffalo, Livestock, Duck/

Chicken, Cultivation of Banana, Betel Leaf.

b. Loan for Shrimp Culture Development

c. Loan for Irrigation and Agricultural

Equipment

d. Loan for Salt Production Plant

e. Dal, Spices, Oil Seeds & mase

2.2 Poverty Alleviation Program

a. Diversified Credit Program

b. Small Farmers & Landless Labourers

c. Development Project(SFDP)

d. Swanirvar Credit Scheme

e. Self Employment Project for

Trained Unemployed Youth

f. Self employment Scheme

g. NGO Linkage –Lending Through NGOs

h. Ghoroa Prokalpa/ Family Based Micro

Credit

i. Micro Credit Scheme

j. MSFSCIP

2.3 Specialized Loan Program

a. Grain Storage Credit

b. Credit for Flower Plantation & Garden

c. BGSDP

d. Credit Program for Goat Rearing

e. Credit for Forestry/Horticulture Nursery

f. Hybrid Milking Cow Rearing (HYV-Milk

Cow)

g. Credit Program for Fish Cultivation

h. Fish Cultivator/Entrepreneur

i. Loan for Handicapped/Disabled People

38 | P a g e

j. ATDP

k. Credit Program for floating Fish Cage

Culture

l. Poverty Alleviation Program

2.4 Rural Credit

a. Rural Transportation

b. Loan for Land Mortgage

2.5 Term Loan for Large and Medium

Credit Programs

a. Dairy, Poultry, Fisheries, Hatchery

b. Agro based, Industry/Project Loan

c. Syndication Loan

2.6 Other Loans & Advances

a. Loan for Cold Storage

b. Large & Medium Term Loan

c. Leasing Company

2.7 Loans for Thrust Sectors

a. Computer Software & Information

Technology

b. Electronics

c. Artificial Flower Production

d. Export Oriented Frozen Foods

e. Flower Cultivation

f. Gift Items

g. Export Oriented Leather Products

h. Export Oriented Jute Goods

i. Jewellery & Diamond Cutting & Polishing

j. Oil & Gas Industries

k. Cultivation of Sericulture

l. Stuffed Toys

m. Textile Industries (Except Readymade

Garments)

n. Infrastructural Industries (except housing

sector)

2.8 Export Oriented Industry

Term/Project Financing

a. Agro-products & Agro processing Product

b. Light Engineering Products

c. Shoes & Leather Product

d. Pharmaceuticals Product

e. Software & ICT Product

f. Home Textile

g. Shipyard loan

h. Toiletries product

2.9 Micro & Cottage industries loan

a. Dairy/Goru Mota Taza Koron/ Poutry/

Semi-intensive Shrimp Culture/Fish Culture

b. Other micro & Cottage Industries Loan

c. Credit for loom (Tat)

2.10 Working Capital

a. Credit Program for Agro-based

Industry/Project

b. Working Capital for Husking Mill

c. Credit program for Preservation of

Potatoes in Cold Storage

d. Other Working Capital

e. Credit Program for Jute Industries

2.11 Export Financing

a. ECC (HYPO & PLEDGE)

b. PACKING CREDIT

c. Other Export Finance

d. LTR(FC)

e. ECC for Export Oriented Project

f. BMRE for Export Oriented Project

g. Loan General

h. Cash Credit (Hypo & Pledge)

i. Demand Loan (BBLC)

j. Advance Against Cash Subsidy

k. PAD (EDF)

l. PAD (GMT)

2.12 Import Financing

a. PAD (Cash)

b. LIM

c. LTR

d. Demand Loan (L.C)

2.13 Trade Financing

a. Transport

b. Brick Field

c. Work Order

d. BADC/BRTC

e. Loan on FDR/Third Party FDR

f. Loan on FDR of OTHER BANK

g. National Investment Bond, ICB Unit,

Insurance Policy, Share, Debenture

h. Loan Against Wage Earners Bond

i. Food Ministry

j. Service Oriented Ind.

k. Loan Against DPS

l. Loan Against SPS

m. Loan Against JBDS

n. Loan Against EDS

o. Loan Against MDS

p. Loan Against CBA -FDR

q. Credit Program for Urban Commercial

Housing

r. Credit Program for Urban Residential

House Building

s. Credit Program for Jute Business

t. Commercial Loan for USA aided project

39 | P a g e

u. Loan to Diagnostic Centers

v. Loan to Travel Agencies

w. Credit Program for House Repair

2.14 Other Credit Program

a. Consumer Credit Scheme

b. Cyber Cafe

c. Service Holders Loan

d. Doctor's Loan Scheme

e. Women Entrepreneur Development Credit

Program

f. Special Credit Program for Women

Entrepreneurs

g. Small Business Development Loan

Scheme

3.0 Financial Services

3.1 Inland Remittance

a. Demand Draft (DD)

b. Telephonic Transfer (TT )

c. Mail Transfer (MT )

3.2 Foreign Remittance

a. Online Speedy Remittance

b. Maintaining NRT Account

c. Foreign M.T.

d. Foreign Remittance

e. Foreign Demand Draft

3.3 Other Financial Services

a. Pay Order

b. Pay Slip

c. Security Deposit Receipt (SDR)

4.0 Other Services

4.1 Utility Services

a. Gas Bills Collection

b. Electricity Bills Collection

c. Telephone Bills Collection

d. Water/Sewerage Bills Collection

e. Municipal Holding Tax Collection

f. Port Bill Collection

g. Land Rent Collection

h. Embarkation Fee Collection

4.2 Walefare Services

a. Payment of Non- Govt. Teachers Salaries

b. Payment of Girl Students Scholarship/

Stipend /Upbitti & Primary Student Stipend

c. Payment of Army pension/Civil Pension

d. Payment of Widows, Divorcees and

Destitute Women Allowances

e. Payment of Old-age/ Disabled Allowances

f. Food procurement Bills

g. Issuance of Television License

4.3 Q-Cash (ATM) Services

a. Cash withdrawal

b. Balance inquiry

c. Mini statement of accounts

d. point of sale (POS)

4.4 Others

a. Locker Service

b. JB remittance payment system(Deposit/

withdrawal from any branch)

c. SMS banking

d. Sale of Lottary Ticket

e. Sale of Prize Bond

f. Sale of Wage Earner Bond (W.E.B)

g. Sale of Sanchay Patra (S.P)

5.0 Customer Care

a. Help Desk

b. Inquiry Desk

c. Counseling

d. Information Desk

6.0 Web based Spot cash

a. Speedy Remittance Cell

b. Western Union

c. IME

d. Placid N.K. Corporation

e. X-Press Money

f. NBL Quick-Pay

g. Prabhu Group Inc

h. Trans Fast Remtt

i. Ria Financial Service

j. Marchentrade

k. EZ Remittance

l. Samba Financial Group

m. MoneyGram

6.1 Internet Banking

a. Accounts Details Information

b. Customer Statement

c. Cheque Status

40 | P a g e

3.6 Organizational Structure of JBL

Board of Directors

↓

Managing Directors (MD)

↓

Deputy Managing Directors (DMD)

↓

General Manager (GM)

↓

Deputy General Manager (DGM)

↓

Assistant General Manager (AGM)

↓

First Assistant General Manager (FAGM)

↓

Senior Executive Officer (SEO)

↓

Executive Officer (EO)

↓

Assistant Executive Officer (AEO)

41 | P a g e

3.7 Human Resources of JBL

As Human Resource Development is one of the key competencies to enable individuals in

any organizations to perform current and future jobs through planned learning activities, JBL

has integrated the use of training and development efforts to improve quality and capability

of executives. This is materialized through a well-designed Human Resource Management

and development programme. The Board of Directors of the bank underlines the need for

improving the skill and capability of human resource to ensure maximum quality output from

minimum resources.

As an employer, JBL ensures equal opportunities for both male and female employees. JBL is

strictly following female quota in recruiting manpower. As a result the number of female

employees is increasing significantly.

The following table exhibits the comparative number of male and female employees by

category in the year 2013:

Category 2013

Male Female Total CEO& Managing Director 1 0 1

Deputy Managing Director 5 0 5

General Manager 21 2 23

Deputy General Manager 110 4 114

Assistant General Manager 256 31 287

First Assistant General Manager 575 88 663

Senior Executive Officer 927 198 1125

Executive Officer 3046 534 3580

Assistant Executive Officer 3166 362 3528

Assistant Executive Officer (Teller) 2198 212 2410

Assistant Officer Grade-1 479 13 492

Assistant Officer Grade-2 439 17 456

Support Staff Category-1 108 0 108

Support Staff Category-2 263 5 269

Total 13968 1517 15485

Following are the priorities of HR planning for 2014:

� To bring performance measurement and performance based incentive related activities of

HRM;

� Training need analysis and process development;

� Preparation of training and development roadmap;

� Improvement of service benefit;

� Improvement of HR policies and procedures;

� Adoption of HR Accounting System;

� Employee Engagement and Employer Branding initiative taking.

42 | P a g e

3.8 Report on Sustainable Banking of JBL

Bank sustainability means building a successful business today and delivering value over the

long term. Sustainability is is a long term journey. Along the way, organizations need to set

goals, measure performance, and integrate a sustainable strategy into their core planning. A

sustainable economy should combine long term profitability with ethical behavior, social

justice, and environmental care. This means that when companies or organizations consider

sustainability and integrate it into how to operate, they must consider four key areas of their

performance and impacts: Economic, Environmental, Social and Human Rights.

According to GRI’s(Global Reporting Initiative) Sustainability Reporting Framework, JBL is

reporting on sustainable banking system that enables it to measure, understand and

communicate this information. JBL’s mission is to make:

� Sustainable long term financial performance

� Sustainable and responsible financial services

� Strongly contribute in socioeconomic development

� To create good governance, regulation and stakeholder engagement

� To help in building green environment

� A positive and consistent employee experience

3.8.1 Economic contribution

“Creating wealth for the communities in which JBL operate”

JBL’s performance in import and export was satisfactory. Total import and export business

handled during 2013 were BDT 176,671 million and BDT 153,252 million respectively. The

import business reduced by 6.16 percent over the previous year because Bangladesh achieved

self sufficiency in food grains. JBL’s guarantee business in 2013 was BDT 12,581.5 million.

In 2013, the amount of foreign remittance sent by Bangladeshi workers from abroad through

JBL was BDT 103,982 million. JBL has been playing significant role in strengthening the

economic base of the country. The percentage of JBL’s foreign remittance to National

Foreign Remittance is 9.61%.

3.8.2 Financial inclusion

Access to finance by the poor and vulnerable groups is a prerequisite for poverty reduction

and social cohesion. This has to become an integral part of our efforts to promote inclusive

growth. JBL is dedicated to serve financial services at an affordable cost to the vast sections

of the disadvantaged and low-income groups. The various financial services include credits,

savings, insurance and payments as well as remittance facilities. The objective of financial

inclusion is to extend the scope of activities of the organized financial system to include

people with low incomes within its ambit. JBL’s policies aim at increasing the income and

employment opportunities on the one hand and on the other; it tries to finance programmes

which are capable of making the growth more inclusive.

In year 2013

� No. of deposit A/Cs is 6,425,804 in 2013, where in 2012 it was 6,246,858

43 | P a g e

� Total deposits in 2013 is BDT 478,535.57 million where in 2012 it was BDT 409,767.01

million.

� No. of Loans and Advances A/Cs was 742,655 in 2012 where in 2013 it is 759,835

� Total Advance in 2013 is BDT 285,747.65 million where in 2012 it was BDT 305,339.57

million.

� No. of Branches was 888 in 2012 where in 2013 it is 897.

� The amount of agricultural loans disbursed in 2013 is BDT 12,694.30 million and No. of

beneficiaries is 433,838.

� 1,873,630 A/Cs has been opened with 10 taka in 2013 to help farmers to avail

opportunities of doing their works smoothly.

� In retail customer department-3 (RCD-3)/retail customer department-4 (RCD-4), under

agriculture and rural credit program no. of Borrowers covered 5,46,369 and BDT 17,652.67

million disbursed, No. of borrowers receiving crop loan is 325,908; No. of borrowers in

Micro-Credit Programs is 2410 and loan disbursed BDT 53.5 million.

3.8.3 Environmental contribution

As a part of green banking, JBL is providing support to the activities that are not harmful to

the environment. It has established a separate green banking unit and various measures have

been adopted to ensure green banking. Among others, green financing, creating awareness

among employees for efficient use of water, electricity and paper, giving preference to

preservation of ecosystem while financing commercial projects and reuse of equipments are

the some initiatives for turning JBL as a green bank. Initiative for green banking is the key to

shaping future. JBL works together with central bank namely Bangladesh Bank is effectively

working to sustain and keep our planet green.

