Banking

Strengths

Strength 1 – In 20th century , Hong Leong Bank is considered a bank which has quality bank with a strong market position. They undergoes a well-recognised transformed business franchise with a full range of banking experience, an establish of history entrench relationships with communities. Besides that , the bank have large share of customer segment,with over 70 % gross loan to retail customer. Hong Leong Bank entrench with mass affluent customer, with a 21% share of bankable population , as well as with the middle market business community.

They are well trust and embedded in the community . These core franchises are evident among four top bank for individual deposit size. They always underscoring their superior asset quality as their non-performing are lowest among in the sector . Furthermore, the bank also hold no 3 in institutional unit trust agent asset-under-management market share. Lastly, the bank also has an extensive integrate multi- channel sales and distribution capability that allow the bank to reach out to the community served.

Strength 2 – Hong Leong Bank is handed by advanced financial group . Despite financial crisis, Hong Leong bank financial performance in FY 09 was steady . Meanwhile, the pre-tax profit has increased from RM 1.01 billion to RM 1.132 billion in FY 08 . From year 2006 to 2009, pre-taxed profit has increase 1.5 times. They usually focus on strengthening and scaling up the business , risk and technology infrastructure to determine the grow profitably sustainably .

Furthermore, they also extend the reach of bank via alternate and electronic channel . In addition, Hong Leong Bank always maintain the discipline of abstaining from excessive risk-taking in the short term and avoiding the sacrifice to tomorrow’s credits, liquidity and franchise reputation for today’s profit. Besides , they also make a strategic investment in a Chinese banking sector through a 20% strake in the Bank of Cheng Du 2007 .The bank has established Sichuan Jincheng consumer finance Ltd Co, a joint venture with the bank of Chengdu to start consumer finance operation in central and western China.

Strength 3– Hong Leong Bank has long term planning to compete in an increasingly globalize environment. The domestic core businesses is strengthen by growing , embedding their domestic core position in the country . They broaden the local and regional franchise of Hong Leong Bank/ Hong Leong Islamic Bank. On the other hand , they broaden the Singapore and Hong Kong branches and building owned subsidiary bank in Vietnam from a greenfield state into a recognizable franchise in Vietnam. Next , they set apart by focus on prime value, which is the intrinsic value place by market on a business based on various factor including scalability, resilience, sustainability, brand recognition , transformational growth and global competiveness.

Strength 4 – Hong Leong Bank has a strong management. They are always spotting trend in customer expectation . As an example , increasing use of facebook was a way for the company to interface with their customer.

Morever, they do survey and research instead, always make sure the customer can reach them and get the service help they need. Nowadays, the customer usually like to talk to an expert. Therefore, they always improve the training of call agent and get their employee who are expert to take call from customers. Furthermore , they provide training and got people with the right skill who can operate in different country and environment. Besides, they also always build franchise model. Discuss the plan, experience the risk , and thus creating the positive feedback loop.Lastly, the punishment or fine will be given to who have break the rules of company, including the high position in the management.

Weakness

Weakness 1 – In line with its strong customer service culture, Hong Leong Bank continues to maintain its superior delivery standards which have been behind against international ISO standards. Hong Leong Bank is yet attained bank-wide ISO 9001:2000 certifications for customer service at the front office of its branches and bank-wide loan delivery service. This is a major drawback for the Hong Leong Bank to have a better customer base.

Weakness 2 – As to compete in the industry of banking, interest rate is a major challenge as customer will choose for a higher interest rate for savings account and for the lowest interest rate for the loans that the customers are seeking for their financial assistances and better service for the customer. Hong Leong Bank needs to change according to the environment as to compete and remain as the market leader.

Weakness 3 – As Hong Leong Bank has moved ahead to the E-Banking (Electronic-Banking) or transaction there are greater risks or security threats circulated to the users of online banking or transaction.

There are non-technical threats such as phishing whereby it is the act of tricking someone into giving them confidential information or tricking them into doing something that they normally wouldn’t do. The common applications of this approach is to send fake emails (email spoofing) to a victim purporting to come from a legitimate source and requesting information (such as the bank account number and the password) or directing the victim to a fake internet website where this information can be captured.

Weakness 4 – Hong Leong Bank is at the back foot when it comes to competing with competitors at overseas. The geographic reach of Hong Leong Bank is limited to South-East Asia only. The operations are concentrated mostly in Malaysia. Hence, their market may not be as wide and not as well-known as other established banks, such as Standard Chartered and Citibank. Thus, it made it harder for Hong Leong Bank to compete globally and establish themselves in the industry of banking outside of Malaysia.

Opportunity

Opportunity 1 – With increasing competition in the industry of bank, Hong Leong Bank can expand their business through mergers and acquisitions. Mergers and Acquisitions (M&A) are business strategy by buying, selling, dividing and combining of different companies and similar entities that can help the company to growth rapidly. A merger is a combination of two companies to form a new company, while an acquisition is the purchase of one company by another in which no new company is formed. For an example, Hong Leong Bank announced that it has completed its acquisition on EON Capital Bhd’s assets and liabilities, making Eon Bank part of Hong Leong Bank Group on 6th May 2011, creating the fourth-largest banking group in the country with assets totalling about RM140 billion and staff strength of 12,000.

