NTRODUCTION

The report is an opportunity for readers and it bears a great significant for me. It
familiarizes readers with the practical business operations of EXIM Bank. Readers of
report get the chance to understand the real business world closely and familiarize
themselves with internal and external expects of business. It gives them an
opportunity to develop the analytical skill and scholastic aptitude.
All over the world the dimension of banking has been changing rapidly due to
Deregulation, Technological innovation and Globalization. Commercial banks in
Bangladesh have to keep pace with the change in global business. Now banks have to
compete in market place both with local institutions as well as with the foreign
institutions.
To survive and thrive in such a competitive banking world, two important
requirements are development of appropriate financial infrastructure by the central
bank and development of “professionalism” in the sense of developing an appropriate
manpower structure and its expertise and experience. To introduce skilled banker,
only theoretical knowledge in the field of banking studies is not sufficient. An
academic course of the study has a great value when it has practical application in real
life situation.
So, I need proper application of my knowledge to gate some benefit from my
theoretical knowledge make it more tactful. Such theoretical knowledge is obtained
from a course of study at only the half way of the subject matter. Report paper implies
on other the full application of the method and procedures through rich acquire of
subject matter can be forcefully applied in my day-to-day life situation. Such a
procedure of practical application is known as report paper.

Basically I tried hard to find out a proper picture of EXIM Bank’s investment
operation through analyzing its annual report of 2009 and 2010. I also interviewed
some personnel of EXIM Bank to know the hidden information about investment
operation.

REASONS OF THE REPORT

 To have an overall idea about Islamic Banking System that is based on the Al-Quran and
Sunnah.
 To know about the interest free Banking System and how it could be processed.
 To find out the difference between conventional banking system and Shariah based banking
system.
 To know the different modes of Investment of EXIM Bank Bangladesh Ltd.

This paper is an attempt to evaluate the Different Modes of Investment of EXIM Bank
Bangladesh Ltd. in terms of productivity and effectiveness.

METHODOLOGY
Every report is prepared by following a concrete methodology. The success of the
report depends on the followed methodology in major portion. My study is performed
based on the information extracted from different sources collected by using a specific
methodology. All the methodology is mentioned below:
Variables: In the report banking system variables are used. Two variables are:

 Islamic system
 Conventional system
 Analytical Method:
 Descriptive method
 Conventional versus Islamic banking
 Performance and Growth
 SWOT analysis

SOURCES OF DATA

All the relevant data regarding this study are collected from two sources:

Primary Sources

 Interviewing with the bank officials of EXIM Bank Ltd.

 Official records.
 Face to face conversation with the officer.

Secondary sources

 Annual report of EXIM Bank Ltd.

 Published Booklet of the Bank.
 Website of EXIM Bank Ltd.
 Various published documents.

SCOPE OF THE STUDY

This report has been prepared through discussion with bank employees and with the
clients. Annual report provided the bank mainly helps to prepare the report. At the
time of preparing the report, I had a great opportunity to have an in depth knowledge
of all the banking activities theoretically by the EXIM Bank Limited.

LIMITATIONS OF THE STUDY

The officers are very co-operative but they are too busy to give me time to get
knowledge about their activities. Moreover they have to deal in a very competitive
environment based on money related activities. I have to prepare this report alone. I
faced some usual constraints during preparing the report. These are as follows:
I had to complete this report writing within a shorter period of time. So the time
constraint of the study hindering the course of vast area and time for preparing a
report within the mentioned period is really difficult.
The officials had some times been unable to provide information because of their
huge routine work.
Many officials are not well informed about different systems of EXIM bank. They
know but less. I had to face much difficulty to collect this information.
Some desired information could not be collected due to confidentially of business.
The study was conducted mostly on secondary data.
Since banks are the financial institution. So, most of the personnel were not agree to
provide accurate data due to their privacy.

PROFILE OF EXIM BANK

INTRODUCTION

Export Import Bank of Bangladesh Limited (EXIM Bank), a scheduled commercial

bank in the private sector, started its banking operation on the 3rd of August, 1999.
From 1st July, 2004 the bank converted its banking operation into Islamic Banking
based on Islamic Shariah from traditional banking operation. During the same year,
the bank issued 3,138,750 ordinary shares through IPO placement. The bank carries
out its banking activities through fifty nine branches operating as per Islamic Shariah
in the country. Within a short period of time the bank has earned good reputation
among the people of this country. This is clearly evidenced by the tremendous growth
of its business and operating results. Of its very beginning EXIM Bank Bangladesh
limited was known as BEXIM Bank Limited. But some legal constraints the bank
renamed as EXIM Bank, which means Export Import Bank of Bangladesh Limited.

ISLAMIC BANKING

From 1st of July of 2004 the bank became Shariah Based Islamic Bank and from then
it is rendering banking services according to Islamic banking principles. For smooth
operations the Board of Directors established a Shariah Board, which decides on the
banking principles according to which the bank will operate its business.

CORPORATE MISION

The bank’s vision and mission are the following:

The bank has chalked out the following corporate objectives in order to ensure
smooth achievement of its goals:

 To be the most caring and customer friendly and service oriented bank.
 To create a technology based most efficient banking environment for its customers.
 To ensure ethics and transparency in all levels.
 To ensure sustainable growth and establish full value of the honorable shareholders and

Above all, to add effective contribution to the national economy

Eventually the bank emphasizes on:

 Providing high quality financial services in export and import trade

 Providing efficient customer service
 Maintaining efficient customer service
 Maintaining corporate and business ethics
 Being trusted repository of customer’s money and their financial adviser
  Making its products superior and rewarding to the customers
 Display team spirit and professionalism
 Sound Capital base
 Enhancement of shareholders wealth
 Fulfilling its social commitments by expanding its charitable and humanitarian activities

CORPORATE VISION

The gist of the vision is ‘Together, Towards, Tomorrow’. Export Import Bank of
Bangladesh Limited believes in togetherness with its customers, in its march on the
road to growth and progress with services. To achieve the desired goal, there will be
pursuit of excellence at all stages with a climate of continuous improvement, because,
in EXIM Bank, they believe, the line of excellence is never ending. Bank’s strategic
plans and networking will strengthen its competitive edge over others in rapidly
changing competitive environments. Its personalized quality services to the customers
with the trend of constant improvement will be cornerstone to achieve their
operational success.

SOCIAL COMMITMENT

The purpose of banking business is obvious to earn profit, but the promoters and the
equity holders are aware of their commitment to their society to which they belong. A
chunk of the profit is kept aside and/or spends for socio economic development
through trustee and in patronization of art, culture and sports of the country. The
institution wants to make a substantive contribution to the society where it operates, to
the extent of its separable resources.

OPERATIONAL AREAS

Like other commercial banks, the bank provides all traditional banking services
including the wide range of savings and credit scheme products, foreign exchange and
ancillary services. However, the main focus of the bank is on export and import, trade
handling and on the development of entrepreneurship and patronization of private
sectors.
The core business of the bank comprises of trade finance, term finance, working
capital finance and corporate finance. The bank is also providing personal credit
services related to local and foreign remittances and several product related services.
The schemes of the bank, which are designed to help the fixed income group in
raising standard of living are competitively priced and have been widely appreciated
by the customers.

PRODUCTS & SERVICES

L/C (Import & Export) Products

EXIM Bank is posed to extend L/C facilities to its importers / exporters through
establishment of correspondent relations and Nostro Accounts with leading banks all
over the world.
Investment Products

The bank provides credit services such as, corporate finance, industrial finance, lease
finance, hire purchase finance, commercial investments, and project finance and
syndicate loans.

Deposit Products

The bank introduced a number of financial products and services since its banking
operation. Among them Mudaraba Savings Deposit,Mudaraba Short Term Deposit
Mudaraba Term Deposit, Mudaraba Monthly Income Scheme, Mudaraba Monthly
Saving Scheme, Mudaraba Super Savings Scheme, Mudaraba Hajj Scheme.

Foreign Exchange

 Non Resident Foreign Currency Deposit Account (NFCD)

 Foreign Currency Deposit Account
 Letter of Credit (L/C) facilities through establishment of correspondent relations with leading
banks all over the world.

E-cash/ ATM Service

The bank is currently providing Credit Card Service (Master Card) to the privileged
customers of the bank in collaboration with the Standard Chartered Bank.

Other Services

Other services include utility bill collection for Grameen Phone from its users in all
the branches and for Palli Biddut somity of Gazipur from its consumers in Gazipur
branch.

