Comprehensive Study of Existing Activities of South East Bank LTD
1. INTRODUCTION
SPECIFIC OBJECTIVES
· To observe the major outlines of Foreign Exchange Business at SBL.
· To observe credit line arrangements.
· To recommend elucidations for solving the problems faced by SBL in FEx Business.
· To recommend strategies for future success of SBL.
LIMITATION OF THE REPORT
The study has been conducted to make an investigation of the bank’s state of affairs of foreign trade; on the study in this field, some problems may be termed as limitations of the study. They are as follows:
· Part of organizational culture was written from individual’s perception and may vary from person to person.
· In some cases, up to date information weren’t published.
· Data of the competitors is difficult to collect and the derived information is very limited.
· Relevant papers and documents were not available sufficiently.
· Many procedural matters were written from my own observation, which may also vary from person to person.\
ORGANIZATIONAL PROFILE
2.1 EMERGENCE OF SOUTHEAST BANK LIMITED
Privatization of Banking is an outcome of the deliberate policy change by the government of Bangladesh in the late 1970. The emergence of Southeast Bank Ltd. was at the juncture of liberalization of global economic activities, after the URUGUAY ROUND has been an important event in the financial sector of Bangladesh. The experience of the prosperous economies of the Asian countries, in particular of South Asia, has been the driving force and the strategic operational policy option of the bank. The company philosophy – “A Bank with Vision” has been precisely an essence of the legend of success in the Asian countries.
The Government of Bangladesh has licensed Southeast Bank Ltd. (SBL) as a private commercial bank, which is focused on the established and emerging markets of Bangladesh. The bank was incorporated in Bangladesh as a public limited company on March 12, 1995 under company Act 1994, and commenced banking operations through the Principal Branch at 1, Dilkusha Commercial Area, Dhaka on May 25, 1995. The then finance minister Mr. M. Saifur Rahman inaugurated the branch. Mr. M. Abul kashem was elected as the first Chairman of the board, and Mr. Sayed Anisul Haq as the first Managing Director of the Bank. SBL by concentrating on the activities in its area of specialization has achieved good market reputation with efficient customer service.
2.2 BOARD OF DIRECTORS AND MANAGEMENT
The sponsor directors of the SBL are successful group of prominent local and non-resident of Bangladesh investors who have earned high credentials and excellent reputation in their respective fields of business at home and abroad. The board of directors of SBL consists of 13 members.
Presently a team of experienced professional headed by the managing director and executives manages the bank. Span at the top-level management is fairly narrow. Only one Senior Executive Vice President and five Executive vice presidents heads different section of the bank.
CHAIRMAN |
| Alamgir Kabir, FCA |
VICE CHAIRMAN |
| Abdul Hye |
DIRECTORS |
| Mohammad Abul Kashem |
| Azim Uddin Ahmed |
| Mohammad Abu Tayub |
| Rehana Rahman |
| Syed Shahid Ali |
| Mostori Miah |
| Md. Akikur Rahman |
| M. A. Ahad |
| Jusna Ara Kashem |
| Duluma Ahmed |
| Rabeya Khatun Chowdhury |
| Dewan Mustaq Majid |
PRESIDENT & MANAGING DIRECTOR |
| Neaz Ahmed |
COMPANY SECRETARY |
| Mohammed Shajahan |
DEPUTI MANAGING DIRECTOR-1 |
| M. A. Muhith |
DEPUTI MANAGING DIRECTOR-2 |
| Syed Imtiaz Hasib. |
2.3 STRATEGIC TASK ANALYSIS
2.3.1 MISSION
· High Quality financial services with the help of latest technologies.
- Fast and accurate customer services.
- Balanced growth strategy.
- High standard business ethics.
- Steady return on shareholders’ equity
- Innovative Banking at a competitive price
- Deep commitment to the society and the growth of national economy.
- Attract and retain quality human resources
2.3.2 VISION
· To stand out as a pioneer banking institution in Bangladesh and contribute significantly to the economy.
2.3.3 LONG-TERM OBJECTIVE
- To be the market leader both in terms of deposits and good loans among private commercial banks by 2010.
2.3.4 SHORT-TERM OBJECTIVE
- To increase current market shares at least 2% by 2009.
- To increase it’s number of branches to 50 by 2009
2.3.5 GOALS
· Become the most profitable bank.
· Provides highest level of satisfaction to customers.
· Enhance the value of shareholders investments and optimize return on their investment.
2.3.6 STRATEGIC INTENT
· Bring out new financial products and to ensure that customers receive a consistent standard quality of service.
2.3.7 BUSINESS STRATEGIES
· Achieve business vision through quality and customer acceptance by providing financial services.
· Maintain highest ethical standards in every aspect.
· Customer focus – a perspective of quality throughout:
– The entire organization or each department and bank.
– All processes, systems and services.
· Compliance – with regulatory requirements.
Added value – through continuous improvements to benefit customers and the bank.
2.3.8 RESPONSIBILITIES TO THE CUSTOMERS
Although, Southeast Bank Limited is new in the Banking industry, it tries its best to satisfy its customer through developing the efficiency of its function and to reach its ultimate goal of: Winning client Satisfaction. Customer can enjoy withdrawal, transfer and pay utility bills from anywhere in Bangladesh from any of the fifteen branches. More over the bank has started PC banking facility to reduce the time to deliver the service to its customer. Moreover, it charges competitive rate of service to its customers.