Opportunity 2 – A human resources of a company can determine the strength of a company. The bank recruit more talented staffs and also provide effective training for staffs in order to makes the company working and providing better services to customers. This is not only can increase the income and expand the market of Hong Leong Bank but also enhance the economy of the whole country by reducing the unemployment.

Opportunity 3 – In business, consumers always expect for new things and more choices when they are considering the offer by the company. In order to increase customer base, Hong Leong bank growth by provide diversified offerings which can attract more customers. For an example, a payment gateway can be provided where ATM card could be used as like a credit card for everyday usages. Besides, the interest rate can be increased by encourage customers to save more to get more benefits.

Opportunity 4 – The customer target is changed to foreign customers who stay in Malaysia as the banking industry grows and provides opportunities for the local customers indirectly. They tend to use banking services more frequently to have different types of account to save the money and exchange their currency in the bank although they are far away from their home country.

Threats

Threat 1 – Ease of distributing credit card could be a disturbing role the Hong Leong Bank is playing. Every people can apply a credit card with Hong Leong Bank if they are qualified. While the credit card repayments are depends fully on customer payment, if it is not paid, Hong Leong Bank has to go long way.

Threat 2 – Hong Leong Bank is not really in forefront position to introduce new products and service as market demand changes. It ifs often seen that Hong Leong Bank introduces the products in different name when the service is already available in the market by other bank. It is very hard for a bank to introduce new products among other competitors.

Threat 3 – Hong Leong Bank must follow all the law, everything must be black and white. Thus it is adversely impacted by any change in regulations and laws. When the law change Hong Leong Bank’s policy must changes too.

Threat 4 – Prevailing global financial markets crisis, sovereign debt crisis in Europe, increasing us debt levels, slowdown in the world economy, recession affecting various regions. These are the threats that Hong Leong Bank facing that will further lead to declining of economy.

The Reserve Bank of India kept a lid on key policy rates, citing concerns over rising inflation. At a bi-monthly monetary policy review of the current financial year, Raghuram Rajan RBI kept the repo rate unchanged at 6.5 per cent. Consequently the reverse repo rate will remain unchanged at 6.0 per cent. 

Repo rate is the discount rate at which banks borrow from RBI. Reduction in repo rate will help banks to get money at a cheaper rate, while increase in repo rate will make bank borrowings from RBI more expensive.

In a reverse repo transaction, banks purchase government securities form RBI and lend money to the banking regulator, thus earning interest. Reverse repo rate is the rate at which RBI borrows money from banks.

Housing markets to feel the pinch

The unchanged rate comes as a sign of dismay for new home buyers and the real-estate market.  Commenting on the impact on the housing market, Rajesh Prajapati, MD, Prajapati Constructions  said, “ The rate cut in the last monetary policy had put the market on a right path, as we saw some renewed interest for properties especially in Navi Mumbai and Raigad. We have to remember one thing, the government is putting thrust on affordable housing but the same will remain a mirage till the time the cost of funds remains higher.”

“The “Housing for All” is an ambitious project by the Government and RBI needs to be proactive in making this dream come true by reducing the interest rates and making housing affordable,” Prajapati added.

Taking guard on global situation

Talking about RBI’s decision, Jimeet Modi, CEO, SAMCO Securities said that the accommodative stance in spite of headwinds from inflation is a forward looking step in line with supporting the acceleration in the economy. “The inflationary pressure came from food related items which should get neutralized post the monsoon season opening the doors later for inevitable rate cut then. Slow pick up in loan demand is a cause of concern in the short term but it should subside soon, as the acceleration in the economy has been consumption driven which will later drive investment demands which will then lead to pick up in the long term credit demand cycle, Jimeet added.

RBI on Tuesday cited concerns slower growth in the United States in the first quarter, skepticism in labor market and rising crude prices.

“.Overall it does look like we are unlikely to see any further rate cuts in the next couple of monetary policy meetings, even though the inflation target of 5% stays the same for now. The overall tone of the statement seems somewhat favourable to the capital market. Quite interestingly Rajan was not concerned much about the surrender of payment bank licences by 3 licences, infact he said it was an indication of the liberal approach taken by the central bank,” V. Sivaramakrishnan, Finance Director at Venture Factory.

RBI further said that rising crude prices and implementation of 7th pay commission pose upside risk to inflation. It will soon review implementation of marginal cost lending rate framework by banks.

“Inflation is a little bit of a surprise for sure.  There is some room for banks to manage rates and would be interesting to see whether banks take up the initiative.  The upcoming monsoon and redemption of FX bonds will mean some bit of volatility in forex and money markets and may be the next policy is where the market will watch whether inflation seems manageable and therefore RBI softens its stance on rates too,” Ashish Fafadia, CFO at Blume Venture Advisors

“The only positive takeaway could be seen as Governor Rajan stressing on the fact that this policy stance though retaining a hold outlook, continues to remain accommodative. Banks rallied post the policy in a market which remains inherently bullish and is looking more for reasons to rise than fall,” Nikhil Kamath, Co-Founder & Director, Zerodha, an online discount brokerage firm.

Central banks are part of solution, which addresses the results of market imperfections. The central banks always seek promotion of financial stability. Central banks directly control short-term interest rate in order to keep the economic development. Central banks plays role in global financial system and developed traditionally. But it is more complex since the institutional and current market trends of the financial system are being changed. In Belgium National Bank of Belgium plays the role of central bank.

