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Chapter Four

Establishing New Banks, Branches, ATMs, Telephone Services, and Web Sites
McGraw-Hill/Irwin Copyright © 2010 by The McGraw-Hill Companies, Inc. All rights reserved.

4-2 Key Topics • Establishing ▫ New Banks ▫ Branches ▫ ATMs. Internet and Online Banking. Mobile Banking McGraw-Hill/Irwin Bank Management and Financial Services. Inc.. 7/e © 2008 The McGraw-Hill Companies. . All Rights Reserved.

All Rights Reserved. 7/e © 2008 The McGraw-Hill Companies. . Inc.4-3 Establishing A New Bank Questions/Considerations for Organizers of New Banks • Population and Geographic Boundaries of Primary Service Area (PSA) • Competing Financial Institutions in PSA • Number and Types of Businesses in PSA • Traffic Patterns in PSA • Population Growth in PSA • Banking History in PSA • Amount and Holders of Stock in New Bank • Business and Banking Experience of Organizers • Projections for New Bank in First 3 to 5 Years McGraw-Hill/Irwin Bank Management and Financial Services..

7/e © 2008 The McGraw-Hill Companies. Inc. ..4-4 Establishing A New Bank Internal Factors that Affect Decision for New Bank • Qualifications and Contacts of Organizers • Management Quality • Capital Pledged McGraw-Hill/Irwin Bank Management and Financial Services. All Rights Reserved.

.4-5 Establishing A New Bank External Factors that Affect Decision for New Charter • Level of Economic Activity • Growth of Local Economic Activity • The Need for a New Bank • Local Competition in Supplying Financial Services McGraw-Hill/Irwin Bank Management and Financial Services. Inc. All Rights Reserved. 7/e © 2008 The McGraw-Hill Companies..

4-6 Establishing A New Branch Desirable Sites for New Branches • • • • • • • • • Heavy Traffic Count Large Number of Retail Shops and Stores Above Average Age of Local Populations Area Contains Substantial Number of Managers. Business Owners and Professionals Steady or Declining Number of Service Facilities Operated by Competitors Above Average Population Growth Above Average Population Density Relatively High Target Population per Branch Above Average Levels of Household Income McGraw-Hill/Irwin Bank Management and Financial Services. All Rights Reserved.. . Inc. 7/e © 2008 The McGraw-Hill Companies.

. All Rights Reserved.. Inc..4-7 Establishing A New Branch Expected Rate of Return • The Decision of Whether to Establish a Branch Office is a Capital Budgeting Decision. • The Present Value of the Net Future Cash Flows Should Be Larger Than the Initial Outlay Expected Rate of Return from Opening a New Branch CashOutflow  [1  E (r )] NCF 1 1  [1  E (r )] NCF 2 2  ... . 7/e © 2008 The McGraw-Hill Companies. [1  E (r )] NCF n n Acceptance Criteria: E(r) ≥ k (Where k is the minimum acceptable return) McGraw-Hill/Irwin Bank Management and Financial Services.

7/e © 2008 The McGraw-Hill Companies.. Inc.4-8 Establishing A New Branch Geographic Diversification • Reducing a Bank’s Overall Risk Exposure to its Total Return • By Establishing Service Facilities in Different Market Areas • Whose Individual Returns are Not Highly Correlated with the Returns from a Bank’s Existing Market Locations 1.OA  B  OA McGraw-Hill/Irwin Bank Management and Financial Services. Expected Return E ( RT )  W  E ( RB )  (1  W )  E ( ROA ) 2. . Risk (Variance> Standard Deviation)  2 (RT )  W 2 2 (RB )  (1 W )2 2 (ROA )  2W  (1 W )  B. All Rights Reserved.

Less Personal Service.. Inc. All Rights Reserved. .4-9 Automation : ATMs • Less Costly to Set Up and Operate (about 36% compared to a human teller per transaction) • But Less Effective at Cross Selling. 7/e © 2008 The McGraw-Hill Companies. and More Vulnerable to Criminal Activity • Decision to Install ATM: ▫ The Bank Examines the Present Value of the Stream of Cash Savings from the New ATM Machine Present Value of the Stream of Cash Savings from New ATM Net Present Value of the New ATM = - Total Cash Outlay for the New ATM McGraw-Hill/Irwin Bank Management and Financial Services.

Inc.. . All Rights Reserved. Checks Cleared and Online Transactions Have Taken Place • View and Print Images of Checks • Place Orders for New Checks • Submit Applications for Loans and Credit Cards • Carry Out On-Line Bill Paying McGraw-Hill/Irwin Bank Management and Financial Services. 7/e © 2008 The McGraw-Hill Companies.4-10 Automation : Services Provided Through the Internet • Verify Real-Time Account Balance • Move Funds Instantly Among Accounts • Confirm Deposits Made.