OVERALL PERFORMANCE

SL Particulars 2006 2007 2008 2009 2010

1 Authorized Capital 3500.00 3500.00 3500.00 10000.00 10000.00

2 Paid-up Capital 1713.76 2142.2 2677.75 3373.96 6832.27

3 Statutory Reserve 810.88 1134.64 1532.55 2092.97 3154.76

4 Deposits 35032.02 41546.57 57586.99 73835.46 94949.40

Investment
5 32641.27 40195.24 53637.68 68609.91 93296.65
(General)

Investment ( Shares
6 2233.25 2457.72 2894.02 2189.54 6012.86
on Bonds)
 Foreign Exchange
7 96175.1 117900.14 156434.57 162604.61 227966.60
Business

Net profit after

8 650.29 930.84 1096.63 1694.1 3476.01
provision and tax

Investment as a % of
9 93.18% 96.75% 93.14% 92.92% 98.26%
total Deposit

No. of Foreign
10 246 256 278 333 354
Correspondent

11 Number of Employees 1020 1104 1312 1440 1686

12 Number of Branches 30 35 42 52 59

13 Return on Assets 1.73% 2.00% 1.83% 2.19% 3.54%

HISTORICAL BACKGROUND OF THE BANKING INSTITUTIONS IN

BANGLADES

The banking system at independence consisted of two branch offices of the former
State Bank of Pakistan and seventeen large commercial banks, two of which were
controlled by Bangladeshi interests and three by foreigners other than West Pakistanis.
There were fourteen smaller commercial banks. Virtually all banking services were
concentrated in urban areas. The newly independent government immediately
designated the Dhaka branch of the State Bank of Pakistan as the central bank and
renamed it the Bangladesh Bank. The bank was responsible for regulating currency,
controlling credit and monetary policy, and administering exchange control and the
official foreign exchange reserves. The Bangladesh government initially nationalized
the entire domestic banking system and proceeded to reorganize and rename the
various banks. Foreign-owned banks were permitted to continue doing business in
Bangladesh. The insurance business was also nationalized and became a source of
potential investment funds. Cooperative credit systems and postal savings offices
handled service to small individual and rural accounts. The new banking system
succeeded in establishing reasonably efficient procedures for managing credit and
foreign exchange. The primary function of the credit system throughout the 1970s
was to finance trade and the public sector, which together absorbed 75 percent of total
advances.

The government’s encouragement during the late 1970s and early 1980s of
agricultural development and private industry brought changes in lending strategies.
Managed by the Bangladesh Krishi Bank, a specialized agricultural banking
institution, lending to farmers and fishermen dramatically expanded. The number of
rural bank branches doubled between 1977 and 1985, to more than 3,330.
Denationalization and private industrial growth led the Bangladesh Bank and the
World Bank to focus their lending on the emerging private manufacturing sector.
Scheduled bank advances to private agriculture, as a percentage of sectoral GDP, rose
from 2 percent in FY 1979 to 11 percent in FY 1987, while advances to private
manufacturing rose from 13 percent to 53 percent. . The rate of recovery on
agricultural loans was only 27 percent in FY 1986, and the rate on industrial loans
was even worse. As a result of this poor showing, major donors applied pressure to
induce the government and banks to take firmer action to strengthen internal bank
management and credit discipline. As a consequence, recovery rates began to improve
in 1987. The National Commission on Money, Credit, and Banking recommended
broad structural changes in Bangladesh’s system of financial intermediation early in
1987, many of which were built into a three-year compensatory financing facility
signed by Bangladesh with the IMF in February 1987. The National Commission on
Money, Credit, and Banking recommended broad structural changes in Bangladesh’s
system of financial intermediation early in 1987, many of which were built into a
three-year compens Foreign exchange reserves at the end of FY 1986 were US$476
million, equivalent to slightly more than 2 months worth of imports. This represented
a 20-percent increase of reserves over the previous year, largely the result of higher
remittances by Bangladeshi workers abroad. The country also reduced imports by
about 10 percent to US$2.4 billion. Because of Bangladesh’s status as a least
developed country receiving concessional loans, private creditors accounted for only
about 6 percent of outstanding public debt. The external public debt was US$6.4
billion, and annual debt service payments were US$467 million at the end of FY
1986.

BRANCH NETWORK

Branch Information (EXIM Bank has 55 Branches in Bangladesh)

Local office, Motijheel Branch, Panthapath Branch, Gazipur Chowrasta Branch,

Imamgonji Branch, Gulshan Branch, Nawabpur Branch, Naranyangonj Branch,
Shimrail Branch, Rajuk Avance Branch, New Eskaton Branch, Uttara Branch, Mirpur
Branch, Elephant Road Branch, Mawna Branch, Malibagh Branch, Ashulia Branch,
Ashugonj Branch, Sat Mosjid Road Branch, Bashundhara Road , Branch, Savar
Branch , Karwan Bazar Branch , Head Office Corporate Branch, Naria Branch,
Agrabad Branch, Khatungonj Branch, Jublee Road Branch, Sonaimuri Branch,
Laksham Branch, CDA Avenue Branch, Chowmuhana Branch, Comilla Branch,
Modaffargonj Branch, Chhagalnaiya Branch, Pahartoli Branch , Sylhet Branch,
Fenchugonj Branch, Moulvi Bazar Branch , Golapgonj Branch , Jessore Branch,
Kushtia Branch, Khulna Branch, Rangpur Branch, Rajshahi Branch.

INVESTMENT PROGRAMS OF EXIM BANK

INTRODUCTION

Investment is the action of deploying funds with the intention and expectation that
they will earn a positive return for the owner. Funds may be invested in either real
assets or financial assets. When resources are used for purchasing fixed and current
assets in a production process or for a trading purpose, then it can be termed as real
investment. The establishment of a factory or the purchase of raw materials and
machinery for production purposes are examples in point. On the other hand, the
purchase of a legal right to receive income in the form of capital gains or dividends
would be indicative of financial investments. Specific examples of financial
investments are: deposits of money in a bank account, the purchase of Mudaraba
Savings Bonds or stock in a company. Ultimately, the savings of investors in financial
assets are invested by the respective company into real assets in the form of the
expansion of plant and equipment. When money is deposited with an Islamic Bank,
the bank, in turn, makes investments in different forms approved by the Islamic
Shariah with the intent to earn a profit. Not only a bank, but also an individual or
organization can use Islamic modes of investment to earn profits for wealth
maximization.

INVESTMENT OF EXIM BANK

The total amount of investment of the bank stood at TK 99,309.51 million as on

December 31, 2010 as against TK 70,799.45 million as on December 31, 2009
showing an increase of TK. 28,510.06 million with the growth rate of 40.27%.
Investments are the core asset of the bank. The bank gives emphasis to acquire quality
assets and does appropriate investment risk analysis while approving commercial and
trade investment to clients.

INVESTMENT OBJECTIVES OF EXIM BANK

The objectives and principles of investment operations of the Banks are:

 The investment fund strictly in accordance with the principles of Islamic Shariah.
 To diversifies its portfolio by size of investment, by sectors (public and private), by economic
purpose, by securities and by geographical area including industrial, commercial and
agricultural.
 To ensure mutual benefit both for the Bank and the investment client by professional
appraisal of investment proposals, judicious sanction of investment, close and constant
supervision and monitoring therefore.
 To make investment keeping the socio-economic requirement of the country in view.
 To increase the number of potential investors by making participatory and productive
investment.
 To finance various developments schemes for poverty alleviation, income and employment
generation with a view to accelerating sustainable socio-economic growth and up-liftmen of
the society.
 To invest in the form of goods and commodities rather than give out cash money to the
investment clients.

INDUSTRY AND BUSINESS SEGMENT FOCUS

The bank provides suitable investment services & products for the following sectors

A. Steel & Engineering. B. Brick Fields.

C. Food & Allied. D. Edible Oil.
E. Agriculture F. Assembling Industry.
G. Textile & Garments. H. Collage Industry.
I. Pharmaceuticals & Chemicals. J. Electronics & Electrical Commodities.
K. Paper & Paper Products. L. Construction Company.
M. Service Industries. N. Trading (Retail/Whole sale)
O. Housing & Real Estate. P. Others.
Q. Cement.

MAJOR INVESTMENT CATEGORIES

The Bank has primarily divided all investment facilities into two major categories. In
this section they are discussed in details.
Izara Bill Baia: These are the investment made by the Bank with fixed repayment
schedules.
The terms of investment are:
Short term : Up to 12 months
Medium term : More than 12 and up to 36 months
Long term : More than 36 months.
Investment facility available under this category is:

Izara Bill Baia (General): Short term, Medium term & long term investment allowed
to individual/firm/industries for a specific purpose but for a definite period and
generally repayable by installments fall under this head. This type of investment is
mainly allowed to accommodate financing under the categories (i) Large & Medium
Scale Industry and (ii) Small & Cottage industry.