The National Bank of Belgium is Central bank of Belgium since 1850. It is a member of the European system of Central banks. In order to play effective role with changing environment in financial sector, another system is developed in the name of European Central Bank during 1999. However, the National Bank of Belgium still exists but most of the functions of have been endorsed to European Central Bank. The primary objective of the ECB to maintain price stability with the Euro zone. The National Bank of Belgium situated at Brussels.

Belgium financial system identified that a few internationally active bancassurance conglomerates dominate it. The bancassurance model has become well-developed feature in the Belgium, which follows series of mergers and acquisitions. Such financial system leads stability in banking system. Besides the stability in banking system caused by large holdings of government securities and low holdings of equity by banks, a high standard of banking supervision, traditional cautions about risks and macroeconomic policy frame work.

It is also recognized that the Belgium’s financial sector has never experienced the crisis, though some strains in the insurance sector. BELGIAN BANKS OWN NON FINANCIAL FIRMS In the Belgium, the following banks plays vital role in banking industry. ABN AMRO Belgium, AXA bank Belgium, Argenta, Banca Monte Paschi Belgio, Bank van De Post/Banque De La Poste, Dexia Bank Belgium, Europabank, Fortis Bank, ING, KBC, Rabobank be, Volksdepositokas (VDK). Previously the Belgian banks invested in the amounts in arms industry. The Ownership of Belgian banks of military companies in general.

There was also financial tie-up between KBC, ING, Fortis, Axia and Dexia with the manufacturers of cluster bombs, landmines, nuclear weapons and weapons with depleted uranium. But thereafter ING stopped investing for such activities, as the Belgium became first country to introduce a ban on cluster munitions. But the other bank groups like AXA, Dexia, Fortis and ING continue to invest in cluster munitions. It indicates that in Belgium, the Banks can own non-financial firms. BANKING RISK/CRISIS IN BELGIUM The following types of risks are identified in the banking system/financial institutions

Risks on credits to enterprises Not only in Belgium, in other EU countries appear same risk. When the banks or financial institutions provide credits to the enterprises, it causes risks on the outstanding of the credit outstanding. The risk is based on the development of outstanding of credits. It is identified that the bank credits represents less than 20% of the financing sources of Belgian enterprises. Risks on credit to individuals The risks connected with the granting of credits to individuals. The average of amount of credits per borrower is much smaller.

But large proportion of outstanding borrowings are available however with mortgage guarantees. However it depends upon the realization of mortgage properties. Because in Belgium, the price of real residential real estate has not undergone any speculative rises. Interest rate risks Maturity transformation is one of the main activities of credit and banking/financial institutions. The interest rates for Belgium banks monitored by Central Bank of Belgium. The banks and financial banks cannot make independent decisions, but they can lower the rate of interest rate.

Hence the interest rate plays vital role in banking and financial industry with respect to interest rate risk. Strategic risks The stability of the Belgian banking sector depends upon the credit and market risks. But these risks cannot be uniformly. During 1999, 30% of Belgian banks recorded a profitability is less than 4% whereas 13% banks achieved return on equity of more than 20%. The Strategy of increasing market share on the traditional markets. Now the banks are trying to extend their activities to other segments of financial services or other geographical areas, so that the risks be lessened.

The strategic risk applied not only to credit institutions but also all enterprises who faced with a problem of diversification. Exchange rate risks Transactions in foreign currencies often defers payment terms and these exchange rates can be minimized with Forward exchange contract, option on currencies, hedging techniques like Cylinder type. The Forward exchange contracts may be concluded for first business day to 10 years. With regard to option in currencies, it is available week or longer. In respect of the hedging technique i. e. Cylinder system, it is call and put option.

Due to the radical changes brought up in the new era of Banking, General Public is becoming more and more conscious of the services and facilities the different banks are providing. Banks have also started tieing up with insurance companies and other allied services companies to fulfil the needs of their customers. The delivery channels have also been shifted from branches to net banking etc. Sales promotion have also been used to position the product correctly in the eyes of the customers and for product awareness to the customers.

Several tools are being used like day-to-day promotional activities like discounts, offers, loans, trade promotion, other promotional activities and so on. The project in so designed as to find out the potential customers and also bring to the knowledge about the various products and services provided by the bank. In the successive chapters we will be talking about organization. . We will also be discussing about the various products and services provided

Section 7 of the Banking Regulation Act, 1949 makes it essential for every company carrying on the business of banking in India to use as part of its name at least one of the word- bank, banker, banking or banking company. Ancient Hindu scriptures provide enough evidence of the existence of money lending business in India. Mahajans, Shroff, Sahukars, etc. were enjoyed in banking business. In the beginning of the 18th century, the East India Company set up a few commercial banks on moderns lines. In 1770, first Indian bank known as the Bank of Hindustan was started and was closed down twenty years later.

Later, the East India Company started three Presidency banks with Government participation. These were: the Bank of Calcutta (1806), the Bank of Bombay (1840) and the Bank of Madras (1843). These banks had the financial participation by the Government also. During the 18th century, some other banks were also opened by Agency Houses in Madras and Calcutta. All these banks failed. Since all the banks emerged due to Agency Houses failed, the need of banking regulation in India was seriously felt. As a result, Companies Act, 1833 was brought into force.