2.3.9 RESPONSIBILITIES TO THE COMMUNITY
Southeast Bank Limited performs its responsibilities to the community through:
- Contributing to higher education (Education Credit scheme).
- Promoting local industry.
- Overall development activities through different kind of scheme.
2.3.10 CONTROLLING
Southeast Bank Limited does not believe in the traditional banking. It tries to increase and maintain its market share in the private banking sector through two types of control techniques:
Feed Forward Control.
Feedback Control.
Feedback control technique monitor output of a process and feed into the system to obtain desired outputs. On the other hand feed forward control technique monitor inputs into a process to ascertain whether these are as planned; if they are not, the inputs are changed in order to get the desired result.
2.3.11 ETHICS AND SOCIAL RESPONSIBILITIES
Southeast Bank Limited strongly believes in banking ethics and social responsibilities. Although it is a profit making organization, it tries not to harm the society in any of its activities. It is fully devoted to fulfilling the satisfaction of the customer as well as it employees. It performs its social responsibilities through involving in different type of social development activities to develop the socio-economy of the country.
2.4 THE PRODUCT & SERVICES OF SBL
| CORPORATE BANKING | PERSONAL BANKING | INTERNATIONAL TRADE & FINANCE |
| Project Finance
Term Loans Working Capital Loan Forward Cover Floating of Public Issues Loan Syndication |
Deposit Accounts
Forex Transactions Consumer Credit Scheme E-Cash 24 hour ATM Phone Banking Any Branch Banking Credit Cards Personal Loans Foreign Currency Accounts Safe Deposit Lockers Utility Bill Payments |
Documentary Credit
Forward Exchange Cover Pre or Post Shipment Finance Negotiation/Purchase of Bills Bills for Collection Insurance Cover |
| LEASE FINANCE | CAPITAL MARKET | |
| For Acquiring Capital Machinery | Trading in the Stock Exchange |
2.5 ‘CORPORATE LEVEL’ ORGANIZATION LAYOUT
The Corporate Headquarter of Southeast bank has nine major divisions and each comprising of various departments. The major divisions in the headquarter are as follows:
1. CREDIT ADMINISTRATION
This division has the authority to determine the party or the client who will get the credit facility from the bank. The credit clients are selected according to the criteria of credit policy. This division has the fu]l authority to take any decision against or favor the client and these divisional works is supported by the Credit Services Division.
2. CREDIT SERVICES DIVISION
This division can handle the credit proposal, disbursement, monitoring and credit recovery position that is given by all branches. Each branch has their own credit division and all branch-wise activities are reported to the head office credit services division.
3. FINANCIAL CONTROL & ELECTRONIC DATA PROCESSING
This division can control all the financial position, activities of overall organization. They provide the total budgetary limitation to every department for the respective year. They also carry out the financing activities with the access and operational activities.
4. MARKETING
This division mainly works for
· To improve the marketing network throughout the country
· Toimplement the marketingstrategies and the concept ofTrade Marketing
· To improve the procedure which is ultimately provide date regarding to competition and relative market
· To arrange of several workshops and seminar which can improve the quality of existing officers as a competitive edge position.
5. GENERAL SERVICES
This division can handle all the general activities except the credit and financialsector. All the administration activities aredesigned and implemented by this division.
6. HUMAN RESOURCE DEPARTMENT
This division deals with the employees as the core resources of the organization. They mainly emphasize on the recruitment of employees and the employee benefits & services. And, the main philosophy is to motivate the employee to work with efficiently and effectively.
7.RESEARCH AND DEVELOPMENT
In any sort of organization Research & Development sector play an important role to improve the organization. This division can determine whether to diversify the organization or not. Whether the organization have to introduce the new product and services inthe market or not. How to improve the service quality of the organization. What is the recent position of the organization in the market etc.
8. BRANCH CONTROL DIVISION
This division can control the all the branch activity of the bank as a whole. The management approach is design as top to down. The operation mangers of each branch have to report to this division. Then each branch is directed accordingly.
9. INTERNATIONAL DIVISION
This division can work on internationally. The entire branch-wise international work is control and monitoring by this division.
2.6 HIERARCHY OF SOUTHEAST BANK LIMITED
Fig. 1 Hierarchy of Southeast Bank Limited, Bangshal Branch
2.7 BRANCH NETWORK
The Principal Branch of Southeast Bank Ltd. has been in operations since May 25, 1995. Its is in the first floor of the building which holds the Head Office of SBL and remains to be the centerfold of SBL’s overall branch activities. SBL has a total of 41 branches operating all over the country. Like other Banks, SBL has not categorized its branches. The branches had been provided with authorized dealer licensees to handle import, export, and all types of foreign exchanges. The overall branch activities of SBL can be primarily divided into four different divisions. These are:
· General Banking Division
· Accounts Division
· Credit Division
· Foreign Trade Division
2.8 FINANCIAL SET – UP
Effectiveness of fund generation is the source of power for a Bank to establish its position in the business world. Banks do use major share of its fund in credit purpose. But a portion is always used for investment, which can quickly be converted into cash. This is necessary to handle liquidity crises, which the banks occasionally face.
2.9 BUSINESS ACTIVITIES
Southeast Bank Limited has been achieving a continuous growth rate in all areas of operations during the year 2001 and earned a pre-tax profit of Tk. 402.33 million registering an annual growth of 40% over that of the previous year. This remarkable achievement proves the excellence of SBL’s management team with the support from resourceful and skilled workforces who are rendering efficient and specialized services.