4-11 The Internet and Customer Safety • Especially Vulnerable to Fraud and Identity Theft • Authentication Factors ▫ Something a Customer Knows ▫ Something a Customer Has ▫ Something a Customer is • Move to Multi-Factor Authentication From Single Factor Authentication Today McGraw-Hill/Irwin Bank Management and Financial Services. 7/e © 2008 The McGraw-Hill Companies. All Rights Reserved.. Inc. .

Inc.12 Automation : Mobile Banking • Mobile phone penetration rate is very high in Bangladesh: • As of August 2011. .199% over a population estimate of 158 million • 12 bank already got licenses • Easy access to rural areas McGraw-Hill/Irwin Bank Management and Financial Services. All Rights Reserved. 7/e © 2008 The McGraw-Hill Companies.. Bangladesh has 79.677 million subscribers in total and the penetration rate was estimated at 48.

org/ © 2008 The McGraw-Hill Companies. 8.bangladesh-bank. Sponsors and share capital contribution: 5. 2. Status of the new commercial bank. 7/e . McGraw-Hill/Irwin Bank Management and Financial Services.. Mode of payment: 4. 1991 • Must obtain a license from Bangladesh Bank ▫ ▫ ▫ ▫ ▫ ▫ ▫ ▫ 1. Management of the proposed bank 7. All Rights Reserved.13 Establishing A New Bank Guidelines To Establish A Banking Company In Bangladesh • According to Section 31 of the Banking Companies Act. Required documents/ information/ analysis to be submitted to Bangladesh Bank  Source: http://www. Inc. Paid up capital requirement for a bank to be established: 3. Fit and Proper Test for Sponsors/Directors 6. Operation of the proposed bank.

Paid up capital requirement for a bank to be established: ▫ Not be less than Taka 400. Status of the new commercial bank: ▫ Public limited company incorporated in Bangladesh • 2. 7/e © 2008 The McGraw-Hill Companies. Inc. Mode of payment: ▫ Capital contribution shall be in a liquid form  such as cash or approved securities McGraw-Hill/Irwin Bank Management and Financial Services.14 Establishing A New Bank Guidelines To Establish A Banking Company In Bangladesh • 1. All Rights Reserved.. .00 Crore ▫ Share capital will be formed with ordinary shares only • 3.

integrity and qualifications of the Sponsors: criteria include:  (i) skills and experience in relevant financial operations  (ii) no record of criminal activities or adverse regulatory McGraw-Hill/Irwin Bank Management and Financial Services. Inc.. Sponsors and share capital contribution: ▫ Issue public shares within three (3) years ▫ The minimum shareholding stake of each sponsor shall be Taka 1. Fit and Proper Test for Sponsors/Directors ▫ Competence. .15 Establishing A New Bank Guidelines To Establish A Banking Company In Bangladesh • 4. All Rights Reserved. ▫ The sponsors' shares shall not be transferred within a period of three (3) years • 5. 7/e © 2008 The McGraw-Hill Companies.00 crore and the maximum shall be 10% of the proposed bank’s total share capital.

Bank Management and Financial Services.16 Establishing A New Bank Guidelines To Establish A Banking Company In Bangladesh • 6. 7/e ..  The new bank should spent 10% or more of its previous year‘s © 2008 The McGraw-Hill Companies. Operation of the proposed bank: ▫ The ratio of urban and rural bank branch has to be 1:1 ▫ New Bank has to ensure finance at least 5% of its total lending into agricultural sector ▫ Proposed bank should take part in Corporate Social Responsibility (CSR) activity. Inc. All Rights Reserved. McGraw-Hill/Irwin net income to CSR. Management of the proposed bank: ▫ Multi directorship is not allowed ▫ The Member of Board of Directors shall be restricted to 13 ▫ Not more than two members from a family ▫ Experience of CEO: at least 15 (fifteen) years in banking • 7.

address. ▫ Sponsors have to submit a business plan ▫ Draft Memorandum and Articles of Association. in case of foreign equityCompanies. © 2008 The McGraw-Hill participation.. Inc.17 Establishing A New Bank Guidelines To Establish A Banking Company In Bangladesh • 8. ▫ Written agreement by the shareholders to organize the banking company. Biographical Reports (see Annexes III and IV) Proposed compensation package and other terms of contract of the CEO. ▫ Joint Venture agreement. ▫ Minutes of the shareholders (sponsors) meeting. Feasibility Report on the proposed banking company (see Annex II). Name. telephone number of the contact person. 7/e All Rights Reserved. . McGraw-Hill/Irwin ▫ ▫ ▫ ▫ ▫ ▫ Bank Management and Financial Services. Required documents/ information/ analysis to be submitted to Bangladesh Bank A bank draft in the amount of Taka 10 (Ten) lakh Name and address of the Applicant.