Continuing loans: These are investment having no fixed repayment schedule, but have
an expiry date at which it is renewable on satisfactory performance. Investment
facilities available under this category are:

Bai-Muazzal: Continuous Investment allowed to individual/firm for trading as well as

wholesale purpose or to industries to meet up the working capital requirements
against hypothecation of goods as primary security fall under this type of lending. It is
allowed under the categories (i) “Commercial Lending” when the customer is other
than an industry and (ii) “Working Capital” when the customer is an industry.

Murabaha: Financial accommodations to individual/firm for trading as well as for

wholesale or to industries as working capital against pledge of goods as primary
security fall under this head of investment. It is also a continuous investment and like
the above allowed under the categories (i) “Commercial Lending” and (ii) “Working
Capital”.

OTHER MAJOR CATEGORIES OF INVESTMENT

Investment facilities of the Bank are also categorized under seven prime categories:

Agriculture
Investment facilities to the agricultural sector fall under this category. It is subdivided
into two major heads:

Investment to primary producers: Financing under these categories refers to the

investment facilities allowed to production units engaged in farming, fishing, forestry
or livestock.
Investment to dealers/distributors: It refers to the financing allowed to input dealers
and (or) distributors in the agricultural sectors.

Izara Bill Baia for Large & Medium Scale Industry

This category of investment accommodates the medium and long term financing for
capital structure formation of new industries or for expansion of the existing units
who are engaged in manufacturing goods and services. Investment Facility available
under this category is:

Izara (Lease Finance): It is one of the most convenient sources of acquiring capital
machinery and equipment whereby a client is given the opportunity to have an
exclusive right to use an asset usually for an agreed period of time against payment of
rent. It is a term financing repayable by installment.

Izara Bill Baia to Small & Cottage Industries

These are the medium and long term investment allowed to small & cottage
manufacturing industries.

Working Capital

Investment allowed to the manufacturing units to meet their working capital

requirements, irrespective of their size-big, medium or small, fall under the category.
These are usually continuing investment and as such fall under the head
“Bai-Muazzal”

Investment on Export

Investment facilities allowed to facilitate export of all items against Letter of Credit
and/or confirmed export orders fall under this category. Investment Facilities
available under this category are:

Musharaka Pre-shipment (Export Cash Credit): Financial accommodation allowed to

a customer for exports of goods fall under this head and is categorized as “Investment
on Export”. The loans are liquidated out of export proceeds with 180 days.
Musharaka Pre-shipment (Packing Credit): Investment allowed to a customer against
specific L/C contract for processing/packing of goods to be exported falls under this
head and is categorized as “Mushraka Pre-shipment”. The investments are adjusted
from proceeds of the relevant exports within 180 days.
Foreign Documentary Bill Purchase (F.D.B.P): Payment made to a customer through
purchase/negotiation of a foreign documentary bills falls under this head. This
temporary investment is adjustable from the proceeds of the shipping/export
documents.
Local Documentary Bill Purchase (LDBP): Payment made against documents
representing sell of goods to Local export oriented industries that are deemed as
exports and which are denominated in Local Currency/Foreign Currency falls under
this head. This temporary liability is adjustable from proceeds of the Bill.
Foreign Bill Purchase (FBP): Payment made to a customer through purchase of
foreign currency cheques/drafts fall under this head. This temporary loan is adjustable
from the proceeds of the cheque/draft.

Commercial Lending
Short-term loans and continuing investments allowed for commercial purposes fall
under this category. It includes export-import financing, financing for internal trade,
service establishment etc. No medium and long-term investments are accommodated
here. Loan Facilities available under this category are:

Bai-Muazzal (Export): investments allowed for purchasing foreign currency for

payment against L/Cs (Back to Back) where the exports do not materialize before the
date of import Payment fall under this head. This is also a investment for temporary
period, which is known as export finance.
Murabaha Import Bills (MIB): Payment made by the Bank against lodgment of
shipping documents of goods imported through L/C falls under this head. It is an
interim investment connected with import and is generally liquidated against payment
usually made by the party for retirement of the documents for release of imported
goods from the customs authority.
Murabaha Post Import (MPI) Loans allowed for retirement of shipping documents
and release of goods imported through L/C taking effective control over the goods by
pledge in go down under bank’s lock & key fall under this type of investment. This is
a temporary investment connected with import that is known as post-import finance.

Trust Receipt (TR) Loan allowed for retirement of shipping documents and release of
goods imported through L/C falls under this head. The goods are handed over to the
importer under trust with the arrangement that sale proceeds should be deposited to
liquidate the investment within a given period. This is also a temporary loan
connected with import and known as post-import finance.
Inland Bills Purchase (IBP) Payment made through purchase of inland bills/cheques
to meet urgent requirement of the customer falls under this type of loan facility. This
temporary loan is adjustable from the proceeds of bills/cheques purchased for
connection.

Others

Any investment that does not fall in any of the above categories is considered under
the category “Others”. It includes loans to i) Transport equipments, ii) Construction
works including house (commercial/residential), iii) work order finance, iv) personal
loan etc. Investment Facilities available under this category are:
  Izara Bill Baia (House Building): Investment allowed to individual/enterprises for construction
of building for commercial purpose fall under this type of investment. The amount is
repayable by monthly installment with a specified period.
 Izara Bill Baia (Staff House Building): investment allowed to Bank’s employees for
purchase/construction of house falls under this Loan.
 Other Loan to Staff: Investment allowed to employees other than for House Building is
grouped under head Staff Izara Bill Baia (General).
 Izara Bill Baia (Hire Purchase): It is a type of installment-based loan under which the
purchaser agrees to take the goods on hire at a stated rental, which is inclusive of the
repayment of principal as well as profit for adjustment of the loan within a specified period.
 House Hold Durable Scheme (HDS): It is a special investment scheme of the Bank to finance
purchase of consumer durable to the fixed income group to raise their standard of living. The
investments are allowed on soft terms against personal guarantee and deposit of specified
percentage of equity by the customers. The investment is repayable by monthly installment
within a fixed period.
 Quard (General/Financial Obligation): Investment allowed to individual/firms against
financial obligation (i.e. lien on MTDR/PSP/BSP/Insurance Policy/Share etc.).
 Bai-Muazzal (Work Order): Investment allowed against assignment of work order for
execution of contractual work falls under this head. This investment is generally allowed for a
definite period and specific purpose not for continuous purpose.

Loan Facilities for single borrower/Group or syndication

The bank from time to time allows loan facilities to a single customer/Group (Funded
& non funded) up its 50% of total capital out of which funded facilities does not
exceed 25% of total capital. In case a proposal in submitted to Head Office, then the
Bank considers the extent of the Bank’s global exposure (risk) to that customer group.

INVESTMENT FACILITY PARAMETERS

Tenure: Bank does not ordinarily go for any loan facilities for long-term basis.
Short-term loan facilities are for 3 months to 12 months.
Medium term loan facilities are for 12 months to 36 months.
Long-term loan facilities are for more than 36 months.

Size:

Maximum 50% (Funded & non-funded) of total capital of the Bank.

Maximum 25% (funded) facilities of total capital of the Bank.

Security: All assets (Bai-Muazzal & Murabaha) are to be covered under proper
insurance risk with enlisted Insurance Companies.

PROCESSING, RULES AND RESTRICTIONS

LENDING FACILITIES RESTRICTIONS

The bank establishes a specific industry sector exposure cap by preparing a sector
wise loan budget in order to avoid over concentration in any one-industry sector. The
budget is approved by the Board in the month of January every year and includes the
following points:

 Total Facilities: The aggregated of all cash facilities is kept at 80% of customer’s deposits. It is
also governed by the statutory and liquidity reserve requirement of Bangladesh Bank.
 Term Facilities: Aggregated long-term facilities are restricted to 20% of the total loan
portfolio and are not allowed for a period more than 5 (five) year.
 Unsecured Facilities: Aggregate bank loans to corporate or individual customers who are not
secured by collateral and are allowed on the strength of customer’s personal integrity and
financial standing or the corporate customer’s balance sheet, with or without hypothecation
of stock is restricted to 30% of the total loan portfolio.
 Sector-wise Allocation: Sector-wise allocation of loan budget is made in the month of January
of each year with the approval of Executive Committee/Board of Directors. This is reviewed
from time to time.
 Security: Security accepted against loan facilities is properly valued and is affected in
accordance with the laws of the country in which the security is held. An appropriate margin
of security is taken to reflect such factors as the disposal cost or potential price movement of
the underlying assets.