2.10 CAPITAL
The Authorized Capital of the Bank remains unchanged at Tk. 500.00 million as on December 31, 2001. The Issued and Paid-up Capital stood at Tk. 363.00 million as on December 31, 2001.
Fig. 3 Equity Fund
2.11 RESERVE FUND & OTHER RESERVES
The Bank raised its reserve from Tk. 3422.28 million to Tk 4000.20 million during the year 2009, which is quite significant compared to the position of the previous year.
Fig. 4 Reserve Fund
2.12 DEPOSITS
At the end of December 31, 2009 the deposit of the Bank was Tk.80000 Million against Tk.12,630.25 Million during the corresponding period of the previous year. The growth in deposit is 31.42% compared to last year. This growth rate might be termed as a remarkable achievement considering the volatile economic scenario of the country during the later part of 2002. In the prevailing situation, mobilizing of deposits had become very competitive and as a result the average cost of fund of the Banks in the private sectors had increased compared to the previous year. The Bank has laid great stress on procurement of low cost fund including free float funds for bringing down the average cost of fund
Fig. 5 Growth in Deposit
Fig. 6 Deposit Mix
2.13 LOANS & ADVANCES
The Loans and advances of the Bank registered an impressive growth during the year 2009. The total loans and advances amounted to Tk.60000 Million as on 31st December, 2009 against Tk.42000 Million in the previous year showing an increase of 41.94%. The advance portfolio of the Bank is well diversified and covers funding to a wide spectrum of business and industries including readymade garments, textile, edible oil, ship scrapping, steel & engineering, chemicals, pharmaceuticals, cement, construction, real-estate and loans under consumers’ credit schemes allowed to the middle?class people of the country for acquiring various household items. We have also developed a system to improve the recovery rate of disbursed loans and also taken adequate measures for converting the classified loans into performing assets. The classified loans during the year under report was less than 2%, which may be termed as encouraging in the socio?economic environment prevailing in the country. The Bank gives topmost importance to acquire quality assets and does appropriate lending risk analysis while approving commercial and trade loans to clients.
Fig. 7 Loans & Advances
2.14 INVESMENTS
The size of the investment portfolio in the year 2009 was Tk. 10,727.44 million against Tk. 10,369.92 million in the previous year registering a growth of 26.10%. The portfolio included Government Treasury Bills, Prize Bonds and shares in Public Limited Companies.
Fig. 9 Investment over the years
Fig. 10 Distribution of Investment Portfolio
2.15 IMPORT & EXPORT BUSINESS
The International Trade constitutes a major business activities conducted by the Bank. The import business of the Bank indicated a significant increase in the year. The import business during the year 2009 reached Tk.69582.92 Million against Tk.61,187.37 Million of the previous year which reflected a growth of 5.17%. The import business handled by the Bank resulted in steady increase of revenues for the Bank in spite of the downward trend in International trade. The slow growth in export business is clue to debacle in geopolitical arena, micro economic instability and volatile situation in the Middle East due to threat of war in Iraq.
Fig. Import / Export Business of SBL
2.16 GUARANTEE BUSINESS
The Bank issued total guarantees amounting to Tk. 1,854.50 million during the year compared to Tk. 1,306.24 million recorded in the previous year marking an increase of 41.97%.
2.17 TREASURY OPERATIONS
The treasury dealings of the Bank since its initiation developed considerably both in local and foreign currency. With automated Reuters Terminal the Bank had been able to develop its infrastructural abilities for the treasury dealings more adequately for meeting the demand of customers.
2.18 PROFIT & OPERATING RESULTS
The Bank earned an operating profit of Tk. 492.56 million during the year before making any provisions. The pre?tax profit of the Bank during the year 2001 was Tk. 492.13 million and thus the Bank attained growth of 0.09% in respect of operating profit. The provision for income tax for the year amounted to Tk.181.98 million and divisible profit available for appropriation amounted to Tk.281.85 million. Adverse economic condition resulted in slower growth of interest earning compared to interest expenditure of the Bank. The Bank had also complied with the directives of the Central Bank for implementation and regularization of the loans and advances in carrying out banking business. Our Bank achieved a profit growth of 0.09% during the year compared to the previous year.
Fig. 12 Growth in Profit
3.19 FOREIGN CORRESPONDENTS
The Bank is maintaining correspondent relationship with major Banks of the world in every important canter to meet transaction requirements with global business development. The number of foreign correspondents and agents of the Bank during the year 2002 was 295 with 45 Banks covering the major financial institutions and business centers of the world throughout 68 countries.
Fig. 13 Foreign Correspondents
3. INFORMATION TECHNOLOGY AT SBL
Now days the financial services industry, especially the banking sector is undergoing revolutionary changes with the advent of modern technology and introduction of new products based on the electronic system, the concept of conventional banking has been changed.
In Bangladesh, although the banking industry are lacking a total integrated banking software solution of international standard, however, Southeast Bank Limited put its best efforts to introduce a computerized banking system which provides efficient, reliable, fast service and accurate information to its customer as well as management, shareholders and regulatory bodies.