Table of Green Banking Finance

Promoting Sustainable

Green Finance

No. of Projects Funds Disbursed up to

2013 (BDT in millions )

Amount financed in plants having ETP 6 806.38

Amount financed to solar panel/renewable

energy plants

31 2.39

Amount financed to bio fertilizer/ bio gas

plants

21 1.67

Amount financed to HHK project 4 771.08

Amount financed to other green projects

(zigzag bricks, vermy compost)

66 100.90

Total sustainable green finance 128 1682.42

3.8.4 Social contribution

“Building a sustainable society”

As one of the leading state-owned commercial banks in Bangladesh, JBL with its 897

branches and 15,485 employees have also realized its responsibilities to the society and are

contributing to the amelioration of the social life of the destitute people, infra-structure,

environment etc. There is no doubt, that through our day-to-day business operations JBL is

44 | P a g e

adding values to the society and the economy. Ultimate goal of CSR activities of JBL is

“Building a Sustainable Society”. The budget for performing CSR activities is provided from

the profit earned by the bank each year. Since its inception, the break-down of the budgets

devoted to the philanthropic initiatives up to 2013 are as follows:

Year Budget

( BDT in million)

Utilization of Fund

(BDT in million )

2009

2010

2011

2012

2013

30.00

70.00

100.00

150.00

310.00

17.07

61.28

68.80

113.38

292.28

In 2013 JBL rendered BDT 79.53 million to financially deprived meritorious and those who

have great inclination to be benefited with education and research. JBL also contributed in

Health care (BDT 38.06 million); Poverty Reduction and Rehabilitation (BDT 94.38 million);

Natural calamity (BDT 2.39 million); Preservation of History; Culture, Tradition and Sports

(BDT 39.76 million); Environment Protection, Expansion of Information Technology (BDT

20.31 million); Invention (BDT 7.85 million). Besides JBL also disbursed interest free loans

to the marginal agriculturists and the poor from the clutch of loan (BDT 10.00 million).

3.8.5 Human rights

JBL is committed to upholding the principles of the Constitution of the People’s Republic of

Bangladesh, the associated Bill of Rights and labor legislation in our national operations.

JBL’s values and the code of ethics are an extension of this commitment. An internally

developed appraisal system has been implemented for all other financial product types within

CIB. JBL distributes “Right to know information” instruction circular in line with the “Right

to Information Act-2009” introduced by the government of Bangladesh in order to ensure

free flow of information and people’s right to know information. In order to protect customer

interest complaints boxes have been installed in all branches and offices of JBL. If any

complain of customer is found steps are immediately taken to address the complaints with

due consideration. A complaint cell has already been setup. JBL has also adopted the concept

of Help desk and already setup help desk in all its 897 branches. In addition another Help

Desk of the same nature has been set up in the 8th floor of the head office to handle

remittance related complains. As per regularity directives, citizen charters have been pegged

against the wall at the entrance of Head Office as well as in all other branches too. Customers

may ensure their access to necessary facilities through it.

Development of human resources and decent works

Development of human resources is one of the prerequisite of JBL for attaining the targets.

To do so, JBL recruited 665 officers in 2013 which is 3.12 times higher than in 2012 (213

persons). JBTI conducted 30 training courses directly and another 84 courses conducted

45 | P a g e

through other training institutes. JBL has 2 female GM, 4 DGM, 31 AGM, 88 FAGM, 198

SEO, 534 SO, and 362 AEO. Total 2,790 officers have been trained for development in IT

and On-line.

3.9 Key Milestone of JBL

1972: Commencement of banking operation.

1976: Inaugurate 1st overseas branch in UAE.

1990: Launching 1st computer in JBL.

1999: 1st cash dividend paid.

2000: Deposit crossed BDT 100,000 million.

2001-2005, 2011: JBL awarded “the bank of the year in Bangladesh” by London based

financial times group.

2002: Incorporation Janata Exchange Company Srl, Italy.

2002: Inaugurate Janata Bank Software (JB Soft)

2002: Incorporate of ATM service.

2003: JBL crossed BDT 100,000 million of loans & advances.

2004: Received “Asian Banking Award” on Financing program for Women Entrepreneurship

from Asian Bankers Association (ABA) & Bank Marketing Association of the Philippines

(BMAP)

2005: Received “Asian Banking Awards” on credit scheme for handicapped people from

Asian Bankers Association (ABA) & Bank Marketing Association of the Philippines

(BMAP)

2006-2009: Received “World Best Bank Award” from New York based financial magazine

global finance.

2007: Incorporation and commencement of business as JBL.

2008: Commencement of NRB branch.

2009: Launching of speedy remittance service, Issuance of 1st bonus share in JBL.

2010: Incorporation & commencement of Janata Capital & Investment Ltd.

2010: Launching of BACH operation.

2011-2012: Received “ICMAB Best Corporate Award” from Institute of Cost and

Management Accountants of Bangladesh (ICMAB).

2011: Launching of JBL CIB online system.

2011: Launching BEFTN & EFT operation.

2011: Inauguration of online banking.

2011: Landmark of BDT 100,000 million of foreign remittance.

2011-2013: JBL achieved highest operating profit among SCBs.

2012: JBL at the top in CSR activities among the SCBs.

2012: Landmark of BDT 400,000 million deposit.

2012-2013: JBL Rewarded “Wholesale Banking Awards” &“Retail Banking Awards”&

“Bank of the year Award” by Asian Banking and Finance (CMG) Singapore.

2013: Full automation of JBL branches.

2012-2013: JBL Received “Performance Excellence Award” from Citi Bank N.A.

2013: Inauguration of online deposit, payment & remittance system.

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2013: Enhancement of paid up capital to BDT 19,140 million

2013: Issuance of highest right share in JBL history.

2013: JBL achieved highest net profit among the SCBs & PCBs.

3.10 Five years key financial information (BDT in millions unless stated otherwise )

Particulars 2013 2012 2011 2010 2009

Authorized capital 20000.00 20000.00 20000.00 20000.00 20000.00

Paid-up capital 19140.00 11000.00 8125.00 5000.00 5000.00

Reserve fund &

Surplus

17976.20 6476.66 25944.20 15390.32 9924.74

Total Shareholder’s

Equity

37116.20 17476.66 34069.20 20390.32 14924.74

Total Assets 586082.98 511129.41 446111.42 345234.00 294727.00

Current liabilities 275,583.75 219,102.72 199,259.27 167,016.15 153,319.69

Long-term liabilities 273,483.04 274,821.01 212,782.95 157,827.53 126,482.57

Interest income 36,189.68 34,239.12 26,266.12 19,027.54 14,867.96

Investment income 13,736.50 7811.43 6,109.43 6,956.05 5,602.31

Non-interest income 5,145.67 7465.08 8259.58 4630.33 3603.03

Total Income 55,071.85 49,515.63 40635.53 30613.92 24074.10

Net profit after tax 9551.39 (15280.34) 4444.91 4907.97 2804.25

Import 176671.00 188284.00 197285.00 183744.00 118525.00

Export 153252.00 156525.00 153758.00 118515.00 88653.00

Foreign Remittance 103982.00 100089.00 72285.00 52640.00 56190.00

ROA 1.81% (2.51%) 1.99% 2.27% 1.92%

ROE 30.09% (49.74%) 16.32% 27.80% 23.38%

ROI 9.39% 8.01% 7.72% 4.89% 4.13%

Net profit per

employee

0.62 (1.01) 0.30 0.38 0.21

Efficiency ratio 15.86% 15.11% 17.54% 21.61% 21.26%

Debt-equity ratio

(times)

13.13 24.09 10.62 14.05 16.49

Gross profit ratio 44.43% 56.39% 57.74% 68.17% 71.52%

Net profit ratio 23.90% 38.66% 13.70% 21.83% 15.81%

EPS 86.31 138.91 43.46 98.16 73.37

Dividend:

Cash

Bonus

10

-

-

-

10

-

10

2875

10

-

Current ratio 1.04 1.02 1.06 1.03 0.98

Capital Adequacy

ratio

10.27% 3.70% 10.20% 9.19% 13.81%

Statutory liquidity

ratio

44.39% 33.24% 33.47% 27.72% 40.84%

Number of Shares 191.40 110 81.25 50 50

Number of Branches 897 888 873 861 851

Number of Employees 15485 15071 15020 12826 13122

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3.11 Gandamati Bazar Branch: Internship Place This branch is situated at Gandamati Bazar, Koatbari, Comilla. The activities of this

branch were started in 20th

December, 1977. It covers all the area both urban and rural area.

The customers are very happy to get this branch and customers are also very loyal to this

branch. The employee of this branch is also well indeed. It holds so many well reputed

companies account. The outlook of this branch is also wonderful. Consequently, this branch

is increasing profit day by day.

Departments of this Branch: The departments available in this branch are Account opening department, Cash zone,

Clearing and collection, Remittance department and Advance department.

Organizational structure of the Branch:

Senior Executive Officer (SEO)

↓

Executive Officer (EO)

↓

Assistant Executive Officer (AEO)

↓

Caretaker(Guard)

Target customer of this Branch: All types of people are the main customer of this branch. Such as student, business man,

farmer etc.

Total number of accounts of this branch: Name of account Number

Current deposit 193

Savings bank deposit 4851

Fixed deposit 99

Deposit pension scheme 4

JB Savings Pension Scheme 32

JB deposit scheme 147

Education deposit scheme 0

Medical deposit scheme 0

JB monthly sanchay scheme 0

JB special deposit scheme 0

JB monthly amanot prokolpo 234

JBL school banking saving scheme 0

Special notice scheme 10

Retired saving scheme 0

JBL retired savings scheme 0

JB monthly benefit scheme 45

JB double benefit scheme 56

Deposits in foreign currency 0

Others deposit 0

Total deposits 5623

Total loans & advances 111

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Chapter: 04

Analysis and Findings

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Introduction:

This chapter is the heart of this report. This chapter is divided into three main parts are given

below:

Part: One 4.1 Major Banking Practices Arena of Janata Bank Ltd.

Part: Two 4.2 Financial Performance Analysis of Janata Bank Ltd.

Part: Three 4.3 SWOT Analysis.

Part: One

4.1 Major Banking Practices Arena of Janata Bank Ltd.

This report is conducted the following three major banking practices arena of JBL:

4.1.1 General Banking of JBL;

4.1.2 Credit Management of JBL; and

4.1.3 Foreign Exchange Operations of JBL.

4.1.1 General Banking of JBL

General banking is the starting point of all the banking operations. It is the department, which

provides day-to-day services to the customers. Every day it receives deposits from the

customers and meets their demand for cash by honoring cheques. It opens new accounts,

remit funds, issue bank drafts and pay orders etc. Because bank is a financial organization, so

as a part of service organization this department should satisfy to their client with the best

services. Since bank is confined to provide the service every day, general banking is also

known as ‘retail banking’.

The following sections are performing under this department of JBL:

4.1.1.1 Account Opening Section

4.1.1.2 Deposit Section

4.1.1.3 Cash Section

4.1.1.4 Remittance Section

4.1.1.5 Bills and Clearing Section

4.1.1.6 Accounts Section

4.1.1.7 Dispatch Section.

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4.1.1.1 Account Opening Section

The relationship between banker and customers begins with the opening of an account by the

customer. Opening accounts binds the banker and customers into contractual relationship.

But selection of customer for opening an account is very crucial for a bank. In fact, fraud and

forgery for all kinds start by opening an account. So, bank should take extreme caution in this

section.

4.1.1.1.1 Documents needed for opening an account:

The following documents duly completed shall be obtained from the customer at the time of

opening different types of accounts as applicable:

a) Individual/ joint:

Account opening form as applicable duly filled in.

Present and permanent address

Occupation and specimen Signature

Two photographs duly attested by introducer.

Nominee Form (if nomination given by the account holder).

Introducer name, address and account number

Initial deposit that varies depending on the type of account

National certificate and passport

b) Proprietorship Firm:

Account Opening Form.

Specimen Signature Card.

Copy of Trade License

Two photographs duly attested by introducer.

Proprietorship Rubber Stamp against all signatures of the proprietor.

Tax certificate.

c) Partnership Concern:

Account Opening Form.

Specimen Signature Card.