INVESTMENT FACILITIES NOT PROVIDED FOR BUSINESS TYPES

The Bank does not provide loan facilities to the following businesses:

 Military Equipment/Weapon Finance.

 Highly Leveraged Transactions.
 Finance of Speculative Loans.
 Logging, Mineral Extraction/Mining, or other activity that is ethically of Environmental
sensitive.
 Lending to companies listed on CIB black list or known defaulters.
 Counter parties in countries subject to UN sanctions.
 Share lending.
 Taking an equity stake in Borrowers.
 Lending to Holding Companies.
 Bridge Loans relying on equity/debt issuance as a source of repayment.
 Tannery Finance.
 Izara Bill Baia (HB-residential) who has no other business with the Bank.

GENERAL LENDING PRINCIPLES OF EXIM BANK

Lending of funds to the traders, businesses and industrial enterprises constitutes the
main business of the bank. A major part of the bank’s income is earned from interest
and discount on the funds so lent. The business of lending, nevertheless, is not
without certain inherent risks. Largely depending on the borrowed funds, a banker
cannot afford to take
Undue risks in lending. While lending its fund, the bank, therefore, follows a very
cautious policy and conducts its business on the basis of the well-known principles of
sound lending in order to minimize the risks. The bank usually follows the following
lending principles in its credit management operations:
Safety: As the bank lends the funds entrusted to it by the depositors, the first and
foremost principle of lending is to ensure the safety of the funds lent. By safety it is
meant that the borrower is in position to repay the loan, along with interest, according
to the terms of the loan contract. The bank takes utmost care in ensuring that the
enterprise or business for which a loan is sought is a sound one and the borrower is
capable of carrying it out successfully and is a person of integrity, good character and
reputation.

Purpose: The bank does not grant loan for each and every purpose. Bank has its own
policy regarding the purpose for which it provides loans. Loans are normally provided
for productive purposes only such as working capital, trading, agricultural, transport,
export-import etc. The bank does not grant loans for purely speculative purposes,
unproductive purpose such as social functions or holiday or for repayment of prior
loans and business having negative net-worth if it is not covered by cash/quasi cash
securities with adequate margin.

Profitability: Since the bank is a profit-earning institution, it employs its funds

profitability so as to earn sufficient income out of which to pay interest to the
depositors, salaries to staff and to meet various other establishment expenses and
distribute dividend to shareholders. The bank usually considers high yielding,
short-term, and self-liquidating with ancillary business/compensating deposits and
prefers quality advances. The bank keeps a spread of lending rate over its expenses
that include deposit interest payment and other operating and overhead expenses. The
bank is free to determine its interest rates.

Liquidity: Bank lends funds for short periods. The loans are, therefore, largely
payable on demand. The bank ensures that the borrower is able to repay the loan on
demand or within a short period. The bank grants loans on the security of assets,
which are easily marketable without much loss.

Dispersal/Diversification: The bank keeps its investment portfolio as much broad

based as possible and in conformity with the deposit structure. The bank does not
provide investments in one Particular direction/industry/activity or one or few
borrowers because any adversity faced by that particular industry will have serious
adverse affect on the bank. Again, investments are not concentrated in one area alone.
The bank spreads its loans against different securities, industries/activities, borrowers,
areas, etc. This way the bank diversifies its risks.

National interest/social benefit: The Bank grants loan if the purpose of the investment
is for overall plans necessitating flow of credit to priority sector in the larger national
interest. National interest for financing in some areas, especially in advances to
agriculture, small industries, export oriented industries, and assuming great
importance. The bank also looks at the social and environmental implication of the
project or business that it is financing.

BORROWER/GROUP LIMITS/SYNDICATION:
Bank may allow investment facilities to a single customer/Group (Funded & non
funded) up to its 50% of total capital out of which funded facilities must not exceed
25% of total capital. All proposal submitted to Head Office will also be required to
indicate the extent of the Bank’s global exposure to that customer group.
Group exposure shall be deemed to include the total investment facilities as detailed
below:

 Investment facility in the name of the borrower.

 Investment facility in the name of the firms & companies in which the borrower or its partner
or its director is the proprietor or a partner or a Director.
 Investment facility in the name of any firm of company in which the borrower or its partner
or its director owns 20% or more share even if not a Director.
 Any Investment facility guaranteed by the borrower or its partner, or its Director.

However, definition of group exposure given by Bangladesh Bank shall be followed

regardlINVESTMENT INVESTIGATION

Lending is one of the most important functions of a bank. Therefore, it is of

paramount importance that the bank chooses a reliable borrower. For this the bank
places the kind of mechanism(s) that helps it identify the borrower who can be
creditworthy. This section deals with some of the mechanisms that the bank employs
for this end.

Investment Application form: A investment application form usually contains

information pertaining to the name of the concern, constitution, nature and place of
business, year of establishment, borrower’s experience in the line, particulars of assets
and liabilities, purpose of advance, amount required, period of advance required for,
nature of security offered, sources of repayment, names of present bankers with
detailed borrowing and other facilities. This is the first step of knowing about the
borrower.

Personal Interview: The bank arranges interview with the borrower to know more
about his specific requirements, the prospects of his employing the funds prudently,
his capacity to repay and the suitability of the security offered. The main points that
are covered in the interview are: his business, all legal documents required for
operation of his business (Memorandum and Article of Association, trade and import
license), his capital with reference to working capital, his experience in the business,
results of financial statements of at least three years, amount of investment and period,
purpose of advance, source of repayment, terms of payment, security documents that
are offered, types of charge available. The bank officials who conduct the interview
try to analyze and judge for themselves the correctness or otherwise of the various
statements and documents of the prospective borrower and to arrive at a balanced
opinion regarding the acceptability or otherwise of the proposal.

After the initial interview, if the commercial credit officer found that the loan request
meets basic bank lending criteria, the next step will be to conduct a more in-depth
investigation, relying upon the documents obtained from the client and from bank’s
own and outside sources.

INVESTMENT RECOVERY

The bank has a Recovery Unit (RU) under CRM. It directly manages account with
sustained deterioration (a Risk Rating of Sub Standard (6) or worse).

The RU’s primary functions are:

 Determine Account Action Plan/Recovery Strategy.

 Pursue all options to maximize recovery.
 Ensure adequate and timely investment loss provisions are made based on actual and
expected losses.
 Regular review of grade 6 or worse account

PERFORMANCE OF INVESTMENT DIVISION

All PIs are assigned to an Account Manager within the RU, who is responsible for
coordinating and administering the action plan/recovery of the account, and serves as
the primary customer contact after the account is downgraded to substandard.

Types of classified investment

Loan classification is required to have a real picture of the loan and advances
provided by the Bank. It helps to monitor and take appropriate decision regarding
each loan account. All types of loans fall into following four scales:
Categories of investments and advances of a bank:

Un-classified: The repayment of investment and advances are regular.

Sub-standard: The repayment of investment and advances are irregular but has
reasonable prospect of improvement.

Doubtful debt: It is unlikely to be repaid but special collection efforts may result in
partial recovery.

Bad/loss: There is little chance of recovery of investments and advances.

Basis for loan Classification

There are two ways loans are classified: 1) Objective Criteria, 2) Qualitative Criteria.

Objective Criteria

Continuous investment: A continuous loan will be treated as irregular/overdue if the

advance has not been renewed, that is expiration date is passed. Criterions for loan
classification are given in table.
Sub-standard Doubtful Bad/loss

Irregular for 3 months or more but less than 6 months. Irregular for 6 months or more
but less than 12 months. Irregular for 12 months or above.

Term investment:
If any installment of a term loan is not repaid within as per repayment schedule the
unpaid amount will be treated as overdue installment.

Sub standard Doubtful Bad/loss

If the amount of overdue installment stands equal or more than the amounts which is
repayable 6 months If the amount of overdue installment stands equal or more than
the amounts which is repayable 12 months If the amount of overdue installment
stands equal or more than the amounts which is repayable 18 months.

Qualitative Criteria
The investment (continuous, demand, and term loan) are classified by the bank
whenever it has reason to believe the borrower may not be able to repay the loan due
to change is the circumstances under which the loan was originally sanctioned.

The investment is classified as sub-standard on the basis of qualitative judgment, if

there is a possibility to change the present situation by taking appropriate steps,
although there is a possibility to become loss of the investment. When the loans are
categorized as sub- standard it means the repayment of investment and advances are
irregular but has reasonable prospect of improvement. But if there is no possibility of
recovery of loan after taking adequate steps, then the loan is treated as doubtful.