3.1 BANKING OPERATION
All branches of the Bank including the Head Office have a PC Based Local Area Network (LAN) on UNIX platform, which is a multi-user and most reliable and internationally recognized secured Operating System. Our banking program supports all core banking facilities including: Current Accounts, Savings Accounts, Foreign Currency Accounts, term and Fixed Deposits, BCD, Loans and Advances, Special Schemes for Deposits and Advances etc. Besides the maintenance of various types of customer account, calculation and applications of interests, automatic deduction of various types of taxes on lives, the bank’s books of accounts are also fully automated and integrated in to the banking software thus the Balance Sheet, Statement of Affairs and other management reports and generated by the computer system under Bank’s Standard Chart of Accounts on daily basis.
3.2 BACK OFFICE AUTOMATION
Apart from the Front Office Automation and Automated book-keeping system of the bank, the bank has introduced computerized Provident Fund, management System, Inter Bank Reconciliation, Share Management System, MIS, Central Bank’s reporting such as CL, CIB etc. SBL’s in-house software development team has developed a L/C Management System, which covers the entire L/C operation starting from L/C opening, processing, vouchering, maintenance and retirement of L/C. The system has already been introduced on the occasion of the 5th Anniversary of the Bank on 5th May, 2000.
3.3 HOME BANKING
Southeast Bank Limited is not only maintaining its Front-Office and Back-Office operation through modern computer system but also providing the home Banking Facilities to its Corporate Customers. With this facility SBL’s customer has access to his / her account for inquiry, checking the account balances, seeing the day’s transactions and taking print of Account Statement sitting at his / her office or residence. At present SBL is providing this facility to a limited number of customers which are going to be extended to other corporate customers gradually.
3.4 ATM SERVICE
In order to keep pace with the fast growth of electronic banking and provide better services to the clients, the Bank has joined the Shared ATM Network which will be one of the first of its kind in Bangladesh, provided by Electronic Transaction Network Limited (ETN) – a joined venture with United Group of Bangladesh and IFS International, USA. A pool eight banks have joined the Network. Under this system, any customer of any member bank can have access to any of the ATMs situated at different locations of Dhaka City. The Network has started its operation in Dhaka in September 2001. The Network will gradually be extended to other cities of the country. It is expected that about 500 ATMs will be installed by the next few years under this Network.
3.5 BANK’S OWN WEB – PAGE
The internet has brought about a revolutionary change leading to convergence of communication and computing technologies. The global presence and impact of the Internet, has made it essential for most business to sit up and take notice of the power on internet technologies and devise ways to leverage it to gain competitive advantage. The interactivity and flexibility of the Internet technologies has generated a number of creative options for addressing the business issues facing various industries – the banking industry is no exception to this. Starting of with providing mere static information on the Net, banks have evolved to having transactional web sites – a virtual delivery channel for their customers. In order to provide round the clock and up to date information on the Bank to the trade and business communities worldwide, SBL’s IT team has developed a web page for the Bank. It can be accessed under the domain name: www.southeastbank-bangladesh.com.
3.6 SWIFT
Southeast Bank Limited has become the member SWIFT Alliance Access, a multi-branch secure financial messaging system provided by the Society for Worldwide Inter-bank Financial Telecommunication (SWIFT), Belgium. With the activation of the SWIFT system SBL enjoys instant, low-cost, speedy and reliable connectivity for L/C transmission, fund transfers, message communication and other worldwide financial activities.
3.7 ‘REUTERS’ SYSTEM
The Bank is going to install a Reuters Monitor at its Head Office soon. Necessary arrangements have already been made in this regard. With the implementation of this system the Bank will be able to handle its foreign exchange business / deals more efficiently and keep itself updated with the developments of international money market instantly.
3.8 ‘ONLINE’ ANY BRANCH BANKING
The Southeast Bank Limited is going to connect all its branches and Head Office under a Wide Area Network (WAN). Under this system the customer of a branch will be able to withdraw and deposit money from / to his / her account from any of the Southeast Bank branches across the country. This will also provide our customer instant fund transfer facility to any account maintained with any branches of the Bank.
The objective of an IT Department is to ensure that an efficient, secure and reliable computerized banking operation is running towards that end SBL is constantly striving to update and upgrade ourselves in all modern IT practices. SBL is committed to our clients to put all our efforts to adopt all modern concepts / technologies in order to cope with the constant changing environments of business. SBL’s ultimate aim is to make Southeast Bank equipped with cutting-edge technologies in the financial sector of Bangladesh.
4. INDUSTRY ANALYSIS
4.1 ORIGIN OF BANKING INDUSTRY
The English word “Bank” is derived from Italian word “banco”. The Latin “bancus” and French word “banque” which means a bench. They are of the opinion that the medieval European bankers (i.e. money changers and money lenders) transacted their banking activities on the benches in market place. This money changing and money lending business is known as “Banking business”.
The history of banking is very old. Generally the necessity of keeping the money safe brings the banking business to its existence. The evolution of money solved the problem of better system. Earlier there were two classes of people. One group felt the need of honest and faithful persons to keep the surplus money safely and the other group owing to transaction felt the need some person who could provide money. Based on these groups some business personal come out. This business personal used to keep the money as deposit for security and give loans to the needy people. This is how the banking sector has been developed.
Now all over the world the dimension of banking has been changing rapidly due to the deregulation, technological innovation and globalization of the world business. Because banks have to compete with local financial insinuation as well as foreign financial institution in the market place, banks have to develop appropriate financial structure and should periodically review and compare their performance with its competitor to build a sound banking institution.