The impact of the Agency Houses got slowly reduced. Allahabad Bank came into existence in 1865 and Alliance Bank of Simla in 1875. The first purely Indian joint stock bank known as the Oudh Commercial Bank was set up in 1880 and the Punjab National Bank was launched in 1894. The Swadeshi movement in the country in 1906 encouraged the Indian entrepreneurs to start many new banks. There were as many as 648 commercial banks in India by the end of 1947. As many as 161 banks failed in quick succession during 1913-1914 and the people’s faith in the baking system was shaken.

Northern Rock is an important firm in North East of England because it offers full-time employment for 4, 811 employees globally (2007a). It also employs 1,125 part-time employees, majority is women. According from Dr. Matt Ridley, Chairman of Northern Rock, it has added 3,500 jobs since 1997 contributing to the £7.9billion financial and business services sector such as banking, financial services, insurance, contact centers, accountancy, and legal services in North East (Buiter, 2008). However, after the massive financial crisis in August 2007 the firm has a lot to recover.

After Northern Rock demutualized in 1997, it had £15.8 billion assets on consolidated basis which has increased in 2006 to £101 billion from secured lending on residential properties. By the end of 2006, the assets had increased up to 89.2% on residential mortgages but the growth is not based from poor quality assets. Mervyn King of Bank of England supports the bank is careful in monitoring the lenders (Buiter, 2008). In order to maintain the growth in the assets, Northern Rock began borrowing money from wholesale markets and adopting an ‘originate to distribute’ structure of funding. In this model, the loans of the banks do not reach maturity but instead sold to investors as loans. It created Granite securitization which carries 50% of its funding. The bank’s wholesale funding increased but not retail funding which has grown only £22.6 billion in 2006. Retail deposits and funds had fallen to 22.4% in 2006 from 62.7% in 1997, which is considerably lower than the other banks such as Alliance and Licester with 43% and Bradford and Bingley with 49% (Buiter, 2008).

The rapid growth in Northern Rock’s business in early February 2007 is surprising but it got even more surprising after global shock in the financial system. In September, it has been the center of news after facing a massive financial crisis. It started after the Northern Bank engaged in short-term borrowings for lending in longer periods. However, it was not able to replace those borrowings and borrowed from the Bank of England instead (2007). The rate of three-month loan hit above the emergency lending rate of the Bank of England which is 6.75%. It reached 6.7975% which means that British banks are unwilling to lend money to each other. It has been the highest rate of lending in the London Interbank Offered Rate (Libor) (2008b) The bank is not expecting such event and resulted to a massive crisis that could take many years to recover.

The bank’s method of maintaining such as transparency and high-quality assets could not preserve liquidity. Unlike the Countrywide in the United States which had paid millions of dollars for liquidity policy insurance, Northern Rock did not pay any insurance that is why the liquidity offered by the Bank of England is not free. The same crisis with the Countrywide Financial was compelled to borrow billions of dollars and loss 13,000 jobs. Northern Rock too fears the same job loss up to 1,000 (Walayat, 2007). Applegarth trusted on their funding platforms as their insurance, however those are not enough to cover all their losses (Buiter, 2008).

In order to save Northern Rock, Virgin Group offered a £11 billion repayment of the £25 billion debts from the Bank of England and the rest to be paid for three years. Another offer came from the Olivant group who is ready to pay up to £15 billion. However, the chief executive of the Northern Rock resigned in December. The shareholders of the bank then decided to schedule an emergency meeting to discuss the crisis. The rescue of Virgin Groups seems to be the choice of Northern Rock however this could result to job loss of up to 1,000. The government does not agree instead demands that Virgin Groups increase its offer or else it will end to the bank’s nationalization. The Northern Rock proposed to sell its shares to add more money to the bank up to £700 million but the customers are not satisfied to either of those proposals which ended with the decision of Chancellor Darling into nationalizing the bank (2008b).

The directors of Northern Rock are now replaced because of the difficulties experienced by the bank which has become dependent on high-risk business strategy, short-term and medium-term wholesale funding, and absence of insurance. The Chairman of the Board, Chairman of the Risk Committee, non-executive members of the Board, and the senior non-executive director all failed to plan and secure Northern Rock liquidity. Thus the bank became susceptible to liquidity pressures in August 2007 (Buiter, 2008). The Bank of England and FSA also both failed to supervise banks especially those with financial difficulty. “The failure of Northern Rock, while primarily a failure of its directors, was also a failure of its regulators,” John McFall, Labour chairman said (Inman, 2008).

There are several adjustments reviewed by the HM treasury, Financial Services Authority (FSA), and the Bank of England on its January 2008 report Financial stability and depositor protection: strengthening the framework related to the Northern Rock bank crisis. The following are:

1. strengthening of the financial system domestically and internationally
2. reduce
3. reducing the impact of failing banks
4. deposit insurance
5. strengthening the Bank of England and improving the Tripartite Arrangement (2008a).

The report by Willem Buiter, known professor on economics and adviser of financial institutions include a history of the Northern Rock, its assets and liabilities as stated above and also the other issues relevant to the banking system in the UK such as the tripartite arrangement. They are not prepared enough for the crisis of Northern Rock even after a weakness in the Memorandum of Agreement has bee identified, the effort on adjusting that weakness is not enough. Communications to the public about the conditions of an event is not fully satisfied by the FSA, the Treasury and the Bank of England which did not prevent the public of queuing for their money (Buiter, 2008).