But if it is not possible to recovery the loan even after taking all out efforts then the
loan is treated as bad/loss.
Recovery Units ensure that the followings are carried out when an account is
classified as Sub Standard or worse:
Facilities are withdrawn or repayment is demanded as appropriate. Any drawings or
loans are restricted, and only approved after careful scrutiny and approval.

CIB reporting is updated according to Bangladesh Bank Guidelines and the

borrower’s Risk Grade is changed as appropriate.

Investment loss provisions are taken based on Forced Sale Value (FSV).
Investments are only rescheduled in conjunction with the Large Loan Rescheduling
guidelines of Bangladesh Bank. Any rescheduling is based on projected future cash
flows and is strictly monitored.
Prompt legal action is taken if the borrower is uncooperative.

RATIO ON INVESTMENT, CLASSIFIED INVESTMENT AND ASSET

Ratio on investment, classified investment and asset is given below. The lower ration
on classified investment and total investment is better.
CLASSIFIED INVESTMENT

Status of investment is one of the criterions of judging the performance of a bank. In

case of classified or unsound investment EXIM Bank’s performance has not been so
quite impressive. With the increase of investment disbursement the amount of
classified investment, especially bad investment, has increased quite fast in 2010. In
2010 doubtful loan also increased than previous year.

FINDINGS

The share of bad/loss loan, which has no possibility of recovery other than legal
measures, is very high in 2010 compare to 2009. This indicates banks flexibility
regarding credit facility or poor performance of credit department and recovery
system. Also doubtful loan has risen quite sharply this year. This year of 2010 EXIM
Bank has 71% bad loan. But the proportion of substandard loan decreased this year.

INDUSTRY WISE INVESTMENT

Sector wise loans and advancesTable-7 Amount in million

FINDINGS

It is particularly important to monitor whether the increase in loans in the economy is

concentrated in sectors that are vulnerable to shifts in economic activity. Investment
concentration in a specific economic sector or activity (measured as a share of total
loans) makes banks vulnerable to adverse developments in that sector or activity.
Hence, the quality of a financial institution’s investment portfolios is closely related
to the financial health and profitability of its borrowers.
Table shows that the most of the loans of 2010 & 2009 are concentrated in trading
sector about 65,915.43 million taka which is about 71% of total in 2010 and about
41,181.06 million taka which is about 60% of total of sector wise loan in 2009. So it’s
clear than bank prefers mostly trading sector. When it increased investment for
trading sector in 2010, investment for garment sectors decreased at 11% which was
16% in 2009. As usual the bank allocates lowest amount of its loans for agro based
industry about 3% which was 4% in 2009, but amount increased in 2010.

DIVISION WISE CLASSIFICATION

FINDINGS

From above table and column chart one can easily understand the investment practice
of EXIM Bank in terms of division. Here I found out that EXIM Bank invested
mostly in Dhaka division and secondly in Chittagong. In 2010 proportion of
investment for Dhaka, Chittagong, Khulna, Rajshshi, Barisal, Sylhet and Rangpur is
74%, 20%, 1%, 2%, 0.2%, 2% and 0.8% respectively. There are some reasons behind
the percentage of Dhaka division. Major Group or high rated individual has bank
account in Dhaka division. Another reason is than EXIM Banks has more branches in
Dhaka compare to any other division. In 2010 this bank sanctions 69,217.61 million
taka in Dhaka division which is larger than previous year.

MATURITY WISE CLASSIFICATION OF INVESTMENTS

FINDINGS

Under this classification I found out that “Over 3 months but not more than 1 year”
represents greater volume than any other in the year of 2009 and also in 2010. Bank
normally gave less concentration on “Repayable on demand” because it generated less
investment income. In 2010 Proportion of Repayable on demand, not more than 3
months, Over 3 months but not more than 1 year, Over 1 year but not more than 5
year & More than 5 year is 3%, 19%, 43%, 14% & 21% respectively. In 2009
Proportion of Repayable on demand, not more than 3 months, Over 3 months but not
more than 1 year, Over 1 year but not more than 5 year & More than 5 year was 3%,
20%, 38%, 15% & 24% respectively.

GEOGRAPHICAL LOCATION WISE CLASSIFICATION OF INVESTMENT

FINDINGS
Allocation of investment is same this year of 2010 for rural and urban areas as of
2009. Actually production activities are performed mainly in rural areas and financial
activities are performed in urban areas.

INCOME FROM INVESTMENT

FINDINGS
As EXIM Bank increases its investments from year to year, so it is logical that it
income from sanctioning investments are more. The bank has achieved the highest
profit in 2010 from any other previous year though it has highest amount of bad loan
this year erstwhile. So performance of providing investments of the bank is satisfied.

DEPOSIT MOBILIZATION AND INVESTMENT DISBURSEMENT

A bank exists mainly on the deposit resources and loan disbursement. Day by day the
deposits generation is becoming harder due to immense competition in this sector,
changes in people saving motive as well as government rules and regulation. The
bank introduced some deposit schemes with attractive return for depositors in recent
years to increase deposits. As Loans and advances are major revenue-generating
assets for any bank, the performance of the bank depends very much on these assets.
Table shows the state of deposit and Investment of the bank of 2010 & 2009. Deposits
stand at Tk. 94,949.40 million in 2010 & Tk. 73,835.46 million in 2009. Investments
stand at Tk. 99,309.51 million in 2010 from Tk. 70,799.45 million in 2009.

FINDINGS
From the above figure it can be concluded that deposit was higher from investment in
year of 2009 but investment is higher than deposit in year of 2010. Which can create
liquidity crisis, but ultimately bank was successful to generate more income.

CREDIT ASSESSMENT AND RISK GRADING

DEFINITION OF CRG

The Credit Risk Grading (CRG) is a collective definition based on the pre-specified
scale and reflects the underlying credit-risk for a given exposure.
A Credit Risk Grading deploys a number/ alphabet/ symbol as a primary summary
indicator of risks associated with a credit exposure.
Credit Risk Grading is the basic module for developing a Credit Risk Management
system.

USE OF CRG

The Credit Risk Grading matrix allows application of uniform standards to credits to
ensure a common standardized approach to assess the quality of individual obligor,
credit portfolio of a unit, line of business, the branch or the Bank as a whole.

As evident, the CRG outputs would be relevant for individual credit selection,
wherein either a borrower or a particular exposure/facility is rated. The other
decisions would be related to pricing (credit-spread) and specific features of the credit
facility. These would largely constitute obligor level analysis.

Risk grading would also be relevant for surveillance and monitoring, internal MIS and
assessing the aggregate risk profile of a Bank. It is also relevant for portfolio level
analysis.

HOW TO COMPUTE CRG

The following step-wise activities outline the detail process for arriving at credit risk
grading.

Credit risk for counterparty arises from an aggregation of the following:

 Financial Risk
 Business/Industry Risk
 Management Risk
 Security Risk
 Relationship Risk

Each of the above mentioned key risk areas require be evaluating and aggregating to
arrive at an overall risk grading measure.

Evaluation of Financial Risk:

Risk that counterparties will fail to meet obligation due to financial distress. This
typically entails analysis of financials i.e. analysis of leverage, liquidity, profitability
& interest coverage ratios. To conclude, this capitalizes on the risk of high leverage,
poor liquidity, low profitability & insufficient cash flow.

Evaluation of Business/Industry Risk:

Risk that adverse industry situation or unfavorable business condition will impact
borrowers’ capacity to meet obligation. The evaluation of this category of risk looks
at parameters such as business outlook, size of business, industry growth, market
competition & barriers to entry/exit. To conclude, this capitalizes on the risk of failure
due to low market share & poor industry growth.

Evaluation of Management Risk:

Risk that counterparties may default as a result of poor managerial ability including
experience of the management, its succession plan and team work.

Evaluation of Security Risk:

Risk that the bank might be exposed due to poor quality security in case of default.
This may entail strength of security & collateral, location of collateral and support.

Evaluation of Relationship Risk:

These risk areas cover evaluation of limits utilization, account performance,
conditions/covenants compliance by the borrower and deposit relationship.

According to the importance of risk profile, the following weight ages are proposed
for corresponding principal risks.

 Principal Risk Components Weight

 Financial Risk 50%
 Business/Industry Risk 18%
 Management Risk 12%
 Security Risk 10%
 Relationship Risk 10%

Principal Risk Components

Key Parameters
Financial Risk Leverage, Liquidity, Profitability & Coverage ratio
Business/Industry Risk Size of Business, Age of Business, Business Outlook, Industry
Growth, Competition & Barriers to Business
Management Risk Experience, Succession & Team Work.
Security Risk Security Coverage, Collateral Coverage and Support.
Relationship Risk Account Conduct, Utilization of Limit, Compliance of
covenants/conditions & Personal Deposit.