Copy of Trade License

Two photographs of each partner duly attested by introducer.

Partnership Rubber Stamp against all signatures of partners operating the accounts.

Partnership letter.

Partnership deed.

d) Private Limited Company:

Account Opening Form.

Specimen Signature Card.

Copy of Trade License.

Copy of Memorandum and Articles of Association duly attested by the Managing

Director/ Chairman of the Co.

Certificate of Incorporation.

List of Director as per return of Joint Stock Company with signature.

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Resolution of the Board for opening account with the bank.

Photographs of each of the authorized signatories.

e) Public Limited Company:

Account Opening Form.

Copy of Memorandum and Articles of Association.

Certificate of commencement of business.

List of Directors as per returns of Joint Stock Company with their signature.

Resolution of the Board for opening account with the Bank.

Certification of incorporation. Specimen Signature Card.

Copy of Trade License.

Photograph of Directors and account operators other than Director.

Certified

f) Clubs/ Association/ Society etc. (Non-Trading Concerns):

Account opening Form for current account or SB accounts.

Specimen Signature Card.

Certified copy of Bye laws/ constitution of the organization.

List of the Executives of Managing Committee with their signature and present and

permanent address.

Resolution of the Committee for opening account with the bank.

2 Photographs of each operator of the account.

g) Corporation/ Autonomous Bodies/ Govt. Organization:

Account Opening Form as applicable.

Specimen Signature Card.

Copy of the Act or Ordinance Showing authority to open account.

Letter from the authorized persons in absence of the Board.

h) Account Of Constituted Attorney :

Account Opening Form (As applicable)

Specimen Signature Card

Power of Attorney

4.1.1.1.2 Account Opening Regulations & Precautions

Know your customer

The objective of knowing a customer is to have a fair idea about the identity, financial

resources, and general information about the customer at the time when the relationship is

being established. A banker must have proper following information about the customer.

Account name :

Enter complete name as mentioned in original National ID card/ valid passport/ genuine driving

license of other valid business documents. Regarding this field highest caution must be measured

because in editing an account’s information all other fields can be edited/ rectified but not account

name. So all photocopies of documents should be accepted only after verifying the original copies.

Now-a-days, all of Bangladesh nationalities are available with a National voter ID card. So in

terms of personal accounts, account name as well as parents name have to be according to

that National ID card.

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But for company/ business/ corporate account, proper business documents such as valid/

renewed trade license, TIN, VAT registration – thus like documents are cross checked for

naming of the account.

Nature of business/ profession: - if the customer is of salaried class, employer name have to

be entered. If the customer is a businessman/ trader/ sole proprietor, the business name should

be entered. For example “Rock Star restaurant” etc. customer’s title/ position and full address

of the business/ employer should also be entered. Address with P. O. BOX in not acceptable.

Similarly remarks like “private service”, “business” are not acceptable. Rather have to

specify what type of company/ business the customer is associated with. For example,

Manager – “lighting palace”

Address :

Enter the complete business/ residential address. Within the brackets you may also provide

prominent addresses/ identifiable landmarks for ease of physically locating the address. Once

an address has been entered the authority should send an account confirmation letter to

confirm the accuracy of the address. This letter is in fact a formal approach to verify the

address only, yet it mentions the account number and a formal recognition as a valued client.

Contact numbers:

Have to enter landline (if any) numbers of residence / office; personal cell number, fax

number and e-mail address (if available). The band authority may verify these numbers by

giving the customers a courtesy call or by sending him an associate e-mail.

Other/secondary/mailing address:

Some customer may volunteer their parents or siblings’ addresses as second home address or

a mailing address other than a permanent address.

Nominee:

It is mandatory field to fill up. Behind the nominee picture nominee sign is a must and should

be attested by the account holder as well. After the death of the account holder only the

nominee can claim the account possession. But yet if the account holder has no one to allow

as nominee or if not willing to mention any one, then an application regarding this matter

must be addressed to the manager. In such circumstances if successors claim the possession

of the account after the death of the account holder, sum bellow 15000 can be allocated

against commissioner certificate and sum above 15,000 will be honored only against

succession certificate from the court.

Specimen signature card:

This card contains a photograph of the account holder on the top left. Specimen signature of

the account holder will be on the right side of a box and on the left, the banker will sign along

with a seal “the two signatures are accepted”. The banker should cross block the two

specimen signature as well.

If the account holder cannot provide a signature his/her thumb mark will do. But it should

mention whether the thumb mark is of right hand (RHT) or left (LHT). In this regard any

bearer check will never be allowed and only the account holder will be allowed to make

check transaction by providing thumb nark in front of the band officer.

Special instructions :

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Clear-cut special instruction is a must part to fill up. The bank could be instructed to honor a check

signed by a single signatory even against a joint account; in that case the special instruction would

be like “either or survivor”. However, if any special instruction has not been obtained from

customer, the customer has to be asked for it and the specified column must be cancelled by

drawing a line. It is to note that this column must not be left blank in any circumstances.

Safety measure in account opening:

If someone is willing to do any fraud, he /she will start with account opening. So the banker

will have to be in peak of caution in verifying all the data and document during opening of

account. This is to keep in mind that against any future forgery at least this account opening

procedure must gain a clean chart as well as the banker himself.

4.1.1.1.3 Special types of Account

A contractual relationship is created between the Banker and customer by opening an

account. Basically a person whose age is 18 years or more can be competent to open an

account with the bank. But there is some special types of account holder specified below:

a) Minor

According to the law of Bangladesh, a person who has not competed 18 years of age is a

minor. A minor is not capable of entering into a valid contract. A minor cannot open any

account or operates it until he completes 21 years. The bank records the date of birth of the

minor while opening an account. A Banker should be very careful in dealing with a minor. If

an overdraft or advance is granted to a minor even by mistake or unintentionally, the Banker

has no legal remedy to recover the amount from the minor.

b) Married women

A married woman is competent to enter into a valid contract. The Banker may therefore open

an account in the name of a married woman. In case of a debt taken by the married woman

her husband shall not be liable. But if the wife works as an agent of his husband, then the

husband has to be liable for his wife's debt. While granting loan to a married woman the

Banker should therefore examine her owns assets and ensures that the assets are sufficient to

cover the amount of loan.

c) Illiterate person

Illiterate person cannot sign their names and hence the Banker takes their thumb impression

as a substitute for signature and also a copy of their recent photograph. An approved witness

should attest the application form and the photograph.

d) Blind person

A blind person can open account and the procedure would be the same as illiterate persons. In

both cases the terms and conditions of opening account should have to be read infant of them

and if they agree with it only them the account can be opened.

e) Deaf and Dumb

Deaf and Dumb can open account but the respective Banker should have to become careful

about the background and character of the person.

f) Mad and Lunatic

Mad and Lunatic person cannot open a Bank Account.

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4.1.1.1.4 Closing of Bank Account

The relationship between a Banker and his customer is a contractual one and may be

terminated by either of them by giving notice of his intention to the other person. The rights

and obligation of a Banker in this regard is as follows:

If a customer directs the Banker to close his account.

On receipt of the notice of the death of a customer

If a Banker receives a notice regarding the insanity of his customer.

On receipt of a Garnishee order from the court.

If the central bank wants to close any one's account.

If the account did not transected for a long time.

4.1.1.2 Deposit Section

The function of the deposit section is very important. It is fully computerized. The Officer of

the deposit section maintains account number of all the customers of the bank. They are used

different code number for different account. By this section a depositor can know what is the

present position of his/her account. The officer makes three types of transactions such as

cash, clearing and transfer.

This section perform the following task

Post all kind of transaction.

Provide on demand report.

Cheque maintenance.

Preparation of day transaction position.

Preparation of closing monthly transaction.

A customer of JBL can open different types of accounts through this department such as:

a) Current Deposit (CD) Account.

b) Saving Bank (SB) Account.

c) Short Term Deposit (STD) Account.

d) Fixed Deposit Receipt (FDR) Account.

e) Janata Bank Deposit Scheme (JBDS)

f) Janata Bank Monthly Saving Scheme (JBMSS)

g) Education Deposit Scheme (EDS)

h) Medical Deposit Scheme (MDS)

i) Deposit Pension Scheme (DPS)

a) Current Deposit (CD) Account:

Current Deposit account is an account, which is generally opened by business people for their

convenience. A current account is a running and active account, which may be operated upon

any number of times during a working day.

Characteristics:

There is no restriction on the number & amount withdrawals.

It does not allow any interest on this account

Opening Amount/ Initial Deposit Tk. 500

Service Charge (yearly) Tk. 100

Minimum Balance Requirement Tk. 5000

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Current a/c may be individual, joint / partnership or can be formed any name. It

provides the following facilities:

Overdraft facility.

Other facilities like collection of checks transfer of money, rendering agency and

general utility services.

b) Savings Bank (SB) Account:

This deposit is intended primarily for small-scale savers. The main object of this account is

promotion of thrift. Savings account is meant for those who want to save a certain amount of

their income and earn interest on that for future needs. All features are more or less like that

of CD a/c except for some restriction that is imposed by the bank. Number of withdrawals

over a period of time is limited. The withdrawing amount is not to exceed 25% of the total

balance. This A/C mainly opens a person name.

Characteristics:

Initial deposit requires opening a savings account is TK.500.

Minimum balance of TK. 500 should maintain in this account.

Interest rate is5.5%

One cannot withdraw money not more than two times in a week.

To withdraw more than Tk20000 seven days notice is required.

Service charge is not fixed.

c) Short Term Deposit (STD):

Deposits under this category is withdraw able at a minimum of 7 (seven) days notice.

Withdrawal from the account shall be allowed on the following manner:

If cheque book is issued, withdrawal by cheque shall be allowed against 7 (seven) days

notice.

If no cheque book against the account is issued with drawl may be allowed as per written

instruction of the client either by pay order/Demand Draft or through transfer to his /her

current account with the branch.

If any account is operated like Current Account, the customer shall be advised to open a

Current Account instead of short term Account. Minimum balance requirement as fixed by

Head Office from time to time shall be in force.

d) Fixed deposit receipt (FDR) account:

Fixed Deposit shall be opened a fixed period, which is specific at the time of making deposit,

varying from 3 months to 3 years & payable at a fixed date of maturity. At a time the same

person is allowed to open more than one FD A/C in his own name. Every FD Account is

treated as a separate contract.

Characteristics:

Amount of taka fixed

Time fixed

Rate of interest fixed

Photo & introduction not require

Single transaction A/C

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Security A/C

Nominee facility

Renewal facility

Not transferable

Payment may be cash or collection

Not negotiable

Fixed deposit interest rate:

Duration Rate

1/2 month duration[at least tk 10 crore] 9.50

From 3 month to 6 month 10.50

From 6 month to 1 year 11.00

From 1 year to 2 year 11.50

e) Janata Bank Deposit Scheme (JBDS):

Special advantage with this scheme is that after the scheduled period the client can withdraw

the full amount or can draw pension on monthly basis. Besides the client can open account in

his name in any branch.

Procedure for operation of Janata Bank Deposit Scheme (JBDS):

The applicant should be of minimum 18 years age and Bangladeshi national.

The account holder can appoint one or more nominees.

On the death of the account holder his / her nominee can withdraw the whole amount

of money.

The account holder can change or cancel his nominee through a written notice.

On the death of the account holder, the nominees will be entitled to withdraw the

deposit according to the instruction of the account holder.

The account becomes inoperable on the death of the account holder.

The account under this scheme should be opened within the 10th

day of any month

against deposit of the first installment in cash.

Monthly installment: TK.500, 1000,2000,5000,10000,20000

Tenure: 10 Years.

The monthly installment must be paid by the 10th

day of every month.

In case of delay a fine @TK. 2 per day of defaulted installment will be charged and the fine

must be paid with the installment.

Total Amount=Principal amount + Interest + Bonus amount

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f) Janata Bank Monthly Savings Scheme (JBMSS):

This is now very much popular to all classes of clients. Any person having Bangladesh and

age limit above 18 can open this scheme.

Period Interest rate

For 2 years 10%

For 4 years 9%

For 6 years 8.5%

Monthly installment may be TK500, 1000,2000,5000,10000,20000,25000. Installment must

be deposited within first 10 days of month.

g) Education Deposit Scheme (EDS):

Client can nominate their children and open not more than three accounts. Procedure for

operation of Education Saving Scheme:

The applicant should be of minimum 18 years age and Bangladeshi national. Monthly

installment: TK.500,1000,2000,3000,4000,5000 and so on.