The report also has sound recommendations for the Northern Rock and for the government. The replacement of the Northern Rock Board members is needed at this point. The directors are responsible for the failure of not preparing for such crisis and engaging in financial strategies that are insufficient to rescue the bank. The FSA also failed to regulate the weakness in the funding model of Northern Rock even after being warned of the risks in the bank’s rapid growth. The Chief Executive of Northern should be chosen carefully based not only from experience but also professional qualification. It is recommended to conduct a review of the qualifications of the rest of the directors in firms like Northern Rock (Buiter, 2008).

The Northern Rock should have a deposit insurance scheme so that in cases like this, the government does not need to rescue the bank’s depositors. The co-insurance that Northern Rock has should not be used again in protecting their depositors because it is not an effective measure. The compensation limit of Northern Bank which is £35,000 should be ‘indexed to a measure of inflation’. Reforms on the leadership of Tripartite authorities must be discussed to ensure that major decisions are clarified. The Bank of England should not take the responsibility of rescuing failing banks (Buiter, 2008).

The government should be responsible in monitoring financial institution like Northern Rock, which has used the taxpayers’ money, and its activities. The event has greatly damaged the reputation of the UK financial services industry, the Bank of England, the Treasury and the FSA. The lessons learned from this should be acted upon immediately and the changes should be implemented as soon as possible. There is a continuous problem in the global financial markets and preventive measures should be done to minimize the effect in UK (Buiter, 2008).

References

1. BBC News 2008, Timeline: Northern Rock bank crisis, viewed 6 May 2008, <http://news.bbc.co.uk/1/hi/business/7007076.stm>.
2. Buiter, W. 2008, The Run on the Rock, VoxEU.org. viewed 6 May 2008, <http://www.publications.parliament.uk/pa/cm200708/cmselect/cmtreasy/56/5605.htm>.
3. Inman, P. 2008, MPs blame watchdog for Northern Rock. Guardian News and Media Limited viewed 6 May 2008, <http://www.guardian.co.uk/business/2008/jan/26/northernrock.creditcrunch>.
4. PRLog.Org 2007a, Northern Rock, viewed 6 may 2008, <http://www.prlog.org/10037900         northern-rock-plc-swot-analysis-new-business-publication-announcement-from-report    buyer.html>.
5. Telegraph Media Group Limited 2007b, Q&A: Northern Rock, bank in crisis, viewed 6 May      2008, < http://www.telegraph.co.uk/news/uknews/1569780/QandampA-Northern Rock%2C-bank-in-crisis.html>.
6. Walayat, N. (2007) Northern Rock Bank Run, broker Recommendations and House Price Crash. Market Oracle. viewed 6 May 2008, <http://www.marketoracle.co.uk/Article2141.html>

In the current global order, where the world has become a big village, consumers take a global look at the products and services in terms of price, quality, delivery and after-sale services. This trend has sown the seeds of competition in every sector of economy and banking sector is no exception to this event. Banking, the world over, has been changing at a spectacular pace.

This change is due to multifarious factors like the need to be efficient in functions, thirst for becoming finance superpowers than mere banks, growing importance of private banking, the rise in high net worth individuals, etc. the decade of 90s has witnessed a sea change in the way banking is done in India. Technology has made tremendous impact in banking. “Anywhere banking” and “anytime banking” have become a reality. Growing integration of economies and the markets around the world have made global banking a reality too.

The surge in globalization of finance has also gained momentum with the technology advancements, which have effectively become overcome the national borders in the financial services business. India, as we know, is one of the 104 signatories of Financial Services Agreement (FSA) of 1997. This gives Indian banks an opportunity to expand on a quid pro quo basis.

Banking in India originated in the last decades of the 18th century. The oldest bank in existence in India is the State Bank of India, a government-owned bank that traces its origins back to June 1806 and that is the largest commercial bank in the country. Central banking is the responsibility of the Reserve Bank of India, which in 1935 formally took over these responsibilities from the then Imperial Bank of India, relegating it to commercial banking functions. After India’s independence in 1947, the Reserve Bank was nationalized and given broader powers. In 1969 the government nationalized the 14 largest commercial banks; the government nationalized the six next largest in 1980.

Currently, India has 96 scheduled commercial banks (SCBs) – 27 public sector banks (that is with the Government of India holding a stake), 31 private banks (these do not have government stake; they may be publicly listed and traded on stock exchanges) and 38 foreign banks. They have a combined network of over 53,000 branches and 17,000 ATMs.

Money lending in one form or the other has evolved along with the history of the mankind. Even in the ancient times there are references to the moneylenders. Indian history is also replete with the instances referring to indigenous money lenders involved in the business of money lending by mortgaging the landed property of the borrowers. Towards the beginning of the 20th century, with the onset of modern industry in the country, the need for government regulated banking system was felt. Reserve Bank of India was set up to regulate the formal banking sector in the country.