After risk identification & weight age assignment process (as mentioned above), the
next steps will be to input actual parameter in the score sheet to arrive at the scores
corresponding to the actual parameters.

INVESTMENT ASSESSMENT & RISK MANAGEMENT

Investment Assessment

A thorough loan and risk assessment is conducted prior to the granting of loans and at
least annually thereafter for all facilities. The results of this assessment are presented
in a loan proposal to Head of Loan Division for approval. The guiding principles for a
bank official while collecting and recording information are to remain uninfluenced
by extraneous considerations and secondly he maintains contact with all those who
can be of assistance.
The following steps for completion of Loan Risk assessment for each facility are
followed by the bank in conjunction with the guidelines/instructions given in Head
Office circulars issued from time to time.

ess of the above definition.

Risk Management

The following risk areas are addressed for risk management:

Borrower Analysis: The majority shareholders, management team and group of

affiliate companies are assessed. Any issues regarding lack of management depth,
complicated ownership structure or inter group transactions are addressed, and risk
mitigated. The bank collects credit information from CIB regarding the borrower’s
past credit status and exchanges of credit information from other banks or bank
opinions. CIB report reflects/includes the name of all the lenders with facility, limit
and outstanding.

Industry Analysis: The key risk factors of the borrower’s industry are assessed. Any
issues regarding the borrower’s position in the industry, overall industry concerns or
competitive forces are addressed and strengths and weaknesses of the borrower
relative to its competitors are identified.

Supplier/Buyer Analysis: Any customer or supplier concentration is assessed. Any

issues regarding the borrower’s position in the industry, overall industry concern or
competitive forces are addressed and the strengths and weaknesses of the borrower
relative to its competition are identified.

Historical Financial Analysis: An analysis of a minimum of 3 years historical

financial statements of the borrower are presented. Where reliance is placed on a
corporate guarantor, guarantor’s financial statements are analyzed. The analysis
addresses the quality and sustainability of earnings, cash flow and the strength of the
Borrower’s balance sheet. Specifically, cash flow, leverage and profitability are
analyzed.

Project Financial Performance: Where term facilities (tenor greater than 1 year) are
being proposed, a projection of the borrower’s future financial performance are
provided, indicating an analysis of the sufficiency of cash flow to service debt
repayments. Loans are not granted if projected cash flow is insufficient to repay debts.
Accounts Conduct: For existing borrowers, the historic performance in meeting
repayment obligations (Trade payment, cheques, profit and principal payments, etc.)
is assessed.

Mitigating Factors: Mitigating factors for risk identified in the loan assessment are
identified. Possible risks include margin sustainability and/or volatility, high debt loan
(leverage/gearing), overstocking or debtor issues; rapid growth, acquisition or
expansion; new business line/product expansion, management changes or succession
issues; customer or supplier concentration; and lack of transparency of industry
issues.

Loan structure: The amounts and tenors of financing of loan are justified based on the
projected repayment ability and loan purpose. Excessive tenor or amount relative to
business needs increase the risk of fund diversion and any adversely impact the
borrower’s repayment ability.

Security: A current valuation of collateral is obtained and the quality and priority of
security being proposed are assessed. Adequacy and the extent of the insurance
coverage are also assessed.

Name lending: Loan proposal and the granting of loans are based on sound
fundamental, supported by a thorough financial and risk analysis and not by an over
reliance on the sponsoring principal’s reputation.

PROJECT APPRAISAL

“Project appraisal” means pre-loan analysis of a loan-project with a view to determine

its commercial and socioeconomic feasibility. It is an essential tool for judicious loan
decision and project selection
When the bank receives project based financing proposal from, for example, a
garments manufacturer, it appraises the project from a number of point of view. The
bank officials critically appraise the proposals to assess viability of the project in
consideration of:

 Management appraisal.
 Market appraisal
 Technical appraisal
 Financial appraisal
 Economic appraisal.
 Management appraisal

A good project may fail if the management is incompetent. It is necessary to evaluate

the following managerial aspects:

 Overall background of the promoters.

 Academic qualifications.
 Business and industrial experience.
 Past performance & market reputation.
  Market reputation
 Credit worthiness and
 Net worth

Market appraisal

The bank makes sure that the product, which the borrower has been
manufacturing/dealing with has a good demand in the market. Market appraisal is
done on the basis of following factors.

 Consumption trends in the past and the present consumption level

 Past and present supply position
 Production possibilities and constraints
 Imports and exports
 Structure of competition
 Technical appraisal

The importance of technical appraisal in project evaluation is beyond any question.

Technical appraisal broadly involves a critical study of the following:

 Location’ and Site

 Raw material supplies
 Infrastructure
 Utilities
 The size of the plant or scale of operation

Production capacity and working capital requirement of the unit and actual exports
made by the company during the last 3 years.
The factory premises of the Garments unit applying for credit facilities.
Financial appraisal
Financial appraisal seeks to ascertain whether the proposed project will be financially
viable in the sense of being able to meet the burden of servicing debt and whether the
proposed project will satisfy the return expectations of those who provide capital. The
aspects looked into while conducting financial appraisal is:

 Loan outlay and cost of the project

 Means of financing
 Cost of capital
 Projected profitability
 Break-even point
 Cash flows of the project
 Level of risk
 Different techniques to assess the financial viability of a project
 Economic appraisal
 Economic appraisal, also referred to as social cost benefit analysis, is concerned with judging
a project from the larger social point of view.

SECURITY VALUATION
Security is a cover against loans and advances. It ensures recovery of loans and
advances. Securities play an extremely important role in a loan granting decision.

Valuation of Primary Security

Primary security means the security offered by the borrower himself as cover for the
loan. It refers to the asset, which has been bought with the help of the bank. Such as
when machinery or some goods have been bought with the help of the bank the
machinery and goods constitute the primary security.

Primary Security may be either personal security or impersonal security or both.

Personal security is given by a borrower by way of duty-executed promissory note,
acceptance/endorsement on a bill of exchange and personal covenants in mortgage
deeds or loan agreements. Impersonal security is given when a charge is created by
way of pledge/hypothecation/mortgage over the borrower’s tangible assets, such as
goods and commodity, fixed assets, bills receivables, book debts.

Murabaha Post Import (MPI) MPI facility is allowed, as post-import finance against
imported goods under the Bank’s L/Cs. MPI facility does not exceed invoice value net
of L/C margin unless the Bank agrees to finance duties/VAT. However, where market
price of the goods is lower than landed cost banks makes necessary arrangement with
the customer to obtain additional deposit. Head Office approves the price at which
MPI goods to be released to customer or it may be at market price or landed cost
whichever is higher.

Murabaha Valuation of the goods to be pledged to the Bank against Murabaha limit in
no case exceeds:
The landed cost or market prices whichever is lower in case of imported goods.

The ex-mill/factory price of market price whichever is lower is case of domestically

manufactured commodities as evidenced by invoice.

The wholesale price/competitive market price duly verified by the Branch and
approved by Head Office.

VALUATION OF COLLATERAL SECURITY

All other additional security other than the primary securities such as land or building
etc. are considered as collateral securities which may be offered or deposited by the
borrower or, by any other third party.
The Bank follows the following steps for valuation of collateral security:

The property is physically inspected and verified jointly by 2 (two) bank’s Officers. A
valuation certificate mentioning market value and forced sale value is prepared in a
designated form supplied to the officials and is jointly signed by the inspecting
officers of the Bank. The forced sale value of the collateral security is to be 1.5 times
higher than the facility/facilities allowed.
“A Site Plan” and “Map” along with 3R size district photographs of the mortgaged
property covering full exposure from 3 angles mentioning detailed particulars on the
back of the photographs.

The collateral security must be in the physical possession of the mortgagor and the
mortgagor/owner has valid title over it.
A letter of satisfaction from the Bank’s Lawyer is obtained that the mortgage
formality has been properly created.

DOCUMENTATION

The bank does not disburse any loan facility until the required documentation is
properly completed. After completion of credit investigation, the bank official begins
to prepare loan proposal. The loan proposal defines clearly amount and type of loans,
the purpose of the facility, summary of the results of risk assessment, the sources of
repayment, tenor, covenants, the agreed repayment schedule, interest and value of
security.

The credit officer identifies any particular documents required for each facility. The
officer is responsible for the completion of the documentation. The officer enlists
outside legal assistance where necessary e.g. when drawing up special consortium /
term loan agreements etc.