The monthly installment must be paid by the 10th

day of every month.

In case of delay a fine @ TK. 2 per day of defaulted installment will be charged and

the fine must be paid with the installment.

The account under this scheme should be opened within the 10th

day of any month

against deposit of the first installment in cash.

Features of the Education Deposit Scheme (EDS) account:

It may be 4 years, 6 years,8 years& 10years.

Installments are TK.1000, 2000,3000,4000&5000

18 years age, being of sound mind, and a Bangladeshi national.

The money will be paid out on maturity according to the table above, but Tax / Levy/

Excise and other charges as applicable will be adjusted from the amount.

h) Medical Deposit Scheme (MDS):

The applicants / depositors should be of minimum 18 years age, being of sound mind, and a

Bangladeshi national.

The deposit under SBDS will be affected after expiry of each period as per the chart provided

below:

Monthly Installment Quantum

(MIQ) TK.

Money at the end of 5 years

period. TK.

500 38225

1000 75425

2000 149900

3000 224350

4000 298799

5000 373249

6000 447700

7000 522149

8000 596599

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9000 671089

10000 745898

The money will be paid out on maturity according to the table above, but Tax / Levy/ Excise

and other charges as applicable will be adjusted from the amount.

i) Deposit pension scheme:

Deposit pension scheme is familiar now-a-days. Main features of this scheme are as follows:

Only Bangladeshi who are above 18 can open this scheme

Duration of this scheme is 10 to 20 years

Installment must be paid within first 10 days of month

Interest rate is 15%

4.1.1.3 Cash Section

Cash department is the most vital and sensitive organ of the branch as it deals with all kinds

of cash transactions. Cash section is directly related to the customer.

The following activities performed in this section:

4.1.1.3.1 Cash Receipt Section

The cash receipts procedure, summarized below:

Pay-in-slip or credit voucher are given to the cash counter for depositing cash.

Cash deposit section checks the title if account, its number, amount in words and

figures in the pay-in-slip or credit voucher.

Cash receiving officer after receiving the cash giving records/denomination of the

currency on the back of the voucher shall enter the particulars of the voucher in the

cash receiving book under progressive serial number & puts his signature putting the

date stamp both on counter foil & pay-in-slip voucher. Then he will pass it on to the

officer- in-charge of cash section for his signature along with the register.

The officer will then detach pay-in-slip from the counter foil and return it to the

receiving officer along with the register.

The officer sends the pay-in-slip/ credit voucher to the deposit section in case of pay-

in-slips and credit vouchers to the respective section to which it relates.

Cashier and cash-in-charge puts signature on the book at time of closing cash. 4.1.1.3.2 Cash Payment Section Generally, Cheques, D.D, T.T, M.T and Pay Order etc. are received from customer and

institutions. The formalities are given below:

The instrument is checked for any discrepancy, posting and cancellation.

Specimen signature of cancellation officer should be available.

Cash is counted and the denominations of notes are written on the reverse of the

instrument.

Cash is paid to the bearer of the instrument.

Particulars of the instruments are entered in paying cash book.

Paid instruments are kept with the paying officer. 4.1.1.3.3 Posting and Cancellation of Cheque:

At the time of posting of cheques, the cheque is examined carefully. Attention on the

following more aspects are given:

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Whether the account had desired amount of money or not.

Prefectures of serial number of the cheques. After careful examination, the drawing amount of cheque was entered in the ledger . 4.1.1.3.4 Cheque Dishonored by a Banker:

If a cheque is dishonored the Banker return it to the depositor. The statutory duty of a bank is

to honor his customer's but it is dishonored in the following circumstances:

If the amount mentioned in the cheque is greater than that of deposit.

If the cheque is past dated or a stole cheque.

If the cheque contains an apparent material alteration, which is not properly

mentioned by the drawer.

If the signature of the drawer is a forged one or does not tally with his specimen

signature.

On receipts of reliable information about the death of the customer.

If a debtor commits an act of insolvency as defined in the insolvency law.

If the cheque is not submitted during the banking hour.

If the Banker comes to know about the defective title of the party.

4.1.1.4 Remittance Section

Remittances of funds are one of the most importance aspects of commercial banks in

rendering services to its customers. Among various services rendered by a commercial bank

to its customers, remittance facilities are very well known and popular.

In general there are two types of bank remittance. They are:

1. Inward Remittance

2. Out ward Remittance

The main instruments used by Branch for remittance of funds are:

a) Pay Order (PO)

b) Demand Draft (DD)

c) Telegraphic Transfer (TT)

d) Mail Transfer (MT)

a) Pay Order (PO):

The pay order is a document which instructs a bank to pay a certain sum to a third party. Such

orders are normally acknowledged by the bank which provides a guarantee that the payment

will be made. Only the branch of the bank that has issued will make the payment of pay

order.

The procedures for issuing a Pay Order are as follows:

Deposit money by the customer along with application form.

The deposit may be cheque or cash.

Commission is charged by the issuing branch.

Give necessary entry in the bills payable (Pay Order) register where payee's name,

date, PO no, etc is mentioned.

Preparing the instrument.

After it has been scrutinized & approved by higher authority, the instrument is

delivered to customer.

Signature of customer is taken on the counterpart.

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Accounting Entries for PO

By cash:

Cash A/C ..Debit.

Bills payable (PO) A/C ...Credit.

Income on commission A/C Credit.

By account:

Customer's A/C ..Debit.

Bills payable (PO) A/C Credit.

Income on commission A/C Credit.

By transfer:

JBL General/ other Dept Clients A/C.Debit.

Bills payable (PO) A/C ..Credit.

Income on commission A/C... Credit.

Settlement of a PO:

When PO submitted by collecting bank through clearing house, the issuing bank gives

payment.

Bills payable (PO) A/CDebit.

JBLGeneral A/C.Credit.

Cancellation of a Pay Order:

If a buyer wants to cancel it, he should submit a letter of instrument in this regard and also

return the instrument.

Bills payable (PO) .Debit.

Customer A/C..Credit.

b) Demand Draft (DD)

Demand draft is a negotiable instrument issued by a particular branch of a bank containing an

order to another branch of the same bank to pay a fixed sum of money to a purchased by for

himself or order on demand.

This instrument can be purchased by for himself or for beneficiary and can be handed over to

the purchaser. The delivery to the beneficiary bank issues drafts for a nominal commission.

The commission depends upon the amount to be transmitted. Janata Bank charges the

commission on D.D minimum charge is Tk. 15.

The procedures for issuing a DD are as follows:

DD application from filled in and money deposited by the customer.

Necessary entries are given to a register name DD OUT- concern (drawn on) branch. A

number, which is taken from this register, is known as "Controlling number".

An "Account payee only" crossed instrument given.

Payment is made by ordered branch.

Before payment the branch confirmed with sent advice and checks the test code.

Commission is charged.

Accounting Entries for DD

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Cash/Customer's A/C--------------------- Debit.

JBL General A/C (Drawn on Branch) ---------- Credit.

Income on commission A/C ---------------------- Credit.

After giving these entries an Inter-Bank Credit Advice (IBCA) is prepared which contains the

controlling number, depicting that the branch is credited to whom it is issued. An IBCA

implies the following entries,

JBL General A/C Issuing Branch ------- Debit.

Drawn on Branch ------------------------------------Credit.

DD Cancellation:

To cancel an issued DD, the client has to submit an application. Issuing branch then sends an

Inter Branch Debit Advice (IBDA) to the drawn branch against previously issued IBCA.

After that the following entries are given:

JBL A/C drawn on branch---------Debit.

Customer's A/C --------------------------Credit.

c) Telegraphic Transfer (TT)

Telegraphic Transfer is quicker than a transfer of amount by DD. TT is the most rapid and

convening but expensive method. Telephone, Telex, Fax is different mode of TT. If an

applicant wants to remit the amount urgently to the payee is another city or district he/she

may request the Banker to send it by TT. The branch generally recovers from the telex charge

in additional to usual service charges.

Procedures for Issuing of TT:

Application by customer along with money given.

In receipt of money a cash memo is given to the customer containing TT serial number.

The customer informs this number to the awaiting party in the other branch.

Tested message is prepared, where TT serial no and the name of the concern party to

whom the money will be credited is mentioned.

Commission is charged.

Accounting Entries for TT

Cash A/C Customer's A/C -----------------------Debit.

JBLGeneral A/C (Corporate Branch)------------------Credit.

Procedures for the incoming TT:

After receiving the message, it is authenticated by test.

TT Serial number is verified by the "TT in-Concern branch" register.

Accounting Entries

JBL General A/C (Corporate Branch)-----------Debit.

Customer's A/C------------------------------------------------Credit.

d) Mail Transfer (MT)

When a customer requests the bank to transfer his money from this bank to any other bank or

the branch of the same other bank, the first he has to do is to fill an application form. Then

one branch request to another branch to pay specified amount of money to the specified

payee though Mail.

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4.1.1.5 Bills and Clearing Section

"The process by which cheques exchanged between the collecting and paying bank and the

ensuring financial settlement is called clearing"

Clearing department deals with the cheques, drafts and other instrument and its collection and

payment process. Clearing are two types. They are:-

1. Inward Bills for Collection (IBC)

2. Outward Bills for Collection (OBC)

1. Inward Bills for Collection (IBC)

When a particular branch receive instrument, which are on themselves and sent by other

member bank for collection is treated as IBC. This branch is known as paying branch.

2 Outward Bills for Collection (OBC)

When a particular branch receives instrument drawn on the other bank within the clearing

zone and sends those instrument for collection through the clearing arrangement is considered

as OBC for the particular branch. This branch is knows as collecting branch. There are two

types of OBC

OBC with different branches of the same bank

OBC with different branches of other banks

Precaution at the time of cheques receiving for Clearing

Name of the account holder same in the cheque and deposit slip.

Amount in the cheque and deposit slip must be same in words and in figure.

Date in cheque may be on or before (but not more than six months back) clearing

house date.

Bank and Branch name of the cheque, its number and date in the Deposit slip.

Cheque must be signed.

Signature for confirmation of date, amount in words / in figure cutting and mutilation

of cheque.

Cheque should be crossed (not for bearer cheque).

Account number in the deposit slip must be clear.

4.1.1.6 Accounts Section

Accounts department is very important department of general banking. There are many

transactions are made in very day in back. Here the transactions are recording properly. If

there is any fault made then the account section may check it and do action against it. To

avoid these mishaps the bank provides accounts department; whose function is to check the

mistakes in passing vouchers or wrong entries or fraud or forgery. If any discrepancy

regarding transaction arises the department report to concerned department.

Accounts Department does following works:

Packing of the correct vouchers according to the debit voucher and the credit voucher.

Recording the transactions in the cashbook.

Recording the transactions in general and subsidiary ledger.

Preparing the daily position of the branch comprising of deposit and cash.

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Preparing the daily Statement of Affairs showing all the assets and liability of the

branch as per General Ledger and Subsidiary Ledger separately.

Making payment of all the expenses of the branch.

Preparing the monthly salary statements for the employees.

Recording inters branch fund transfer and providing accounting treatment in this regard.

Make charges for different types of duties.

Checking of Transaction List.

Recording of the vouchers in the Voucher Register.

4.1.1.7 Dispatch Section.

Dispatch division mainly operates the limitation of dispatching the intimidation letter to the

client; Inter Bank credit advice (IBCA), Inter Bank Debit Advice (IBDA), Outward Bill for

Collection (OBC) to other banks for internal transaction with the bank.

The officer engaged in the dispatch division maintains two types of register books to keep

entries of those documents particulars.

These two types of books are:

1. Inward mail

2. outward mail

Outward mails are of two types:

1. local courier

2. overseas courier

When the officer receives papers from outside the branch, it is required to give a dispatch no.

on the paper. The officer put number on that paper and on the basis of nature of document he

takes decision how it has to be dispatched. Sometimes he gives to documents by hand to

other party. At the beginning of the month, he withdraws money from bank by issuing a debit

voucher to make the payment of dispatching bills. He writes all the expansion of dispatching

in the register and payment. At the end of the month, he calculates his total expenses; he

refunds it to the banks by creating a credit voucher.

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4.1.2 Credit Management of JBL

4.1.2.1 Credit policy of JBL:

Policy entails projected course of action. JBL has its own policy granting credit. Although

credit is always a matter of judgment applying common sense in the light of one experiences.

A sound credit policy includes among other things safety of fund invested vis-à-vis

profitability of the bank. Encouraging maximum number of small loan is better than

concentration in a particular type of advances which ensures sufficient liquidity with least

insolence of bad debts.