But the growth of modern banking remained slow mainly due to lack of surplus capital in the Indian economic system at that point of time. Modern banking institutions came up only in big cities and industrial centers. The rural areas, representing vast majority of Indian society, remained dependent on the indigenous money lenders for their credit needs. Independence of the country heralded a new era in the growth of modern banking. In 1969, Indian government took a historic decision to nationalize 14 biggest private commercial banks. A few more were nationalized after a couple of years.

This resulted in transferring the ownership of these banks to the State and the Reserve Bank of India could then issue directions to these banks to fund the national programs, the rural sector, the plan priorities and the priority sector at differential rate of interest. However, after almost two decades of bank nationalization some new issues became contextual. The service standards of the public sector banks began to decline. Their profitability came down and the efficiency of the staff became suspect. Non-performing assets of these banks began to rise.

The wheel of time had turned a full circle by early nineties and the government after the introduction of structural and economic reforms in the financial sector, allowed the setting up of new banks in the private sector. The new generation private banks have now established themselves in the system and have set new standards of service and efficiency. These banks have also given tough but healthy competition to the public sector banks.

Banking system and the Financial Institutions play very significant role in the economy. First and foremost is in the form of catering to the need of credit for all the sections of society. The modern economies in the world have developed primarily by making best use of the credit availability in their systems. An efficient banking system must cater to the needs of high end investors by making available high amounts of capital for big projects in the industrial, infrastructure and service sectors. At the same time, the medium and small ventures must also have credit available to them for new investment and expansion of the existing units.

Rural sector in a country like India can grow only if cheaper credit is available to the farmers for their short and medium term needs. Credit availability for infrastructure sector is also extremely important. The success of any financial system can be fathomed by finding out the availability of reliable and adequate credit for infrastructure projects. Fortunately, during the past about one decade there has been increased participation of the private sector in infrastructure projects. The banks and the financial institutions also cater to another important need of the society i. . mopping up small savings at reasonable rates with several options. The common man has the option to park his savings under a few alternatives, including the small savings schemes introduced by the government from time to time and in bank deposits in the form of savings accounts, recurring deposits and time deposits. Another option is to invest in the stocks or mutual funds. In addition to the above traditional role, the banks and the financial institutions also perform certain new-age functions which could not be thought of a couple of decades ago.

The facility of internet banking enables a consumer to access and operate his bank account without actually visiting the bank premises. The facility of ATMs and the credit/debit cards has revolutionized the choices available with the customers. The banks also serve as alternative gateways for making payments on account of income tax and online payment of various bills like the telephone, electricity and tax. The bank customers can also invest their funds in various stocks or mutual funds straight from their bank accounts. In the modern day economy, where people have no time to ake these payments by standing in queue, the service provided by the banks is commendable. While the commercial banks cater to the banking needs of the people in the cities and towns, there is another category of banks that looks after the credit and banking needs of the people living in the rural areas, particularly the farmers. Regional Rural Banks (RRBs) have been sponsored by many commercial banks in several States. These banks, along with the cooperative banks, take care of the farmer-specific needs of credit and other banking facilities.

Till a few years ago, the government largely patronized the small savings schemes in which not only the interest rates were higher, but the income tax rebates and incentives were also in plenty. The bank deposits, on the other hand, did not entail such benefits. As a result, the small savings were the first choice of the investors. But for the last few years the trend has been reversed. The small savings, the bank deposits and the mutual funds have been brought at par for the purpose of incentives under the income tax. Moreover, the interest rates in the small savings schemes are no longer higher than those offered by the banks.

Banks today are free to determine their interest rates within the given limits prescribed by the RBI. It is now easier for the banks to open new branches. But the banking sector reforms are still not complete. A lot more is required to be done to revamp the public sector banks. Mergers and amalgamation is the next measure on the agenda of the government. The government is also preparing to disinvest some of its equity from the PSU banks. The option of allowing foreign direct investment beyond 50 per cent in the Indian banking sector has also been under consideration.

Banks and financial institutions have played major role in the economic development of the country and most of the credit- related schemes of the government to uplift the poor and the under-privileged sections have been implemented through the banking sector.

Conclusion

The Indian banking system is financially stable and resilient to the shocks that may arise due to higher non-performing assets (NPAs) and the global economic crisis, according to RBI. Following the financial crisis, new deposits have gravitated towards public sector banks. According to RBI’s ‘Quarterly Statistics on Deposits and Credit of Scheduled Commercial Banks: September 2009’, nationalized banks, as a group, accounted for 50. 5 per cent of the aggregate deposits, while State Bank of India (SBI) and its associates accounted for 23. 8 per cent. The share of other scheduled commercial banks, foreign banks and regional rural banks in aggregate deposits were 17. 8 per cent, 5. 6 per cent and 3. 0 per cent, respectively. With respect to gross bank credit also, nationalized banks hold the highest share of 50. per cent in the total bank credit, with SBI and its associates at 23. 7 per cent and other scheduled commercial banks at 17. 8 per cent.