Where security is to be accepted as collateral for the facility all documentation

relating to the security are to be in the approved form. All approval procedures and
required documentation are completed and all securities are in place, prior to the
disbursement of the facilities. There may be requirement of specific banking or legal
documents to secure a investment according to sanction terms and conditions. All
required documents are required before any loan is disbursed.

APPROVAL AUTHORITY

After the loan proposal is completely prepared by the branch officers, it is sent to the
head office for approval to the approval authority. To ensure proper and orderly
conduct of the business of the Bank, the Board of Director empowers the Managing
Director and other Executives of the Bank to lend up to certain amount under certain
terms and conditions at their discretion. The lending authority is broadly categorized
as follows:

(1) Board/Executive Committee.

(2) Managing Directors
(3) Head of Loan Division

Authority and responsibilities of each of the above are as follows:

A) Board of Directors
  Establishes overall policies and procedures for approving & reviewing loans.
 Delegate’s authority to approve and review Loans.
 Approves loan for which authority is not delegated.
 Approves all extension of loan that is contrary to Bank’s written loan policies.

B) Executive Committee of the Board

 Approves loan facilities as delegated by the Board of Directors.

 Supervises the implementation of the directives of the Board of Directors.
 Reviews of each extension of loan approval by the Head Office Loan Committee/Managing
Director.

C) Managing Director and Head of Loan Division, Head Office

The Managing Director and Head Office Investment Committee constitute a

committee and it is responsible for:
Reviewing, analyzing and recommending for extension of investment in accordance
with authority established and delegated by the Board of Directors.
Ensuring that all elements of the investment proposal i.e. forms, analysis, statement
and other papers have been obtained and in order.
Confirming that the transaction is consistent with existing loan policy and Bangladesh
Bank guidelines.

ORGANIZATIONAL STRUCTURE& RESPONSIBILITIES FOR

INVESTMENT MANAGEMENT

To organize and manage the lending activities smoothly, the bank divided the credit
department into different functions. This was also been done to improve the
knowledge levels and expertise in Investment (Loan) Department, to impose controls
over the disbursement of authorized loan facilities and to obtain an objective and
independent judgment of loan proposals. The overall operation of credit of the bank is
organized under following functions as shown the figure below.

INVESTMENT RISK MANAGEMENT (CRM) DEPARTMENT

The key responsibilities of the above functions are

 Oversight of the bank’s investment policies, procedures and controls.

 Oversight of the bank’s asset quality.
 Direct management all substandard, doubtful & bad loss accounts and ensuring appropriate
and timely investment loss provisions.
 Approval or rejection loan applications recommended by Relationship Manager.
 Advice/assistance regarding all loan matters to Relationship Manager.
 Ensures that all security documentation comply with the terms of approval and is
enforceable.
 Monitors insurance coverage to ensure appropriate coverage is in place over assets pledged
as collateral.
 Controls investment disbursements.
 Maintains control over all security documentation.
  Monitors borrower’s compliance with covenant and agreed terms and conditions.

RELATIONSHIP MANAGEMENT/MARKETING (RM) DEPARTMENT

Acts as the primary bank contact with borrowers.

Conducts investigation of the borrower fully.
Complies with the applicable instruction, manuals, circulars and other rules of the
Bank as well as those of Bangladesh Bank.
Ensures that investment proposals submitted to Head Office are complete and
consistent with established policies & procedure.
Reviews and analyzes all issues related to investment risk proposals covering any
obligator.
Submits investment proposal for new proposals and annual reviews timely and
accurate, taking into account the investment assessment requirements.
Highlights any deterioration in borrower’s financial standing and amend the
borrower’s Risk Grade in a timely manner.
Seeks assistance/advice from CRM regarding the structuring of facilities, potential
deterioration in accounts or for any investment related issues.

INVESTMENT ADMINISTRATION

The investment Administration function is critical in ensuring that proper

documentation and approvals are in place prior to the disbursement loan facilities.

Disbursement

Disbursement under loan facilities is only made when all security documentations are
in place, all formalities regarding loan approval have been completed, all loan
Approval terms have been met and sanction letter in duplicate copies detailing the
terms and conditions under which the sanction has been made and the same has been
obtained from the customer duly signed by him.

Custodian Duties

Investment disbursements and the preparation and storage of security documents are
centralized in the regional loan centers.
Appropriate insurance coverage is maintained (and renewed on a timely basis) on
assets pledged as collateral.
Security documentation is held under strict control, preferably in locked fireproof
storage.

INVESTMENT MONITORING

To minimize loan losses, the bank put in place monitoring procedures and systems
that provide an early indication of the deteriorating financial health of a borrower. The
bank officials monitor the followings:
Past due principal or profit payments, past due trade bills, account excesses, and
branch of loan covenants;
Investment terms and conditions, financial statements on a regular basis, and any
covenant breaches or exceptions for timely follow up.
Timely corrective action to address findings of any internal, external or regular
inspection/audit.
Computer systems and where automated systems are not available manual processes
are used to produce accurate exception reports. Exceptions are followed up on and
corrective action taken in a timely manner before the account deteriorated further

PERFORMANCE EVALUATION

SWOT ANALYSIS ON EXIM BANK LTD.

SWOT is an acronym for the internal Strength and Weakness of the firm and the
environmental Opportunity and Threat facing that firm. So, if we consider EXIM
bank as a business firm and analyze its strength, weakness, opportunity and threats the
scenario will be as follows:

STRENGTH

First strength is that it is a Sharia based bank.

By this time it has established an integral, customer friendly relationship with its
clients.
It has prominent saving scheme named DPS for a fixed or lower income group of
people of this society.
It provides services even after the banking hour to special clients.
Sound profitability growth and high asset quality.
Experienced management.
Honest, sincere, and dedicated employee competency.
Wide market share and stable source of fund.
High attention on recovery of overdue amount and or pre-overdue situation.
Close monitoring on investment clients.
High attention on individual performance.
High attention on making quality investment and disposal of proposals.
All the officials/ manpower are dedicated and honest to serve its own duty.
As a whole the human resource is the main capital/ assets of the division.
Business ethics of the division is similar to the ethics ands values of mass people of
our country.

WEAKNESS

Traditional network system and lack of full scale automation.

Lack of required ideas in modern investment products.
Poor marketing of investment products.
Lack of required information especially on SME.
No growth on carrier advancement. So the employee wants to switch elsewhere.
Lack of experienced, competent as well as proficient manpower in almost every
department.
EXIM Bank ltd does not have an individual marketing department.
They have limited advertising strategy on behalf on their bank and accompanied by
conservatism rule in this sector.
Customers switch to her banks or have an account with other banks due to the
services that EXIM Bank does not provide and lacking behind relative to those
prevailing customer services.
EXIM Bank Ltd. does not use the share mode of investment.
They have no such program to finance to the new entrepreneur or creating the same.

OPPORTUNITY

Scope of market penetration through diversified investment products.

Increasing awareness of Islamic banking among the clients.
Scope of develop new committed entrepreneurs.
Country wide branches having wide opportunities to access in different kinds of
business.
Service charges in other banks are comparatively higher than EXIM Bank Ltd.
No other banks could provide as much integral working atmosphere as EXIM Bank
Ltd.
EXIM Bank Ltd enjoys the training packages, workshops and has their own training
institutes that generate a task for combining of competent, innovative and
sophisticated business professionals.
Bank introduce Islamic card, which is a first time in Bangladesh.

THREATS

Because of the intense competition, most of the competitor banks of EXIM Bank Ltd
are coming up with new service line ATM.
The competitor banks of EXIM Bank Ltd have more geographical coverage than
EXIM Bank Ltd.
State law defers with the Islamic Shariah.
In the money market of Bangladesh there is no call money system of Islamic Shariah.
Some other conventional banks have open their Islamic banking branch.

FINANCIAL RATIO ANALYSIS

Ratio analysis is a relatively simple yet powerful tool in diagnosing the financial
condition of an organization. No single ratio could begin to meet the burden imposed
be different needs. Thus five major categories of financial ratios have been developed,
each designed to address important aspect of the firm’s financial condition.

1. Liquidity ratio: Such as current ratio measure the quality and adequacy of current
assets to meet current liabilities as they come due.
2. Activity ratio: Such as fixed turnover, total assets turnover measure the efficiency
with which the firm is using its resources.

3. Financial leverage Ratio: Such as Debt-ratio, Debt-equity ratio measure a firm’s

ability to service its debt.

4. Profitability Ratio: Such as gross profit Margin, Operating profit margin, return on
total asset, etc. measure management effectiveness as indicated by the return on sales,
assets and owner’s equity.