4.1.2.2 Objectives of credit policy:

There are some objectives of credit policy. These are as follows-

Provide guidance for giving loan.

Prompt response to the customer need.

Shorten the procedures of giving loan.

Reduce the volume of work form top level management.

Delegation of authority of work from top level of management.

To check and balance the operational activities.

4.1.2.3 Credit Granting Process of JBL:

Although the Board of Directors holds the sole right of credit sanctioning, the power is

delegated to CEO & MD. The credit sanctioning authority is also delegated to various lower

level of the management line to strike a balance between adequate control and flexibility in

credit operations to ensure full transparency and accountability at all levels. Even a manager

of a small branch has the credit sanctioning authority. But there is a well defined, clear and

sound credit granting process applicable for all sanctioning authority. The process includes:

1. Selection of borrower;

2. Credit appraisal;

3. Credit assessment;

4. Credit risk grading;

5. Credit approval & sanctioning;

6. Credit disbursement;

7. Credit monitoring.

1. Selection of borrower

For selecting the borrower security should not the only thing to be relied upon. So

responsibilities of the bankers to investigate the client from different view point i.e. the

strength and weakness of the client so that the client will be able to repay the bank loan as

repayment schedule with profit.

2. Credit appraisal

Borrowers Credit Worthiness Analysis by JBL following 6 “C”s:

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The question that must be dealt with before any other whether or not the customer can service

the loan that is pay out the loan when due with a comfortable margin of error. This usually

involves a detailed study of six aspects of the loan application: character, capacity, cash,

collateral, conditions and control. All must be satisfied for the loan to be a good one from the

lender’s (JBL) point of view.

• Cash: The borrower should have the ability to generate enough cash flow to repay the loan.

This cash flow can be generating from sales or income from the sales of liquidation of assets

or funds raised through debt or equity securities.

• Character: The loan officer must be convinced that the customer has a well defined purpose

for requesting credit and a serious intention to pay. Responsibility, truthfulness, clean past

record, true purpose and honest intention to repay the loan make up what a loan officer calls

character.

• Capacity: The customer requesting credit must have the authority to request such and the

legal standing to sign a binding loan agreement.

• Collateral: The borrower must possess adequate net worth or enough quality assets to

provide adequate support for the loan. The value of the collateral security must cover the loan

exposure.

• Conditions: The recent trend of borrower’s line of work or industry must be taken into

considerations by the lender.

• Control: The lender should be careful about whether changes in law and regulations could

adversely affect the borrower and whether loan request meets the Bank’s and regulatory

authorities’ standards for loan quality.

3. Credit assessment

A thorough credit and risk assessment should be conducted prior to the granting of loans, and

at least annually thereafter for all facilities. The results of this assessment should be presented

in a credit application that originates from the Relationship Manager, and is recommended by

Branch Credit Committee (BCC). The RM should be the owner of the customer relationship,

and must be held responsible to ensure the accuracy of the entire credit application submitted

for approval. RMs must be familiar with the bank’s Lending Guidelines and should conduct

due diligence on new borrowers, principals and guarantors.

Credit Applications should summarize the results of the RMs risk assessment and include as a

minimum, the following details:

Amount and type of loan(s) proposed

Purpose of loans

Loan structure (Tenor, Covenants, Repayment Schedule, Interest)

Security arrangements

In addition, the following risk areas are analyzed:

Borrower analysis

Industry analysis

Supplier/ Buyer analysis

Historical financial analysis

Projected financial performance

Account conduct

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Adherence to lending guidelines

Mitigating factors

Loan structure

Security

4. Credit risk grading

A Credit Risk Grading (CRG) deploys a number/ Alphabet/ Symbol as a primary summary

indicator of risk associated with a credit exposure. Credit Risk Grading (CRG) is the basic

module for developing a credit Risk Management System.

All Banks should adopt a credit risk grading system.

Well managed credit risk grading systems will promote bank safety and soundness by

facilitating informed decision making. Grading systems will measure credit risk and

differentiate individual credits and groups of credits by the risk they pose. All banks should

adopt a credit risk grading system. All facilities should be assigned in risk grade. Where risk

deterioration is noted, the risk Grade aligned to the borrower and its facilities should be

immediately changed. Borrower risk Grades should be clearly stated on credit Application.

The proposed CRG scale consists of 8 categories with short names and numbers are

provided as follows-

Number Grading Short name Range of Score

1 Superior SUP 100

2 Good GD 85+

3 Acceptable ACCPT 75-85

5 Marginal/watch list MG/WL 65-75

5 Special mention SM 55-65

6 Sub standard SS 55-55

7 Doubtful DF 35-55

8 Bad and loss BL 35

5. Credit approval & sanctioning

The respective officer of Head Office appraises the project by preparing a summary named

“Top Sheet” or “Executive Summary”. Then he sends it to the Head Office Credit Committee

(HOCC) for the approval of the loan. The Head Office Credit Committee (HOCC) considers

the proposal and takes decision whether to approve the loan or not. If the loan is approved by

the HOCC, the HO sends the approval to the concerned branch with some conditions. These

are like.

Drawing will not exceed the amount of bill receivables.

The tern over in the account during the tenure of the limit should not be less than four

times of the credit limit.

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All other terms and conditions, as per policy and practice of the bank for such

advance to safeguard the banker’s interest shall also be applicable for this sanction

also.

Branch shall not exceed the sanctioned limit.

Required charge documents with duly stamped should be obtained.

Drawing shall be allowed only after completion of mortgage formalities and other

security arrangement.

After getting the approval from the HO, the branch issues the sanction letter to the borrower.

The borrower receives the letter and returns a copy of this letter duly signed by him as a

token of having understood and acceptance of the terms and conditions above.

Diagrammatically the whole loan approval and sanctioning process is given below:

Request for credit from the client to a branch

▼

Credit application from filled up by the customer & collection of document

▼

Scrutinizing the document

▼

Analyzing the information

▼

Sanctioning the credit

▼

Preparing the proposal

▼

The proposal; goes to the head office through other necessary steps

▼

Information the client, loan disbursement, supervision and monitoring

6. Credit disbursement

After verifying all the documents the branch disburses the loan to the borrower. A loan

repayment schedule is also prepared by the bank and given to the borrower.

7. Credit monitoring

Monitoring is a process of taking case of loan cases starts from the selection of the borrower

and remains live throughout the life of a loan. To minimize credit losses, monitoring

procedures and systems should be in places that provide an early indication of the

deteriorating financial health of a borrower. At a minimum, systems should be in place to

report the following exceptions to relevant executives in CRM and RM team:

Past due principal or interest payments, past due trade bills, account excesses, and breach of

loan covenants;

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Loan terms and conditions are monitored, financial statements are received on a regular basis,

and any covenant breaches or exceptions are referred to CRM and the RM team for timely

follow-up.

Timely corrective action is taken to address findings of any internal, external or regulator

inspection/audit.

4.1.2.4 Credit Products of JBL:

JBL has been offering a wide range of credit products to meet the financial needs of its

customers. Grossly the products are two types: funded credit and non-funded credit.

Funded credit facilities

1) Term loan

If any loan is extended over a period exceeding one year, it is called “Term Loan”. These

loans are usually made to large well established business enterprise for Capital financing,

such as setting up of industry, balancing modernization of existing plant/merchandise of

industries, purchase of equipment etc. Covering the repayment period beyond one year.

Mid term loan: the tenure of mid term loan is greater than 1 year up to 3 years.

Long term loan: long term loan is allowed for 5 years.

2) Overdraft

In this case the customer is allowed on the basis of prior arrangements to overdraw his Current

Account by drawing cheques for amounts exceeding the balance up to an agreed limit within

certain period of time not exceeding one year, against acceptable securities. These facilities are

granted after the credit standing; financial ability and status of the customer as well as the

purpose have been favorably established.

3) Working Capital

CCS (Consumer Credit scheme)

Consumer credit scheme is a major program of JBL in CCS the Bank engages and

agent who works on behalf of the Bank. This agent performs all the words prior to the

sanction of the CCS. They do the inspection and made all the documents necessary for

CCS. For this purpose they get commission.

Cash Credit (Hypothecation)

This type of advance is made against the hypothecated possession and ownership of

goods or assets. In Hypothecation, the real possession remains to the borrower. Loan

disbursement and loan repayment occurs several times for a given amount of money for

a given period of time.

Cash Credit (Pledge)

When any advance is made against the pledge of goods or assets then it is known as

Cash Credit (Pledge). The possession and ownership passes to the Bank. Bank takes the

control of the assets or goods. Loan disbursement and loan repayment occurs several

times for a given amount of money for a given period of time.

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SOD (Secured Over Draft)

Advances allowed to individual/firms against financial obligation (i.e. lien of

FDR/PSP/BSP/ Insurance policy/Share etc.). This may or may not be a continuous

Credit.

LIM (Loan against Imported Merchandise)

Advances allowed for retirement of shopping documents and reendow goods imported

through L/C trading effective control over the goods by pledge in god owns under

Banks lock & key fall under this type fall under this type of advance.

LTR (Loan against Trust Receipt)

Advance allowed for retirement of shopping documents and release of good imported

through L/C false under this head. The goods are handed over to the importer under

trust with the arrangement that sale proceeds should be deposited to liquidate the

advances within given period.

ECC (Export Cash Credit)

Financial accommodation allowed to a customer for exports of goods falls under this

head and is categorized as “Export Credit”. The advances must be liquidated out of

export proceeds within 180 days.

PC (Packing Credit)

Advance allowed to a customer against specific L/C or Firm contract for

processing/packing of goods to be exported falls under this head and is categorized as

“Packing Credit”.

Non-funded credit facilities

1) Letter of credit (L/C)

It is the most important and commonly used in connection with foreign trade. Letter of Credit

is an undertaking by a banker of the importer to the exporter, to the effect that the amount of

the L/C will be duly paid. The banker on behalf of the importer issues the L/C in favor of L/C

will be duly paid. The banker on behalf of the importer issues the L/C in favor of the exporter

(beneficiary) and forwards the same to the exporter to the effect that the bill drawn by him

shall be duly accepted and paid. It creates confidence in the mind of the exporter so far as

payment of the bill is concerned. It is also facilitate the exporter to get the benefit of

discounting the bill before the date lf maturity.

2) Back-to-Back L/C

Back-to-Back L/C is one type of L/C, which is opened against lien on a valid export L/C. It is

opened for inland & abroad as well. Bank will supply the following papers/documents for

opening a Back-to-Back L/C.

L/C application form

LCA form

IMP form

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Charge document papers

The above papers must be completed, filled & signed by the party thereto. The party will

submit the entire filled document along with application in printed form of the designated

Bank which is also an agreement between application & the Bank.

3) Bank guarantee

A Bank guarantee is a written irrevocable obligation by the Bank to pay an agreed sum of

money to the beneficiary in the event of default by a third party in fulfilling their obligations

under the terms of the Bank Guarantee. Bank Guarantee is not a financing instruments but

merely a guarantee.

4.1.2.5 Feature and Benefits of loans provided by JBL

1) Overdraft (OD)

This is a demand credit facility to meet day to day operational requirements.

Features and Benefits:

OD against cash collateral

OD under earnest money scheme

OD against hypothecation of stock of goods in trade

Tenure of OD is one year

Fees & Charges

13% p.a. at monthly / quarterly rests subject to change(s) that may be made by

the Bank from time to time.

2) Packing Credit

We provide pre - shipment finance in the form of Export Packing Credit (PC) to assist cash

flows for manufacturing or packing goods for export from Bangladesh.

Features and Benefits

Easy documentaton

It is a revolving limit for one year but renewable.

Fees & Charges

Application Form for request for loan facility – Taka 250/-.

2% on approved loan amount.

We are realizing only interest (i.e. 7% p.a. at quarterly rest or as fixed by Head Office

from time to time) from PC account.

Half yearly Service Charge:

Taka 1,000/- on each account for urban clients

Taka 500/- on each account for rural clients

3) Working Capital Finance

This is a loan facility designed to meet day to day operation of business concerns and

manufacturing companies.

Features and Benefits

Easy Documentation.

Any branch banking facilities.

Fast Processing.

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Fees & Charges

13% p.a. at quarterly rests subject to change(s) that may be made by the Bank

from time to time

4) Loan Against Trust Receipt

We provide post shipment finance i.e. LTR to manage immediate liquidity of importers.

Features and Benefits

Easy Documentation.