Foreign banks and regional rural banks had a share of 5. 5 per cent and 2. 5 per cent respectively in the total bank credit. NRI fund inflows increased since April 2009 and touched US$ 45. 5 billion on July 2009, as per the RBI’s February bulletin. Most of this has come through Foreign Currency Non-resident (FCNR) accounts and Non-resident External Rupee Accounts. India’s foreign exchange reserves rose to US$ 284. 6 billion as on January 8, 2010, according to the RBI’s February bulletin. The State Bank of India (SBI) has posted a net profit of US$ 1. 56 billion for the nine months ended December 2009, up 14. 43 per cent from US$ 175. 4 million posted in the nine months ended December 2008. Amongst the private banks, Axis Bank’s net profit surged by 32 per cent to US$ 115. 4 million on 21. 2 per cent rise in total income to US$ 852. 16 million in the second quarter of 2009-10, over the corresponding period last year. HDFC Bank has posted a 32 per cent rise in its net profit at US$ 175. million for the quarter ended December 31, 2009 over the figure of US$ 128. 05 million for the same quarter in the previous year. Government Initiatives: In its platinum jubilee year, the RBI, the central bank of the country, in a notification issued on June 25, 2009, said that banks should link more branches to the National Electronic Clearing Service (NECS). In the Third Quarter Review of Monetary Policy for 2009-10, the RBI observed that the Indian economy showed a degree of resilience as it recorded a better-than-expected growth of 7. 9 per cent during the second quarter of 2009-10.

In its Third Quarter Review of Monetary Policy for 2009-10, the RBI hiked the Cash Reserve Ratio (CRR) by 75 basis points (bps) to 5. 75 per cent, while keeping repo and reverse repo rates unchanged. According to the RBI, the stance of monetary policy for the remaining period of 2009-10 will be to: Anchor inflation expectations and keep a vigil on inflation trends and respond swiftly through policy adjustments, Actively manage liquidity to ensure credit demands of productive sectors are met adequately, Maintain an interest rate environment consistent with financial stability and price stability.

Prepared For: Kazi Md. Tarique
Assistant Professor
Department of Business Studies

Southeast University
Banani, Dhaka- 1212

Prepared By: Md.Al-Amin Khan
Program: BBA
Batch: 22nd
ID: 2009110000009
Major: Finance
Date of Submission: May 11,

LETTER OF TRANSMITTAL
Date: 11.05.2013
To
Kazi Md. Tarique
Assistant Professor
Department of Business Studies
Southeast University
Banani, Dhaka- 1212
Subject: Submission of Internship Report.

Dear Sir
It’s my pleasure to submit you my internship report on “Financial Performance Analysis of Shahjalal Islami Bank Limited.” I have completed my internship program in Shahjalal Islami Bank Ltd 03 February to 03 April 2013 as a part of my study. I appreciate that this approach really contributes in giving my course learning a lasting shape in me. I have put my best effort in completing the report with all the information that I have collected during my stay in Shahjalal Islami Bank Limited. I have great hope that the report will meet your expectation and aid you in getting a clearer idea about the
subject. Please do call me for any clarification regarding the report, if required.

Sincerely,

Md. Al-Amin Khan
ID: 2009110000009
Major: Finance
Batch: 22nd
Program: BBA
Southeast University, Dhaka-1212
Student Declaration

I am Md.al-Amin Khan hereby declare that the presented report of internship titled “Financial Performance Analysis of Shahjalal Islami Bank Limited” is uniquely prepared by me after completion of three months work in Shahjalal Islami Bank Limited.

My original work is submitted to Southeast University, and no part of the report has been submitted for any other degree or fellowship, & the work has not been published in any journal or magazine.

…………………….
Md. Al-Amin Khan
ID: 2009110000009
Batch: 22nd (Finance)
Bachelor of Business Administration
Southeast University

Supervisor Declaration

This is to certify that the title of internship report is “financial Performance Analysis of Shahjalal Islami Bank” This report is submitted in partial fulfillment of requirement for the degree of BBA program of Southeast University.

He is Md. Al-Amin Khan ID: 2009110000009 was my under supervision & guidance. He tried to nourish this report by giving precious information. No part of this report has been submitted for the part of other degree, diploma or fellowship & the work has not been published in any journal or magazine.

……………………………
Kazi Md. Tarique
Assistant Professor
Department of Business Studies
Southeast University
Banana, Dhaka- 1212

ACKNOWLEDGEMENT

At first I want to express my gratitude to Almighty Allah for giving me the strength, ability and opportunity to complete the report within the schedule time successfully. My sincere gratitude goes to my honorable internship supervisor and teacher Kazi Md. Tarique Department of Business Studies of Southeast University the report would not have been possible and such endeavor really deserves compliment. Thanks to him for giving me the opportunity as well as lot of advices to prepare this report which I think will enhance my skill and help the practical application of my knowledge in future.

I received cordial cooperation from the officers and members of staffs of Shahjalal Islami Bank, Mohakhali branch, Dhaka and the teachers and staffs of southeast University. I want to express my cordial gratitude to them for their cooperation without which it would not have been possible to complete the report.

I am really thankful to Dr. Sayem Ahmed, PhD, Manager of Mohakhali branch for giving me the excellent opportunity to do my practical coordination in this Department.

Organizational profile

shahjalal Islami Bank Limited (SJIBL) commenced its commercial operation in accordance with principle of Islamic Shariah on the 10th May 2001 under the Bank Companies Act, 1991. During last eleven years SJIBL has diversified its service coverage by opening new branches at different strategically important locations across the country offering various service products both investment & deposit. Islamic Banking, in essence, is not only INTEREST-FREE banking business, it carries deal wise business product thereby generating real income and thus boosting GDP of the economy. Board of Directors enjoys high credential in the business arena of the country, Management Team is strong and supportive equipped with excellent professional knowledge under leadership of a veteran Banker Mr. Md. Abdur Rahman Sarker.