Return on Asset=Earnings after tax/Total Assets. ROA gives an idea as to how

efficient management is at using its assets to generate earnings. The higher the ROA
number, the better, because the company is earning more money on less investment.
This year Bank improved its ROA. This is positive sign for investor.
Return on Investment (Share & Securities)

A performance measure used to evaluate the efficiency of an investment or to

compare the efficiency of a number of different investments. To calculate ROI, the
benefit (return) of an investment is divided by the cost of the investment; the result is
expressed as a percentage or a ratio. Greater ROI is a good sign for investors. This
year bank’s ROI is more than 3 times of previous year.

Return on Equity=Earnings after Tax/Total equity. The amount of net income

returned as a percentage of shareholders equity. Return on equity measures a
corporation’s profitability by revealing how much profit a company generates with
the money shareholders have invested. Higher ROE represents good performance of
the Bank.

Price Earnings Ratio

Price Earnings Ratio = Current market share/price Earnings per share. In general, a
high P/E suggests that investors are expecting higher earnings growth in the future
compared to companies with a lower P/E. Recent P/E ration is decreased. However,
the P/E ratio doesn’t tell us the whole story by itself.

Capital Adequacy Ratio (CAR) = (Tier One Capital + Tier Two Capital)/Risk
Weighted Capital. Measurement of bank’s capital. It is expressed as a percentage of a
bank’s risk weighted credit exposures. This ratio is used to protect depositors and
promote the stability and efficiency of financial systems around the world.

Earnings per Share=Net profit after tax/No. of Shares outstanding. The portion of a
company’s profit allocated to each outstanding share of common stock. Earnings per
share serve as an indicator of a company’s profitability. Earnings Per share are
generally considered to be the single most important variable in determining a share’s
price. It is also a major component used to calculate the price-to-earnings valuation
ratio. This year EPS is twice than previous year. It shows improvement of EXIM
bank.
DISBURSEMENT OF LOAN

At least 2% of EXIM bank’s annual profit of every year is put aside for the foundation
to conduct Corporate Social Responsibilities (CSR) activities. The mainstream CSR
activities that are carried out through this foundation are:

 Healthcare service.
 Scholarship program for brilliant poor student.
 Education Promotion Scheme (Interest free loan).
 Helping people affected by natural calamities.
 Helping people in slum areas.
 Donation to educational institutions to setup computer lab.
 Beautification of Dhaka City.

A) Healthcare service

A 5 storied building having 10,000 Sft floor space at 840 Kazi Para, Rokeya
Sarani,Mirpur, Dhaka-1216 has been hired to set up Exim Bank Hospital. The
decoration of this hospital is going on in full swing. A doctor has been recruited who
is working as a resident director of the hospital. Other doctors and hospital staffs have
been in the process of selection through recruitment notice already published in the
national dailies. They will be appointed as soon as the decoration of the hospital is
complete.

B) Scholarship program for brilliant poor student

This is a stipend package for poor and meritorious students that take care of the
beneficiaries throughout their student life. EXIM Bank Scholarship Program,
launched in 2006 with 61 poor and meritorious students selected from different
reputed educational institutions of Dhaka City including Govt. Laboratory High
School, Viqarunnissa Noon School and College, Dhaka University, BUET, Dhaka
Medical College, etc. enrolled as many as 1000 students from around 150 reputed
educational institutions across the country by 31 December 2010. They are enrolled in
the this program to be taken care of for their whole educational life subject to their
fulfillment of the eligibility criteria that include satisfactory academic results,
non-involvement in student politics, financial insolvency etc. So far Tk. 19.3 million
has been disbursed as scholarship under this program.

C) Education Promotion Scheme (Interest free loan)

Under Education Promotion Scheme, quard or interest-free loan is provided for poor
and meritorious students to help them bear monthly educational expenditure including
academic expenses, food, accommodation, etc. The quard is disbursed to the selected
students in monthly installments till their accomplishing the master degree. Under this
program the students are required to repay the amount (only the principal amount) in
long-term monthly installments after they have joined a confirmed job accomplishing
their education properly. By 31 December 2010, Tk. 19.7 million was sanctioned to
take care of around 138 poor and meritorious students from a number of reputed
educational institutions like Dhaka University, Chittagong University, Dhaka Medical
College, BUET, Bangladesh Agricultural University, Shahjalal University of Science
and Technology etc.

D) Helping people affected by natural calamities

Another vital area we are dealing with as part of our CSR activities is helping people
survive natural calamities. Under this welfare programme, EXIM Bank provides relief
in cash and kind for flood, fire or cyclone victims and cold-stricken people. The aim
of these CSR activities is to help the target group overcome their provisional handicap
and contribute to the socio-economic growth as soon as possible.

E) Helping people in slum areas

Besides natural calamities, fire breaks out sometimes in slum areas that guts the
shanties and renders the affected people totally helpless. In that situation, we help the
victims fight against the hard days and return to normal life.

F) Donation to educational institutions to setup computer lab

We have donated to Dhaka University and Chittagong University to set up two

computer labs that help the students of those universities acquire ICT knowledge.
This will certainly help the students to be ready to take the challenges of this
information society.

G) Beautification of Dhaka City

In response to the call of the Dhaka City Corporation, EXIM Bank has been sharing a
good portion of the mammoth task of beautifying the capital since 2005. To make the
capital a modern city enriched with adequate urban amenities, EXIM Bank always
joins hands with the government.

FINDINGS OF THE STUDY

FINDINGS OF THE STUDY

The main focus of this paper is on investment management of EXIM Bank. Besides
this the paper also looked at the Islamic banking in Bangladesh as the EXIM bank
was converted to an Islamic Shariah based bank in July 2005.
Islamic banking in Bangladesh has been a tremendous success over the last decade or
so. The annual growth rate of Islamic banking is 30%. Islamic banking is based on
cardinal two principles laid down in Shariah:

1) prohibition of interest

2) replacing it with profit sharing wherever feasible and desirable.

The bank has a well-organized credit management process in place. The study found
that the bank has a well-developed lending policy. The bank follows certain general
principle of lending such as safety, purpose, liquidity and diversification. All the
investment applications go through each of the steps of the investment granting
process. The bank uses its own investment risk evaluation process in addition to LRA
Manual of Bangladesh Bank and project appraisal method for evaluating investment
proposals. The bank also has a proper investment administration to ensure proper
documentation, monitoring and follow up of each investment granted by it. A banker
can not sleep well with bad debts in his portfolio. The failure of commercial banks
occurs mainly due to bad loans, which occurs due to inefficient management of the
loans and advances portfolio. Therefore any banks must be extremely cautious about
its lending portfolio and credit policy. So far the Bank has been able to manage its
credit portfolio skillfully and kept the classified loan at a very lower rate

 The bank grants investment to a number of sectors through various loan facilities for short,
medium and long period.
 The bank’s lending activities mainly focus on trade and industry sector

In this paper bank’s deposit mobilization and loan disbursement, current growth rate
of deposit and investment is 26.54%, 40.27% respectively. For investment sanctioning
it is observable that in this year loss from general investment is about .004% and bad
loan was 1.34% of total investment. Overall their growth rate is well from the date of
establishment.

CONCLUSION AND RECOMMENDATIONS

CONCLUSION & RECOMMENDATIONS

EXIM bank within a short period of just few years has made good progress in terms
of profitability and growth rate of deposits and loans and advances despite
tremendous competition in the industry and world economic crisis. The bank has to
keep updating its credit operation. Although for the time being the figures are good
but the trend in the figure indicate that unless the bank becomes more prudent in its
loan granting process it can become laden with heavy bad loans.

To improve its overall performance the bank can do the following:

 The segregation of duties will improve the knowledge levels and expertise in each
department.
 The organization structure should have to be changed to put in place the segregation of the
Marketing/
 Relationship Management function from Approval / Risk Management / Administration
function.
 The responsibilities of the key persons of the above function must also be clearly specified.
 An Early Alert Account system should be introduced to have adequate monitoring,
supervision or close attention by management.( An early Alert Account is one that has risk
and potential weaknesses of a material nature)
 There should be a Recovery Unit to manage directly accounts with sustained deterioration.
To encourage
 Recovery Unit incentive program may also introduced.
 The bank can establish a Marketing department to increase deposits
 The bank can open ATM booths and internet banking facilities
 The bank should introduce up to date baking software solutions designed to speed up
banking process and delivery of services
 The bank should give its loan products to customers by publishing brochures and advertising
them under different ‘brand’ names.
 Ensure proper training of its staff.