Fast Processing

Allow an importer to take possession of the goods for resale.

Increase the present cash flow of the exporter to improve the financial

condition and strengthen the financial ability.

Global loan limit exposure for the client

Online banking facilities for repayment

Fees and charges

Application Form for request for loan facility – Taka 250/-.

2% on approved loan amount.

13% p.a. at quarterly rests subject to change(s) that may be made by the Bank from time

to time.

Half yearly Service Charge: - Taka 1,000/- on each account for urban clients - Taka 500/-

on each account for rural clients

Requirements

Application received from the customer for LTR facility.

Photograph of signatory to be attested by Chairman of the

company.

Copy of valid trade license

Official seal with designation

Tax Certificate

KYC Form

Transaction Profile

4.1.2.6 Various forms of JBL Credit

Bank credit is an important catalyst for bringing about economic development in a country.

Without adequate finance, there can be no growth or maintenance of a stable economy JBL,

being one of the specialized banks of the government of Bangladesh, has some prejudice to

finance directly on priority basis to agriculture, small industry and commerce sector for

strengthening the economic base of the country. Hence, it is very clear that, Janata Bank

plays an important role to move the economic wheel of the country. There are different types

of loans provided by the bank as follow:

Consumer loan

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Letter of Credit

Micro credit

Small Industry / Enterprise loan

Medium Industry / Enterprise loan

Large Industry loan

Trade loan

Packing Credit

Real estate loan

Other Demand I Forced Loan

Loan against documentary bills accepted by the banks

Lease financing

Import financing (LIM, PAD etc).

Though these types of credit facilities basic bank playing a vital role for the economic growth

of Bangladesh.

Besides the above, credit facilities given by the banks can be classified in the following way:

a) On the basis of term

1) Short term

2) Mid term

3) Long term

4) Working capital

b) Sector wise classification

1) Private

2) Public

3) Commercial and industrial

4) House building etc

4.1.2.7 Interest rate of Different loan of JBL

The interest rates of various types of loans are as follows:

Types Of Loans &

Advances

Interest

Rate

Collateral

Required

C.C(Pledge) 16% Not Compulsory

C.C(Hypothecation) 16% Do

Over Draft (O.D) 15% Bank Deposit

Real estate (Resident) 12% Documents of Assets

Real estate(Commercial) 15.5% Do

PALLI RIN:

a)Palli porivohon

b)Jomi bondhoki rin

10%

13%

Personal Guarantee

Service loan 16% Check of monthly

Consumer credit 15.50% Personal Guarantee

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Doctors loan 15.50% Do

Cyber café loan 15.50% Do

Prothibondhi loan 10% Do

General loan 10% Do

4.1.2.8 Creation of charges for security loan:

For the safely of loan, JBL requires security from the borrower so that it can recover the loan

by selling security if borrower fails to repay. Creation of charge means making it available as

a cover for an advance. The method of charging should be legal perfect complete. The

importance of charging securities is as follows-

Protection of interest.

Ensuring the recovery of the money list.

Provision against unexpected change.

Commitment of the borrower.

There are two types of security. These are-

a) Primary Securities: Security deposited by the borrower himself/herself to cover the loan.

Such as: FDR, Cash, PSS, PSP, easily cashable items.

b) Collateral security: any type of security on which the creditor has personal right of action

on the debtor in respect of advance.

4.1.2.9 Loan classifications

Classifications Scale

1. Unclassified: Repayment is regular

2. Substandard: Repayment is irregular or stopped but has reasonable prospect of

improvement.

3. Doubtful Debt: Unlikely to be repaid but special collection efforts may result in partial

recovery.

4. Bad/loss: Very little chance of recovery.

Table of Loan classification:

Loan Type

Unclassified

(Month)

Substandard

(MONTH)

Doubtful

(Month)

Bad

(Month)

Continues Loan

Demand Loan

Expiry up to 5

month 6 to 8 month 9 to 11 month 12 month +

Term Loan Up to

5 years 0 to 5 month 6 to 11 month 12 to 17 month 18 month +

Term Loan more

then 5 years 0 to 11 month 12 to 17 month 18 to 23 month 24 month +

Micro Credit 0 to 11 month 12 to 13 month 36 to 59 moth 60 month+

Table:10

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Scenario of Classified loan and advances of JBL in 2013:

BDT in Million

Classified loans 269455.87

Substandard 7076.52

Doubtful 4296.11

Bad/Loss 20394.23

Total Classified loans and advances 31766.86

4.1.2.10 Credit Risk Management of JBL:

Credit risk is simply defined as the potential that a bank borrower or counterparty will fail to

meet its obligations in accordance with agreed terms. However, credit risk could steam from

both on-balance sheet and off-balance sheet activities. It may arise from either an inability or

an unwillingness to perform in the pre-committed contracted manner. Credit risk comes from

a bank's dealing with individuals, corporate, banks and financial institutions or a sovereign.

The assessment of credit risk involves evaluating both the probability of default by the

borrower and the exposure or financial impact on the bank in the event of default. Credit risk

occupies the lion’s share of bank’s total risk. So credit risk management is a crucial issue of

risk management and an essential to the long-term success of any banking organization.

JBL’s goal of credit risk management is to maximize its risk-adjusted rate of return by

maintaining credit risk exposure within acceptable parameter. So, JBL’s management has

adopted appropriate policy, procedures and methods to manage the credit risk inherent in the

entire portfolio as well as the risk in individual credits or transactions. The bank also

considers the relationship between credit risk and other risks.

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4.1.3 Foreign Exchange Operations of JBL

Foreign exchange department of Janata Bank Limited is one of the most important

departments among all departments. This department handles various types of activities.

Among these main three are as follows:

4.1.3.1 Import

4.1.3.2 Export and

4.1.3.3 Foreign remittance

4.1.3.1 Import:

Import means purchase of goods or services from abroad. Normally, consumers, firms and

Government organizations import foreign goods or services to meet their various necessities.

Main import items are food item, edible oil, fertilizer, petroleum, machineries, chemicals, raw

materials of industry, cement clinkers etc. So, in brief, we can say that import is the flow of

goods and services purchased by local agent staying in the country from the foreign agent

staying abroad.

Import procedure:

Authorized Dealer, banks is always committed to facilitate import of different foods into

Bangladesh from the foreign countries. Import Section, which is under the Foreign Exchange

Department of a bank, is assigned to perform this job. And to serve its parties demand to

import goods, it always maintains required formalities that are collectively termed as “Import

Procedure”.

i) At first, the importer must obtain an Import Registration Certificate (IRC) from the CCI &

E submitting the following papers:

Up to date Trade License.

Nationality and Asset Certificate.

Income Tax Certificate.

In case of company, Memorandum & Articles of Association and Certificate of

Incorporation.

Bank Solvency Certificate, etc.

Required amount of registration fee

ii) Then the importer has to contact with the seller outside the country to obtain the Proforma

Invoice. Usually an indenture, local agent of the seller or foreign agent of the buyer makes

this communication. Beside these other sources are:

Trade fair.

Chamber of Commerce.

Foreign Missions in Bangladesh.

Journals, etc.

iii) When the importer accepts the Proforma Invoice, he/she makes a purchase contract

with the exporter detailing the terms and conditions of the import.

iv) After making the purchase contract, importer settles the means of payment with the

seller. An import procedure differs with different means of payment. The possible means are

Cash in Advance, Open Account, Collection Method and Documentary Letter of Credit. In

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most cases, the Documentary Letter of Credit in our country makes import payment.

Purchase Contract contains which payment procedure has to be applied.

Payment Modes:

Cash in advance: Importer pays full, partial or progressive payment by a foreign DD,

MT or TT. After receiving payment, exporter will send the goods and the transport

receipt to the importer. Importer will take delivery of the goods from the transport

company.

Open Account: Exporter ships the goods and sends transport receipt to the importer.

Importer will take delivery of the goods and makes payment by foreign DD, MT, or

TT at some specified date.

Collection Method: Collection methods are either clean collection or documentary

collection. Again, Documentary Collection may be Document against Payment (D/P)

or Document against Acceptance (D/A). The collection procedure is that the exporter

ships the goods and draws a draft/ bill on the buyer. The exporter submits the

draft/bill (only or with documents) to the remitting bank for collection and the bank

acknowledges this. Then the remitting bank sends the draft/bill (with or without

documents) and a collection instruction letter to the collecting bank. Acting as an

agent of the remitting bank, the collecting bank notifies the importer upon receipt of

the draft. The title of goods is released to the importer upon full payment or

acceptance of the draft/bill.

Letter of credit: Letter of credit is the well-accepted and most commonly used means

of payment. It is an undertaking for payment by the issuing bank to the beneficiary,

upon submission of some stipulated documents and fulfilling the terms and conditions

mentioned in the letter of credit.

Opening Letter of Credit (L/C):

In global business environment, buyers and sellers are often unknown to each other. So seller

always seek guarantee of payment for his exported goods. In this situation bank plays an

important role. Bank gives export guarantee that it will pay for the goods on behalf of the

buyer. This guarantee is called “Letter of Credit” or LC. Thus the contract between importer

and exporter is given a legal shape by the banker by its Letter of Credit.

Procedure of opening the Letter of Credit (L/C):

The importer after receiving the proforma invoices from the exporter, by applying for the

issue of documentary credit, the importer requests his/her bank to make a promise of payment

to the supplier. Obviously, the bank will only agree to this request if it can rely on

reimbursement by the applicant. As a rule accepted as the sole security for the credit

particularly if they are not the shorts of commodity that can be traded on an organized

market, such an agreement would involve the bank in excessive risk outside its specialized

field. The applicant must therefore have adequate fund in the bank account or a credit line

sufficient to cover the required amount.

Banks deals with documents and not goods. Once the bank has issued the credit its obligation

to pay is conditional on the presentation of the stipulated documents within the prescribed

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time limit. The applicant cannot prevent a bank from honoring the documents on the grounds

that the beneficiary has not delivered goods.

The importer submits the following documents with the application for opening the L/C:

Tax Identification Number (TIN)

Valid trade license

Import registration certificate (IRC)

The bank will supply the following documents before opening the L/C:

LCA form

IMP form

Necessary charger documents for documentation

The above documents/papers must be completed duly signed and filled by the parties

according to the instruction of the concern banker.

L/C Application Form (L/CAF):

L/C Application Form is a sort of an agreement between customer and bank on the basis of

which letter of credit is opened. Bank provides a printed form for opening of L/C to the

importer. A special adhesive stamp of value Tk.200 is affixed on the form in accordance with

Stamp Act currently in force. While opening, the stamps are cancelled. Usually the importer

expresses his decision to open the L/C quoting the amount of margin in percentage. Usually

the importer gives the following information –

Full name and address of the importer

Full name and address of the beneficiary

Draft amount

Availability of the credit by sight payment/ acceptance/ negotiation/ deferred payment

Time bar within which the documents should be presented

Sales type (CIF/FOB/C&F)

Brief specification of commodities, price, quantity, indent no. etc.

Country of origin

Bangladesh Bank registration no.

Import License/LCAF no.

IRC no.

Account no.

Documents no.

Insurance Cover Note/Policy no., date, amount

Name and address of Insurance Company

Whether the partial shipment is allowed or not

Whether the transshipment is allowed or not

Last date of shipment

Last date of negotiation

Other terms and conditions (if any)

Whether the confirmation of the credit is requested by the beneficiary or not.

The L/C application must be completed/filled in properly and signed by the

authorized person of the importer before it is submitted to the issuing bank.

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4.1.3.2 Export

Janata Bank Limited exports a large quantity of goods and services to many countries.

Readymade textile garments (both knitted and woven), Jute, Jute-made products, frozen

shrimps, tea, hide and skin, vegetables are the main goods that Bangladeshi exporters exports

to foreign countries. Garments sector is the largest sector that exports the lion share of the

country’s export. Bangladesh exports most of its readymade garments products to U.S.A and

European Community (EC) countries. Bangladesh exports about 40% of its readymade

garments products to U.S.A. Most of the exporters who export through Janata Bank Limited

foreign exchange Branch are readymade garment exporters. They open export L/Cs here to

export their goods, which they open against the import L/Cs opened by their foreign

importers.

Formalities of Export Procedure:

There are a number of formalities, which an exporter has to fulfill before and after shipment

of goods. These formalities or procedures are enumerated in brief as follows:

Obtaining Export Registration Certificate ERC: No exporter is allowed to export

any commodity for export from Bangladesh unless he is registered with Chief

Controller of Imports and Exports (CCI & E) and holds valid Export Registration

Certificate (ERC). After applying to the CCI&E in the prescribed from along with the

necessary papers, concerned offices of the Chief Controller of Imports and Exports

issues ERC. Once registered, exporters are to make renewal of ERC every year.