Privatization of banking industry is an outcome of the deliberate policy changed by the government of Bangladesh in the late 1970. From 1971 the main aim of Bangladesh was the reduction of poverty and the improvement of the living conditions continue to be the major important tasks of the country. The implementation of pragmatic monetary and fiscal policies, trade liberalization, strong commitment to bring about financial discipline and withdrawal of tariff restrictions helped Bangladesh convert the national economy into an outward looking economy. All the economic reforms resulted in the larger mobilization of resources for the development budget for the first time after the independence of Bangladesh, as it was understood that there would be a time lag between macroeconomics stabilization process to be effective and private investment including direct foreign investment in the country.
After independence of Bangladesh it was necessary to reform the socio economic progress. At this critical moment the government of Bangladesh was incorporated Bangladesh Bank which was given the duty to get as a central bank.
After 1972 nationalize order was declared and all commercial banks were nationalized except foreign banks. Those banks were Sonali Bank, Agrani Bank, Janata Bank, Rupali Bank, Pubali Bank.
4.2 ANALYZING THE INDUSTRY
I tried to analyze the Banking industry according to the industry life cycle, the Porter’s five forces model, diamond model and the gaps will hopefully give us the valuable insight about this industry. I had also analyzed the industry by its strength, weakness, opportunities and threats as well.
As far as the Banking industry is concerned the industry has reached to a stage between growth and maturity face. As the banking sector has improved its service quality and struggling for new features to add as it has passed the growth stage. However this industry is vigorously searching out new market segment to enter. Banking industry is still searching for new opportunities to gain additional sustainability.
4.3 PORTER’S FIVE FORCES MODEL
According to Porter there are five forces namely bargaining power of suppliers, bargaining power of buyers, risk of entry of entry of potential competitors, rivalry among the establish firms and threat of substitute products that help to determine the opportunities and the threats in the industry. Higher each of these factors is, lower the ability of incumbent companies to earn greater profit.
4.3.1 BARGAINING POWER OF SUPPLIERS
As banking is service oriented industry, the depositors are the suppliers of the industry. It is due to fact that depositors supply the funds that the banks use to give loans to the borrowers. Switching cost of the depositors is not very high as there is a very little cost involve if they want to switch to another bank. Over the years the number of banks in Bangladesh is increasing and therefore the suppliers have more bargaining power over the firms. For banks it is not possible to but the depositors so there is no chance of backward integration. This has put the depositors in an advantageous position.
4.3.2 THREAT OF SUBSTITUTE PRODUCTS
Substitutes for banks are those organizations that provide similar financial services but not actually a bank. Leasing companies, cooperative banks, private banks, Development Financial Institutions, the stock market, supplier’s credit and insurance companies would fall under this category. At this moment relatively high risk is associated with some of those institutions. For example, our stock market has gone through a drastic situation over the last three to four years and it is not over yet. As a result, people are less likely to invest their money in stocks. But the government as well as the Stock Exchange Commission is trying very hard to overcome this unwanted situation and if they turn out successful then there is very high chance the banking industry will loose its market share to them. Because, at the same level of risk, people are likely to invest in those where the returns are higher. In addition, banks face threat from the Development Financial Institutions (DFI).
4.3.3 RIVALRY AMONG THE ESTABLISHED FIRMS
The commercial banks can be categorized as follows:
1. Bangladesh Bank
2. Nationalized Commercial Banks (NCB). Ex. Sonali Bank, Agrani Bank etc.
3. Specialized Financial Institutions (SFI). Ex. Krishi Banks, Shilpa Bank etc.
4. Private Commercial Banks (PCB). Ex. Southeast Bank Limited, Islami Bank, The City Bank etc.
At present the economical condition of Bangladesh is not stable. Hence, people tend to avoid risk and invest their money into those banks where the risk is lower. Therefore, brand identity for banks for banks is very high.
Most of the major players in the banking industry have branches in almost every locality in Bangladesh. NCBs are one step ahead in this matter since they have branches even in the rural areas. As more and more banks are coming into the industry the concentration of the industry is increasing.
4.3.4 THREAT OF NEW ENTRANTS
The introduction of vast amount of automated capital equipment builds in high fixed costs, which has made the existing banks to fight to overcome by achieving a high volume of sales. Thus, we see banks today are putting heavy emphasis on growth in bank size. Therefore, whoever wants to enter into this industry will lack economies of scale.
Over the last ten years NCBs, PCBs and SFIs have been able to establish strong brand image over the mind of the customers. For example, if a person has an account in the Standard Chartered Bank and a new bank comes in he/she is less likely to shift his/her account to the new bank.
According to the Bank Company Act opening of a bank requires 40 crore taka where 50% has to come from the owners and a family can contribute no more than 2% of that 50% and the rest has to be raised through issuing stocks. This huge capital requirement has made it very difficult for new banks to enter.
4.3.5 BARGAINING POWER OF BUYERS
The banking industry is composed of small, medium and large banks. Even though there are large number of buyers (borrowers) who need funds we cannot say they have high bargaining power. Because, borrowers may have high bargaining power over banks like Hanvit Bank but they certainly do not have the similar power over Standard Chartered Bank. Hanvit bank has to charge less interest rate than Standard Chartered for the same amount of money.
Buyer’s volume of borrowed money has an immense effect on their bargaining power. Banks charge interest rate based on two factors, one is the creditworthiness of the borrower and the other is the volume of borrowed money. If two people have same creditworthiness then the person who is borrowing more money will be charged lower interest rate.