Alhaj Anwer Hossain Khan
Chairman

Alhaj Md. Harun Miah
Vice Chairman
Alhaj Khondoker Shakib Ahmed
Vice Chairman

Alhaj Sajjatuz Jumma
Director
Alhaj Mohammed Faruque
Director
Alhaj Tofazzal Hossain
Director

Alhaj Md. Sanaullah Shahid
Director
Alhaj Md. Farooq
Director
Alhaj Mohammed Hasan
Director

Alhaj Md. Abdul Barek
Director
Alhaj Mohammed Solaiman
Director
Alhaj Syed Nurul Arefeen
Director

Alhaj Abdul Halim
Director
Alhaj Mohiuddin Ahmed
Director
Alhaj Akkas Uddin Mollah
Director

Alhaj Md. Towhidur Rahman
Director
Alhaj A.K. Azad
Director
Alhaj Mohammed Younus
Director

Alhaj Nazmul Islam Nuru
Independent Director
Mr. Mosharraf Hossain
Independent Director
Alhaj Md. Masud
Alternate Director

Alhaj Rukun Uddin Khan
Alternate Director
Alhaj Md. Abdul Mannan
Sponsor Director
Md. Abdur Rahman Sarker
Managing Director

Md. Emran Hossain
Company Secretary

Provisional Rate of Profit
Sl.
Deposit Product
Provisional Rate
01.
Mudaraba Savings Deposit
4.00%
02.
Mudaraba Special Notice Deposit

Average balance less than 1 crore
5.00%

Average balance 1 crore to less than 25 crore
7.00%

Average balance 25 crore to less than 50 crore
8.00%

Average balance 50 crore to less than 100 crore
8.50%

Average balance 100 crore and above
9.00%
03.
Mudaraba Term Deposit

i) 1 Month & 2 Months
10.00% – 12.00%

Up to Tk. 25 Lac
10.00%

Above Tk. 25 Lac to Tk. 50 Lac
11.00%

Above Tk. 50 Lac to Tk. 1 Crore
11.50%

Above Tk. 1 Crore
12.00%

ii) 3 Months, 6 Months & 1 Year
12.00% – 12.50%

Up to Tk. 25 Lac
12.00%

Above Tk. 25 Lac to Tk. 50 Lac
12.25%

Above Tk. 50 Lac to Tk. 1 Crore
12.50%

Above Tk. 1 Crore
12.50%
04.
Mudaraba Scheme Deposits

a) Monthly Income Scheme:

1 year
13.33%
(Tk.1,111/-per month per lac)
Tk. 1000/-net of tax

2-3 Years
12.66%
(Tk.1,055/-per month per lac)
Tk. 950/-net of tax

b) Multiple Benefit Scheme:

i) Double Benefit
12.12%
(Will be doubled in 5 years & 9 months)

ii) Triple Benefit
11.62%
(Will be tripled in 9.5 years)

c) Millionaire Scheme:

i) 5 Years
(Tk 12,050/ Per Month)
12.23%

ii) 10 Years
(Tk. 4,300/ Per Month)
12.02%

iii) 12 Years
(Tk.3,280/ Per Month)
11.25%

iv) 15 Years
(Tk.2,120/ Per Month)
11.30%

v) 20 Years
(Tk.1,080/ Per Month)
11.45%

d) Monthly Deposit Scheme:*

i) 3 Years
12.30%

ii) 5 Years
12.23%

iii) 8 Years
12.07%

iv) 10 Years
12.05%

e) Hajj Scheme:**

Up to 10 Years
12.05%-12.50%
*Monthly Deposit Scheme: Monthly installment and provisional amount payable at maturity (amount in Taka) Period
Installment

500
1,000
2,000
5,000
10,000
25,000
50,000
3 Years
21,850
43,700
87,400
2,18,500
4,37,000
10,92,500
21,85,000
5 Years
41,500
83,000
1,66,000
4,15,000
8,30,000
20,75,000
41,50,000
8 Years
81,000
1,62,000
3,24,000
8,10,000
16,20,000
40,50,000
81,00,000
10 Years
1,16,500
2,33,000
4,66,000
11,65,000
23,30,000
58,25,000
1,16,50,000
**Mudaraba Hajj Scheme Deposit: Monthly installment and provisional amount payable at maturity (amount in Taka) Year
Account opened in 2012

Monthly Installment
Expected Amount payable at Maturity to meet-up Hajj Expenses Monthly Rate

1
24,000
3,08,250
12.50%

2
12,000
3,28,450
12.45%

3
7,800
3,41,550
12.40%

4
5,750
3,58,250
12.35%

5
4,500
3,74,250
12.30%

6
3,650
3,89,250
12.25%

7
3,000
3,99,100
12.20%

8
2,500
4,06,600
12.15%

9
2,100
4,11,250
12.10%

10
1,800
4,19,450
12.05%

Last Update Date 2012: November 06,

Our Vision
To be the unique modern Islami Bank in Bangladesh and to make significant contribution to the national economy and enhance customers’ trust ; wealth, quality investment, employees’ value and rapid growth in shareholders’ equity.