Securing the order: After getting ERC, the exporter may proceed to secure the export

order. He can do this by contracting the buyers directly through correspondence.

Obtaining EXP: After having the registration, the exporter applies to Janata Bank

Limited with the trade license, ERC and the Certificate from the concerned

Government Organization to get EXP. If the bank is satisfied, an EXP is issued to the

exporter.

Signing of the contract: After communicating with buyer the exporter has to get

contracted for exporting exportable items from Bangladesh detailing commodity,

quantity, price, shipment, insurance and mark, inspection, arbitration etc.

Receiving the Letter of Credit: After getting contract for sale, exporter should ask the

buyer for Letter of Credit clearly stating terms and conditions of export and payment.

Procuring the materials: After making the deal and on having the L/C opened in his

favor, the next step for the exporter is to set about the task of procuring or

manufacturing the contracted merchandise.

Endorsement on EXP: Before the exporter with the customs or postal authorities

lodges the export forms, they should get all the copies endorsed by Janata Bank

Limited. Before shipment, exporter submits EXP. form with commercial invoice.

Then Janata Bank’s respective officers check it properly, if satisfied, certificate the

EXP. Without EXP exporter cannot make shipment. The customer must declare all

export goods on the EXP issued by the authorized dealers.

Disposal of Export procedure:

Original: Customs authority reports first copy of EXP to Bangladesh Bank

after shipment of the goods.

Duplicate: Negotiating bank reports the Duplicate to Bangladesh Bank in or after

negotiation date but not later than 14 days from the date of shipment.

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Triplicate: On realization of export proceeds the same bank to the same authority

reports Triplicate.

Quadruplicate: Finally, the negotiating bank as their office copy retains

Quadruplicate.

Shipment of goods: Exporter makes shipment according to the terms and condition of

L/C.

Presentation of export documents for negotiation:

After shipment, exporter submits the following documents to Janata bank Limited for

negotiation.

Bill of Exchange or Draft

Bill of Lading

Invoice

Insurance Policy/Certificate

Certificate of origin

Inspection Certificate

Consular Invoice

Packing List

Quality Control Certificate

G.S.P. certificate

Photo

Examination of Document:

Banks deal with documents only, not with commodity. As the negotiating bank is

giving the value before repatriation of the export proceeds it is advisable to scrutinize and

examine each and every document with great care whether any discrepancy(s) is

observed in the documents. The bankers are to ascertain that the documents are strictly as per

the terms of L/C Before negotiation of the export bill. Bank officers assigned for examining

the export documents may use a checklist for their convenience.

Negotiation of export documents:

Negotiation stands for payment of value to the exporter against the documents stipulated in

the L\C. If documents are in order, Janata Bank Limited purchases (negotiates) the same on

the basis of banker- customer relationship. This is known as Foreign Documentary Bill

Purchase (FDBP).If the bank is not satisfied with the documents submitted to Janata Bank

Limited and gives the exporter reasonable time to remove the discrepancies or sends the

documents to L/C opening bank for collection. This is known as Foreign Documentary Bill

for Collection (FDBC).

Settlement of Local Bills:

The settlement of local bills is done in the following ways:

The customer submits the L/C to Janata Bank Limited along with the documents to negotiate.

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Janata Bank Limited officials scrutinize the documents to ensure the conformity with the

terms and conditions.

The documents are then forwarded to the L/C opening bank.

The L/C issuing banks gives the acceptance and forwards an acceptance letter.

Payment is given to the customer on either by collection basis or by purchasing the

document.

4.1.3.3 Foreign remittance

Foreign Remittance means transfer of foreign exchange from one country to another country

through banking or authorized channel.

The major function of commercial Banks is mobilization of fund. Other than this, banks

provide ancillary services to its clients. Clients need to remit money from one place to

another for their business or other purposes. Banks fulfill this need of customers by means of

remittance service. Money can be remitted domestically or internationally, which known as

local remittance and foreign remittance. . The person who is the sender of the remittance is

remitter or remitor. There are two types of foreign remittance, which are as below:

Foreign inward remittance

Foreign outward remittance

Inward Foreign Remittance:

Inward remittance covers purchase of foreign currency in the form of foreign T.T.,

D.D, T.C. and bills etc. sent from abroad favoring a beneficiary in Bangladesh.

Purchase of foreign exchange is to be reported to Exchange control Department of

Bangladesh bank on Form-C.

Outward Foreign Remittance:

Outward remittance covers sales of foreign currency through issuing foreign T.T.

Drafts, Travelers Check etc. as well as sell of foreign exchange under L/C and against

import bills retired. Sale of foreign exchange is reported to Exchange control

Department of Bangladesh Bank on form T/M.

4.1.3.4 Foreign Exchange Performance of JBL from 2009-2013

BDT in Crore

Year Import Export Remittance

2009 11852 8865 5619

2010 18374 11851 5264

2011 19728 15375 7228

2012 18828 15652 10009

2013 17667 15325 10398 Source: Annual Report of JBL, 2013.

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Part: Two

4.2 Financial Performance Analysis of Janata Bank Ltd.

4.2.1 Financial Performance Analysis Using CAMEL Model:

CAMEL is basically ratio based model for evaluating the performance of banks. It is a

management tool that measures capital adequacy, assets quality, efficiency of management,

quality of earnings and liquidity of financial institutions. The Banks use various ratios for

measuring the financial performance which tells us the true financial position of the bank. In

the present study, CAMEL Model has been applied for the same purpose. Various ratios

calculated under the Model help in identifying the strengths/weaknesses of banks and

suggesting improvement in its future working. In the present study, following financial ratios

under CAMEL Model have been used for the analysis of Financial Performance:

C Capital

Adequacy

i) Capital Adequacy Ratio

ii) Advances to Assets Ratio

A Asset Quality iii) Gross NPA’s to Gross

Advances

M Management Efficiency iv) Total advances to Total

Deposits (Credit Deposit

Ratio)

v) Net Profit per Employee

E Earning Quality vi) Operating Income as a %

of Working Funds

vii) Net Profit Margin ratio

viii) Earnings Per Share

L Liquidity ix) Liquid Assets/Total

Assets

1. C (Capital Adequacy):

The capital adequacy reflects the overall financial condition of a bank and also the ability of

the management to meet the need for additional capital. The ratios which are used under

capital adequacy are following:

i) Capital adequacy ratio:

It is the arrived at by dividing the sum of Tier I and Tier II capital (Capital Fund of the Bank)

by Risk weighted assets as per the given formula. Tier I capital includes equity capital and

free reserves. Tier II capital comprises subordinated debt of 5-7 Year tenure. The higher the

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CAR, the stronger the bank. Capital adequacy Ratio = (Capital fund of the bank) / (Risk

weighted assets)*100

Year 2013 2012 2011 2010 2009

Capital adequacy ratio 10.27% 3.70% 10.20% 9.19% 13.81%

Interpretation:

The minimum capital requirement in Bangladesh is 10% of total risk weighted asset. Here,

the capital adequacy ratio is the highest in 2009 (13.81%) and lowest in 2012 (3.70%)

compared to other years. In 2013 it is greater than the minimum capital requirement, so, the

bank is in a good position.

ii) Advances to assets ratio:

This is the ratio of total advances to total Assets. Total advances also include receivables. The

value of total assets excludes the revaluation of all the assets.

Year 2013 2012 2011 2010 2009

Advances to assets ratio 48.76% 59.74% 57.79% 65.39% 56.45%

Interpretation:

Among the different years, the advances to assets ratio is the highest position in 2010

(65.39%) and in the lowest position in 2013 (48.76%) compared to other years. The bank

should look to give more advances to its customer because the ratio in 2013 is lower.

2. A (Asset Quality):

The prime motto behind measuring the asset quality is to ascertain the component of non-

performing assets as a percentage of the total advances.

iii) Gross Non-performing assets to Gross advances ratio:

The Non-Performing Loans (NPLs) Ratio is the most important indicator to identify the

problem inherent in asset quality. The bank should maintain a significant low ratio of NPLs

to total assets. Standard norm is 5% maximum.

Year 2013 2012 2011 2010 2009

Gross Non-performing assets to Gross

advances ratio

11.12% 17.42% 5.83% 5.24% 8.44%

Interpretation:

From the above table, it was seen that the non-performing loan ratio is the highest in 2012

(17.42%) and is the second highest in 2013 (11.12%). It is not a good sign for the bank, so,

the bank should give loan after proper evaluation of the loan proposal so that it is productive.

3. M (Management Efficiency):

It involves a subjective analysis for measuring the efficiency of the management; this

research uses ratios like, advances to deposits and net profit per employee.

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iv) Total advances to Total Deposits:

This ratio measures the efficiency of the management in converting the deposits available

with the bank (excluding other funds like equity capital, etc.) into advances as shown in the

following table:

Year 2013 2012 2011 2010 2009

Total advances to Total deposits

ratio

59.71% 74.52% 71.28% 78.77% 67.58%

Interpretation:

Among the different years, the total advances to total deposits ratio is the lowest position in

2013 (59.71%) compared to other years. Therefore, bank should convert more deposits into

advances to generate more income.

v) Net Profit per Employee:

This measure the efficiency of the employee at the branch level. It also gives valuable input

to assess the real strength of a bank’s branch network. It is arrived at by dividing the net

profit earned by the bank by total number of employees. The higher the ratio, the higher the

efficiency of management.

Year 2013 2012 2011 2010 2009

Net Profit per employee (Millions Tk.) 0.62 (1.01) 0.30 0.38 0.21

Interpretation:

From the above table, it was seen that net profit per employee was the maximum in 2013

(0.62 million) where as a negative figure (loss) in 2012. It is a good sign that the bank

reached in highest position in 2013 compared to other years.

4. E (Earning Quality):

This parameter gains importance in the light of the argument that much of a bank’s income is

earned through non core activities like investments, treasury operation, and corporate

advisory services and so on. In this section we try to assess the quality of income generated

by core activity- income from lending operations. The ratios which are used under earning

quality are following:

vi) Operating Income as a % of Working Funds:

This is arrived at by dividing the operating profit by average working funds. Working funds

are the daily average of the total assets during the year. Which indicate how much operating

income is generated from Average working funds. The higher ratio indicates good

performance of the bank.

Year 2013 2012 2011 2010 2009

Operating income as a % of

working funds

2.24% 3.04% 3.97% 1.88% 3.05%

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Interpretation:

From the above table, it was seen that the ratio is the highest in 2011 (3.97%) but it was

reduced to 2.24% in 2013. Therefore, the bank should concentrate on it.

vii) Net profit Margin Ratio:

Net Margin or Net Profit Margin Ratio refers to a measure of profitability. Higher Net Profit

Margin Ratio indicates the comparative higher profitability of the Bank.

Year 2013 2012 2011 2010 2009

Net Profit Margin Ratio 23.90% 38.66% 13.70% 21.83% 15.81%

Interpretation:

The net profit margin ratio is the second highest position in 2013 (23.90%) compared to other

years. So, the bank should maintain this or improve this than other years to keep its function

smoothly.

viii) Earnings Per Share:

EPS serves as an indicator of a company's profitability and has been shown in the following

table:

Year 2013 2012 2011 2010 2009

EPS (Tk.) 86.31 (138.91) 43.46 98.16 73.37

Interpretation:

Among the different years, EPS is the highest in 2010 (98.16) and is the lowest position in

2012 (-138.91) compared to other years. In 2013, EPS is the second highest position

achieved, its not a bad at all.

5. L (Liquidity):

Liquidity is one of the important parameters through which the performance of a Bank is

assessed. This parameter of CAMEL Model assesses the ability of a Bank to pay its short

term liabilities towards its deposit holders in a particular span of time. It can be measured

with the help of the following ratio:

ix) Liquid Assets/ Total Assets:

Liquid assets include cash in hand, balance with other banks (both in Bangladesh and

abroad), and money at call and short notice. The ratio is arrived by dividing liquid assets by

total assets.

Year 2013 2012 2011 2010 2009

Liquidity

ratio

8.2% 10.012% 11.56% 7.93% 8.89%

Interpretation:

From the above table, it was seen that the ratio is the highest in 2012 compared to other years.

In 2013, it is the second lowest figure indicated that banks liquid assets are lower.