There is very high cost involves if a bank wants to switch to another business as they have invested so much money for the setup cost. Compare to banks it costs almost nothing to the borrowers as there is a slight penalty for early payment. So borrowers have high bargaining power.
5. EXTERNAL ANALYSIS
5.1 Analyzing the External Environment of the Industry Using PEST Model
As far as the banking industry is concern Political, economical, social and legal factors are also important to consider. The political condition is not stable in Bangladesh. So the investing environment of Bangladesh is not similar to the other part of this globe. Sometimes people are anxious about their investment. As investing is a risky in an unstable country like Bangladesh, however banking industry shows a stable operation since beginning which facilitate industry to retaliate with the substitute service provider. Nevertheless this industry also facing some problem as Bangladesh government has been changing its rules and regulation time to time, which sometime create barrier to the growth of this industry. For better understanding of the political environment the following examples can be reviewed to get a clear idea.
5.2 NEWLY ESTABLISHED REGULATIONS IN THE BANKING SECTOR
Though the ultimate or combined objective of each of the regulations, established in the banking sector is the same (improvement of loan quality), yet in terms of individual or specific objectives, they differ from each other.
Some of these regulations have been established for loan screening, some for loan monitoring, some for making the loan portfolio transparent and some for enforcing lenders’ recourse on borrowers. According to these discussions loan regulations can be classified in the following categories:
1. Screening Regulations
2. Monitoring Regulations
3. Transparency Regulations
4. Lenders’ Recourse Regulations
5.2.1 SCREENING REGULATIONS
Whether a particular loan will perform or not, mainly depends on the quality of screening of the loan proposal. This quality of screening again depends on the availability of the information on the borrowers (to judge his willingness and capacity of repayment), methodology for screening and the expertise of the credit officers. In fact, Prior to adaptation of new regulations, the screening measures were not at all scientific in Bangladesh financial system. The screening mechanisms that are being employed include:
· Lending Risk Analysis (LRA)
· Credit Information Bureau (CIB)
· Loans to insiders and connected parties (The Banking Companies Act – 1991 with amendments)
· Interest Rate Deregulation
5.2.2 MONITORING REGULATIONS
Not just only loan screening, but also the performance of a loan is equally dependent on the monitoring system (regarding loan use and repayment) of the loan giving agencies. This sort of monitoring method is very weak in the Bangladesh banking financial system. To overcome such shortcomings several method have been introduced, which are:
· New Loan Ledger Card (NLLC)
· Large Loan Reporting System (LLRS)
· Performance Planning System (PPS)
· Off-site Supervision
5.2.3 TRANSPARENCY REGULATIONS
Lack of appropriate accounting standard for recording the present performance position of loans hinders the process of reflecting the actual financial position or health of banking financial institutions. Without knowing the actual financial position, the bank management and supervisory authorities cannot undertake appropriate actions for improving the financial health.
5.2.4 LENDERS’ RECOURSE REGULATIONS
In case a borrower is unable to repay, whether willingly or unwillingly, the lenders must have access on the borrowers to get back their money, otherwise the immediate lender will not be able to refund money to the ultimate lenders (borrowers). In the context of Bangladesh, lenders’ recourse base was not only weak but also delay prone. In order to break through this weak recourse base, some new legal frameworks had been instituted, which are:
· Artha Rin Adalat Act – 1990
· Bankruptcy Act – 1997
5.3 ECONOMICAL SITUATION
The monetary policy of Bangladesh is not stable. That is to the control exercised by the Central Bank over money supply, interest rates and credit conditions is not that steady where an investor can make a base to develop his organization and ensure the rate of return of his investment. More over the reserve fund is not adequate which cause frequent devalue of the Bangladesh currency. This currency devalue also generate an uncertainty for the importer. The importer cannot maintain stable price in the market and this currency fluctuation affects the end-user as well.
Recently government imposed income tax for the investor, which also create barrier to the smooth flow of investment. So investment as well as the Banking Industry is affecting by the economic situation of Bangladesh.
5.4 SEASONALITY
Like other industries, the banking sector of Bangladesh is also under the grip of seasonality factors. Similarly, SBL also have some seasonality trends that affect the banking operations. According to competent sources of the bank, the seasonal characteristics of the banking services depend upon several festivals of the country. There is tremendous withdrawal spree by the depositors during the Eid-ul-Fitr and Eid-ul-Azha since this time general people need cash in hand to purchase various commodities, payment of zakat and buying sacrificial animal. Therefore both small and medium depositors withdraw certain amount of money during two religious festivals.
5.5 TECHNOLOGY
Modern technology has shown a new path to this industry. Recently, computer creates a paper lees environment in the bank. Clients are enjoying enormous benefit by the new technology. Nowadays transferring fund from one place to another till keeping record of fund is becomes a very easy job for the banker. The client can search for their current status at any time of the day.
5.6 ETHICS IN BANKING
The word ethics comes from the Greek word ‘ethos’, meaning character or custom. Ethics deals with the rules of human conduct from the moral point of view. Business ethics, like other areas of ethics has to do with the establishment and maintenance of vital and significant relationships among human beings – especially among employers, employees, competitors, consumers, suppliers, creditors, community etc.