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4.2.2 Testing the Financial Soundness of Janata Bank Ltd. using Z-score

Model:

For the purpose of the financial soundness testing, I have used Prof. Altman’s Z-score

model. The specified variable used is explained in Table- A and the interpretation of Z score

value is presented in Table -B. To study the financial health of the company, the different

(five) ratio used in Altman’s Z-score approach.

Table: A

Financial Ratio Coefficient of the Ratio

(Recommended by Prof. Altman)

Net working capital to total assets (X1) 1.2

Retained earnings to total assets (X2) 1.4

EBIT to total assets (X3) 3.3

Market value of equity to total liabilities (X4) 0.6

Net sales to total assets (X5) 0.99

Z-score = 1.2X1 + 1.4X2 + 3.3X3 + 0.6X4 + 0.99X5

Table: B

Score Interpretation

Above 3.00 The company is financially safe

2.00-2.99 The company is on alert to exercise the

caution

1.8-2.00 There are chances that the company could go

bankrupt in the next two years

Below 1.8 The company’s financial position is

embarrassing

Results:

Table: 01

Net Working Capital to Total Assets Ratio of JBL:

Year 2013 2012 2011 2010 2009

Net Working Capital to Total

Assets Ratio

1.73% 1.61% 2.81% 0.90% 0.69%

Interpretation:

Net working capital to total assets ratio of Janata Bank Limited is presented in Table-1. It is

concluded that among the different years studied, the Bank showed highest earnings in the

year 2011(2.81%). However, there is a progressive improvement in the Net working capital

to total assets ratio from 2011 to 2013. It indicated that the Bank is in a good position from

meeting its current obligations.

Table: 02

Retained Earnings to Total Assets Ratio of JBL:

Year 2013 2012 2011 2010 2009

Retained Earnings to Total Assets

Ratio

1.29% (2.99%) 0.60% 0.96% 0.56%

Interpretation:

The retained earnings to total assets ratio of Janata Bank Limited is depicted in Table -2. As

observed from in Table-2, among the different years studied, the Bank showed highest

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earnings to assets ratio in the year 2013 (1.29%). However, there is a lowest ratio in 2012 (-

2.99%) compared to other years. Therefore, it is seen that the bank is in a good position in

2013.

Table: 03

EBIT to Total Assets Ratio of JBL:

Year 2013 2012 2011 2010 2009

EBIT to Total Assets Ratio 1.81% (2.51%) 1.99% 2.27% 1.92%

Interpretation:

The return on total assets of the Janata Bank Limited is depicted in Table-3. Among different

years, 2010 sustained the highest return on total assets ratio (2.27%) followed by 2011

(1.99%), 2009 (1.92%), 2013 (1.81%) and in the lowest position in 2012 (-2.51%). This

indicated that the operational efficiency in 2013 is satisfactory but it is lower compared to

other years except in 2012.

Table: 04

Market Value of Equity to Total liabilities Ratio of JBL:

Year 2013 2012 2011 2010 2009

Market Value of Equity to Total

liabilities Ratio (times)

13.13 24.09 10.62 14.05 16.49

Interpretation:

The equity-debt ratio of Janata Bank Limited is depicted in Table-4. Among the study period,

the year 2012 recorded the highest equity-debt ratio (24.09%) compared to others. In 2013,

the ratio is 13.13%.

Table: 05

Net Sales to Total Assets Ratio of JBL:

Year 2013 2012 2011 2010 2009

Net Sales to Total Assets Ratio 6.82% 6.84% 7.27% 6.51% 6.02%

Interpretation:

The total assets turnover of the Janata Bank Limited is depicted in Table-5. It is observed that

the year 2011 showed the highest total asset turnover ratio (7.27%). This implies that the year

2011 generated sales of 7.27 for every Tk. of investment in fixed.

Table: 06

Z-score of JBL:

Year 2013 2012 2011 2010 2009

Z-score 24.55 10.76 24.42 24.86 23.86

Interpretation:

The „Z‟ score values of the Janata Bank Limited during the study period under review have

been depicted in the Table-6. It is understood from the table that during the years 2009-13 the

Bank showed the score much above the suggested value of financial health. It is also

understood that the financial health of the Janata Bank Limited in the future years is expected

to be sound enough to maintain liquidity because currently the score is more enough than the

Prof. Altman’s highest recommended score above 3. Since, all of the years (2009-2013) Z

score is above 3, it indicated that the bank is financially safe.

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Part: Three

4.3 SWOT Analysis

4.3.1 SWOT Analysis: A Conceptual framework

A SWOT analysis (alternatively SWOT matrix) is a structured planning method used to

evaluate the strengths, weaknesses, opportunities, and threats involved in a project or in a

business venture. A SWOT analysis can be carried out for a product, place, industry or

person. It involves specifying the objective of the business venture or project and identifying

the internal and external factors that are favorable and unfavorable to achieve that objective.

The technique is credited to Humphrey (2005), who led a convention at the Stanford

Research Institute (now SRI International) in the 1960s and 1970s using data from Fortune

500 companies. The degree to which the internal environment of the firm matches with the

external environment is expressed by the concept of strategic fit.

Figure: SWOT Analysis

Setting the objective should be done after the SWOT analysis has been performed. This

would allow achievable goals or objectives to be set for the organization.

Strengths: characteristics of the business or project that give it an advantage over others.

Generally, this includes the answer of following:

What are the organization’s strengths?

What does the organization do well?

SWOT analysis

Internal

Factors

Strengths Weaknesses

External

Factors

Opportunities Threats

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What is the good track record?

What do other people see as organization’s strengths?

Where does the organization compete well?

Weaknesses: characteristics that place the business or project at a disadvantage relative to

others.

Generally, this includes the answer of following:

What can be developed?

What could organization improve?

What is working less optimally than organization wish?

What is being done badly?

What is the competition doing better?

What should organization avoid doing?

Opportunities: elements that the project could exploit to its advantage.

Generally, this includes the answer of following:

If there were no constraints what would organization like to do?

What might be possible?

What will happen in the next few years?

Where does the organization want to be in 5 years’ time?

Who might organization want to work with?

What could be a win – win situation?

How may new technologies change your practices?

What financial / governmental / legislative changes can benefit you in the near future?

Threats: elements in the environment that could cause trouble for the business or project.

Generally, this includes the answer of following:

What are the barriers to your development?

What sort of obstacles do you face?

Who else might move in a take over your tasks / job / business?

What are rival organizations doing?

Can organization fund the short and long term?

Will new technologies / developments change you roles?

What change is coming?

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4.3.2 SWOT Analysis of Janata Bank Ltd.

4.3.2.1: Strengths:

Large customer base.

Strong capital and asset quality.

The bank is financially safe.

Community involvement.

Speedy foreign remittance payment system with Western Union Money Transfer.

The Image/Goodwill of the bank is very good.

The bank has huge amount of deposit and market potentiality.

Regulatory performance is strong and positive.

Bank has the reputation of being the provider of good quality services to its potential customers.

The bank has a marginal bad debt than other bank. Because the credit analysts of this bank are

well educated and have sound knowledge in accounting, Finance, economics and other related

subjects.

The bank introduces NBR (Non Bangladeshi Resident) branch which is the new idea in

Bangladesh.

4.3.2.2: Weaknesses:

Lack of technological resources such as computerized banking as well as Internet banking.

Because of manual service, it is more costly and time consuming.

Lack of promotional activities.

Poor information based website.

There is no specific training institute for JBL employees.

The bank has more non-performing assets.

Incentive system is very weak than private bank.

Credit providing procedures are very lengthy. So most of the people fell boring to take loan.

JBL provides slow rate of interest to the saving accounts holders. Low rate of interest shifts the

customers to the other banks to earn more profit.

Most of the people of Bangladesh are very poor. But, Janata Bank Ltd. does not provide any

special facilities for them.

Interest rate is about same for both high risk borrower and low risk borrower.

4.3.2.3: Opportunities:

Opportunity to increase retail banking due to available customer.

Government has taken some steps against illegal remittances.

The bank has many branches in the local areas of the country. So it can easily expand its

activities.

It has a good government patronization. So it has a trust to the people.

Janata Bank can attract the people by offering new schemes of deposits to the local area.

Government has banned some Jatiya Sanchoy Patras.

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4.3.2.4: Threats:

Rules and regulation of central bank.

Loan defaulter.

Political instability of the country.

The continuing increase in non-bank competitors offering similar services.

A large number of private banks are increasing in Bangladesh day by day by taking huge capital

and skilled human resources.

Private Banks provide handsome salary to the employees.

Government facilities may be insufficient when the economic condition of the country becomes

unfavorable.

Private Banks provide loan very quickly to the customers but JBL takes long time to do it. But at

present, most of the people are very punctual etc.

The laws and customs related to the foreign exchange are changing very rapidly.

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Chapter: 05

Recommendations and Conclusion

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5.1 Recommendations By observation I have some suggestions, where the change for the development is utmost

important. Realizing the importance of this section, efforts have been made to give feasible

recommendations, which are categorized under the following:

In general banking, credit and foreign exchange department should be computerized.

The amount of non-performing loan should be reduced by analysis proper evaluation

of loan proposal and monitoring.

The bank should go for mass online banking to meet the demand of the customer.

The management should give more emphasize on the promotional activities.

The web site of the bank should be improved with available needed information.

More ATM booth should be introduced in near to every customer place.

The bank should establish separate training institute for their employees.

Proper incentive system should be introduced to motivate employees.

JBL should built separate loan recovery division if it happen then their classified loan

amount will reduce.

JBL must come up with innovative product to meet up the demand of time.

Officials to be posted in Foreign Exchange, General Banking and credit Department

should be commerce background.

Janata Bank Ltd. should provide short-term scheme like Micro credit for poor people.

They should spread their service to the rural area by introducing branch in that area.

Decoration of JBL should to develop to compare other commercial bank.

JBL should give the competitive interest rate, so that the clients are not shifting their

accounts to other bank.

It may be a fair deal if the high-risk borrowers and the low risk borrowers should not

have to pay the same interest rate. Interest rate could be arranged according to the sum

they borrow.

The institution should conduct some primary research to get a better understanding of

the target market. They should also conduct surveys to find the extent to which their

services are meeting the needs and wants of target market.

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5.2 Conclusion An efficient operation of banking sector enables the smooth financial resources

intermediation of an economy. Economic growth is contributed greatly by the efficiency of

banking sector in resources generation and its proper allocation. The smooth and efficient

operation of banking sector also helps to reduce risk of failure of an economy. Therefore, the

performance of banking sector is always been a source of interest for researchers to judge the

economic condition of a country. From this view point, the study is done on the analysis of

banking activities and financial performance of Janata Bank Ltd. JBL plays an important role

in the banking sector as well as in our economy. It plays a great role in collecting scattered

deposit, loan settlement and international trade etc. At present there is no such organization

in the world that is free from problem and challenges. Every concern has to strive and

struggle a lot to be more profitable and to go more competitive edge. The study showed that

the bank is financially safe and its capital adequacy ratio is also good. The great limitation is

that the bank has more non-performing assets. The bank is not computerized in all

departments, has a few online banking branch, no aggressive promotional activities, and has

no separate training institute for their employees. Another important limitation is that the

incentive system of the bank is poor compared to private bank. When Janata Bank Limited is

able to overcome this type of problem then it would be more structured compared to any

other bank operating local or foreign in Bangladesh. The current situation of Janata bank

Limited is satisfactory. But in the age of competition, if the bank does not provide extra

ordinary that means superior services then it will be difficult to continue banking because

everybody wants to maintain quality. For the future planning and the successful operation in

its prime goal in this current competitive environment, I hope this report can provide a good

guideline. I wish continuous success and healthy business portfolio of Janata Bank Limited.

The importance of this study stems from the importance of the Bangladeshi commercial

banking sector which has a huge share in the Bangladeshi economy. In addition, this study is

anticipated to make contributions in two folds: first, contributions to the management in the

field of banking; secondly, contributions to the academic field.

The expected contributions of this study to the management in the field of banking can be

said to be that: this study may help decision makers to pay more attention on the major

banking activities that may help in increasing the financial performance positions. In

addition, the financial information of this study will help the management of the Janata Bank

Ltd. in setting up plans and financial strategies. The expected contributions of this study to

the academic fields can be said to be that: from an academic point of view, this study

provides a new perspective in evaluating the financial performance of a leading Bangladeshi

commercial banks as well as the finding of this study can be added to the present literature

and it can help researchers in their future studies.

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