Banks are financial institutions providing financial intermediation services for their customers. Banks in Bangladesh, particularly, nationalized banks are alleged to suffer from unethical behavior in the conduct of banking business. Private sector banks are also alleged to be involved in unethical banking practices through providing loans to their directors / sponsors. As a result, menacing growth of non-performing assets of banking industry has posed a serious threat to viability of banking industry in Bangladesh. Banks are alleged to make discriminatory treatment between urban and rural borrowers, between urban and rural depositors, between small and big borrowers and between powerful and powerless clients. Banks are also alleged to be involved in insincere appraisal of loan proposal, careless or nominal inspection and monitoring end use of loan cases and improper keeping of records of banking transaction.
It is imperative that banks avoid such non-ethical practices which cause harm to bank customers, the financial system and thus the economy as a whole. Banking services should be guided by economic efficiency and social-political justice. Banking services are based on trust and confidence on their clients.
It is also essential that banks maintain and enhance their reputation for better performance and integrity. A bank’s reputation for integrity is its most valuable asset and is determined by the conduct of bank officials. While performing banking operations, the employees of bank must avoid situations, which may lead to conflict, to preserve integrity and reputation of banking industry, it is imperative that an effective code of conduct be developed for the bankers, for the customers of banks, owners of banks and for even regulations / supervisors of banks for proper conduct of their business operations.
6. SWOT ANALYSIS
SWOT analysis is the detailed study of an organization’s exposure and potential in perspective of its strength, weakness, opportunity and threat. This facilitates the organization to make their existing line of performance and also foresee the future to improve their performance in comparison to their competitors. As though this tool, an organization can also study its current position, it can also be considered as an important tool for making changes in the strategic management of the organization.
6.1 STRENGTHS
· SBL has already established a favorable reputation in the banking industry of the country particularly among the new comers. With in a period of seven years, SBL has already established a firm footing in the banking sector having tremendous growth in the profits and deposits. All these have lead them to earn a reputation in the banking field.
· SBL has been founded by a group of eminent entrepreneurs of the country having adequate financial strength. The sponsor directors belong to large industrial conglomerates of the country. The Board of Directors headed by its Chairman Mr. M.A. Kashem is a former President of FBCCI and has years of experience and has earned the reputation of being a successful businessman. Other directors include Mr. Yusuf Abdullah Haroon, who is also the current President of FBCCI and Mr. Ragib Ali as the Vice Chairman of the Bank who is also the owner of the country’s largest tea plantation. Therefore, SBL has a strong financial strength and is built upon a strong foundation.
· At SBL, eminent banker Mr. Syed Abu Naser Bukhtear Ahmed as the CEO of the Bank head of the management team. His years of banking experience at Prime Bank Ltd., AB Bank Limited and others are enabling him to navigate the organization in the turbulent ocean of fierce competition and taking SBL to a new millennium. Mr. M. A. Muhith, currently the DMD of the Bank, supports the CEO. The bold leadership of the CEO and the DMD are the foundations of the management team of SBL.
· Like the CEO and DMD the top management of the bank is also a major strength for the SBL and has contributed heavily towards the growth and development of the bank. The top management officials have all worked in reputed banks and their years of banking experience, skill, and expertise will continue to contribute towards further expansion of the bank. At SBL, the top management is the driving force and the think tank of the organization where policies are crafted and often cascaded down.
· As already mentioned earlier, SBL has established a fin-n footing among the new comers in the banking industry of Bangladesh. They have already achieved a high growth rate accompanied by an impressive profit growth rate in 2001. The number of deposits and the loans and advances are also increasing rapidly.
· Southeast Bank Limited has strong financial resources to run the banking business. In the year 2000 the capital fund of the bank including paid up capital, reserves, retained earnings stood at around Tk 56.00 Crore. It is expected that in the near future the banks financial resources will get much stronger.
· SBL has adequate physical facilities and equipment’s to provide better service to the customers. The bank has computerized banking operations under the software called PC Bank. Counting machines in the teller counters have been installed for speedy service at the cash counters. Computerized statements for the customers as well as for the internal use of the banks are also available. All the branches of SBL are equipped with telex or fax facilities. The Head Office and the Dhaka & Chittagong based branches also have Internet facilities.
· SBL has earned a reputation in the banking sector for establishing impressive branches. The Gulshan Branch, Dhanmondi Branch, KawranBazar Branch and Uttara Branch and the Agrabad Branch are the most lavish and impressive branches of SBL. This creates a positive image in the minds of the potential customers and many people get attracted to the bank. This is also an indirect marketing campaign for the bank for attracting customers. The other branches of the bank are also impressive and are compatible to foreign banks.
· SBL has an interactive corporate culture. Unlike other local organization, SBL’s working environment is very friendly, interactive and informal. There are no hidden barriers or boundaries while interactive among the superior or the subordinate. The environment is also lively and since the nature of the banking job itself is monotonous and routine, SBL’s lively work environment boosts up the sprit and motivation of the employees. At the same time, music system in the office also plays a key role in making the environment lively.
6.2 WEAKNESSES
· The greatest irony is that despite claiming to be “A Bank with Vision” which is used as its advertising platform and mission statement, the bank as of today has failed to develop a prescribed set of vision as it embarks in to the cyber age of twenty first century. The bank still could not identify the core area of business and where it should concentrate in its business, as the new millennium is about to start. The bank does not have any long-term strategies of whether it wants to focus on retail banking or become a corporate bank. Till now, the bank is in a nowhere situation. Unofficially, retail banking is discouraged but at the same time the bank is not being able to pull itself away from retail banking. At the same time SBL has failed to be a full-fledged corporate bank. The path for the future should be determined right now.
· This is a major set back for SBL and one of its weakest areas. SBL does not pursue an aggressive marketing campaign. It does not expose itself to the general public and are not in the lime light unlike other banks. Other than the neon sign at Farm gate Over Bridge, SBL does not have neon sign or any advertisement in the city. As a result people are not aware of the existence of this bank.
· During its inception, SBL has not recruited competent people in filling up its lower and some mid level positions. Other than the recruitment of the Probationary Officers and Management Trainees, people who were recruited from banks for the lower management are not competent enough to provide the best output. As a result the services of the bank are being jeopardized. The external search of the bank in attracting people from other banks had flaws in it and the right people were not taken from the right bank.
· This is one of the set backs of SBL and will have a long-term repercussion on the quality of Human Resource. Many people have been recruited under the reference of the recommendation of the Board of Directors, which has become a chronic disease in the PCB’s. as a result, people having inadequate qualifications and experience have been recruited only because of their ties with the sponsors. The practice must be stopped considering the future of the bank and it is very important to have a component workforce.
· This has also become growing problem at SBL. Currently there are “Too many heads but few hands.” Again this is related to the problem of reference appointment. There are people who are only drawing salaries at the end of the month but making a minimum or no contribution towards the organization. On the other hand there are officers who work hard but are not apprised accordingly.
6.3 OPPORTUNITIES
· SBL can pursue a diversification strategy in expanding its current line of business. The management can consider options of starting merchant banking of diversify in to leasing and insurance. By expanding their business portfolio, SBL can reduce their business risk.
· There are several opportunities for SBL to expand its product line. In this competitive environment SBL must expand its product line to enhance its Sustainable Competitive Advantage (SCA). As a part of its product line proliferation, SBL can introduce the following products.
· SBL should move towards the on line banking operations. It is high time that they should go for this because the foreign banks as well as some local banks are already in to the on line banking operations.
· Introduction of corporate scheme: This is an innovative way of attracting corporate clients to the bank. In stead of providing CCS to executives of various companies, SBL can introduce a special scheme for corporate officers for the purchase of consumer durable at an attractive interest rate. In this way, the bank will be able to attract a lot of corporate clients and in the long run the bank would be benefited by getting business for the bank from the corporate clients in terms of L/C, Loans and advances etc. for example, officers of BTC, Lever Brothers, Square, Beximco can be entered in to the corporate scheme.
· Separate schemes for service holders: The bank as a part of expanding its loan portfolio can assistance in terms of giving loans to service holders under various professions under a separate scheme. The bank can provide assistance to Engineers, Doctors, Lawyers and other professions under a separate scheme. Standard Chartered Grindlays has already introduced such a scheme for different professions.
6.4 THREATS
¦ Multinational Banks: The emergence of the multinational banks and their rapid expansion poses a potential threat to the new PCB’s. Due to the booming energy sector, more foreign banks are expected to arrive in Bangladesh. Moreover, the already existing foreign banks such as Standard Chartered are now pursuing an aggressive branch expansion strategy. These banks are establishing more branches countrywide and are expected to get into for operation soon. Since the foreign banks have tremendous financial strength, it will pose a threat to local banks to a certain extent in terms of grabbing the lucrative clients.
¦ Upcoming Banks: The upcoming private local banks can also pose a threat to the existing PCB’S. It is expected that in the next few years more local private banks may emerge. If that happens the intensity of competition will rise further and banks will have to develop strategies to complete against an on slaught of foreign banks.
¦ Contemporary Banks: The contemporary banks of SBL such as Dhaka Bank, Prime Bank and Dutch-Bangla Bank are its major rivals. Prime Bank and others are carrying out aggressive campaign to attract lucrative corporate clients as well as big time depositors. SBL should remain vigilant about the steps take by these banks as these will in turn affect SBL strategies.
¦ No new deposit creation: This is a problem and a threat faced by the whole banking sector of Bangladesh. Due to the current economic slowdown, there is hardly any new deposit creation as there few investments and savings accompanied by a galloping inflation. As a result the new banks are not being able to attract absolutely new depositors but rather they have to hunt or snatch away depositors from other banks. Moreover, due to financial turmoil in Southeast Asia, foreign remittance of Bangladeshis is also decreasing due to the massive retrenchment. Therefore all these adversaries are blocking the creation of new deposits and banks are operating by snatching away depositors from one to another.
¦ Default Culture : This is the major problem in Bangladesh. As SBL is a very new organization, the problem of non-performing loans is very minimum or insignificant. However, as the bank becomes older this problem arises and the whole community suffers from this chronic disease. SBL has to remain watchful about this problem so that proactive strategies are taken to minimize this problem if not elimination.
7. FOREIGN EXCHANGE OPERATIONS OF SBL
7.1 INTRODUCTION TO FOREIGN EXCHANGE
Foreign Exchange is concerned with the exchange of currency of one country with that of another country. Dr. Paul Einzing defines “Foreign Exchange as the system of process of converting one national currency into another and of transferring money from one currency to another.” The Foreign Exchange Regulation Act 1947 as adopted in Bangladesh defines Foreign Exchange as foreign currency including any investment draws, accepted, made or issued as per clause 13 of article 16 of Bangladesh Bank order 1972 and all deposits, credits and balances payable in any foreign currency any drafts, traveler’s cheques, letter of credit and bill of exchange express or drawn in currency but payable in any foreign currency.
Foreign exchange means foreign currency and includes all deposits, credits and balances payable